People of color are most burdened by debt and collection judgments issued by ‘weaponized’ courts

Debtors’ prisons were declared illegal in 1833, a violation of human rights in 1966, and unconstitutional in 1983. Yet civil courts have become the debt collection industry’s best tool for extracting payment and fees from those least able to pay.

They “have weaponized the courts,” argues The Center for Responsible Lending.  

When NerdWallet conducted a recent survey about the economic turmoil 2020, they found two out of five Americans said their financial situation had gotten worse since the onset of the pandemic. Moreover, Latinx consumers and Americans with household incomes under $50,000 were more likely to say their household financial situation has gotten worse.  And of those who said things were bad:

• 51% say it’s because their household income decreased overall
• 30% say it’s because they had an unexpected large expense and
• 22% attribute it to them losing their job, according to the survey.

“To cope,” the NerdWallet survey explained, “some Americans have taken on debt (45%) — credit card, medical or otherwise.”

Currently, the Consumer Financial Protection Bureau reports that 31.6% of adults in the U.S. have collections accounts on their credit reports. According to 2013 data from ACA International, the largest trade association representing the debt collection industry, healthcare is the leading debt category followed by student loans and financial services. Those three areas together represent 76% of debt owed. 

Data from the Urban Institute shows the racial disparity in collection accounts.

Across the country 41.5% of communities of color and 25.9% of white communities hold debt that is past due and has been turned over to a debt collection firm.  

Montgomery County is about at the nation’s average with 40% of its communities of color in debt but a much lower percentage of white community members than the national average – 17%.

But the numbers get worse. 

In Philadelphia, the data shows that 50% of the residents of communities of color are in debt compared with 21% of those in white communities. It’s even higher in Delaware County with 54% of the communities of color and 20% of white community residents in debt. 

Over in New Jersey, Camden County has 56% of its community of color residents in debt while 23% of residents in white communities are in debt. 

In Chester County and Bucks County data for communities of color were not available because of small sample sizes.

The problem with debt is the bill comes due often while the means to repay are still unavailable. 

A growing number of advocacy organizations are claiming that the nation’s civil courts have become the handmaiden of the nation’s debt collection agencies, primarily because they have the power to garnish wages — a legal procedure where the court orders an employer to withhold a certain percentage of a person’s earnings.  

According to research from ProPublica, the highest rates of garnishment or pay seizure is for workers who earn less than $40,000 per year. The Center for Responsible Lending added,  “Armed with a judgment, they use wage garnishment orders and bank account levies to seize money from families who are the least able to afford it.”

Last May, the Pew Charitable Trusts issued its report on how debt collection is transforming state civil courts. Instead of two opposing sides, each represented by an attorney coming to a resolution before a neutral judge, today’s civil courts are dominated by debt collection companies suing an unrepresented individual for unpaid debt that is “almost always less than $10,000 and frequently under $5,000.”

Pew pointed out that from 1993 to 2013, the number of debt collection suits more than doubled nationwide, from less than 1.7 million to about 4 million, becoming a significant share of civil dockets. In seven of 10 court cases, the defendants fail to show and often don’t know they have been sued until their wages have been garnished. 

This March, the Reinvestment Fund issued findings on a report commissioned by Community Legal Services on debt collection. It showed that Blacks were overrepresented as defendants in collection cases and that there was a correlation between housing debt burdened and collections. Seven out of 10 debt collection defendants live in census tracts where over 35% of the households are cost burdened. 

The report also named Midland Funding as the top debt collector in the city and responsible for one out of four debt collection court cases. Midland Funding is an arm of the San Diego-based Encore Capital Group, the nation’s largest buyer of unpaid debt. 

In the aftermath of the pandemic, debt collection will further escalate.

Aspen Institute just released a report which showed about half the American workforce was unable to cover a family’s basic needs. This crisis isn’t new. Wages have stagnated for 40 years especially impacting Latinx and Black workers. 

And this is expected to continue. “Between 2019 and 2029, half of the 30 occupations projected to add the most jobs, pay wages below the 2019 national median wage of $39,810,” according to the report’s projections.