HELENA — A debt collection agency filed negative credit reports against more than 8,000 Montana residents in an attempt to recover late fees they supposedly owed the bankrupt Movie Gallery Inc. and Hollywood Video rental stores, a state prosecutor said.
The volume of negative credit reports filed by National Credit Solutions was discovered by the state Department of Justice as part of a legal settlement last month between the state and the Oklahoma-based company, Chief of Consumer Protection James Molloy said Tuesday.
In each of those cases, NCS never sent notice of a late fee being owed or a warning that failure to pay would result in a negative credit report, he said.
"It was a passive effort. Rather than going and saying, 'You were one of these customers,' they just issued a negative credit report against you," Molloy said.
Under the terms of the settlement, NCS agreed to pay Montana $13,000, turn over the names of all residents whose Movie Gallery accounts had been assigned to NCS for collection and confirm that the negative credit reports had been removed under request.
Of the $13,000, more than $11,000 is going to reimburse 91 residents who paid NCS, Molloy said. The balance will go to the state Department of Justice.
Attorney General Steve Bullock sued NCS earlier this year after receiving complaints from residents who found their credit reports marred without being told they owed the video chains money. Some of those who complained said they didn't rent the movies for which they were charged and they were charged a $75 collection fee in addition to what they allegedly owed.
NCS did not immediately have a comment Wednesday when reached at its Oklahoma City offices. Managing partner Brett Evans has previously said the company did nothing illegal.
Movie Gallery had told the debt collector that it already notified customers with outstanding fees before directing NCS to make credit reports on the delinquent payments, Evans said in January, when the lawsuit was filed.
Movie Gallery, which also owned Hollywood Video, was once the nation's second-largest video and game rental chain with more than 4,000 stores in the U.S. and Canada. It filed for bankruptcy in February 2010, then hired NCS to recover $244 million in fees and charges from 3.3 million customer accounts nationwide, including video late fees and charges for replacing lost movies and video games.
In May, the trustees of Movie Gallery agreed to a separate settlement with Montana and the 49 other states that barred debt collectors from filing negative credit reports or threatening to file such reports against former customers.
The settlement agreed upon in June is between the state and NCS only.
Under the settlement, NCS is permanently barred from collecting any debt owed Movie Gallery customers in Montana.
Molloy said the settlement does not prevent Movie Gallery trustees from hiring another debt collection agency to collect the delinquent fees, but the company won't be able to charge collection fees or file negative credit reports — or even threaten to file them.
If people are contacted about the debts, they can request specific information about the claim, including what was rented, when it was rented and what the basis is for the charge, Molloy said.