Debt settlement reached with video store chain

Press release from Office of the Attorney General

RICHMOND, VA - Attorney General Ken Cuccinelli, the attorneys general of the 49 other states, and the District of Columbia have reached a settlement with Hollywood Video and Movie Gallery regarding potential abuses by third-party debt collectors hired to collect on the video rental chains' outstanding accounts.

According to information provided by Hollywood Video and Movie Gallery, this legal settlement will benefit approximately 76,228 customers in Virginia that allegedly owe money to either company.

This matter arose out of the Movie Gallery and Hollywood Video's bankruptcy proceeding in the Eastern District of Virginia.  The liquidating trustee appointed by the court to liquidate assets for Movie Gallery and Hollywood Video was previously given court approval to hire third-party debt collectors Credit Control Services, Inc. ("CCS") and National Credit Solutions ("NCS").  The two companies were to collect money allegedly owed for late fees and/or replacement of unreturned or damaged products.

After NCS was retained, federal and state law enforcement agencies received a spike in complaints from consumers alleging that:

  • they did not owe money to Movie Gallery or Hollywood Video;
  • store personnel reviewed and verified that no amounts were owed as of store closing dates;
  • amounts being sought were greatly in excess of any late fees that might have been incurred (and included large collection fees); and
  • adverse credit information was reported to credit bureaus without prior notice to customers or the opportunity to challenge that the debts were owed.

The Virginia Office of Consumer Affairs alone received nearly 600 written and telephone complaints from consumers.

Under the settlement, the trustee has agreed to do the following:

  • Rescind all previously submitted credit reports:  The trustee agrees to take all steps that are reasonably necessary to ensure that all credit reports submitted to any credit reporting bureau are rescinded.
  • No future credit reporting:   The trustee and any third party collection agency working on its behalf agree to not file further reports with the credit reporting bureaus.  Any collection agencies utilized by the trustee also must expressly agree to not represent to any consumer that his failure or refusal to pay an account could result in adverse credit reporting.
  • No collection fees or interest:   No collection fees or interest will be imposed on, or added to, principal amounts to be collected from consumers.  The trustee also agrees to work with the state attorneys general to recover collection fees collected by CCS or NCS prior to the effective date of the settlement.
  • No double recovery for late fees and product charges:  For accounts that include both late fees and charges for non-returned, damaged, or late-returned products (for which the late fees also were imposed), collection will be pursued only for the lesser of the two charges.

"I am pleased that we were able to reach a fair and reasonable agreement with the liquidating trustee for Hollywood Video and Movie Gallery that will provide protections for more than 76,000 Virginians," Cuccinelli said.  "This agreement will help ensure that the trustee only collects from those consumers who actually owe money to the companies."

Consumers that have collections-related complaints regarding their accounts with either Movie Gallery or Hollywood Video should file complaints with the Virginia Office of Consumer Affairs at 1-800-552-9963, or 804-786-2042 within the Richmond area.

The settlement was filed as an agreed order and stipulation with the United States Bankruptcy Court for the Eastern District of Virginia today, and is expected to be approved by the court shortly.  Assistant Attorney General Mark Kubiak handled the settlement for the commonwealth.