Zombie debt collections: Hollywood Video is dead, but bills still haunt consumers
As posted on August 8, 2012 on redtape.nbcnews.com
Talk about Red Tape: Consumers across the country say they are being harassed into paying bills they don't owe to a company that no longer exists. And it's not the first time. Like a monster in a bad horror flick, every time this Hollywood Video debt collection controversy seems to be killed, it keeps coming back to life.
When Hollywood Video and its parent, Movie Gallery, went out of business in 2010 and declared bankruptcy, they had only one real asset: unpaid fees. About 3 million U.S. residents owed money to the firm — a lot of money — nearly a quarter of a billion dollars, according to the Rhode Island attorney general's office. But attempts to collect that money on behalf of Hollywood Video's creditors have become a series of bad horror flicks to former customers, who claim they are being repeatedly harassed by debt collectors waving bills the consumers don't owe. And now, an NBC News investigation of 500 complaints filed against one of those firms in the past 90 days — Universal Fidelity — shows that consumers accuse the company of everything from bullying to threatening to ruin their credit, despite promises to all 50 state attorneys general that it would never do so.
The pile of complaints, provided to NBC News by the Houston office of the Better Business Bureau, offers a rare glimpse into the consumer side of the collections business.
'Not in business to harass'
Paul Farinacci, president and chief executive of Universal Fidelity, denied accusations of harassment and said his telephone representatives are schooled to operate within the law.
"Everybody here is trained in customer service. ... We are not in business to harass, harangue or threaten people," he said. He also said his company had unfairly become a "consumer advocate punching bag."
The Hollywood Video collections saga has already been through two nasty episodes. In 2011, when collections for unpaid late fees and unreturned movie charges first began, complaints quickly piled up against Oklahoma-based National Credit Solutions. Consumers said their credit reports were being ruined by $39 late fees they didn't owe, and they claimed that operators for the firm were ruthless.
The drumbeat became so loud that Hollywood Video's bankruptcy trustee,First Lien Term Lenders Liquidating Trust, reached a settlement with all 50 states' attorneys general under which it would drastically alter its collection tactics. It promised to remove any credit blemishes it had placed on consumers' reports and never to threaten consumers' credit reports in the future. It also turned to a set of new collection agencies, including Houston-based Universal Fidelity, which promised to clean up the process.
But within the past two months, a pile of fresh complaints has arrived from around the country, raising new questions about the collections process. In Houston, 430 of the roughly 1,000 complaints filed against Universal in the last 12 months have arrived since June 1.
The Virginia BBB office warned of a "flurry" of new complaints last month; the situation got the attention of the St. Louis Better Business Bureau office, which issued a new consumer warning July 5.
"The enormous number of complaints seems to indicate that something is wrong," Michelle Corey, president and chief executive of the St. Louis BBB, said in the warning. The agency also said there was an increase in complaints against a second Hollywood Video collection company, Rhode Island-based West Bay Acquisitions. That company did not immediately respond to request for comment sent via telephone and e-mail. According to the Boston chapter of the Better Business Bureau, about 180 complaints have been filed against West Bay since June 1. The firm has responded to those complaints statements like this:
"West Bay Acquisitions abides by all ... laws. It is our company policy that all disputed debts be thoroughly investigated," it says in responses posted on the Boston BBB website. "All of the accounts that West Bay Acquisitions, LLC attempts to collect on have been verified by the client to be valid debts."
Bill Smith, an investigator for the St. Louis office, told NBC News he was concerned that collectors keep trying to wring money out of consumers who don't owe a debt to Hollywood Video.
"It seems pretty clear a lot of people are receiving these notices who do not owe this money," he said. "As to why so many people are continuing to be bothered by this thing, I don't have a good explanation."
One of the consumers contacted by Universal Fidelity is Roslyn James, a 32-year-old mother of two in Tacoma, Wash. She contacted NBC News looking for help, exasperated that the firm continues to claim that she owes $19.16 for renting "Sherlock Holmes" in early 2010. Universal also says she owes a second bill of $44 for two movies that were rented earlier. James says she has told operators numerous times that the bills are inaccurate, but she says the firm continues to contact her.
"I was angry because I want to get it taken care of. ... You almost just want to pay it just to get rid of it, but to me, it's the principle," she said. She's says she's been told to file a dispute in writing with the company, but she hasn't gotten around to doing so yet.
"When am I going to send a letter? " she asked. "I have two kids, and I don't even have time for myself, let alone taking care of things I shouldn't have to."
James also accused Universal of threatening to wreck her credit, something that would be expressly forbidden by the stipulated order Hollywood Video's trustee signed by with the states.
"When I called the only number they provide and ask them how I can resolve this, they tell me I have to pay to get it off my credit report," she said.
Farinacci said he could not discuss an individual consumer's account, citing privacy reasons, but he said James' claim wasn't possible. Agents click on a notice every time they log on reminding them they cannot discuss credit reports with consumers, he said.
"Absolutely not," he said when asked directly whether his operators threaten consumers' credit to get them to pay bills. "There is no Hollywood Video or Movie Gallery account that is listed on anyone's credit report. That is one area where there is no wiggle room. We do not discuss that in any fashion at all."
Several consumers who filed complaints with the Houston BBB against Universal Fidelity did indicate that they believed their credit was threatened.
"These people are bullies and threaten all kinds of things (i.e. bad credit, more fees, legal fees, other debt collectors etc.)," wrote one. Another consumer had a similar complaint: "I only paid it because they said it would affect my credit if I did not and I did not want to jeopardize my job."
Leah Napoliello, an investigator for the Houston office of the BBB, said her agency updated its report about about Universal Fidelity after inquiries from NBC News.
"Consumers have recently alleged in complaints that they are told that non payment would affect their credit rating," the report now says.
Smith, of St. Louis, added that it was possible that consumers erroneously assumed that their credit would be affected.
"There are enough of those complaints that I am concerned, however," he said.
The database of complaints against Universal Fidelity yields a list of other alleged bad behavior. Dozens of consumers say that when they call and indicate that they paid their bills before the stores closed, operators respond by saying the consumer must provide a receipt of payment or else they must pay the bill. For many, those receipts would be two or three years old, and long since thrown away.
More than 10 percent of the complainers say they were "harassed."
One such complaint suggests how far consumers say Universal Fidelity operators will go to nudge them to pay bills they believe they don't owe.
"I explained that I did not rent these DVDs, and (the operator) said they were not in the business of verifying the accounts, solely collecting on them," wrote one, who was told to pay $47.90.
"I asked them how I can go about proving I didn't rent these DVDs and she stated that I would have to send in a receipt or contract stating it was impossible. Since I didn't rent them, no receipt is available. … ‘Is it really worth going through the hassle of filing a police report when you could just pay us $48 little dollars today?' (the operator said.) I responded, ‘Absolutely. I am not in the practice of just handing out my money.'"
Farinacci, when read that complaint over the phone, was incredulous.
"I can't imagine a person would get into get into that kind of an argument over $47," he said, referring to his employee. "It's hard for me to sit here and to fathom that individuals here are saying those things. ... Have we ever made a mistake? Sure. Honestly, we sent out 400,000 letters last month. (We) make hundreds of thousands of phone calls. Could there be an instance where an agent didn't properly cross the T's and dot the I's? Yes. … But we follow all rules and regulations."
RED TAPE WRESTLING ADVICE
If you were a customer of Hollywood Video, be on the lookout for a letter claiming you owe a debt. Collectors haven't reached out to all 3 million customers yet, so you might be next. Officials at Houston's Better Business Bureau say the letters, and subsequently the complaints, seem to come in waves.
Farinacci said debts must be disputed in writing, so don't bother getting into a discussion with a telephone operator.
If you really do owe the money, you should pay the bill -- fair's fair. You won't have to pay interest charges or additional fees. There's plenty of reports that operators offer consumers the chance to settle the charges by paying 50 cents on the dollar; consider doing that, but make sure you get proof that the debt is settled. Some complainers indicate that they take such a deal, but still end up getting bills anyway.
Smith said that while there have been more than 1,000 complaints against Universal Fidelity, nearly all have been closed with satisfaction; Universal seems to quickly drops it efforts to collect from individual consumers upon receiving a BBB complaint. Nearly all the complaints against West Bay have been satisfied, too. That means it might be even more important to complain to the BBB (which you can do online) than to send a dispute letter to the collection firms.
For further reading, see Universal Fidelity's Frequently Asked Questions page. Also, see the stipulated order restricting the company's collection efforts.