ByTatiana Follett and Heather Morton
The nation’s civil legal system handles debt collection cases and a new report from The Pew Charitable Trusts, “How Debt Collectors Are Transforming the Business of State Courts,” examines debt collection lawsuits in America.
According to the report’s review of available state court data, debt collection lawsuits involving unpaid medical, auto loan or credit card bills, have become the single most common type of civil litigation.
In more than 90% of these lawsuits, the defendants (consumers) in debt-claims cases did not have legal representation. When people did hire a lawyer, they saw more favorable outcomes. A study of more than 165,000 debt-claims cases in Utah from 2015 to 2017 discovered that consumers with an attorney won their cases 53% of the time, compared with just 19% of unrepresented consumers.
Debt collection cases can be complicated, requiring the consumers to give timely responses, exchange discovery and file pleadings and motions. Many consumers are overwhelmed by the court system, or may not recognize the company filing the lawsuit, and do not respond to the case at all. The report notes that many debt lawsuits end in a default judgment in favor of the debt collectors.
A survey of Colorado debt cases from 2013 to 2015 found that 71% of cases filed by debt buyers resulted in a default judgment in favor of the debt collector plaintiff. These default judgments can include interest on the debt owed, court fees and garnishment of wages or bank accounts.
Some state and local policymakers are instituting reforms aimed at ensuring all parties are aware of the suit, the accuracy of claims and simplifying the court system.
For example, Massachusetts now requires plaintiffs to prove that the court served the defendant at a known address found using reliable sources to mitigate cases being brought against defendants without their knowledge. Some states are working to modernize their court system, with a goal to make it more accessible to unrepresented defendants.
Alaska has created a self-help website for debt-collection cases and New Jersey launched a new, simpler online system for self-represented litigants. Other states are simplifying the language in legal documents and providing information in multiple languages.
The report identifies three policy solutions that can address fairness and improve civil justice system:
- Improve data collection and tracking on debt claims cases.
- Review and update state policies and court rules and practices to encourage the participation of both plaintiffs and defendants in debt claim cases.
- Modernize the court system, including the use of technology, to make it easier for users, especially those without an attorney, to receive and provide easy-to-understand information.
To learn more, register for this Sept. 22 webinar hosted by The Pew Charitable Trusts and the Aspen Institute, titled “How States Are Responding to the Rise in Debt Collection Cases.”
Heather Morton covers debt collection policy for NCSL.
Tatiana Follett is an intern in the Employment, Labor and Retirement Program at NCSL.