A trustee for bankrupt retailers Movie Gallery Inc. (MVGRQ) and Hollywood Video reached an agreement late Thursday with all 50 U.S. states over how the defunct company collects late fees and other charges from former customers, the Associated Press reported.
The agreement, which was signed by U.S. Bankruptcy Judge Douglas Tice in Richmond, Va., bars debt collectors from filing negative credit reports or threatening to file such reports against former customers, the AP quoted Montana's attorney general, Steve Bullock, as saying in a written statement.
Bullock in January sued the debt collection agency used by Movie Gallery. After Montana filed the lawsuit, the liquidating trustee of the video retailer negotiated the agreement with Montana, 49 other states and the District of Columbia, a spokesman for Bullock said.
Movie Gallery, which besides its own name-brand stores also owned Hollywood Video and Game Crazy outlets, was once the second-biggest video and game rental chain in the U.S., with more than 4,000 stores across the country and in Canada. The Oregon-based company filed for Chapter 11 protection in February 2010, initially intending to close unprofitable stores and reorganize around its remaining outlets, but it abandoned those plans when it violated a loan covenant.
Movie Gallery failed to survive its second trip to bankruptcy court in three years. The company had emerged from Chapter 11 protection in 2008 with more than $750 million in secured debt. Later, revenues continued to sink due to growing competition from Netflix Inc. (NFLX), CoinStar Inc.'s (CSTR) Redbox and movies available on demand over the Internet or from cable and satellite-television providers.
Movie Gallery hired a company, National Credit Solutions, to recover $244 million in fees and charges from 3.3 million customer accounts across the U.S., including video late fees and charges for replacing lost movies and video games. Bullock alleged in his suit that National Credit Solutions filed negative credit reports without informing customers, never gave them a chance to dispute the fees, then tried to charge them exorbitant fees on top of what they reportedly owed -- more than $300 in the worst cases.
Full story at http://hosted.ap.org/dynamic/stories/U/US_VIDEO_STORE_LAWSUIT?SITE=VASTR&SECTION=HOME&TEMPLATE=DEFAULT
-Dow Jones Newswires; 212-416-2900