This week’s Business page in The American is dominated by a lengthy excerpt from ProPublica’s landmark study on racial disparities in debt collection, “The Color of Debt.” Reporters for the public interest group found that racially disparate patterns in debt collection can be explained in part by the more shallow economic support systems found in many black households and their social networks, but we believe these patterns demand more investigation for possible discriminatory practices. We strongly encourage local, state and national watchdog authorities to follow the trail blazed by ProPublica in investigating these disturbing patterns.
As a companion to its news piece, ProPublica prepared an editorial, “Six Ways to Reform the Legal System for Debt Collection,” which we present here with our endorsement. It starts from the premise that laws governing debt collection lawsuits and garnishments are often antiquated, poorly thought out and place the burden on debtors to know their rights. Based on this plain fact, ProPublica and we suggest the following reforms.
Lower how much can be taken from debtors’ wages. The federal law limiting wage seizures to 25 percent of after-tax income passed in 1968. Lawmakers appear to have pulled this percentage out of a hat. Some states protect more of a worker’s pay – and four (Texas, Pennsylvania and the Carolinas) prohibit garnishment for most debts. But most states allow the federal level. Federal surveys show that low-income workers can’t afford to lose a quarter of their pay.
Restrict how much can be taken from debtors’ bank accounts. The 1968 federal law is so old that it is silent on the subject of bank account garnishments, which are now a common form of debt collection. As a result, a plaintiff can seize no more than a quarter of a worker’s pay, but if that paycheck is deposited into a bank account, the entire amount can be seized.
Provide clear notice to debtors about laws that protect them. When states do provide legal protections for debtors – such as allowing those with children to keep more of their pay under a “head of family” exemption – the burden is typically on the debtor to assert these protections. But there’s frequently no clear notice provided to debtors that the protections exist.
Limit attorney’s fees to reflect actual work on a suit. When companies sue, they often request an “attorney’s fee,” which is routinely granted and added to the judgment. The fees are usually set at arbitrary, fixed amounts, even though attorneys may spend only a few minutes on a suit. In 2013, we reported that one subprime lender in Mississippi added an attorney fee equal to one-third of the principal balance to each suit, even though the attorney was a company executive.
Cut interest on judgments to reasonable level. Under Missouri law, lenders can request that judgments grow at the original loan’s rate of interest. Particularly when high-cost lenders sue, this can result in what one St. Louis judge called a form of “indentured servitude”: A debt can balloon at triple-digit interest even as the debtors’ wages are seized. A $1,000 loan can become a $40,000 debt, forcing the debtor to declare bankruptcy or make payments for a lifetime.
Improve enrollment in programs to help low-income debtors. Some common plaintiffs, such as utility companies and nonprofit or public hospitals, have an obligation to serve the public. These sorts of entities often have programs to help lower-income patients or customers, and yet, as ProPublica has documented repeatedly, many debtors don’t know about these programs. For example, the Metropolitan Sewer District appears as a villain in ProPublica’s reporting for its aggressive debt collection in low-income neighborhoods. But MSD has a Customer Assistance Program that would have alleviated the burden of many of its customers who were sued, had they know about it. Anyone who may be eligible for low-income discounts on MSD services should call 1-866-281-5737 or email billingquest@stlmsd.com and ask about its Customer Assistance Program.
The St. Louis American will moderate a ProPublica panel on “The Color of Debt: How Collection Suits Squeeze Black Neighborhoods” 4:30-6 p.m. Thursday, November 5 at Washington University School of Law, Anheuser Busch Hall, Room 310. The panel includes Rev. Starsky Wilson, co-chair of the Ferguson Commission and president & CEO of the Deaconess Foundation; St. Louis Treasurer Tishaura O. Jones; Karen Tokarz, Washington University professor of law and African-American studies; and Paul Kiel, ProPublica reporter. The Black Law Students Association at WUSTL is the host.
