
Debt Collectors Are Transforming the Business of State Courts - burritofanatic
https://www.pewtrusts.org/en/research-and-analysis/reports/2020/05/how-debt-collectors-are-transforming-the-business-of-state-courts
======
netcan
There have been journalists & researchers who covered these debt collectors at
court. When defendants showed up, organised, they usually won.

The debt collectors' lawyers didn't arrive prepared to win, because most
people didn't show up. If you can win 85% of cases just by showing up, why
bother.

A court system that allows these dynamics to dominate isn't serving well.

~~~
JoeAltmaier
And it only gets to court after harassment hasn't worked. Anecdata: guy I know
had a common name. Debt collector fastened on him because he'd lived in the
same town as a deadbeat with that name too. Guy would call day and night
demanding payment.

~~~
elliekelly
Is it necessary to call someone with debt a “deadbeat”? Often the people who
are being hounded by debt collectors are victims of predatory lending and a
system designed to punish them with fees for being poor.

~~~
dlhavema
The name/title doesn't always apply, true. But sometimes it really does.

Most blanket statements have flaws in them...

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ilamont
I took a company to small claims court about 10 years ago. In my state at that
time, the max you could sue for was a few thousand dollars (now it's $7k,
[https://www.mass.gov/service-details/small-claims-
court](https://www.mass.gov/service-details/small-claims-court)). It was run
by a magistrate, not a judge, and AFAIK no ordinary citizens who had brought
cases (including myself) had a lawyer to represent us. No surprise there ...
the small claims courts are designed to work this way, so ordinary people can
bring cases if relatively small sums are involved.

Most of the defendants (which were small or large companies, some local and
some national) in these citizen-brought cases didn't even show, but those who
did typically brought a lawyer to deny the charges, and were usually asked by
the magistrate to work out a settlement in the hallway.

Excluding the local small claims plaintiffs such as myself, about half the
docket consisted of national credit card companies suing local debtors. The
lawyer for say BOA would come in with a list of 10 local people being sued for
amounts under the small claims threshhold. Maybe 1 in 4 defendants in these
cases did show up, and were asked to work out a settlement in the hallway. If
the local person being sued didn't show, the default judgement was for the
credit card company with treble damages, putting these people further in the
hole.

~~~
Thorentis
Wow, it's the Court of Chancery all over again.

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pnw_hazor
Many debt collection cases will disappear if the alleged debtor files an
answer (in court) to a debt collection complaint.

Filing answers is relatively simple and doesn't cost anything.

Depending on the jurisdiction, filing an answer basically puts the brakes on
the case because it is not worth it for the debt collector to pursue it any
further. Their business model is based on default judgments.

Eventually, after a year or so, if no action has been taken, the court is
likely to dismiss the case (or you can ask them to).

Also, debt collection law has a lot of federal consumer protections and often
more protections at the state level. Thus, it is not uncommon to run into debt
collectors that are violating fed or state laws. Raising such issues also
makes the case go away.

Of course, your mileage may vary depending on local laws and the nature of the
debt or contract breach. But when I practiced little people law (before I sold
out and went into IP law) I did this a few times and it worked without issue.

Thinking about it now, I guess a debtor-side lawyer should be involved, but
defending such cases require hardly any effort on the part of the lawyer, so
again I wonder why there are not debt relief orgs doing this. I believe
fighting back just a little would significantly reduce the predatory practices
of the volume debt collectors.

I imagine debt relief agencies don't fight because I think many are funded by
the credit industry. So they direct debtors into payment plans rather than
trying to shut down the predators.

~~~
FireBeyond
> I imagine debt relief agencies don't fight because I think many are funded
> by the credit industry. So they direct debtors into payment plans rather
> than trying to shut down the predators.

Or they require money up front to help you. They already know you are (likely)
a default risk, so “cash in advance, please”. And as you allude to, a lot of
times the “real” value in services like this is relief from the stress of the
calls and letters. They’re not passionately involved or connected, they just
have the calls directed to them and put up with it and give you a settlement
offer that you could have reached in the first place.

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Aloha
The single largest thing we can do is undo the changes to bankruptcy law
signed in 2005, it removed bankruptcy as a tool of the poor to discharge
excess debt. It's caused there to be very little downside to lending, and lead
to an explosion of debt.

~~~
cwhiz
The outcome of that will be that lending standards go up substantially.
Significantly higher interest rates and required collateral. The eventual end
result is fewer people able to qualify to buy a car, buy a house, get a credit
card, or go to college. These are significant drivers of economic activity.

It's hard to put the genie back in the bottle.

~~~
Frondo
Offering debt as a way to finance regular life activities like school and
housing is also a good way to paper over the other, equally serious problems
we currently have in the US, an explosion in the cost of school and housing,
compared to what people earn.

If people didn't have debt as a way to access these things, there might be
more energy for addressing the income inequality and lack of class mobility we
have, that's being obscured by the access to debt.

~~~
cwhiz
Neither side is necessarily wrong here but we changed the law to address the
problems you describe.

I see this as similar to the payday lending debate. Payday lenders aren’t
creating demand, they are responding to it. What happens when we eradicate
that form of lending? Most things start from good intentions.

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WD-42
Imagine working for a company that buys up poor people’s debt in order to sue
them.

~~~
rayiner
Okay, I'm imagining it. So what? There is a debate to be had about what sorts
of protections we want to provide to debtors. But that's separate and apart
from the existence of companies that specialize in debt collection. The latter
is simply an example of economic specialization.

The problem everyone has getting their mind around debt collection is that
they focus on the after-the-fact situation, instead of the whole picture. If
companies cannot collect on debt, they will be less willing to extend credit.
When you "help" one person who can't pay their debt, you're hurting several
people in the future who won't be extended credit.

Student loans are a good illustration of this. People clamor to make student
loans dischargeable in bankruptcy--citing examples of people with hundreds of
thousands of dollars in crippling debt. But the median American doesn't have
any student debt, and the median debt for people who do is just $30,000. Now
as a practical matter, student loan forgiveness would just impact taxpayers,
since almost all student debt is owed to the federal government. But if it was
a normal debt market, making student loans--which are offered without any
security--dischargeable in bankruptcy would cause student loans to dry up for
everyone, even the vast majority of people who take on modest, manageable
debt.

~~~
rayhendricks
If student loans were suddenly unavailable then universities would have to
rein in out of control costs and Maybe get rid of sports and bs admin staff.

The only reason they change that much is due to the ability of loans.

~~~
black_puppydog
Same goes for books. Your prices for textbooks over there are hilarious.
They're priced purely based on just how much you can milk the students, or
rather whoever finances them.

~~~
folkhack
Yeah and to a captive market too. College textbook sales is one of the most
insane rackets I've ever witnessed... "milking the students" is no
exaggeration.

~~~
rayhendricks
I absolutely agree. The whole “college experience” from overpriced textbooks
to overpriced dorms is a huge racket. The covid pandemic might really shake
things up though if there’s no school starting in the fall though.

~~~
folkhack
I've advised a couple of people looking to go to school to take a gap-year to
hedge risk of the schools having their stuff together.

If there's anything I've noticed about higher education after working in/with
it, its that they're constantly behind the curve in just about everything
that's not sports/research related.

I would be very scared of having a second-rate experience due to a college
(and professors) not being prepared for this to the point I would sit a year
out and crank out gen-eds at home in already established online programs.

Take this all with a grain of salt... Maybe I'm paranoid, but I just don't see
schools being ready for this and having a solid experience ready for new
students by fall unless they've already practiced remote learning/class
programs.

~~~
rayhendricks
When I was a sophomore in my undergrad degree one of the professors was
habitually late. As we were only meeting 2-3 times a week I calculated the
dollar value of that lateness as a part of our tuition. People were not happy.

Hopefully at the end of all this we realize that community colleges can teach
the majority of a 4yr degree and even have labs already set up.

------
joshuaheard
I do commercial collections (B2B). The article states, "Unlike most court
rulings, these judgments are issued, as the name indicates, by default and
without consideration of the facts of the complaint—and instead are issued in
cases where the defendant does not show up to court or respond to the suit." I
am licensed in California and Texas, and in both states one must "prove-up" a
default before judgment is entered by presenting a "prima facie" case. In
other words, you must prove your case before a judgment is entered, even if
the defendant does not show up.

~~~
beervirus
I was under the impression that a well-plead complaint was sufficient if the
defendant doesn't show up. What rule says you have to actually put on a case
to get a default judgment?

~~~
joshuaheard
In California, it's CCP 585.

[https://leginfo.legislature.ca.gov/faces/codes_displaySectio...](https://leginfo.legislature.ca.gov/faces/codes_displaySection.xhtml?lawCode=CCP&sectionNum=585).

It's a two step process. First your get the default entered if they don't
respond, then you ask for judgment for damages. Maybe that's where the
confusion lies. The default is entered by request almost automatically if they
don't respond. Getting your judgment for damages requires evidence to prove
your case.

~~~
pnw_hazor
Don't forget the third step, collecting on the judgment. This is often the
hardest part.

------
Finnucane
"Civil caseloads dropped more than 18 percent from 2009 to 2017. Although no
research to date has identified the factors that led to this decline, "

I might make a guess that the efforts of our corporate overlords to force
everyone into nonjuducial arbitration has something to do with it.

------
D13Fd
It’s not surprising that the percentage of debt claims has doubled when, as
the article notes, consumer debt levels tripled over the same period.

~~~
SpicyLemonZest
It's not surprising when you think about it, but it's still an important
problem to think about. It has the potential to cause some problems if state
courts become seen as a vehicle for debt collectors more than an authority for
righting wrongs.

~~~
JamesBarney
I think we all agree you should be able to collect on a debt. (if you can't
it's not a debt)

And I imagine most of us agree collection should be pursuant to due process.

I don't really see any other options.

~~~
SpicyLemonZest
I actually don't agree. Many debts in the US are effectively non-collectible,
because all the property from which they could be collected is exempted. (This
is especially true in Texas, where wages can't be garnished for most debts.)

~~~
JamesBarney
I just meant a debt that is inherently non-collectible (and thus does not need
to go to court) is not a debt.

For instance determining whether or not a house is a homestead and whether or
not the debt is therefor effectively non-collectible or not is something that
requires a court.

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6510
What a depressing topic. Since one is responsible for his own debt and just
forgiving it is unfair to those pulling their own weight perhaps the small
amounts the article talks about should play part in setting the height of an
initial basic income. If the income is guaranteed it can at least pay the
interest over debt. It could become more interesting to get payments rather
than sell peoples property and ruin their lives (and potentially their income)
with all the burdens on society it brings.

~~~
pests
How is it unfair to forgive debt? What? Other people don't affect you.

~~~
Sacho
Um, they literally do? In aggregate, it's a similar effect as a VC-backed
company burning capital to push out competitors. You're spending money you
don't have, which drives the economy, raising demand and prices. The people
who don't do the same can now afford less. Then the balloon pops, and your
debt is forgiven, while you've reaped all the benefits from having the extra
capital that your peers didn't.

Even in a simple terms, it hurts people's sense ethical and societal
obligations. Why should I deprive myself of consumption and be a responsible
economic participant, when I can spend money I don't have and then have my
debt forgiven?

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hash872
I'd be interested to understand how this works in practice, especially small
claims court (which is probably where many credit card debts end up at). From
my understanding, small claims judgments are very tough to actually enforce,
no longer show up on your credit report, and the court system does nothing to
help you collect. Without getting into moralizing and just from a pure P&L
perspective- how can it make financial sense for a big company to have one of
its attorneys spend the day in court, when you're probably not going to
collect on the debt....?

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LatteLazy
I actually think the current system works well. The only people having a bad
time are people who borrow AND don't repay AND refuse to work with their
lender AND refuse to come to court.

And remember, there is no free lunch here. Making life easier for borrowers
who can pay but won't just means the rest of us have to pay more for out
legitimate borrowing.

------
llsf
Seems like there are some money left on the table.

Should someone build a small company to defend all those people solely based
on some contingency fee (well a tiny percentage of what they owe or would pay
if they lose).

If I owe $5,000, a lawyer takes the case, and prevent me to pay the $5,000 for
a $500 fee, and I never hear again about the debt collector, that seems a win-
win.

Those debt collector would start to think twice before going to court, and if
really working, debt collector would start to think twice before buying debts
at the first place.

It could be automated, with a single website, where I enter few details about
my case (or the website contacts me based on scrawling the dockets), give me
free advices to fight it myself (e.g. ask debt collector for all communication
to only be done by mail, as allow by law, ask them for proof of debt, etc.).
And if it escalate to court, then a lawyer would be assigned to represent me.

Looks like some software could fight this court scaling issue, by fighting
before it goes to court, and then making it less predictable for debt
collector to go the court route.

~~~
imtringued
You seem to misunderstand something. Debt collectors aren't winning cases of
illegitimate debt. They are winning legitimate court cases that the defendant
simply ignored. Even if you bring a lawyer to court that doesn't mean that you
won't have to pay the debt. That $5000 debt was probably bought for less than
$500 by the debt collector and the debt collector is willing to settle for
something like $1000 which is still significantly less than the original debt.

~~~
DanBC
If people don't know about the debt and it goes to court and a default
judgment is issued, well, we don't know if the original debt is real or not
because it didn't get tested in the court.

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brenden2
It bums me out that people who need the most help in life receive the least

~~~
refurb
What do you mean "receive the least"? Pretty much all the social programs we
have target the poor, not the rich. The poor are the ones that receive the
most.

~~~
jkaptur
Programs that benefit richer people aren't framed as "social programs" and
generally aren't saddled by Kafkaesque bureaucracy and scrutiny.

Compare the sheer toil of using food stamps vs using the mortgage tax
deduction.

~~~
pmiller2
Forget mortgage interest deductions. Take a look at cash back rewards cards.
Cash-using households ultimately end up transferring money to card-using
households this way, because merchants don't usually set higher prices for
card users to compensate for fees. See
[https://www.bostonfed.org/publications/public-policy-
discuss...](https://www.bostonfed.org/publications/public-policy-discussion-
paper/2010/who-gains-and-who-loses-from-credit-card-payments-theory-and-
calibrations.aspx)

I get an average of 1-2% off of almost everything I buy simply because I can
use a cash back rewards card to do it. It's sickening.

~~~
refurb
Is there something stopping poor people from getting these cards? I mean sure,
if they have bad credit they can't, but I know plenty of poor people with good
credit.

~~~
pmiller2
Click the link. Read the abstract, at least.

------
everybodyknows
> Texas is the only state that reports on all types of cases, including
> outcomes, across all courts.

Texas leads the USA in judicial transparency! Sacramento, you got some
'splainin to do.

------
Spearchucker
It would be hilarious if it wasn't so tragic. Taking someone to court for not
paying a debt and then (if severe enough) sending them to prison ends up
costing the state, and tax payer, a lot more than just writing off the debt.
It's a vicious circle where (on average) only the debt collector wins. It's
one of many scenarios (another being healthcare) that point towards a social
(not communist) solution being the only way. Civil War usually starts when a
significant portion of a population can no longer feed itself...

