It was a bad Hollywood ending. After Hollywood Video and Movie Gallery stores closed their doors, former customers throughout the nation began complaining of collection notices added to their credit files without any warning. Not only did customers balk at excessive fees and damaged credit scores, but many claimed they didn’t owe the money in the first place.
The Washington Attorney General’s Office took issue with the allegations and helped negotiate a nationwide settlement between attorneys general and the liquidating trustee. Among the agreement’s terms is a requirement that negative information be wiped from consumers’ credit reports.
“Collection laws require that consumers have a chance to pay or dispute their debts,” said Assistant Attorney General Mary Lobdell, who helped lead the multistate investigation and settlement negotiations. “But starting in October, we received a flurry of complaints from Washington residents who told us they didn’t owe the fees or were never informed of these debts before they were reported to the credit bureaus.”
Complaints to the Washington Attorney General’s Office show that a young woman was turned down for her first credit card because of the negative mark. A man said his credit card limit was slashed from $8,700 to just $600. And yet another consumer blamed the late charge from preventing him from obtaining a mortgage.
The problems started after Hollywood Video and Movie Gallery filed for Chapter 11 bankruptcy in 2010. Hollywood’s approved plan created a liquidating trust to collect an estimated $244 million in outstanding debts reportedly owed by 3.3 million customers. The trust contacted with Credit Control Services, Inc. in Massachusetts, which subcontracted to National Credit Solutions of Oklahoma.
The agreement was filed in the U.S. Bankruptcy Court for the Eastern District of Virginia, Richmond Division. Under the settlement, the trustee agreed to:
- Rescind all negative information submitted to any credit agency or bureau related to the accounts of customers in participating states. Additionally, no further credit reports will be submitted.
- Not collect any fees or interest charges that were added to the principal debt amount.
- Not bill customers for both a late fee and the full price of items that were supposedly not returned. For accounts that include both a late fee and a charge for a damaged, late, or never-returned product, the collection agency will only pursue the lesser charge.
- Undertake no further collection efforts of disputed late fees or charges without first concluding that the charges are, in fact, due. This includes situations where people have filed a consumer complaint with an attorney general's office or the Better Business Bureau.
- Comply with the Fair Debt Collection Practices Act.
- Assist the attorneys general in any effort to recover collection fees that were improperly paid by customers.