Jennifer Turner: Debt collectors hijacking justice system

By JENNIFER TURNER
Of the American Civil Liberties Union

A mother of three in Indiana, had to file for bankruptcy because she couldn’t afford to repay medical bills incurred for treatment of thyroid cancer. And because she was unable to work, she had to stay with her parents in Florida while she recovered.

Unbeknown to her, while she was in Florida, a debt collector seeking payment of outstanding medical bills succeeded in getting a small claims court judge to issue a series of arrest warrants for failure to appear for court proceedings.

When she returned to Indiana, she was arrested by sheriff’s deputies. Being too sick to climb the stairs to the jail’s women’s section, she was held in a glass-walled mental health unit in the men’s unit.

In this case and thousands of others, courts are effectively serving as taxpayer-funded tools of the multi-billion-dollar debt collection industry. By issuing arrest warrants, they give the collectors powerful new leverage to secure payment.

Debtors’ prisons, abolished by Congress in 1833, are commonly considered a relic of the Dickensian past. But the fact is, private collection agencies are using the courts to terrorize debtors, even when a debt is in dispute or the debtor has no means.

Tens of thousands of warrants are issued annually for people failing to appear in connection with unpaid debt judgments. After examining more than 1,000 cases in 26 states, we found debtors were often unaware they had been sued and had never been notified of a court appearance.

Arrests stemmed from debts arising from medical fees, student loans, car payments, unpaid rent, daycare fees, small-business loans, credit card bills, foreclosure deficiencies, high-interest payday loans and gym fees. Warrants were issued in cases involving debts as small as $28.

The process starts with a suit filing and snowballs from there. Collectors flood the system with filings; many courts churn through them with little scrutiny.

More than 95 percent of the suits produce judgments favoring the collector, usually because the debtor doesn’t or can’t mount a defense. Judgment in hand, creditors can then ask courts to require the debtor to appear for a judgment examination for questioning about his finances and assets. If he fails to appear, a warrant can be issued for his arrest.

Our investigation found people missed court dates because of work, childcare responsibilities, lack of transportation, physical disability, illness or lack of notice. We discovered two cases in which elderly women missed hearings because they were terminally ill.

The threat of arrest is an incredibly powerful tactic for collectors. As a Texas lawyer noted in his pursuit of student loan defaulters, it’s easier to settle when the debtor is under arrest.

A debtor may languish in jail for days, unable to make bail. Judges sometimes set bail for the exact amount of the judgment, and authorize relinquishing of the bail money to the debt collector to satisfy the judgment.

Even when people aren’t arrested, warrants can cause long-lasting harm. They can show up in background checks, with serious consequences for future employment, housing, education and security clearance applications.

Predatory debt collection companies are profiting from Americans on the financial edge, often as a result of layoff, illness or divorce. The impact of abusive collection practices is particularly harmful in African American and Latino communities, which face longstanding racial and ethnic income gaps.

There is scant protection under state and federal law, and regulators rarely intervene to prevent abuses. Unless that changes, the most vulnerable debtors will continue to be victimized by predatory collectors and the courts that serve them.