Consumers thinking of taking out a mortgage in the near future should check their credit reports to make sure their credit hasn't been dinged by a claim for unpaid late fees for movie or video game rentals.

Former customers of defunct movie rental chains Hollywood Video and the Movie Gallery are reporting that they are getting calls from a collection agency seeking payment for late fees it claims they incurred. In some cases, consumers say they only found out about the charges when they discovered a negative entry on their credit report when they applied for a mortgage or other type of loan.

As many as two million consumers could be affected. That's how many accounts the president of the collection agency, National Credit Solutions (NCS), says a federal judge turned over to his company from Hollywood Video and its parent company the Movie Gallery after they went bankrupt last year.

The company has initiated collections on about half a million of those accounts, according to National Credit Solutions President Brett Scott. He said the bankruptcy doesn't affect his company's right to collect on the debts.

Compliants filed over collections

However, many of those who've received collection notices or found bad debt reports on their credit insist their accounts were up-to-date when the stores closed in May 2010. Even so, they reported receiving collection letters or phone calls seeking hundreds of dollars in late fees, along with collection fees of $50-$75 charged by National Credit Solutions.

Complaints have been filed with state attorneys general or Better Business Bureaus in at least six states, with investigations pending. In one such complaint, a Seattle resident reported that the credit limit on his Discover Card was cut from $8,700 to $600 after NCS submitted an inaccurate collection report on him and was only lifted after he agreed to pay the debt.

According to the office of Montana State Attorney General Steve Bullock, many consumers never received a collection notice, but only discovered there was a problem with their credit when they tried to obtain a mortgage or car loan. It was only after they contacted NCS to inquire about the collection report that many were told they owed several hundred dollars in fees.

State AGs question legitimacy of claims

Bullock recently filed suit against NCS on behalf of some 12,000 Montana residents, claiming fraud and deception. He singled out in particular a $75 collection fee, which he termed unreasonable.

"Based on the information currently available to us, we do not believe National Credit Solutions is lawfully entitled to claim any collection fees," he said.

Kansas Attorney General Derek Schmidt has openly questioned the legitimacy of all the fees in question, and urges consumers not to give any money or personal information to the organization. He says consumers contacted by NCS should get any information they can about the debt and the caller and report it to his office. In general, he urges consumers not to pay any debts unless they are sure they are legitimate.

Complaints have also been filed with the Virginia attorney general and the Better Business Bureaus of West Virginia and Oklahoma have issued warnings. The Better Business Bureau recently revoked NCS's accreditation for "engaging in activities reflecting poorly on the BBB or its members."

Collection agency defends actions

For his part, NCS President Scott says he believes his company is proceeding lawfully. He seemed to imply that many of the debts in question are for items people failed to return after the bankruptcy was announced, noting that people had plenty of time to return items before the stores closed.

Scott also said his company had withdrawn the credit agency collection reports on the 500,000 accounts in question, terming it a courtesy.