La Crosse, WI - April, 2005 — In a strongly worded decision, North Dakota District Court Judge Gail Hagerty awarded CybrCollect attorney’s fees and costs as part of the final judgment against that state’s Department of Financial Institutions. In awarding CybrCollect its fees and costs, the judge stated, “I conclude that the Department of Financial Institutions acted without substantial justification from the time it failed to adopt the recommendations of the administrative law judge who heard this matter.” This order, dated November 26, 2004, concludes the District Court proceedings, and it remains to be seen if DFI will appeal the rulings made in the trial court to the North Dakota Supreme Court.

CybrCollect’s award of legal fees and costs relate to its earlier victory against the North Dakota DFI this summer. On June 15, 2004, District Court Judge Gail Hagerty upheld the ruling of Administrative Law Judge Hoberg and overturned the Department of Financial Institutions’ Cease and Desist Order against CybrCollect. The DFI argued that CybrCollect is required to get written authorizations from check writers before it can electronically collect NSF service fees. CybrCollect countered that the law only requires notice at the point-of-purchase. Siding with CybrCollect, Judge Hagerty ruled that CybrCollect’s business is in full compliance with state and federal laws, concluding that “CybrCollect’s activities are permissible under the EFTA, Regulation E, and North Dakota law.”

North Dakota could have avoided the award of attorney fees had it just dropped the case after the administrative hearing last June. On June 24, 2003, Administrative Law Judge Hoberg ruled that CybrCollect was acting within the law. Rather than abiding by the judge’s ruling, the Commissioner of North Dakota’s DFI, Timothy Karsky, took it upon himself to reverse the ALJ’s ruling on November 13, 2003. CybrCollect appealed Karsky’s ruling to the District Court. In overturning the Commissioner’s order, Judge Hagerty stated that “Commissioner Karsky had no basis for substituting his own findings in place of Judge Hoberg’s” and that he “rejected Judge Hoberg’s recommended findings, conclusions, and order, without providing a sufficient explanation regarding his rationale for doing so.” Ultimately, this reasoning formed the basis for the Court’s recent awarding of legal fees and costs to CybrCollect.

“We were extremely happy to learn that the court in North Dakota, like the court in Wisconsin last year, found no merit in the commissioner’s arguments,” said Gary Doherty, Cybrcollect’s president. “However, this issue will never truly be put to rest until the National Automated Clearing House Association (NACHA) stops its behind-the-scenes manipulation of banks, state governments and the collection industry in an effort to put third party processors like CybrCollect out of business. CybrCollect will continue the fight for the rights of our clients (and our competitors) to collect fees in accordance with Federal Reserve Regulations,” Doherty said.

North Dakota is not the only state where CybrCollect has fought and won this legal issue. More than a year ago, the Wisconsin DFI issued an order preventing all collection agencies from the electronic collection of returned check fees without written authorization. CybrCollect took it upon itself to challenge DFI’s order by filing a lawsuit in state court. The Dane County Circuit court acted swiftly in stiking down the DFI order wherein DFI was claiming that NACHA rules are law in Wisconsin. The case ended with CybrCollect being awarded Summary Judgment as the DFI could point to no law to support its position while CybrCollect had ample federal law on its side.

The court ruling did not, however, end the Wisconsin DFI’s attempts to shut down CybrCollect’s electronic check collection business. In June 2004, the DFI proposed a new administrative rule adopting NACHA rules as law in Wisconsin as they relate to the electronic collection of NSF service fees and disallow the use of paper drafts for the purpose of collecting service fees. The proposed rule required all merchants to get a customer’s written authorization before electronically collecting a fee on a dishonored check.

On July 27, 2004, the Wisconsin Senate Committee on Agriculture, Financial Institutions and Insurance formally objected to the proposed rule with a unanimous bi-partisan 5-0 vote. Shortly thereafter, the DFI’s Division of Banking decided to withdraw the proposed rule. “This dog don’t hunt,” said Senate committee chairman Sen. Dale Schultz, R-Richland Center. Sen. Ron Brown, R-Eau Claire, who made the motion to object to the rule, said it was “arbitrary and capricious.” He also criticized DFI for failing to do a small business impact study.

Several merchant associations, including the Wisconsin Grocer’s Association, testified against the proposed rule. Barb Hegenbarth of Galesville, WI, an independent owner and operator of four grocery stores in western Wisconsin, told the committee that small businesses would be hurt by the proposed rule. “The reasonable argument cannot be made to protect bad check writers at the direct expense of business and good check writers,” Hegenbarth told the committee. Uncollectible checks and fees equal 15 percent of company profits, she said. “It’s my very strong belief that the continued misguided protection given to people engaged in the dishonest practice of bad check writing threatens small business throughout Wisconsin,” Hegenbarth said.

Ray Carey, of Foley & Lardner, an attorney for CybrCollect, said that any merchant who uses the company’s collection services is required to post a conspicuous sign at the point-of-purchase (in accordance with Federal Reserve regulations) notifying check writers that a returned check fee could be deducted from their account. “Most people who write bad checks intuitively understand that there is a penalty associated with that behavior,” Carey said. CybrCollect and merchant representatives contended that the rule amounted to bad check writer protection instead of consumer protection.

Hegenbarth said that her business would never ask a customer to sign a notice that bad check fees could be deducted from an account. “We will not subject the 99.5 percent of good check writers to sign a waiver every time they cash a check,” she said, adding that insulted customers would go to another store and bad check cases would wind up in over-burdened district attorneys and county attorneys offices.

“The big mystery to me, and to all of my competitors”, said Doherty, “is why NACHA continues to ignore Federal Reserve guidelines and impose a practice that is detested by the consumers, the merchants and the collection industry. They have a total monopoly on all electronic transaction in America, and yet they are a private association. Considering all the harm and legal expense they have caused businesses like CybrCollect, I’m surprised they haven’t been sued under Anti-Trust laws…”

About CybrCollect
Established in 1998, CybrCollect, Inc. consolidates the best practices in the check collection industry. CybrCollect endeavors to create the fastest returns for merchants while providing excellence in customer service. Their free electronic Check collection services aid businesses nationwide in increasing their collection of bad checks while preserving check acceptance as their cheapest form of payment. For additional information on CybrCollect, please call 888-340-9205, email info@getmychecks.com, or visit www.getmychecks.com.