Report calls for State of California to engage in public process in negotiating contracts with debt collectors; fines and fees can spiral people into poverty.
SAN FRANCISCO, May 30, 2018 – As several master contracts with the State of California and third party private debt collectors are negotiated behind closed doors, the California Reinvestment Coalition (CRC) published a new report, titled Unholy Alliance: California Courts’ Use of Private Debt Collectors . CRC’s research shows how California’s use of private debt collectors to collect on delinquent fines and fees debt harms low-income communities and communities of color, while generating very little in the way of revenue for county courts throughout California. CRC examined the agreements made between the State of California, 17 specific counties with high rates of adults of color, and contracted private debt collectors, as well as Ability-to-Pay programs in these counties.
These eleven master contracts between the State of California and private debt collection agencies are set to expire at the end of December 2018. These master contracts set the stage for participating agreements for counties. CRC filed information requests with the State of California to receive records on the negotiations, but the Judicial Council of California would not provide any claiming they are exempt until negotiations are completed. “It’s imperative that advocates and communities are kept informed about these negotiations. Transparency and information sharing is the hallmark of our democracy. The public has the right to know, so that we can see who is most affected by debt collection, provide information to the state about impacted communities, and participate in the process,” said Paulina Gonzalez, Executive Director of the California Reinvestment Coalition.
“Both counties and state-wide governments need to take steps to ensure that revenue is not being made off the backs of those who can afford it least. It is heartening to see the progress that has been made in reforming our criminal justice system, but fines and fees must abolished so that counties are not looking to raise revenue from those who can afford it least,” said Aila Ferguson, Legal Fellow at the ACLU of Southern California.
“This system perpetuates a cycle of debt and poverty that disparately affects people of color; people of color are disproportionately represented in the criminal justice system in California and this involuntary debt can affect the building of intergenerational wealth,” said Theresa Zhen, Staff Attorney at the East Bay Community Law Center, which often sees clients affected by this system.
“Our research shows that collecting on debt from court-ordered fines and fees is a way that counties try to generate revenue. However, the amount collected is minuscule. Private debt collectors are incentivized to collect from poor people and people of color by any means possible, walking away with most of what is paid,” said Paulina Maqueda Escamilla, Researcher at the California Reinvestment Coalition. “Lack of regulation for private debt collectors for collecting on these types of debt is inherently problematic. Why do private debt collectors get to play by a different set of rules, especially when little of what they collect on is returned to the county?”
In California, 64.4% of adults arrested, and thus subject to fines and fees, are people of color. These fines and fees disproportionally impact communities of color due to systemic race and criminal justice issues such as higher rates of economic instability, over-policing of neighborhoods, and higher traffic stop rates.
Key findings of this report include:
1) Court-ordered debt collected by private agencies makes up an insignificant amount of a county’s total revenue, ranging from 0.001-0.46%, meaning none of the studied counties derive even half of a single percent of their revenue from the collection of court-ordered debt by debt collectors.
2) Court-ordered debt is not covered under the Fair Debt Collection Practices Act (FDCPA), a federal law passed in 1977 to protect consumers from unfair debt collection practices, nor is it covered by California’s version of FDCPA, called the Rosenthal Fair Debt Collection Practices Act (RFDCPA).
3) Private debt collections agencies make commissions off the debt they collect, ranging from 12%-18% for newly delinquent debt to 14.9-25.8% for delinquent debt over five years old.
The report makes the following recommendations:
1) Counties should end contracts with debt collectors.
2) For those counties that do contract with private debt collectors, court-imposed debt collection practices should be subject to debt collection protections outlined in FDCPA and RFDCPA to ensure debt is collected fairly. This debt should also not be reported to credit bureaus.
3) Counties should discharge debt before sending it to private debt collectors.
4) Transparency regarding debt collections practices, contract negotiations, and Ability-to-Pay programs should be increased; and a public process for communities to give feedback should be instituted.
5) Delinquent debt should not be transferred to the California Franchise Tax Board.
6) California should create statewide, uniform and accessible Ability-to-Pay evaluations and processes, regardless of type of court.