From the Wall Street Journal

Until recently, a first-time shoplifter caught in any of about 2,000 Wal-Mart stores got a choice: pay hundreds of dollars, complete an education program and all will be forgiven—or don’t and potentially face prosecution.

Corrective Education Co. and Turning Point Justice, Utah-based companies that provide the programs, emerged in recent years as alternatives to the often-overtaxed criminal justice system. They spare law-enforcement resources and hold offenders accountable without leaving the scar of a criminal conviction, their supporters say.

But Wal-Mart Stores Inc., one of the biggest clients of Turning Point and Corrective Education, suspended the programs earlier this month as more local officials questioned the legality of asking people for money under threat of criminal sanctions, though it said it found the programs effective at reducing shoplifting and calls to police.

The move followed a ruling from a California court in August finding that Corrective Education’s program violates state extortion laws.

Although the programs have reduced Wal-Mart’s calls to police and likely curbed the number of repeat offenders, “it’s not welcome everywhere and I want to understand that better,” said Joe Schrauder, the retailer’s new vice president of asset protection and safety. “We want to make sure we are partnering with local government.”

Harvard Business School graduates Darrell Huntsman and Brian Ashton and others launched Corrective Education in 2010. Mr. Huntsman said the idea came from a story he and Mr. Ashton heard from a mutual friend who ran the loss-prevention department at a sporting goods store.

A recently promoted soldier had been caught trying to steal a fishing lure. The soldier’s mother pleaded with the store not to report her son to police, saying a criminal charge could derail his military career.

“I thought the final result would be, ‘So we decided to let him go.'” Mr. Huntsman recalled. But the store called the police, Mr. Huntsman said. “If we let him go, we have to let everyone go,” Mr. Huntsman recalled his friend telling him. “And if we let everyone go, then we become a target for shoplifters.”

Tens of thousands of first-time shoplifting suspects have paid for the educations programs, executives of Turning Point and Corrective Education said, involving retailers such as Target Corp., Bloomingdale’s, Burlington Coat Factory and Goodwill Industries.

Shoplifting suspects at stores that use Corrective Education are shown a video and given 72 hours to decide whether to enter the program. The video describes a six-to-eight-hour online course that promises to explain “why you make decisions that are harmful or illegal” and teach “life skills.”

If a suspect declines to pay for the program—$400 up front or $500 later—the retailer may choose to pursue “other legal rights to seek restitution and resolve this crime,” the video states.

About 90% of suspects agree to enroll, according to court documents filed in the California case. Some retailers used to receive a portion of the fee, but the company began phasing out the payments in 2015, the documents show.

Turning Point, for its part, charges offenders $350 for an online educational program owned by the National Association for Shoplifting Prevention, its partner, a nonprofit group that has provided services for court-diversion programs for decades. Suspects also must make restitution to the retailers, covering time spent processing the suspect and any damage to the stolen goods, bringing their total costs to $400 to $425, said Lohra Miller, who founded Turning Point in 2012 after working with Mr. Huntsman at Corrective Education.

Retailers usually receive about $50 to $75 in restitution from each offender diverted into the Crime Accountability Partnership Program, the formal name for the program offered by NASP and Turning Point, Ms. Miller said; retailers pay nothing to have the programs in their stores.

Ms. Miller, a former district attorney for Salt Lake County, said she canvasses law-enforcement agencies, seeking collaboration and approval, before establishing the program in new communities. Most agencies are receptive, she said, but not all.

“I heard her pitch, and I just said, ‘No way,'” said Joshua Marquis, the district attorney in Clatsop County, Ore. “The justice system should never be a profit system.”

Mr. Marquis said his office prosecutes serial shoplifters, but police send him few cases involving first-time offenders. When they do, Mr. Marquis is likely to give the shoplifter a citation and order him or her to perform community service, he said.

Rep. John Lesch, a Minnesota state lawmaker who introduced legislation this year that would outlaw the private shoplifting diversion programs, said retailers need to bear more of their own security costs, but they shouldn’t create a parallel justice system, where the rules of evidence and due process don’t apply.

The average-sized police department spends more than $2,000 responding to a single theft, according to a tool created by Rand Corp. to calculate the cost of crime. Some field hundreds or even thousands of calls each year from retailers about shoplifters.

Police departments in communities where Turning Point and NASP offer their program report 41% fewer calls from participating retailers and 70 police hours saved a month, according to the company. The police department in Arlington, Texas, attributed a 50% reduction in retailer calls —the equivalent of more than 12,000 police hours—in part to the adoption of Corrective Education programs by Wal-Mart.

Wal-Mart did a small test of the education programs in stores in 2013, then rolled it out to a wider group in 2015, eventually hosting the programs in about 2,000 of its 4,700 U.S. stores, said Mr. Schrauder. He attributed a 30% decline in shoplifting incidents in 2016 and a 15% decline this year mostly to more-visible theft deterrents, such as additional employees posted at store entrances, but said the programs had a positive impact.

As local objections to the programs mounted, Mr. Schrauder said he decided to remove the option from stores as he reviewed all of Wal-Mart’s theft-reduction programs. For now, Wal-Mart has reverted to calling police for thefts over $25 in most stores. “That is where prevention comes in and that will continue to reduce calls to law enforcement,” said a spokesman.

San Francisco City Attorney Dennis Herrera sued Corrective Education in 2015 after an investigation by his office revealed evidence of potential abuse, including allegations by a woman who said a security guard at a Goodwill store in Orange, Calif., threatened her with jail unless she paid $500 for the education program, a spokesman for Mr. Herrera said.

The woman, Debra Black, left the store without paying for a $2 purse she had placed on the arm of her wheelchair while she was browsing and forgotten about, according to her lawyer, Chris Carson. A California court dismissed her 2014 claims of abusive debt collection, and she dropped the lawsuit.

Mr. Herrera’s office sued Corrective Education under different legal theory: alleged extortion and false imprisonment.

California Superior Court Judge Harold Kahn said in an August ruling that the program “will always be extortion per California law” as long as it involves payment to Correction Education or retailers. Only a diversion program “under the aegis of prosecutorial authorities” can request money under California law, the judge wrote.

The company is in discussions with Mr. Herrera’s office to find a way to continue doing business in the state while complying with Judge Kahn’s injunction, said Jeff Powers, chief customer acquisition officer for Corrective Education.