A Pound of Flesh The Criminalization of Private Debt A Pound of Flesh The Criminalization of Private Debt © 2018 AMERICAN CIVIL LIBERTIES UNION Contents Executive Summary .................................................................................................................................... 4 How the Court System Is Used to Send Debtors to Jail .................................................................... 5 The Role of Civil Court Judges ............................................................................................................. 6 Prosecutors and Debt Collectors as Business Partners ................................................................... 7 A System That Breeds Coercion and Abuse ....................................................................................... 7 Key Recommendations ......................................................................................................................... 7 A Nation of Debtors on the Financial Edge .............................................................................................. 9 The Debt-to-Jail Pipeline ............................................................................................................................12 State and Federal Laws That Allow the Jailing of Debtors .............................................................14 When Judges Reflexively Issue Arrest Warrants for Debtors .......................................................15 How Courts Use the Threat of Jail to Extract Payment ...................................................................16 Abuse of Contempt and the Unlawful Return to Debtors’ Prisons ................................................18 For Debtors, the Trauma of Arrest and Jail ............................................................................................19 No Notice, No Evidence, No Attorney ......................................................................................................21 Violations of Right to Counsel When Liberty Is at Stake ............................................................... 23 Partnerships Between Prosecutors and Check Collection Companies .............................................. 26 How Prosecutors Profit From Contracts With Check Collection Companies ............................. 29 Abusive Practices in a Poorly Regulated Industry ................................................................................ 32 Violations of Federal and State Consumer Protection Laws ......................................................... 35 Breaches of Fundamental Human Rights .............................................................................................. 38 Recommendations .....................................................................................................................................40 Acknowledgments ...................................................................................................................................... 44 Appendix I: Case Studies .......................................................................................................................... 45 Case Studies: Arrest Warrants and Jailing in Debt Collection Cases .......................................... 45 Medical Debts ............................................................................................................................... 45 Student Loans and Other Education Debts ............................................................................. 46 Housing Debts .............................................................................................................................. 48 Household Debts ..........................................................................................................................50 Credit Card and Other Consumer Debts .................................................................................. 52 Auto Debts .................................................................................................................................... 54 Payday and Other High-Interest Loans .................................................................................... 55 Case Studies: Abuses by Check Collection Companies in Partnerships With Prosecutors .....56 Appendix II: Federal and State Laws Authorizing the Arrest and Jailing of Debtors .................... 60 Appendix III: Documents ..........................................................................................................................66 Endnotes .....................................................................................................................................................80 Executive Summary An estimated 77 million Americans—one in three adults—have a debt that has been turned over to a private collection agency. Thousands of these debtors are arrested and jailed each year because they owe money. Millions more are threatened with jail. The debts owed can be as small as a few dollars 1 in 3 and can involve every kind of consumer debt, from Americans has a debt car payments to utility bills to student loans to medical fees.1 These trends devastate communities that has been turned across the country as unmanageable debt and over to a private household financial crisis become ubiquitous, and they impact Black and Latino communities most collection agency. harshly due to longstanding racial and ethnic gaps in poverty and wealth. 1,000 cases in which civil court judges issued arrest Debtors’ prisons were abolished by Congress in warrants for debtors, sometimes to collect amounts 1833 and are thought to be a relic of the Dickensian as small as $28. These cases took place in 26 states— past. In reality, private debt collectors—empowered Arizona, Arkansas, California, Colorado, Florida, by the courts and prosecutors’ offices—are using Georgia, Idaho, Illinois, Indiana, Kansas, Louisiana, the criminal justice system to punish debtors and Maryland, Massachusetts, Michigan, Minnesota, terrorize them into paying even when a debt is in Missouri, Nebraska, Ohio, Oregon, Pennsylvania, dispute or when a debtor has no ability to pay. Rhode Island, Tennessee, Texas, Utah, Washington, The criminalization of private debt happens when and Wisconsin—and Puerto Rico and the Northern judges, at the request of collection agencies, issue Mariana Islands. arrest warrants for people who failed to appear in Even without arrest warrants, the mere threat of court to deal with unpaid civil debt judgments. In jail can be effective in extracting payment—even many cases, the debtors were unaware they were if that threat is legally unfounded. In the case of sued or had not received notice to show up in court. debts involving bounced checks, private collection Tens of thousands of these warrants are issued companies now have contracts with more than 200 annually, but the total number is unknown because district attorneys’ offices that allow them to use states and local courts do not typically track these the prosecutor’s seal and signature on repayment orders as a category of arrest warrants. In a review demand letters. It’s estimated that more than 1 of court records, the ACLU examined more than million consumers each year receive such letters 4 American Civil Liberties Union threatening criminal prosecution and jail time if they CASE STUDY do not pay up. But review of company practices has documented that letters often falsely misrepresent Arrested for a student loan the threat of prosecution as a means of coercing debt payments from unknowing consumers. In September 2015, Gordon Wheeler was arrested by seven or eight U.S. Marshals at his Texas home for failure to appear at the U.S. District Court for the Southern District How the Court System Is Used to of Texas. Wheeler was unable to show up in Send Debtors to Jail court because he had just had open-heart surgery. “You just coming over here serving When Americans fail to repay financial obligations, me papers saying I got to show up and I just creditors usually hire debt collectors to go after the told you I had open-heart surgery two or debtors or sell the debts to companies that specialize three weeks ago…so I’m not a well man,” he in collections. More than 6,000 debt collection firms said. The original $2,500 federal student loan he obtained to pay for trucking school operate in the United States, collecting billions of in 1983 had mushroomed into $12,000 with 2 dollars each year. interest and fees. Wheeler is retired and subsists on Social Security and disability, These collectors flood small-claims and other state and says he cannot pay it, noting, “You can’t courts with lawsuits seeking repayment. Millions squeeze blood out of a turnip.”5 of collection lawsuits are filed each year in state and local courts that have effectively become collectors’ courts. The majority of cases on many state court also ask courts to require defendants to be in court dockets are debt collection suits,3 and in many state for post-judgment proceedings. At these proceedings, courts, debt purchasers file more suits than any other often called “judgment debtor examinations,” type of plaintiff. defendants are required to answer questions about Debt collection lawyers can file hundreds of suits a their wages, bank account balances, property, and day, often with little evidence that the alleged debt assets. Debt collectors use these responses to take is actually owed.4 Once a lawsuit is filed, the process other steps to collect