Hollywood Video's debt collection tactics halted by settlement

After Movie Gallery, the parent company of movie and video game rental chain Hollywood Video, filed for bankruptcy in 2010, it created a liquidating trust in order to collect approximately $244 million in outstanding debts owed by more than 3.3 million customers. Attorneys general across the country have since been receiving complaints from Hollywood Video customers alleging that the now-defunct company had been engaging in unfair debt collection practices. Customers reported excessive fees, damaged credit scores and collection notices being added to their credit files without warning - and many claimed that they did not owe the company in the first place, according to the Seattle Post-Intelligencer. "Collection laws require that consumers have a chance to pay or dispute their debts," said Washington Assistant Attorney General Mary Lobdell, in a recent statement quoted by the news source. "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." Examples of complainants in Washington include a consumer whose credit limit was reduced from $8,700 to $600 and two customers who were prevented from getting a credit card and a mortgage as a result of late fees from the movie rental company. According to the Providence Journal, a recent settlement filed in U.S. Bankruptcy Court for the Eastern District of Virginia, Richmond Division, called for Hollywood Video's trustees to remove negative customer account information submitted to credit agencies or bureaus, refrain from submitting further reports, not collect fees or interest charges beyond the principal debt amount, not bill customers for both a late fee and the full price of any items allegedly not returned, assist attorneys general in recovering debt collection fees that were improperly paid by customers and comply with the federal Fair Debt Collection Practices Act. Rentals from Redbox, which cost as little as $1 per night, and on-demand internet streaming sites such as Netflix are believed to have contributed to the company's downfall. Movie Gallery, which purchased Hollywood Video in 2005, first landed in bankruptcy court in 2007 as a result of being unable to sustain the debt it took on as a result of the acquisition. Three years later, it returned to bankruptcy court and filed for Chapter 11 protection.