NEW YORK (release)- Attorney General Eric T. Schneiderman announced New York is part of a 46-state settlement with a Bankruptcy Trustee charged with overseeing the collection of late fees and other charges allegedly owed by approximately 3.3. million former customers of Hollywood Video and its parent company, Movie Gallery, both of which have filed for bankruptcy and are in the process of being liquidated. As many as 200,000 New Yorkers could be impacted by the settlement.
"Imagine applying for a mortgage only to find your credit report is tarnished because of a video rental late fee you didn't even owe," said Attorney General Schneiderman. "This settlement will provide important safeguards to protect consumers against abusive debt collection practices and will ensure that consumers will not have their credit harmed as a result of any outstanding fees claimed to be owed to Hollywood Video or Movie Gallery."
New York and the other settling states received a flurry of consumer complaints after the video stores' customer accounts were turned over to debt collector National Credit Solutions, LLC (NCS) for collection. Many consumers complained that they did not owe the late fees NCS sought to collect, and had either never been advised that they owed such fees or had specifically confirmed that they did not owe any outstanding fees before their local store closed. Some of the amounts sought by NCS stemmed from "double charges" where the video store was seeking to hold customers responsible for both late fees and the cost of the rental product, even where the consumer had returned the DVD or video. In addition, NCS tacked collection fees onto the consumers' accounts and reported the alleged debts to credit reporting bureaus.
The investigation revealed that thousands of New York consumers fell victim to NCS actions, including:
A Latham, NY consumer applied for a mortgage and discovered that his credit report included a $350.18 debt stemming owed to Hollywood Video. The debt had lowered his credit rating. The man, nor his wife, had been to a Hollywood Video store in more than 10 years.
A Delanson, NY consumer received a letter from the debt collector saying he owed $100.96 stemming from an August 2009 transaction. However, the consumer was never contacted by Hollywood Video about any outstanding fees.
A Little Falls, NY consumer discovered that her credit report included a $99 unpaid debt. She contacted the debt collector and learned that the debt stemmed from a movie she rented from Hollywood Video in June 2009. The consumer, who says she returned the movie on time, was never contacted by the company regarding any late rental fee, unreturned rental fee or past due notice.
The settlement, filed May 5, 2011 in the U.S. Bankruptcy Court for the Eastern District of Virginia, where the Hollywood Video/Movie Gallery bankruptcy is pending, provides important safeguards that will protect consumers from unlawful or abusive debt collection, and requires the following:
Reversal of all previously submitted negative credit reports and a prohibition against any future reporting of the alleged debts to any credit reporting bureaus
Prohibition against imposing any interest or collection fees in addition to the principal owed on the customer accounts
Where a customer account includes both late charges and a product charge for the same rental item, collection may be pursued only for the lesser of the two amounts
As part of the settlement, the Bankruptcy Trustee will look into any consumer complaints brought to his attention by the states disputing the amount alleged due on a customer account. Collections will cease on the account unless and until the trustee finds that there is a reasonable basis to conclude that the amount being sought is due.
Any New York consumers who are contacted by a debt collector about fees allegedly owed to Hollywood Video or Movie Gallery are encouraged to file a complaint with the New York Attorney General's Office if they believe that they do not owe all or part of the amount being sought. Consumers should also contact our office if they discover any negative information on a credit report related to Hollywood Video or Movie Gallery.
The case was handled by Assistant Attorney General Amy Schallop under the supervision of Jeffrey K. Powell, Deputy Bureau Chief of the Consumer Frauds and Protection Bureau.