Home > Managing Debt > How an Old Checking Account Can Come Back to Haunt You

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Tis the season of haunting zombies, and being scared by something you thought was dead. That can be a pretty good description of how the debt collection business works sometimes.

You might think an old checking account is long dead, but there are ghoulish ways those accounts can come back to haunt you. Here’s a cautionary tale that should make you think about any checking account you might have lurking in your past, and why even tiny negative balances can easily turn into big headaches.

Leonard G. Potillo, III, spent five years buying up debts that had accumulated in consumer checking accounts from major banks. By 2014, his firm United Credit Recovery claimed it had acquired $10 billion in overdraft debts that way, and business was booming. Potillo had assembled a small fleet of luxury cars — a 2008 Maserati, a 2007 Ferrari, a 2014 Jaguar and a 2010 Aston Martin. He also owned properties in Florida, Montreal and Edinburgh, Scotland, according to the U.S. Department of Justice.

As “overdraft debt,” many of the accounts were the result of old-style checking account policies that charged consumers for even the smallest transgressions. Recall that a single debit card purchase which dropped a consumer’s balance below $0 could trigger cascading overdrafts, leading to five, 10 or even 15 fees at $35 each. Back in 2009, Moebs estimated that $38.5 billion annually was charged to consumers through overdraft fees.

Sometimes, consumers would simply abandon the negative-balance accounts; others had no idea that an old account even existed, and those zombie accounts would fall negative because of monthly fees. That’s where Potillo came in. He would buy up the account information and debt for pennies on the dollar, create fake paperwork to make the debt appear more “collectible,” and then re-sell the debt to third parties who would go after consumers for the money, federal authorities allege. The business was so lucrative, federal officials say, that Potillo bribed a U.S. Bank official, paying $1 million through 17 payments from 2009-2012 in order to get an early lead on debts that were about to be sold.

Potillo is said to have been equally as aggressive in his collection tactics. The state of Minnesota sued United Credit Recovery in 2013 for allegedly using falsified documents to mislead consumers and courts.

“It takes traditional robo-signing to a whole new level,” Swanson said to the Star Tribune. “We have not seen this scale both in terms of the brazenness of it and the sheer numbers.”

Borrowing a page from email spammers and phishers, United Credit Recovery pilfered bank logos to make notices appear official. Bank signatures were cut and pasted, the Minnesota lawsuit alleges.

According to the Orlando Sentinel, the firm ultimately filed about 4 million fraudulent affidavits in connection with the case.

Kansas City attorney Michael Rapp represented several consumers who were sued by United Credit Recovery.

“I saw a large number of these cases coming out of the same law firm,” said Rapp, who routinely represents consumers in debt collection cases. As soon as Rapp challenged the authenticity of bank records involved, attorneys for United Credit Recovery backed down, he said.

“We settled four cases with them,” he said. “(They) never paid.”

Potillo was indicted and arrested in June, and charged with seven counts of wire fraud, 10 counts of bribery of a bank official, and 16 counts of money laundering. The cars, the homes and $3.9 million in bank accounts were seized. The U.S. is also seeking a money judgment of $76 million, the proceeds from the debt-buying operation.

The Orlando Sentinel reports that Potillo was denied bond because he was considered a flight risk.

Attempts to contact United Credit Recovery through the email address on the firms’ website, and to contact Potillo’s federally appointed defense attorney, were unsuccessful.

So what should you do if you fear a zombie checking account might come back to haunt you?

Consumer attorney Anthony DeWitt offers this advice.

“First, if a bank closes your account because you don’t pay the overdraft fees, don’t assume they won’t try to collect it. Often you can negotiate a reduced payment to take care of it. Since these are reported to credit reporting agencies they can affect your credit for years,” he said. “And second, if sued, get legal help quickly. Often these debts are barred by the Statute of Limitations.”

When a zombie checking account affects your credit, it can also mean you’ll pay more for debt over time, at least until you can rebuild your credit. So the sooner you resolve the zombie account, the better. You can check your credit reports for free once a year to see if there are any collection accounts tied to an old checking account. You can also get your credit scores for free every month on Credit.com to see how a collection account could be hurting your credit.

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  • Jay

    I’m being contacted after 10 years of an alleged overdrawn account. They first threatened to take out a warrant, I didn’t believe them and told them to do it. They stopped contacting me for about 3 months, now they’re talking about a civil suit. This was never on my credit and I’m tired of their calls. Any suggestions?

    • http://www.Credit.com/ Gerri Detweiler

      It sounds like you may be dealing with a scammer. If so, you can try the same tactic – tell them to go ahead and serve you and you’ll see them in court. If it is a scammer, they are hard to stop. We wrote about that here: 7 Ways to Stop Debt Collection Scam Calls

  • CM

    3 months ago a collection agency popped up on my credit report without any notice, I found out that is was a old checking account that I closed in 2009 or 2010 and switched to a credit union. I have open an additional credit union account within the last year also so two have pulled my credit and my old bank account did not show up. The bank is not reporting on my credit reports just the TEKcredit agency and I did not received any type of notification. I have not contacted them because I am not sure what to do. I thought I had to be notified and given 30 days to respond. I am in the state of TN and closed the account because of unauthorized charges. I use my debit card at a gas station and a couple months later get notification of overdraft because some bought tools in Washington state. This happened a few times and being charged all kind of fees. I want to buy a house and this has dropped my score and if I pay it to get it over with it will be on credit for seven years. Thank you for your time. CM

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