A recent report, “No Exit,” published by the Maryland Consumer Rights Protection Coalition found that debt collection practices in Maryland deepen poverty and widen the racial wealth gap. The report offers a number of recommendations for eliminating policies that criminalize poverty.
By the end of 2018, consumer debt is projected to reach $4 trillion – an all-time high. Today, Americans owe more than 26% of their annual income to consumer debt, which includes non-mortgage related debt such as credit cards, auto loans, and student loans. In 2010, 22% of Americans annual income went to their consumer debts.
Although multiple factors contribute to rising consumer debt, one key driver is student loan debt, which recently topped 1.5 trillion, making it the second highest source of consumer debt after mortgages. Medical expenses and housing costs have risen faster than income – wages remain stagnant and for many workers, particularly low-income workers, this creates a perfect storm of deep indebtedness – a storm most cannot emerge from unscathed.
In Maryland, the cost of housing, student loan debt, and medical expenses have increased the debt burden of many, while wages have not kept pace – particularly for working families.
Another type of debt burden a consumer may carry is civic debt – debt owed to the State. Civic debt is usually acquired without the consumer intentionally choosing to take on the debt, as is the case with fees for emergency services, bills at State-owned hospitals, and when toll roads are the best or only way to get to work.
For too many low-income Marylanders, the debt burden becomes unmanageable and they fall behind on their payments. Maryland law provides numerous ways for creditors to collect from indebted individuals including body attachments and garnishments. To collect State-owed debt, Maryland uses fines, fees, and flags on vehicle registration to compel consumers to pay. Yet, there are few measures within Maryland to provide methods for an individual to repay a debt in an affordable, sustainable manner that doesn’t exacerbate an already fragile financial situation. Payment plans, assistance programs, and legal counsel are rare, and ability to repay considerations are non-existent.
Although Maryland has some strong consumer protections in place to curtail abusive and deceptive debt collection practices, when it comes to civic debt, debt owed to the state, Maryland has exempted itself from the very protections it requires of private debt collectors.
The concomitant failures to consider either ability-to-repay or affordability options, coupled with outdated, punitive practices to collect debts results in a system that deepens poverty and widens the racial wealth gap for low-income Marylanders.
Using a mix of qualitative and quantitative analysis, the Maryland Consumer Rights Coalition’s (MCRC) findings reveal the disparate impact of debt and debt collection on communities-of-color for both consumer and civic debt.
- The existing racial wealth gap contributes to non-white borrowers having more consumer debts in collection, a higher debt load, and more student debt than white borrowers. 43% of non-white residents had at least one debt in collection, while only 19% of white borrowers had a debt in collection. 20% of non-white individuals had student loan debt compared to 14% of white residents.
- In 2016, there were 46,719 debt collection cases filed just in Prince George’s County, Baltimore County, and Baltimore City.
- Nearly 400 body attachments were issued to consumers in Baltimore City and County for debts under $5,000 during a six-month period. Body attachments were issued in about 14% of the debt-collection cases.
- More debt collection suits are filed in Maryland counties that have large communities-of-color.
- 76,611 Marylanders faced garnishment in 2016; 48,868 were wages garnishments, 27,744 were bank account seizures in 2016.
- Between 2015 and 2017, Maryland’s Central Collection Unit (CCU) used the District Court system to collect on 12,102 State-owed debts, totaling just over $18M.
- Racial demographics are a better predictor than income of where, and for how much, CCU sued Marylanders for debt than economic indicators. Geographic indicators had the strongest relationship with locations in which CCU sued for debt.
- Maryland explicitly exempts itself from the three-year statute of limitations on non-monetary judgment debt, and the twelve-year statute of limitation on monetary judgments.
- The State has access to consumer data through tax filings, property records, employment and wage records, and financial records. This data allows Maryland to track the financial lives of debtors who have limited income and assets. When a debtor’s financial situation improves, Maryland revives collection efforts and begins garnishing wages and assets.
- Eliminate the use of body attachments for consumer debts below $5,000.
- At a minimum, establish that no one can be arrested when court is not in session and eliminate bail requirements for consumer debt cases. An individual could be picked up, answer questions about their assets, and then released on their own recognizance.
- Establish that a body attachment may only be issued if both oral exam and show cause orders were delivered to the person to be served not left with a co-resident or served through certified mail.
- Require any post-judgment discovery to include a list of all types of income and assets that are exempt. This form should explain how to claim these exemptions.
- Require judgment creditors to pursue all out-of court post-judgment discovery options before requesting a post-judgment hearing.
- Raise debt exemptions for wage garnishment to a level that keeps a family of four out of poverty; in Maryland, that would be at least 60 times the Maryland minimum wage or 75% of wages, whichever is higher.
- Establish a right to legal counsel for consumer cases – especially in debt collection and landlord tenant cases.
- Establish a waiver of the 17% fee when a consumer requests a payment plan. Place checks on Maryland’s debt collection powers through legislation, regulation, and/or an order from Maryland’s Attorney General. Limits should include:
- A statute of limitations on civic debt;
- Ending use of confessed clauses in CCU payment agreements;
- Ending of immediate-suspension administrative flags on vehicle registration using;
- Ending financial incentives program for state-employed debt collection employees; and,
- Establishing an Ability-to-Repay (ATR) standard for civic debt following the model developed by the San Francisco Fines and Fees Task Force.
The Maryland Consumer Rights Protection Coalition (MCRC) is a statewide coalition of individuals and organizations that advances and protects the interests of consumers through education, advocacy, and training programs. MCRC works to ensure fairness and safety in the marketplace.