Warning: Debt collection tsunami coming
Consumers need greater protection from creditors
THERE’S A SECOND COVID-related wave about to hit families in the Commonwealth: a tsunami of debt collection activity that threatens our economic recovery. Even before the COVID-19 crisis, 20 percent of folks in Massachusetts had a debt in collection–rising to an eye popping 39 percent in communities of color, according to the Urban Institute. These numbers will only worsen as we face uncertainty around future COVID shutdowns and whether additional federal aid will be offered to people who have lost and are still losing work during this pandemic. The inevitable eviction tidal wave resulting from the end of the eviction moratorium will also increase debt collection activity by landlords for back rent.
But Massachusetts legislators can help our struggling families right now by passing the Debt Collection Fairness Act. Our representatives in the State House must ensure that the COVID-19 crisis does not result in Bay Staters, particularly those in communities of color that have been hardest hit by the pandemic, entering a never-ending cycle of debt.
Right now, large out-of-state debt buyers who purchase portfolios of old credit card accounts for pennies on the dollar can sue individuals in court for these alleged debts. If the court issues a judgment , the collector can hound a struggling consumer for 20 years to collect that judgment. The entire time, 12 percent interest accrues on it. In the entire nation, only Vermont and Rhode Island also charge interest on judgments that high. Folks end up paying these debts for decades because they can’t afford to make payments large enough to reduce the principal.
After a judgment is issued, judges can require consumers to appear in court for payment review hearings. If the consumer fails to attend (even if they never received the notice), the court can issue a civil arrest warrant. In 2016, four randomly selected Massachusetts small claims courts issued a total of 1,325 civil arrest warrants in a single year. Abusive creditors use these civil arrest warrants to frighten consumers into making payments they can ill afford or might not even be legally obligated to make. No one in the Commonwealth should be imprisoned, or threatened with imprisonment, for failure to pay a consumer debt.
The Debt Collection Fairness Act will increase the amount of wages protected from seizure by creditors to $892.50 per week and allow 10 percent of wages above that amount to be garnished, reduce the interest rate on monies owed to debt collectors to 6 percent from 12 percent, and reform the use of civil arrest warrants.The Debt Collection Fairness Act is a powerful and necessary economic development and recovery tool that will help keep consumers in their homes, able to return to work, and able to invest their wages in their local businesses and communities. Massachusetts lawmakers should pass this commonsense legislation now to help the vulnerable families, particularly in communities of color, who were already disproportionately impacted by debt collection, weather the economic storm that we fear has only just begun.
Jacquelynne Bowman is the executive director of Greater Boston Legal Services and Richard Dubois is the executive director of the National Consumer Law Center with headquarters in Boston.