Third-party debt collectors are using the threat of jail to scrape cash out of millions of people, in flagrant violation of the Constitution and numerous laws banning the use of debtors’ prisons, a new report from the American Civil Liberties Union shows.
Worse, the companies are getting a huge assist from both judges and prosecutors to skirt people’s rights on an industrial scale. They contract with local district attorneys to print threatening letters on official prosecutor letterhead and file a deluge of small-dollar collections suits to judges who sign off on them without any meaningful due process or verification of claims.
The debts in question are often tiny. One lawyer in Washington told the ACLU he’s documented “over 10,000 [bounced] checks for under $10 that triggered letters threatening consumers with jail.” The debts claimed in court are also inflated dramatically from what a person might have initially owed, courtesy of the under-regulated debt-buying industry’s proclivity for tacking on arbitrary fees to expand their takings.
Third-party debt collection is a snaky thing. Once a hospital or grocery store or auto mechanic has decided that a given debt on their books isn’t really worth the effort to collect, they’ll sell it on the secondary market for pennies on the dollar. To turn a profit, the company buying the debt has to convince the debtor to pay full freight on something their own business practices just priced far lower — and that’s if the collector can even find the person from the records they’ve bought.
Despite those headwinds, the industry is pulling down annual revenues north of $10 billion. The threat of jail time is a key ingredient in that profiteering.
It’s illegal to imprison people for being poor, at least in theory. But the ACLU’s review of more than a thousand small-claims court cases involving debt collectors found that judges are happy to take a bit of a bank-shot around those prohibitions to help corral an alleged debtor. American courts are putting out arrest warrants by the tens of thousands, the group found, often setting bail for the warrant at the exact same level of the debt claimed by the company that filed the collections suit.
Judges are allowed to issue arrest warrants for debt cases in 44 states. Collectors contract with more than 200 local prosecutors’ offices around the country for auto-generated official letters threatening arrest and jail should a person not pay up immediately. One of the numerous examples cited in the report involves a Washington woman who paid by check at her local Goodwill thrift shop. When the $41.19 check bounced “because of a banking mix-up,” the ACLU says, she ended up getting a letter seemingly from her local prosecutor’s office threatening her with jail if she didn’t pay back the $41 debt and another $185 in fees tacked on by a collector called Bounceback, Inc.
The arrest warrants aren’t issued for failure to pay a debt, exactly, but for contempt of court. The moment a person a collector claims owes them money doesn’t show up for a hearing — regardless of the reason — or deviates from a court-imposed payment plan, the judge can hold them in contempt. When they are eventually pulled in on the resulting warrant, they’re technically being arrested for disrespecting the legal system by being unaware of a court date, unable to attend one, or falling out of step with a default judgment for payments to the collector.
In practice, of course, there’s no actual difference between being arrested for contempt of court while poor and being arrested for being poor. And though debts are freighted with strange moral weight in many Western cultures, the fundamentals of the modern debtor imprisonment system outlined in the ACLU’s report are nowhere near as rock-ribbed as the traditional vocabulary of “obligations” and “deadbeats” tends to imply. The debts that trigger arrest warrants are not always legitimate, thanks to incomplete and inconsistent record-keeping. They are almost always inflated with fees by the companies that pursue them. And in many cases they bear no connection to any intent to deceive a creditor, back out of a deal, or defraud anybody.
Yet, the report describes a chillingly banal pattern in courtrooms around the country, citing lawyers present for the speedy, nigh-automated proceedings. With attorneys for the collections company present and the defendant absent, judges simply rattle off the names on top of the case, get a dollar figure from the company’s attorney, and issue the arrest warrant or default judgment sought by the firm.
A lawyer named Dalie Jimenez saw a Boston judge issue so many debtor arrest warrants in one day that the court’s stamp for the warrants broke, according to the report. Scott Kinkley, an attorney in Washington, told the ACLU he’s seen judges bang out 30 such warrants in 10 minutes.
An unnamed witness described a judge in Dorchester, Massachusetts, who managed to speed things up even further by not even bothering to say aloud what the court’s power was being used to do in each case. “It seemed as though it was assumed, since the defendant did not respond, that everyone in the room knew there was a default judgment for the plaintiff or that a [warrant] was being issued without anyone having to say it,” the witness reported.
Each of these perfunctory slaps of a stamp or whirls of a pen drops havoc into another life. Someone who may not even know they have an overdue debt in collections now faces arrest the next time they talk to a cop.
If the courts seem cavalier about inflicting the full force of the state on unwitting poor people in these cases, they have their reasons. The nation’s legal system is drowning in these kinds of cases. From 2000 to 2005 in Massachusetts, three out of every five civil suits filed was a collections case. Third-party collectors — often referred to as debt buyers — are almost solely responsible for tripling the amount of debt litigation New Jersey state courts had to process from the mid-1990s to the mid-2000s. One attorney expert brought in to talk about the scale of the problem to Federal Trade Commission staffers said “that there are literally probably tens of millions of lawsuits being filed” by the industry nationwide.
If the unfortunate souls whose names ended up in a spreadsheet purchased by one of these debt buyers had a chance to speak up for themselves, this rubber-stamping would be impossible. But the defendants in these suits often don’t know they’re supposed to be in court at all. Debt buyers don’t necessarily have an up-to-date address or phone number for a debtor, and courts make no effort to verify that an alleged debtor’s absence is an act of intentional defiance rather than a paperwork error.
Defendants who do know to show up are almost always left representing themselves. Defendants had a lawyer present in just 2 percent of cases, the report notes.