WSJ Shines Light on Civil Recovery Collections

A recent story in The Wall Street Journal put the spotlight on the growing market for civil recovery collections. While retailers have gravitated toward the market, many consumers are upset about the practice.

The civil recovery process typically begins when someone steals, or is suspected of stealing, from a retail store. Merchants then charge the suspect a fee to cover restocking and security costs. The fees range from $200 to several thousand dollars.

Many times, the fees are disputed or go unpaid and the case is handed over to a collection agency or law firm. The Journal cited several consumers and attorneys claiming that that the firms charged with collecting the money use aggressive tactics, including using the court system to recover the money.

But the practice is supported by laws in all 50 states and the District of Columbia. And the market serves a valuable purpose for retailers. According to one firm that specializes in civil recovery, Loss Prevention Specialists, Inc., $40 billion, or 1.7 percent of retail revenues in the U.S., is lost due to theft. The numbers are also supported by the National Retail Federation.

There is plenty of work for collection agencies that specialize in the market. One that was cited in the Journal story, Palmer Reifler & Associates, told the paper that they send out 1.2 million civil recovery demand letters a year.

The practice has also been upheld from court challenges. In 1993, a U.S. judge ruled that the FDCPA did not apply to civil recovery when lawyers for a consumer argued an agency had run afoul of the rules governing collectors. In 2005, another case was tossed out when a federal judge determined that state law created the practice.