Local DAs Competing with Collectors on Bad Checks

Thanks to a decrease in check writing and an increase in merchants outsourcing to collection agencies, several Mississippi district attorneys’ offices are feeling a bite in their budgets – a phenomenon that could signal a positive trend for the accounts receivable management industry.

“[Collection agencies] certainly competition for us,” District Attorney for Mississippi’s 8th District, Mark Duncan, told insideARM.com.  “People, also, just aren’t writing as many checks as they used to.”

In Mississippi, merchants have long had the option of asking local DAs to act as their collector on the bad checks that customers write. The service is free for merchants; debtors are assessed a $40 collection fee by the DA’s Worthless Checks Unit, as well as any service charges the merchant has for returned checks.  Merchants fill out a Bad Check Complaint form with pertinent information for each bounced check they seek to have collected and the DA’s office contacts the debtor seeking the money.

The service has proven a nice revenue generator for some district attorneys.

John Champion, district attorney for five counties in northern Mississippi, told the Clarion Ledger that his collection work pays for more than 30 percent of his annual expenses.

But in recent years some merchants have decided its better for business of they don’t get the district attorney involved when a check bounces.

“A bad check writer is still a customer,” said William Alias, Jr., CEO of Security Check, an Oxford, Mississippi-based collection agency that primarily services bad-check accounts. “Most people who write bad checks aren’t out to screw anyone over.  They’ve made a mistake, or they had a tough patch.”

Check collecting has also declined as consumers shift to credit and debit cards to make purchases. In addition, some merchants use technology that reviews a check writer’s credit quality at the point of sale before accepting a check.

Last year, the collection business for several DAs tanked when Wal-Mart in Mississippi decided to switch to private collection agencies, says Sharon Jernigan, director of the Worthless Checks Unit for Rankin and Madison counties.

Jernigan told the Clarion Ledger that checks from Wal-Mart accounted for about a third of her office’s business. Her office has received payments on 4,450 checks for the fiscal year 2007 that ends on June 30, a 29 percent drop from the 6,226 checks it received in fiscal 2006.

Collection agencies have a competitive disadvantage because they charge for services, typically either a percentage of the amount recovered or a flat fee. But agencies are devoted solely to collections and have a trained staff.  And in the case of Alias’s agency, “We view ourselves almost as a consulting firm.  We want to help merchants retain as many of these bad-check-writers as possible, because they’re customers.  Most of them didn’t mean to write the bad check in the first place.”