Category Archives: Civil Law

The battle over right to repair is a fight over your car’s data

by Leah Chan Grinvald, University of Nevada, Las Vegas and Ofer Tur-Sinai, Ono Academic College

Cars are no longer just a means of transportation. They have become rolling hubs of data communication. Modern vehicles regularly transmit information wirelessly to their manufacturers.

However, as cars grow “smarter,” the right to repair them is under siege.

As legal scholars, we find that the question of whether you and your local mechanic can tap into your car’s data to diagnose and repair spans issues of property rights, trade secrets, cybersecurity, data privacy and consumer rights. Policymakers are forced to navigate this complex legal landscape and ideally are aiming for a balanced approach that upholds the right to repair, while also ensuring the safety and privacy of consumers.

Understanding telematics and right to repair

Until recently, repairing a car involved connecting to its standard on-board diagnostics port to retrieve diagnostic data. The ability for independent repair shops – not just those authorized by the manufacturer – to access this information was protected by a state law in Massachusetts, approved by voters on Nov. 6, 2012, and by a nationwide memorandum of understanding between major car manufacturers and the repair industry signed on Jan. 15, 2014.

However, with the rise of telematics systems, which combine computing with telecommunications, these dynamics are shifting. Unlike the standardized onboard diagnostics ports, telematics systems vary across car manufacturers. These systems are often protected by digital locks, and circumventing these locks could be considered a violation of copyright law. The telematics systems also encrypt the diagnostic data before transmitting it to the manufacturer.

This reduces the accessibility of telematics information, potentially locking out independent repair shops and jeopardizing consumer choice – a lack of choice that can lead to increased costs for consumers.

Also, these telematics systems fall outside the scope of the original Massachusetts legislation and the nationwide memorandum of understanding. Recognizing the pivotal role diagnostic data plays in vehicle maintenance and repair, 75% of Massachusetts voters approved a ballot initiative on Nov. 3, 2020, to amend the state’s repair legislation. The amendment aims to ensure that the switch to telematics does not curtail an effective right to repair vehicles.

Specifically, the new law requires manufacturers selling telematics-equipped vehicles from the 2022 model year onward to provide car owners and their chosen repair shops access to the vehicle’s mechanical data through an interoperable, standardized and open-access telematics platform. Access should also encompass the ability to relay commands to components of the vehicle, if necessary, for maintenance, diagnostics and repair. Voters in Maine overwhelmingly approved a similar measure on Nov. 7, 2023.

However, the Massachusetts law was the subject of a lawsuit in federal court shortly after voters approved it in 2020, and it was suspended until June 1, 2023.

torso of a person holding a laptop computer in front of a car with its hood raised showing the engine compartment
Repairing cars today is as much about data as it is nuts and bolts, but increasingly, carmakers are locking that data away from car owners and independent repair shops. Nenad Stojkovic/Flickr, CC BY

Safety and privacy concerns

While the amendment makes significant strides toward creating a level playing field in vehicle maintenance and repair, the National Highway Traffic Safety Administration and car manufacturers have raised concerns about the legislation.

The National Highway Traffic Safety Administration’s main concern revolves around cybersecurity vulnerabilities with potential ramifications for vehicle safety, particularly the amendment’s provision for two-way access. A hacker could potentially take control of a car’s critical systems like accelerator, brakes and steering. Consequently, the agency recommended that car manufacturers not adhere to the law.

A related argument is that Massachusetts law is preempted by federal law. This forms the basis of a lawsuit filed in November 2020 by the Alliance for Automotive Innovation against Massachusetts’ attorney general.

The manufacturers assert that abiding by the state law would inevitably put them in breach of federal statutes and regulations, such as the National Traffic and Motor Vehicle Safety Act. This lawsuit was pending as of press time, although the Massachusetts attorney general declared the law effective as of June 1, 2023.

Critics also emphasize the privacy concerns associated with open access to telematics systems. Granting third-party access could expose personal details, especially real-time location data. Advocacy groups warn that this information might be used as a tracking tool by potential abusers and others aiming to exploit people.

Recent developments

The National Highway Traffic Safety Administration and Massachusetts’ attorney general appear to have reached a consensus on alterations to the law, and the administration has dropped its recommendation that manufacturers disregard the law.

The primary adjustment would mean a telematics platform would be in compliance with the right to repair law if it were accessible within close proximity to the vehicle – for example, via Bluetooth. The National Highway Traffic Safety Administration confirmed that this would be safer and align with federal law.

However, repair advocates have criticized this change as unduly restrictive. They argue that it gives authorized car dealers an unfair advantage over independent repair shops because the manufacturers allow the dealers to access the data remotely.

A new federal bill, the REPAIR Act, was recently introduced in the House, seeking to require vehicle manufacturers to provide access to in-vehicle diagnostic data, including telematics. This bill’s first hearing occurred on Sept. 27, 2023, and the bill passed out of subcommittee on Nov. 2.

Consumer Reports is among the organizations that support right-to-repair legislation.

Who owns your car’s data?

One issue left unresolved by the legislation is the ownership of vehicle data. A vehicle generates all sorts of data as it operates, including location, diagnostic, driving behavior, and even usage patterns of in-car systems – for example, which apps you use and for how long.

In recent years, the question of data ownership has gained prominence. In 2015, Congress legislated that the data stored in event data recorders belongs to the vehicle owner. This was a significant step in acknowledging the vehicle owner’s right over specific datasets. However, the broader issue of data ownership in today’s connected cars remains unresolved.

Whether data should be subject to property rights is a matter of debate. If deemed property, it seems logical to award these rights to the vehicle owner because the vehicle creates the data while used by the owner. However, through contractual terms and digital locks, manufacturers effectively secure control over the data.

The question of ownership aside, the crux of the matter for right to repair is guaranteed access for vehicle owners to their vehicles’ data.

A way forward

While concerns surrounding the Massachusetts legislation have merit, we believe they should not overshadow the need to preserve a competitive space in the auto repair sector and preserve the right to repair. This matters not only for safeguarding consumers’ autonomy and ensuring competitive pricing, but also for minimizing environmental waste from prematurely discarded vehicles and parts.

The hope is that policymakers and the industry can strike a balance: upholding the right to repair without compromising safety and privacy. One possibility is developing tools that segregate sensitive personal information from mechanical data.

Ultimately, a successful implementation of the new law in Massachusetts may pave the way for a renewed nationwide memorandum of understanding, capturing the essence of the original memorandum of understanding and preserving the right to repair cars in the face of rapidly advancing technologies.The Conversation


Republished with permission under license from The Conversation.

Is Pappas Toyota Engaging in Unethical Car Dealer Practices?

by Randall Hill
Update added 7/24/2023
Update added 7/28/2023

My friend "G" helped her daughter purchase a used vehicle from Pappas Toyota in St. Peters, MO, but now suspects the dealer committed fraud. Although "G" gave me permission to tell her story as a teachable moment; I'm not using "G's" name or her daughter's because "G" is a law enforcement officer.

These teachable moments are offered to provide our readers with real-life case situations that provide facts and analysis and possible remedies for common legal situations.

Facts and Background

On Monday, February 20, 2023, "G" sent her 19-year-old daughter, "T", to Pappas Toyota to test drive a 2013 Nissan Pathfinder that "G" saw online. "G" was unable to go with her daughter because "G" was working an extreme amount of overtime at that point. "G," asked me to accompany her daughter because "T" was nervous to go by herself. 

After the test drive, "T" and I sat down with the salesperson to discuss preliminaries, and after several phone calls back and forth to "G", "G" took over negotiations with the salesperson over the phone. "G" was assured over the phone by the salesperson that the Pathfinder had no known issues, had gone through an extensive vehicle inspection process, had been state inspected, was a solid vehicle, and should provide reliable and trouble-free transportation for some time. In fact, the dealer stayed fairly firm on the price because the vehicle was in exceptional condition. The Pathfinder was purchased on February 24th.

On or about March 27th, Pappas was called because the Pathfinder's engine light came on and the vehicle was shaking when driving 40 mph or higher. An appointment was set for April 4th, Pappas performed a diagnostic test and replaced the "Plenum Gasket, Ignition Coil, and spark plugs". Pappas assured "G" and "T" that this would solve the problem and they spent $726 for that service. A few days later, the engine light came back on and when "T" called Pappas to report it, the service department told her there was no problem and that the engine light just needed to be reset. Pappas told "T" to look in the owner's manual for instructions on how to reset the light.

On July 12th, the Pathfinder stalled on Halls Ferry near Lindbergh and had to be towed about two blocks to Ronsick Auto Care. They performed a diagnosis on July 13th and determined that the entire Catalytic Converter System had failed. They further explained that the system includes three Catalytic converters and that it takes a substantial amount of time for the entire system to fail. Since the system includes three catalytic converters, the estimate to replace including labor was over $5,000. When "G" explained that they had just purchased the vehicle in February, Ronsick's professional opinion was that the vehicle was sold with a bad catalytic converter system.

On Thursday, July 13th, "T", phoned the salesperson at Pappas Toyota who sold the vehicle and explained the situation, and asked if Pappas would fix or allow the Pathfinder to be exchanged for another vehicle but was told Pappas couldn't do anything since she hadn't purchased an extended warranty.

On Friday, July 14th, a letter was faxed to Pappas, detailing the information above and that "G" and "T" believed the Pathfinder's conditions were preexisting prior to their purchase. Fraud was suspected because as automotive experts, Pappas knew or should have known the actual condition of the Pathfinder but did not disclose and maybe even illegally reset the engine check light to conceal the defects.

G & T chose to purchase from Pappas because they believe it to be a reputable and honest business and they were trying to avoid running into this sort of situation from a disreputable used car dealer. They demanded that Pappas make them whole and repair the Pathfinder at no cost per the Missouri Merchandizing Practices Act RSMo 407.020 et al. The following was stated in the letter to Pappas:

"This is a good faith attempt to resolve this issue, however, If we do not hear from Pappas by 2 pm today,  Friday, July 14th, we will take the following actions.

  • My daughter, several of her friends, and family members are preparing an informational picket to take place on the public areas outside of Pappas Toyota.
  • Complaints will be filed with the Missouri Attorney General's Office and published on social media and sites such as the Better Business Bureau, Yelp, Consumer Affairs, and others.
  • A copy of this letter and a short press release will be sent to local media outlets.

If those activities produce no results, we will file a small claims complaint with St. Charles Circuit Court and let a judge decide if Pappas should have known about the defects prior to the sale." 

Pappas Toyota Non-Responsive

G received no response from Pappas Toyota, since they didn't attempt to contact her, she filed complaints with the Missouri Attorney General's Office and several consumer complaint sites Friday evening. Because of the weather forecast, T canceled a planned information picket for Saturday, July 15th, however, she may reschedule later. 

G is now researching and organizing documents and plans to file a small claims suit against Pappas Toyota. This page will be updated when additional information about the outcome is available. 

Fraud and Lawsuit Analysis

In Missouri courts, small claims are limited to $5,000, see Missouri Rules for Small Claims Court and the Missouri Small Claims Court Handbook (PDF). According to the fee schedule for St. Charles Circuit Court, the filing fee will be $20.50. Because their claim is potentially greater than $5,000, G & T are also considering filing a standard civil lawsuit.  RSMO 402.025 allows for possible reimbursement of attorney fees and punitive damages. If a civil vs small claims suit is filled, G & T will seek to recover the $729 spent in April for repairs, the cost to replace the catalytic converter system, lost time from work, car rental reimbursement, any other fees and cost associated with the action including attorney fees and punitive damages. 

Missouri Revised Statute 400.2-314 provides an implied warranty of merchantability and the Missouri Supreme Court ruled in Herbert v. Harl, 757 SW 2d 585 that the statute applies to car dealers. A “warranty of merchantability” means the dealer promises the car will do what it's supposed to do: it will run. However, there are exclusions under RSMO 400.2-316, if the sales contract contains the term "as-is" the warranty of merchantability does not apply

Pappas Toyota will most likely deny liability by stating that the vehicle was sold "as-is", however, that argument does not exempt them from liability under Missouri Merchandizing Practices Act RSMo 407.020 et al.

The Federal Trade Commission’s (FTC) Used Car Rule requires dealers to display a Buyers Guide in every used car they offer for sale and to give it to buyers after the sale. Pappas Toyota did not display a Buyers Guide when T and I test-drove the vehicle, however, they did have her sign one at the time of sale. Before and immediately after the test drive, I took several photos of the entire vehicle to record the condition and show to G, after reviewing those photos, I noticed there was no buyer's guide. 

2013 Pathfinder on February 20, 2023, immediately after the test drive, T is on the left in the white coat.

In the photo above, there is a sign in the building's window advertising Pappas Premium, which is a peace of mind pledge. The following statement appears on the PappasToyota.com Pappas Premium page,  "A pre-owned vehicle from Pappas Toyota isn’t an ordinary used car. After passing a rigorous inspection and reconditioning process, it’s added to our lot with Pappas Premium, a nationwide 2-Year/100,000-Mile Limited Powertrain Warranty, with 24-Hour Roadside Assistance, One Year of Tire Hazard Protection, and more!" There is no disclaimer stating that some vehicles are excluded. Any reasonable person reading this statement would assume that this applies to all used vehicles sold at Pappas. 

This assurance is one of the reasons G sent her daughter to Pappas. At the time of publication, T's 2013 Nissan Pathfinder according to CarFax has a retail value of $10,220, a private party value of $7,700, and a trade-in value of $4,400. Let's assume Pappas purchased the Pathfinder for around $4,700. The reason a customer would then respond to Pappas' advertised selling price of $10,700 is that it is expected that Pappas inspected and reconditioned the vehicle as stated in the Pappas Premium pledge. Otherwise, customers could simply purchase the vehicle from a private seller and save thousands of dollars. 

Under the Missouri Merchandising Practices Act, false pretense, false promise, misrepresentation, unfair practice, or the concealment, suppression, or omission of any material fact in connection with the sale or advertisement of any merchandise in trade or commerce is an unlawful act. Pappas' salesperson mentioned how their used vehicles undergo an extensive inspection which matches with the Pappas Premium statement of a "rigorous inspection and reconditioning". A dealer has an affirmative duty to tell you certain “material facts” about a vehicle, whether or not you ask for them. This includes disclosing if a vehicle was a “lemon law” buyback, a prior rental, a prior salvage, or in an accident requiring major repair work such as frame or suspension damage.

Pappas Toyota is the expert here. It is reasonable to expect that if the vehicle needed to have the "Plenum Gasket, Ignition Coil, and spark plugs replaced, the "rigorous inspection" should have identified those issues prior to the sale. It is also reasonable that Pappas should have known that the catalytic converter system was bad. How many of the three catalytic converters have to fail before the engine light comes on?  

According to Automotive Diagnostic Repair Help: "As a rule, when converter efficiency drops below 90 to 95 percent, it will set off a catalyst efficiency code. A vehicle with an illuminated Check Engine Light and ANY trouble codes will NOT pass an emissions check. A fouled converter may or may not cause an increase in backpressure, but eventually, it might if carbon starts to build in the honeycomb restricting the passageways. The important point to remember here is that converters don't just foul or plug up for no good reason. There is always an underlying cause which must be diagnosed and corrected before the problem can be eliminated. Identifying a plugged or fouled catalytic converter is only half the fix. Why? Because replacing a bad converter will only solve the current problem temporarily. If the underlying cause of the converter failure is not also diagnosed and repaired, sooner or later the new converter will likely suffer the same fate."

According to RepairSmith.com and several other sites, a vehicle normally can be driven indefinitely with a bad catalytic converter. A clogged catalytic converter can only prohibit you from driving your automobile in the most severe circumstances. According to PerformanceMuffler.net, "A failing car’s catalytic converter will create a significant backpressure that lowers your car’s engine performance. Whenever this happens, you will notice your car shaking frequently". 

On February 15th, the date that Pappas Toyota performed the emissions inspection, the vehicle mileage was 143,287. On April 4th when Pappas performed the repairs, the mileage was 145,283. The mileage recorded by Ronsick on July 12 was 149,069. The Pathfinder was driven less than four thousand miles since Pappas supposedly took care of the vehicle’s issues.

When a small claims lawsuit is filed, the plaintiff (the person suing), bears the burden of proof and must convince a judge. This requires the plaintiff to put forth evidence in the form of witness testimony, documents, or objects. There are four elements that need to be proven to win a Missouri Merchandizing Practices Act suit.

  • (1) the plaintiff purchased, or attempted to purchase, merchandise (which includes services) from a defendant in the state of Missouri;
  • (2) the plaintiff’s purchase of, or attempt to purchase, merchandise (or services) was for personal, family, or household purposes;
  • (3) the plaintiff suffered an ascertainable loss of money or property; and
  • (4) the plaintiff’s ascertainable loss was a result of an action by a defendant that has been declared unlawful by § 407.020 RSMo.

In all likelihood, the condition of the plenum gasket, ignition coil, and spark plugs would have resulted in a check engine light prior to the sale. Additionally, since the catalytic converter was so bad that it failed just three months later indicates there were issues for a while even before G& T purchased it. Remember, even the mechanic that the car was towed to agrees that this was a preexisting condition, so why didn't Pappas catch this, was it fraud or negligence? Either way, it's a material fact that Pappas should have known that wasn't disclosed. However, a vehicle with a catalytic converter so bad that it causes the car to stall shouldn't have passed inspection in the first place which increases the likelihood fraud was involved. It's highly probable a judge will agree.

If you are a former or current employee of Pappas Toyota, a customer, or someone who has helpful information concerning this case contact us.


First Update 7-24-2023

G contacted the St. Charles Circuit Court about filing the small claims suit against Pappas Toyota and was told that she must first send a certified demand letter to the registered agent. She visited the Missouri Secretary of State's office and search their records of business listings and discovered that Pappas Toyota is owned by North Motors Inc. and that Michael Pappas become the registered agent in March 2023, his father Thomas Pappas (the former registered agent), passed away the previous month. G sent her demand letter on Friday, July 21st.

On Monday, July 24th, G received an email from the Attorney General which included Pappas Toyota's response prepared by their attorney including three attached documents; "Retail buyer's order, buyer's guide, and a document declining extended service contract. Pappas' attorney as expected cited the sale as-is but also asserted the parties agreed to arbitration. Arbitration is a procedure in which a dispute is submitted, by agreement of the parties, to one or more arbitrators who make a binding decision on the dispute. In choosing arbitration, the parties opt for a private dispute resolution procedure instead of going to court.

The irony here is that Section (a) of the attached Pappas arbitration clause states; "The Federal Arbitration Act, not state law, shall govern the arbitration process and the question of whether a claim is subject to arbitration. The customer, however, retains the right to take any claim, controversy or dispute that qualifies to small claims court rather than arbitration." The Pappas Toyota arbitration clause itself allows for issues to be taken to small claims court instead of arbitration. The important lesson is to carefully read any document provided by the opposition or their attorney.

An arbitration clause in a contract is usually binding, however, the Missouri Supreme Court has ruled that such clauses cannot waive the protection provided by the Missouri Merchandising Practices Act (MMP). See Shaffer v. Royal Gate Dodge where the dealer tried to compel arbitration but the court ruled the arbitration clause unenforceable.

In the case of Huch v. Charter Communications, the Missouri Supreme Court stated the following often while citing other relevant cases:

"the public policy involved in Chapter 407 is so strong that parties will not be allowed to waive its benefits."

In short, Chapter 407[, the MPA,] is designed to regulate the marketplace to the advantage of those traditionally thought to have unequal bargaining power as well as those who may fall victim to unfair business practices. Having enacted paternalistic legislation designed to protect those that could not otherwise protect themselves, the Missouri legislature would not want the protections of Chapter 407 to be waived by those deemed in need of protection. Furthermore, the very fact that this legislation is paternalistic in nature indicates that it is fundamental policy: "a fundamental policy may be embodied in a statute which … is designed to protect a person against the oppressive use of superior bargaining power."

Likewise, in Whitney v. Alltel Communications, Inc., a contract provision requiring arbitration was found to be unconscionable because giving it effect would deny protections afforded by the merchandising practices act. 173 S.W.3d 300, 314 (Mo. App.2005). The court held that to allow companies to avoid the consumer protections established in the act "would effectively strip consumers of the protections afforded to them under the Merchandising Practices Act and unfairly allow companies… to insulate themselves from the consumer protection laws of this State." Id. "This result would be unconscionable and in direct conflict with the legislature's declared public policy as evidenced by the Merchandising Practices Act and similar statutes."

Car dealers are required by the FTC to post a Buyers Guide before they display a vehicle for sale or let a customer inspect it for the purpose of buying it, even if the car is not fully prepared for delivery. The Buyers Guide must be displayed prominently and conspicuously on or in a vehicle when a car is available for sale. This means it must be in plain view and both sides must be visible. You can hang the Guide from the rear-view mirror inside the car or on a side-view mirror outside the car. You also can place it under a windshield wiper. The Guide also can be attached to a side window. A Guide in a glove compartment, trunk, or under the seat is not conspicuous because it is not in plain sight. Since the vehicle did not have a visible buyer's guide when T and I test-drove the vehicle, that violation could also be considered an omission per the MMP.

G & T are both listed as purchasers, however, T was the only signer to the contract which contains the arbitration clause. G & T financed the vehicle at a bank that only G had an account with at the time. Even if the arbitration clause was valid, and was not barred from being invoked in cases involving the MMP, it could be argued that the clause does not apply to G since she never signed it but does have a protectable interest.  

Pappas Small Claims Demand Letter

G
xxxx Address
Florissant, MO 63031
Phone number

July 21, 2023

Michael Pappas
President North Motors Inc.
D.B.A. Pappas Toyota
10011 Spenser Road
St. Peters, MO 63376

Dear Mr. Pappas,

This letter serves as a formal demand for payment of $5000, the partial cost to repair the prior damage that Pappas Toyota, knew or should have known existed before our purchase. Our claim is based upon the Missouri Merchandizing Practices Act, RSMo 407.020 et al, which applies even when merchandise is sold as-is.

I helped my 19-year-old daughter T purchase a 2013 Nissan Pathfinder from Pappas Toyota on February 24, 2023. We live in Florissant, however, the primary reason for choosing your business was the Pappas Premium pledge on your website; https://www.pappastoyota.com/pappas-premium/.

Unfortunately, a month later, we were forced to pay Pappas $729 for repairs which included the Plenum Gasket, Ignition Coil, and spark plugs. Those items should have been detected from the "rigorous inspection" you claim to perform on all used vehicles before being added to your lot.

A few days later, the engine light came back on and when Taylor called Pappas to report it, the service department told her there was no problem and that the engine light just needed to be reset. Pappas told Taylor to look in the owner's manual for instructions on how to reset the light.

Three months later, the entire catalytic converter system failed and the estimated cost to replace is $5,285, I have included a copy of the repair estimate with this letter. A second mechanic we consulted said it was nearly impossible that an inspection wouldn't have caught those issues. Both mechanics concluded the conditions existed before our purchase.

For more complete information about this claim, see the self-help legal blog that picked up our story: http://court.rchp.com/is-pappas-toyota-engaging-in-unethical-car-dealer-practices/

We have previously tried to resolve this matter, my daughter T contacted your salesperson D on Thursday, July 13th, I sent a fax to your manager, A on Friday, July 14th at 636-xxx-xxxx, and I sent an email to you on Monday, July 17th at, mpappas@pappastoyota.com. We lodged a complaint with the Missouri Attorney General, the Better Business Bureau, and others, however, as of the date of this letter, we have not received any response.

If we do not receive a full payment of $5,000 by August 4, 2023, we will have no choice but to file a claim in St. Charles small claims court. In lieu of payment, if arrangements are made by July 27th, we will allow Pappas the option to replace the catalytic converter system at their cost and provide us with the full Pappas Premium coverage as we no longer feel confident about the vehicle's condition when sold.

Since our total claim exceeds $5,000:

$5,285 – estimated catalytic converter system replacement and related work
+ $729 –  cost of prior repair April 4th
+ $112 – daughter lost wages

We reserve the right to file a standard civil case where we would seek full restitution including filing fees, attorney fees, tow charges, additional lost wages all other associated cost, and punitive damages.

This letter fulfills the St. Charles Circuit Court requirement of sending a certified letter to the registered agent of the business prior to filing suit. You have 10 days to respond after receipt of this letter to respond.

Sincerely,
G


Second Update 7-28-2023

Pappas Toyota responded to the Missouri Attorney General's office, but no one has reached out directly to G about her complaints. G contacted the Toyota Corporation to alert them about the questionable practices of their franchisee. In reply to Pappas Toyota's attorney's response to the Missouri Attorney General about her complaint, G sent the following:

Re: Complaint No. CC-2023-07-00xxx

Dear Ms. W:

After careful review of the Pappas response and exhibits, I'd like to point out the flaws and oversight. I've been a Deputy Juvenile Officer (DJO) in the City of St. Louis since 1996 and my deceased husband, M, was an attorney so I have some familiarity with the law.

Mr. K mistakenly stated our claims need to be arbitrated. Section 8(a) of Pappas Exhibit 1, states; "The Federal Arbitration Act, not state law, shall govern the arbitration process and the question of whether a claim is subject to arbitration. The customer, however, retains the right to take any claim, controversy or dispute that qualifies to small claims court rather than arbitration." Pappas' arbitration clause itself provides the authority to bypass arbitration and go to small claims court. However, the Missouri Supreme Court has ruled that such clauses cannot waive the protection provided by the Missouri Merchandising Practices Act (MMAP); see Shaffer v. Royal Gate Dodge, Inc., 300 SW 3d 556, where the dealer tried to compel arbitration but the court ruled the arbitration clause unenforceable.

Additionally, please note that both my name and my daughters' name appear as purchaser on Pappas Exhibit 1, however, only my daughter signed the agreement with the arbitration clause, therefore, I cannot be forced into arbitration. I would have preferred to accompany my daughter, however, I was working over 80 hours of overtime per pay period during that time leaving only a small window where we could both be present on February 24th. D, our Pappas salesperson, wasn't available during that window and informed me that I didn't need to be there to finalize the sale, but I was never informed about the arbitration clause or that the vehicle was sold as-is and not covered by the Pappas Premium pledge, Exhibit A. My negotiations with D were over the phone and by text and I didn't visit their location until after the deal was completed. The online advertisement for the Pathfinder did not mention it was as-is.

Car dealers are required by the FTC to post a Buyers Guide before they display a vehicle for sale or let a customer inspect it for the purpose of buying it, even if the car is not fully prepared for delivery. I was sent photos, Exhibit B, of the vehicle before and after the test drive which clearly shows there was no Buyers Guide.  Please note that Pappas Exhibit 2 may have been signed by my 19 year old daughter if they presented it, but the Buyer's Guide certainly does not contain my signature.

The MMPA is designed to regulate the market place to the advantage of those traditionally thought to have unequal bargaining power, as well as those who may fall victim to unfair business practices. The Missouri legislature enacted paternalistic legislation to protect those consumers that could not otherwise protect themselves, signifying it would not want the protection of chapter 407 to be waived by those deemed in need of protection. This very fact indicates that it is a fundamental policy embodied in a statute which is designed to protect persons against the “oppressive use of superior bargaining power.” Huch v. Charter Communications. Inc., 290 S.W.3d 721, 726 (Mo.banc 2009). Therefore, the fact that my daughter signed the Buyer Guide does not exempt Pappas Toyota from their pledge.

We raised fraud issues in our complaint, so the Pappas attorney's correspondence does not fully resolve this matter. We hope that the AG's office may provide assistance, however, we are fully prepared to file suit in St. Charles Circuit Court if it cannot. The secondary nature of our AG complaint was to notify this office of possible fraud and to prevent Pappas from making false statements on their website concerning the Pappas Premium and "rigorous inspections" and then using the "As-Is" sale, arbitration, and declining to purchase an extended service contract to bypass and insulate themselves from the consumer protection laws of this State.

I am attaching a copy of the Pappas Premium Pre-Owned Peace of Mind pledge from their website. Please note there is no disclaimer stating that some vehicles are not covered. This pledge would mislead any reasonable consumer into thinking all used vehicles sold by Pappas are covered. Several mechanics have explained that the vehicle we purchased shouldn't have passed a basic state inspection and that any sort of "rigorous inspection" certainly should have identified the issues we faced in March and then July.

The 2013 Nissan Pathfinder we purchased was advertised for $10,700 on the Pappas Toyota website. The price was negotiated down to $10,000, however, I refused to pay a $499 administrative fee. That fee was then subtracted from the sales price to equal the original $10,000 agreed upon. We were charged $759 in March for repairs, Exhibit C, and now face another $5,285 for the catalytic converter system, Exhibit D. The total of these repairs is more than 60 percent of the purchase price for a vehicle according to the, Pappas Pledge "is like no other used car". It is illegal for a car dealer to sell a vehicle with a failing emissions system.  

As part of my investigation and research, I pulled the Pathfinder's CarFax Report, Exhibit E. Please note that spark plugs and the ignition system was serviced on 11-06-2019 and the Plenum gasket was replaced on 09-21-2021. Keep in mind that the Plenum gasket, ignition coil, and spark plugs were replaced in April 2023 by Pappas Toyota. The CarFax report states that Pappas performed an emission inspection on 2-8-2023, however, the actual inspection certificate is dated 2-15-2023, Exhibit F. Did the Pathfinder fail inspection on the 8th? Further indication the Pappas emission certificate might be fraudulent. The Pappas Toyota website states they are a 2022 CarFax Top-Rated Dealer. It's reasonable to expect they would use the CarFax report as a guide to look for possible issues. 

According to WheelsJoint.com, the Nissan Pathfinder ignition coils are responsible for amplifying the relatively low battery voltage from 12V to a high voltage of tens of thousands of volts for the spark plugs. Driving a Pathfinder with bad ignition coils can damage the engine or the catalytic converter.

According to RepairPal.com, the Plenum Gasket, also known as the intake manifold gasket on a Nissan Pathfinder is designed to last the life of the vehicle, but often it will be replaced when doing related engine repairs in order to prevent problems with it down the road. YourMechanic.com states, " The principal concern with a leaking intake manifold gasket is potential damage to the engine, depending on where the leak is. …. If the leak involves coolant, it could lead to engine overheating damage or the coolant could contaminate the engine oil, which can damage the engine bearings. If there is an air leak to the cylinders, it can cause lean operation which could overheat the catalytic converter."

On 1-10-2023, Pappas Toyota performed recommended maintenance including changing tires and an oil change. They performed an emissions inspection on Feb. 8th or 15th, however, no other inspections are mentioned. A condition of our purchase was the touch ups of noticeable paint chips and scratches which is most likely the service that was performed on 2-21-2023.

Sections 407.020 and 407.025 provide four elements to a MMPA claim: (1) the use or employment of a “deception, fraud, false pretense, false promise, misrepresentation, unfair practice or the concealment, suppression or omission of any material fact,” (2) the unlawful act must occur in connection with the sale or advertisement of merchandise, (3) the unlawful act must result in an ascertainable loss of money or real or personal property, and (4) the loss must occur to a person who purchases or leases merchandise primarily for personal, family or household purposes.

The Pappas Premium pledge in our case is an obvious false promise, then the fact there was no Buyer's Guide which was a concealment, suppression, or omission of a material fact, a major repair one month after purchase and then the complete failure of the catalytic converter system three months later in consideration of the facts above by any reasonable standard satisfies an action under MMAP.

A quick scan of Pappas Toyota's BBB file tells me we're not their first victim, but hopefully, we'll be their last. Proof of intent can be shown by circumstantial evidence. See Rice v. Lammers, 65 S.W.2d 151 (Mo. App. 1933). And silence or concealment is actionable on a showing of the seller’s superior knowledge or the seller giving partial information. In Hess v. Chase Manhattan Bank, USA, NA, 220 SW 3d 758 the Court held that the admission or concealment of material facts under the MMPA required less proof than what was required to prove comparable elements of common law fraud.

As a DJO, sadly, I must enforce the law on children as young as 10 years old, sometimes for minor offenses as low as $10, often motivated by great need. Hopefully, your office will hold grown men to account for thousands of dollars stolen by fraud and motivated by great greed!

Sincerely,
G

Attached are the following:

  • Printout of the Pappas Premium Pledge from their website
  • Photos of Pathfinder on the Pappas Toyota lot
  • Pappas Toyota repair receipt
  • Ronsick catalytic converter repair estimate
  • 2013 Nissan Pathfinder CarFax report
  • Emissions inspection report by Pappas Toyota

 

Cracker Barrel Menu Pricing Fraud?

UPDATE: On May 21, 2023, The Ferguson Cracker Barrel permanently closed.

A recent Cracker Barrel experience is being used as a teachable moment, which will include legal analysis to help determine if the restaurant's actions were illegal. This site provides free self-help legal information.

I visited Cracker Barrel located at 10915 New Halls Ferry Road, Ferguson, MO 63136, on Monday to help celebrate my son's birthday. I ordered meatloaf listed in the "Weekday Lunch Features" section for $5.99. Since my 92-year-old father was unable to attend, I placed a to-go order of the meatloaf for him.

When I received my bill, the meatloaf orders were listed for $6.99 each instead of the $5.99 menu price. I pointed out the mistake to the server who mentioned that the price had changed but that it wasn't reflected on the menu. The server had mentioned earlier that it was his first time working as a server. We left a tip on the table and I decided to get the bill corrected when I checked out. 

Photo of a menu on a podium in the cashier area of the Ferguson Cracker Barrel on September 13, 2021.

When I presented the bill to the cashier, I explained that my bill was incorrect. A copy of Cracker Barrel's menu was sitting on a podium in the checkout area and I was able to show her the $5.99 price on the menu. The cashier also explained that some prices had gone up, but that they were not reflected on the menu and she called for the manager.

Cracker Barrel checkout receipt with credit card number redacted.

After waiting for the manager for about 10 or 15 minutes, he also acknowledged that some of the prices on the menu were incorrect and that they were waiting for the company to send updated copies. I asked, how do we fix this? The manager replied that $6.99 was the price. I pointed to the menu setting on the podium and stated this is the price, the $5.99 listed on the menu. The manager stated he had no way to honor the $5.99 menu price. 

I mentioned under Missouri's truth in advertising statute, state law requires them to honor the menu price. I further explained that it was a simple matter to place a sticker with the new price over the old price. The manager held firm on the $6.99 price. Rather than escalate the issue, I explained that I no longer wanted the to-go meal, and only paid the $6.99 price plus tax for the meal I consumed. I told the manager to tell Cracker Barrel's corporate office I would be filing a complaint with the Missouri Attorney General's office. 

I don't regularly patronize Cracker Barrel and the location was chosen by someone else. I've visited Cracker Barrel maybe four or five times, usually to meet with others celebrating a special occasion. Before ever visiting a Cracker Barrel restaurant, I saw news reports about racial bias. That information helped to form my impression of Cracker Barrel. I prefer to spend my money with businesses that appreciate my patronage. In 2004 the U.S. Department of Justice settled a complaint that alleged Cracker Barrel:

  • allowed white servers to refuse to wait on African-American customers;
  • segregated customer seating by race;
  • seated white customers before African-American customers who arrived earlier;
  • provided inferior service to African-American customers after they were seated; and
  • treated African-Americans who complained about the quality of Cracker Barrel's food or service less favorably than white customers who lodged similar complaints.

You can read the consent decree for yourself. Later that same year, Cracker Barrel customers filed a $100 million federal discrimination lawsuit. I have no reason to believe this incident being discussed here was racially motivated; in fact, my server, the cashier, and the manager were all African-American. 

Legal Analysis

When an offer is made and accepted a contract is created. Once I placed my order, a contract existed between Cracker Barrel and myself. Here's where it can get a little tricky; the menu is not an offer. Menus are considered invitations to make an offer. When I placed my order, I was making an offer to purchase the menu item (accepting their invitation). By taking the order the server is accepting the offer, thereby forming the contract. The consideration is made by my acceptance to pay for the $5.99 menu price in exchange for the food or beverage.

The essential elements of a contract in Missouri are: “(1) competency of the parties to contract; (2) subject matter; (3) legal consideration; (4) mutuality of agreement; and (5) mutuality of obligation.” 

Since Cracker Barrel failed to honor the contracted price, they breached the contract and exposed themselves to the possibility for legal action simply because they wouldn't honor their menu price.

Truth in Advertising

The Missouri Merchandising Practices Act (MMPA), Chapter 407 of Missouri Revised Statutes, is the state’s primary truth-in-advertising law. 

RSMO 407.010, defines the term advertisement fairly broadly which would include restaurant menus. An advertisement or solicitation that creates a false impression in the mind of a reasonable consumer and that was made with the intent of influencing a purchasing decision is unlawful false advertising in Missouri. The regulations specifically provide that reliance is not an element of deception or misrepresentation. 15 CSR §§ 60-9.020, -9.070.

RSMO 407.020 defines misrepresentation, suppression, or omission of any material fact among other things as an unlawful practice. Under the MMPA, “omission of a material fact is any failure by a person to disclose material facts known to him/her, or upon reasonable inquiry would be known to him/her.” The server, cashier, and manager all knew about the price change but failed to tell the customer.

RSMO 407.025 provides for damages and allows punitive damages and attorney fees.

To succeed in a false advertising claim under the MMPA, a plaintiff must prove the following four things:

  1. There was a purchase, advertisement, or active solicitation of goods or services
  2. The advertisement in question was primarily targeted for consumer purposes, not for business-to-business purposes
  3. The advertisement or solicitation was, in some manner, unlawfully deceptive
  4. The plaintiff suffered actual financial harm as a result of the false advertising

Truth in Advertising is not the same as Truth-in-Menu also known as “Accuracy-in-Menus” and “Truth-in-Dining” terms used to describe regulations governing restaurant menus. Many locations require that menu descriptions be honest and selling prices and service charges be accurate. Examples of information that should be carefully described include preparation style, ingredients, item size, and health claims. 

Conclusion

It's unwise for a business to expect customers to pay for their mistakes. Until Cracker Barrel refused to correct its pricing error, I had an enjoyable experience. The meatloaf was decent and everyone else seemed to enjoy their meal. I relied on the accuracy of the menu. I don't know if I would have placed the same order if the $6.99 price was listed. I was actually considering a couple of more expensive options when I noticed the $5.99 menu. I might have ordered the chicken for $9.99 instead. Regardless, I would have still placed an order for my father. It wasn't that I couldn't afford the extra dollar, it was the total lack of regard and respect shown when they refused to honor their menu price! 

Cracker Barrel ruined what would have been a positive experience and turned it into a negative one. If not but for the pricing error, I would have left very satisfied and my father would have been too. When I explained what happened, my father said you made the right decision to leave that other meal. Then I prepared his lunch myself.

Imagine you are at a store to make a purchase and a stranger snatches two dollars out of your hand. What would you do; keep quiet, say something, or do something? When Cracker Barrel wouldn't honor the menu price, I felt as if they were attempting to steal my money. 

There are two separate causes of action to file a lawsuit against Cracker Barrel; "breach of contract" and "Missouri Merchandise Practices Act". 

The breach of contract damages is only one dollar per meal. However, sometimes it's not about the money as much as the principle of the thing. If this was a deliberate tactic to increase profits, Cracker Barrel would know most people would never consider going to court for such a small amount. How many hundreds or even thousands of customers were overcharged? Everyone has to decide how much principle is worth to them. I've certainly spent more than two dollars in time and effort researching and writing this article which for me was worth it. I'm not planning to file suit. 

Since the MMPA includes the possibility of punitive damages, that might prompt someone to file a lawsuit or even a class action. If someone were to file a lawsuit, Cracker Barrel would have to pay an attorney to represent them which could cost tens of thousands of dollars depending on the number of motions and hearings. A judge could decide to teach Cracker Barrel a lesson and award thousands in punitive damages. 

The solutions were simple; use labels to show the new price, verbally tell customers about the price changes or make the adjustment when a customer complains. The reality is many customers might not notice or might be too embarrassed to mention the price difference. My research revealed the Ferguson Cracker Barrel's online menu (PDF) included the $6.99 pricing on September 13th. The manager could have simply printed copies for temporary use until the corrected menus arrived.

Cracker Barrel violated the law. Every member of our party thought it was wrong for them not to correct their mistake. Hopefully, Cracker Barrel will learn from this and treat its customers more fairly in future situations. 

Enterprise – A Car Rental Experience From Hell – Do Not Rent List

Table of Contents:   Rental that caused Do Not Rent Blacklisting,    False Hope for Removal,   Efforts to Resolve,    How the DNR List is Suppose to Work,   Relevant Facts about Enterprise,   Legal Analysis,   Racism at Enterprise,   Taylor Family Prison Profits,   Alternatives When Black Listed,   Conclusion

Christopher Hill, Founder/CEO of ManUpGlobal and co-author of the book, "The Re-Factor," recently endured a car rental experience from hell. He was placed on Enterprise Rent-A-Car's do not rent (DNR) list by mistake. 

Enterprise and other car rental companies maintain a (DNR) list which is a list of customers who have been forbidden from renting a vehicle for any reason.

Christopher was preparing for ManUpGlobal's Operation Suave when his car became inoperable because of an accident. Below is an interview Christoper did before the event. 

Christopher who happens to be my son needed a car immediately and there was a rental car shortage. He eventually found a vehicle at Avis in West County about 20 miles away for $100/day. Christopher drove the Avis vehicle that weekend and to work Monday. 

Christopher is an ordained minister, he is employed by a non-profit organization where he teaches classes to incarcerated men transitioning back into society, however, he has never been incarcerated himself or had any major legal issues.

On Monday, May 24, 2021, I searched for a better rate while he was at work and made a car rental reservation on Enterprise.com. I normally rent from their Dellwood location and reserved a midsize there for $82/day. That reservation was canceled after I discover a midsize rate of $38.75/day at the Ladue location.

Enterprise reservation for 5-24-2021 showing daily rate of $82. This reservation was cancelled after the Ladue reservation was confirmed.

When Christopher finished working, We met at Avis and drove to the Ladue Enterprise location.

I listed Christopher as an additional driver, but we were informed he was on the do not rent list. Enterprise Rent-A-Car stated that a car Christopher previously rented had been repossessed, which we both knew was untrue. We waited while the agent tried to reach someone, however, Enterprise's corporate offices were closed. The agent told us she would check into the matter the next day and we ended up renting from another company at twice the cost.

Rental that caused Do Not Rent Blacklisting

Christopher rented a car from the Enterprise Rent-A-Car location, 2233 Washington Avenue in downtown St. Louis in December 2019, then extended the rental multiple times. On or about January 13, 2020, Christopher returned to the Washington Avenue location to extend his rental and provided his credit/debit card.

The car was returned undamaged on what Christopher thought was the due date, January 29th, his card was charged and he didn't think anything else about the matter. He was never told there was an issue or that he was being added to the DNR list or even that he was in danger of being added to that list.

The vehicle was returned undamaged, the credit/debit card provided was charged and the total fees were paid in full. Since there was no vehicle damage, no outstanding or unpaid fees. It's hard to understand why Christopher was added to the do not rent list.

False Hope for Removal  

On May 25th, the Enterprise Rent-A-Car agent called to explained that she confirmed that the vehicle had been repossessed. I knew this information was incorrect. Assuming they mixed up Christopher's rental with someone else; I asked the location of the repossession. I was hoping for some clue which renter's car had been repossessed. The agent checked, called back, and then stated that the car had been returned but that a repo request was made before the vehicle being returned. The agent explained that her boss would call to see about removing Christopher from the do not rent list.

After not hearing from anyone, I phoned back and eventually spoke to a manager who stated Christopher could not be removed from the list. Upon further inquiry, I was provided with information for the Risk Management department.

Before calling Enterprise Risk Management, I phoned the repo company. The owner confirmed that on January 28, 2020, a repo order from Enterprise was received, however, it was canceled less than 24 hours later on January 29th. Enterprise experienced no charges for the canceled repo order according to the owner of the repo company.

Efforts to Resolve

I phoned the manager of Enterprise's Risk Management several times between May 27th and June 9th, but only reached his voicemail. I emailed a detailed message using Enterprise.com's customer service link. I received a response that they needed to hear directly from Christopher, so I forwarded the email. 

On June 13th, Christopher contacted Enterprise by email. Explained he wasn't sure how he ended up on the DNR list and because Enterprise's office hours conflicted with his work schedule, he asked his father to look into the DNR list issue. Christoper disclosed he read his father's summary of the incident and the details were correct and to please accept the statement as if it were his own and asked to be promptly removed from the DNR list.

On June 14th, Enterprise apologized for the inconvenience, stated they would engage the management team at Risk Management and that they would contact him soon to provide proper assistance. 

On June 25th, Christopher explains he had not heard from anyone. Christopher was approaching the July 3rd deadline for the auto insurance replacement from Hertz. Pandemic supply chain issues caused delays at the auto dealer where Christopher's car was being repaired. The dealer offered to provide him with an Enterprise replacement vehicle beginning on July 3rd. Because the DNR list issue was not resolved, Christopher had to pay to continue the Hertz rental. Hertz continued the rental at the insurance rate (around $26/day including taxes and fees) until August 11th at which time he was charged $975.87.

On August 10th, the dealership reserved a rental from Enterprise since Christopher's car still was not fully repaired. I attempted to reach the manager of Enterprise Risk Management again. The person who answered the phone (TW) explained he was on vacation and would not return until Monday, August 16th.

After explaining the details to TW, she found Christopher's rental record and stated that he had only paid for two days on January 13, 2020, that the car was due back on January 15th, but the vehicle was not returned until January 29th. I disputed that information and wondered if they might have mixed him up with another renter.  

She provided me with her email to send some documentation we discussed, however, she stated Christopher would most likely never be removed from the DNR list. She said no one other than the department manager could remove Christopher from the list. 

Christopher emailed me copies of his bank statements showing six separate payments to Enterprise Rent-A-Car totaling $1,214.28 concerning the rental resulting in him being blacklisted on Enterprise’s DNR list. (bank statements cutouts shown)

  • Dec. 19. 2019      $178.75
  • Jan. 02, 2020       $240.00
  • Jan. 07, 2020       $170.00
  • Jan. 13, 2020       $120.00
  • Jan. 21, 2020       $275.45
  • Feb. 03, 2020      $230.08

This information among other things was shared with Enterprise on August 11th. I received a response indicating I would be contacted by an area manager and another stating my message has been sent to the Regional Office, and someone would contact me concerning my son's 'do not rent' case. As of the publication of this article, we have not heard from anyone.

The dealership made a reservation in Christopher's name at Enterprise. Since the DNR list issue was not resolved, I had the dealership change the reservation to my name and picked up a vehicle. My wife drove the Enterprise rental and Christopher drove her vehicle. Christopher will not drive the Enterprise rental unless and until he is removed from the DNR list and authorized to drive it.

How the DNR List is Supposed to Work

Supposedly, most drivers don’t have to worry about ending up on a Do Not Rent list. The assumption is that renters are only blacklisted from car rental companies due to avoidable issues like failing to follow the terms of the rental lease, causing unpaid damage to rental cars, or participating in illegal activities. However, Enterprise has been shown to penalize renters for frivolous reasons. One man was added to the DNR list because he shared an address with a former roommate who owed a balance.

There's a Facebook group "Enterprise Rent-A-Car did me wrong", where people share how they have been wronged by Enterprise Rent-A-Car. Several people complained about being unfairly added to the Enterprise's DNR list. 

What particularly caught my attention is how many people complained that they only discovered they were on Enterprise's DNR list at the rental counter which seems punitive and retaliatory. I can't imagine the stress of arriving in another city standing in line at the rental counter for a long time so you can attend a funeral, job interview, or some other important function, especially if you're running late, only to be blindsided with the news that you're on the DNR list!

Relevant Facts about Enterprise Rent-A-Car

Enterprise is the largest company of the US car rental Oligopoly which controls over 94% of the market:

  • AvisBudget Group (owns Avis, Budget, and Payless)
  • Enterprise Holdings (owns Alamo, Enterprise, and National)
  • Hertz Global Holdings (owns Dollar, Hertz, and Thrifty)

Enterprise Holdings and its affiliates own nearly 1.7 million cars and trucks, making them the largest car rental service provider in the world measured by revenue and fleet. The company is privately owned by the Taylor family, #48 on Forbes 2020 America's Richest Families List, with a net worth of $7.8 billion. Enterprise dominants the insurance replacement market. According to Auto Rental News at one point Enterprise controlled over 85% of that market.

  • Jack Taylor (d. 2016) founded Enterprise in 1957. He named the company after the USS Enterprise, an aircraft carrier he served on as a Navy pilot during World War II.
  • Jack Taylor's son, Andrew C. Taylor is Executive Chairman of Enterprise Holdings.
  • Andrew C. Taylor's daughter Chrissy Taylor is the president and CEO of Enterprise. 
  • The St. Louis-based company reported $22.5 billion in revenues for the fiscal year through July 2020, down 13% due to less travel during the pandemic.
  • Enterprise has 80,000 employees and operates in nearly 100 countries and territories.
  • The Taylor Family controls two major charitable foundations; the Enterprise Holdings Foundation with over $323 million in assets and the Crawford Taylor Foundation with over $585 million in assets.

A previous negative experience with Enterprise was used as a teachable moment on this site in 2015.

Legal Analysis 

It seems extremely unfair that a company would ban some of its customers for life, sometimes for minor transgressions, however, if you’re placed on a Do Not Rent list for a legitimate reason, you generally don’t have legal recourse against the company, including any right to appeal. When you land on a DNR list of the parent or subsidiary DNR list you are barred from renting from any of the related companies.  

When a person is mistakenly placed on a DNR list, there may be remedies available. 

Car rental agreements are contracts. Therefore the first step is to look closely at the contract, which usually includes two separate parts.

  “The big print giveth and the little print taketh away”

The contract you are given at the rental counter is often a rental summary (big print) which provides the most important details. There's usually a terms and conditions section (little print) that may be accessible thru an internet link, printed on the rear of the contract in small print or attached.

It's been nearly two years since the December 2019 rental resulting in Christopher being listed on the DNR list and he did not have a copy of that contract. Assuming that my August 11th contract is the same as Christopher's prior contact, our discussion will concentrate on what I consider the most relevant parts of the contract concerning the DNR list issue.

Section 1, provides the following definition: “Rental Period” means the period between the time Renter takes possession of Vehicle until Vehicle is returned or recovered and in either case, checked in by Owner. This is an interesting definition since this could be interpreted differently than the dates appearing on the rental summary. The summary portion of my rental contract listed 8-11-2021 as the pickup date and 8-12-2021 as the anticipated return date. When I asked Enterprised about this, I was told the dealership usually rents the vehicle for a single day and then continues to renew the contract each day until the repairs are complete. Therefore, even though the rental summary so far indicates my car is over a week late, the rental is still valid and I have legal possession. A similar situation might have been the source of Enterprise's confusion concerning the January 2020 due date.

Section 4 – outlines the prohibited uses and what the renter shall not allow or do with the vehicle. None of the prohibitions were violated in Christopher's case, therefore, no further discussion is required.

Section 16 – Limitation of Remedy/No Consequential Damages. This may be unenforceable. Consequential damages, also known as "special damages," refers to damages from an indirect result of an event or incident. The difference between direct and consequential damages is not clear. When a generic exclusion of consequential damages is included in contracts without bothering to define what consequential damages are, it is frequently a fact question whether the damages are direct or consequential. Not long ago a federal court held that a contractual provision excluding “consequential damages” is ambiguous.

A breach of contract action includes the following essential elements:

(1) the existence and terms of a contract;
(2) that plaintiff performed or tendered performance pursuant to the contract;
(3) breach of the contract by the defendant; and
(4) damages suffered by the plaintiff. 
Howe v. ALD Servs., Inc., 941 S.W.2d 645, 650 (Mo. App.1997).

Inclusion on the DNR list would normally indicate a breach of contract. In Christopher's case, Enterprise suffered no damages. 

The car dealership repairing Christopher's car uses Enterprise exclusively. That sort of market dominance certainly has created some situational monopolies. Exclusive contracts with a single car rental company can result in serious hardships if your job requires travel. With this in mind, we wondered if there are any legal remedies under the law when placed on a DNR list by mistake?

Missouri law implies a covenant of good faith and fair dealing in every contract. Slone v. Purina Mills, Inc., 927 S.W.2d 358, 368 (Mo.App. 1996). When Enterprise blacklisted Christopher without a valid reason or warning based upon his contracted rental vehicle, Enterprise violated the covenant and therefore breached the contract. Unlike Enterprise, Christopher has suffered damages. He suffered embarrassment, mental anguish, increased rental charges from May 24th, then July 3rd thru August 11th and August 20th; Christopher was forced to rent another vehicle from Hertz to drive to a speaking engagement about 200 miles away.

Since corporations are considered persons under the law when placed on a DRN list by mistake, would it be considered slanderous or libelous since each is a separate entity? We could find no case law concerning this issue and this question may remain unanswered until tested in court.

Car rental companies are public accommodation providers under the Americans with Disabilities Act and Title II  of the Civil Rights Act of 1964, 42 US § 2000. Privately owned businesses and facilities that offer certain goods or services to the public including food, lodging, gasoline, and entertainment are considered public accommodations for purposes of federal and state anti-discrimination laws. Federal law prohibits public accommodations from discriminating based on race, color, religion, or national origin. If you believe you have been discriminated against, you may file a complaint with the Civil Rights Division of the Department of Justice, or with the United States attorney in your area. You may also file suit in the U.S. district court.

With this in mind, does a valid reason need to exist before placing members of a protected class on a car rental do not rent list without a clear and convincing reason? Business owners have the right to refuse service to customers for legitimate reasons. Business owners cannot refuse service to protected classes of people based on arbitrary grounds. Reasons must be legitimate enough to hold up in court, otherwise, a rebuttable presumption of discrimination could exist.

Considering the evidence of systemic racism we uncovered at Enterprise, with limited research, we believe it might be possible to make a prima facie case, especially once we conduct further research. To establish a prima facie case for public accommodation discrimination, the complainant must show that he/she: (1) is a member of a protected class, (2) attempted to exercise the right to full benefits and enjoyment of a place of public accommodation, (3) was denied those benefits and enjoyment, and (4) was treated less favorably than similarly situated persons outside her protected class. McCoy v. Homestead Studio Hotels, 390 F. Supp. 2d 577, 583-85 (S.D. Tex. 2005).

While evidence that a person engaged in bad behavior in the past is generally not admissible in court cases, habit evidence is admissible as an exception to this rule. Habit evidence refers to evidence of a repetitive response by a person to particular circumstances. Corporations are considered persons under the law. It is used in court cases for proving how that person would likely act in a similar situation.

We believe we have a valid claim under both state and federal law. We will allow Enterprise a reasonable amount of time to respond before filing suit if we so choose to pursue that option. We will update this page once additional details become available.

Racism at Enterprise

Enterprise CEO Chrissy Taylor published, “We Must Do More, and We Will”, a pledge to help increase racial equity in response to the murder of George Floyd. If sincere, I applaud Ms. Taylor's pledge. 

As a black man, I have endured many slights and inconvenience that makes you wonder in the back of your mind if the treatment, lack of attention or service is because of race. This is because black folks have a proverbial institutional knee on their necks.

I don't pretend to know the hearts and minds of others; however, statements, tone, reaction, facial expression, and body language all provide clues. Although bias is often difficult to quantify, to paraphrase the late Supreme Court Justice Potter Stewart, "I know it when I see it."

Institutional racism is embedded through laws, regulations, and customs within society or an organization. It's less perceptible because of its "less overt, far more subtle" nature. It can be seen or detected in processes, attitudes, and behavior that amount to discrimination through prejudice, ignorance, thoughtlessness, and racist stereotyping which disadvantage minority ethnic people. It originates in the operation of established and respected forces in the society

Unfortunately, bias and prejudice are innate characteristics—often deeply ingrained and concealed from our own self-examination. The United States Supreme Court recognized this when it said that “[b]ias or prejudice is such an elusive condition of the mind that it is most difficult, if not impossible, to always recognize its existence.” Further, the high court said, bias or prejudice can exist in someone “who was quite positive he had no bias and said that he was perfectly able to decide the question wholly uninfluenced by anything but the evidence.” Crawford v. United States, 212 U.S. 183, 196 (1909).

Our research indicates some Enterprise policies and practices are most likely disproportionately negatively impacting African-Americans and other minorities. Below are some examples.

Miami Beach, FL – 2021

Earlier this year, a man says he was racially profiled at Miami Beach Enterprise Rent-A-Car. After waiting for hours over two days, a white female employee refused to rent him a car and called the police. When the police arrived, it was refreshing to see them take a neutral approach and not automatically believe the false narrative that the black customer was the problem. 

Detroit, MI – 2018

Employees of the Enterprise Rent-a-Car at Detroit Metropolitan Airport claim black customers are discriminated against when trying to rent luxury vehicles. White customers were given discounts not available to black customers and code words to distinguish black from white customers were used. The video below provides shocking details. 


Baltimore, MD – 2019

Enterprise Rent-A-Car Co. of Baltimore was ordered to pay more than $16.3 million in lost earnings, benefits, and interest to 2,336 black job applicants who were passed over for the company's management trainee program.

Following an investigation by the U.S. Department of Labor's (DOL's) Office of Federal Contract Compliance Programs (OFCCP), an administrative law judge found that the company—which is a federal contractor—showed a pattern over 10 years of discriminating against black applicants in favor of white applicants. According to the judge, the company's policy had a disparate impact, which means that a seemingly neutral policy was discriminatory in practice. 


Alexandra, VA  – 2018

Brendalan Jackson, an Enterprise customer in Alexandra, VA stated the following at complaintsboard.com:

 "I have had multiple issues with Enterprise but figured that the representatives were having a bad day. I have called out a few situations at enterprise when I truly knew I've been racially profiled; then only to be patronized by Enterprise employees (Station Manager). I have called the customer service deescalation number for assistance; however, never getting my issue resolved (demeaning me further). My husband completed the registration online for me for a premium SUV (Chevrolet Suburban). I know I was racially profiled again on 11/21/18 in Old town Alexandria, Va. When I arrived at the counter there were two Caucasian females both to assist me. When they looked up my information they both looked at each other while I was standing there, one of the females switched the keys on the counter (as if I was blind and did not see them); I inquired if there was an issue? One of the ladies paused and said that both the Tahoe and Suburban vehicles were identically the same. She then continued to switch out the keys from the Suburban to the Tahoe (which had multiple issues). Now keep in mind that this is Thanksgiving Eve and I needed to get on the road to travel home, I didn't know what she was talking about until my husband informed me that the car wasn't a premium car that I was being charged /paying for and told me that I should've received a Suburban. I am an African American female with over 15 years of experience as a Master of Social Work that supervises a clinical program teaching adolescents on this very issue. I am appalled at the very treatment that I have been given as an Enterprise Plus Member and a paying customer of the Corporation. I am officially putting this on our Core Agency Web site to inform all of our over 5, 000 employees of this Metropolitan area. So that they avoid Enterprise and avoid them being humiliated as I have been on 11/21/18 and again another situation with enterprise at DCA on 11/17/18."

Ms. Jackson's complaint was marked resolved, however, we do not know what the resolution was. However, there were at least 27 discrimination complaints on the site including the one from a federal law enforcement officer below.


Tawana – another Enterprise customer stated the following at complaintsboard.com:

"Before arriving at the Enterprise Car Rental desk I called from home to ask what I needed to rent a car and I was told a credit card. I was asked if my credit card was linked to my checking account and I said yes. I was told to bring two bills (utility bills) from home. I brought four or five to be on the safe side. Once I arrived at the desk I presented all of the information that was required of me. The agent went over to another gentleman in the office and they began to whisper, the agent came back and asked if I had any proof that my bills are not past due. The bills that he had were current and had no past due amounts listed on them, which would have proved that they were not past due and were paid. I was the only African American customer in the office at the time, I was told that I had to pull up my bank account online at one of their desks in order for them to see if I paid my bills. They placed me at a desk to do so. I was extremely insulted by this treatment. I am a Federal Officer (Law Enforcement) and I was treated like a criminal."

This complaint was also marked resolved.


St. Louis, MO – 2002

Snow, et al v. Enterprise Leasing, et al

On October 24, 2000, eight black individuals filed a class action complaint in the United States District Court for the Eastern District of Missouri (St. Louis), alleging that their employer, Enterprise Leasing Company of St. Louis and its parent company, Enterprise Rent-A-Car, engaged in racially discriminatory practices in promotion and hiring. The plaintiffs claimed that Enterprise was in violation of Title VII of the 1964 Civil Rights Act (42 U.S.C. § 2000e), The Civil Rights Act of 1866 (42 U.S.C. § 1981), and portions of the Missouri Human Rights Act (MHRA) RSMO 213.

On May 3, 2002, a judge signed a consent decree which required the Enterprise to pay $2.3 million in damages to the two sub-classes and the named plaintiffs and included injunctive relief requiring the company to make changes in the way it advertises and publicizes available jobs as well as how it communicates with those who are turned down for jobs within the company.

Tampa, FL – 2003

Enterprise refused to promote Black employee – EEOC v. Enterprise Leasing Company Of Florida

Racial Discriminatory Rental Pricing?

As previously mention, I normally rent from the Dellwood location, however, the May 24th reservation was made with the Ladue location because their cars were more than half off Dellwood pricing. I live in the Ferguson/Dellwood area which is predominantly black. Ladue is 94.1% white and only one percent black. I'm not sure why there was such a difference in pricing between Dellwood and Ladue, however, that fact taken along with other factors support an argument for racial discrimination.

At Enterprise, renters without a ticketed return travel itinerary need to provide a credit card with sufficient funds to cover the cost of their rental plus an additional amount between $200 to $400 based on the rental location. Why? What possible difference could the rental location make in determining how much deposit is required. Are Black renters being charged $400 disproportionately?

Age Discrimination 

We also discovered proof of age discrimination at Enterprise.

2019 – Capital One, Enterprise Ensnared in Facebook Ad Bias Scandal – The U.S. Equal Employment Opportunity Commission found “reasonable cause” to believe Enterprise violated federal anti-discrimination law by restricting job postings on the social network to people of certain ages or genders. In both cases below Enterprise refused to promote anyone over the age of 40; click on cities for details.

Los Angeles, CA – 2015

San Antonio, TX – 2003

Taylor Family Prison Profits

The Taylor family owned the Keefe Group, a  company profiting off public and private prisons and their prisoners. A 2015 Post Dispatch article, revealed the company has contracts with more than 800 public and private prisons. They are one of the larger players in a cottage industry that handles deposits to prisoner accounts, provides inmates with everything from food and condiments to music players and phone service. The following statements were made in the article: “They find so many ways to milk these people for every penny they can”…“You are talking about people who are extremely poor”, said Michael Campbell, assistant professor of criminology at the University of Missouri-St. Louis. Alex Friedmann, managing editor of Prison Legal News accused the Keefe Group of price gouging. The day after the first anniversary of the Michael Brown shooting death protestors marched on Enterprise Holdings because of their connection to the Keefe Group.

Months later, the St. Louis Business Journal reported the Taylor family was considering selling the Keefe's Group parent company Centric Group for $900 Million.

Our "Secret Meeting" page discusses the allegations that companies who profited off prisons conspired to target young black men to fill prisons. If your employer requires driving or travel, inclusion on a DNR list could result in job loss. I worked for a transportation company the used Enterprise rentals; if one of our drivers was on the DNR list and unable to drive those trucks, they may have lost their job. Unemployment, financial hardship, and poverty are among the top reasons people commit crimes.

If you are an Enterprise employee and have evidence of discrimination or unfair practices, please contact us

Alternatives When Black Listed

As we discovered, landing on a DNR list can be a major setback. The first and most obvious alternative is to try another rent from another company not affiliated with the company the place you own their list.

If Enterprise or some other company is your only or lowest cost option, ask a friend or relative to borrow their car and offer to pay for the rental vehicle as a replacement. DO NOT DRIVE THE RENTAL. If the person on the DNR list is allowed to drive the rental, the renter could also end up on the DNR list.

Since three companies control over 94 percent of the car rental market, complain to your US Representative about how they are using their superior bargaining position to create unfair consumer conditions and request new regulations or breaking companies up into separate entities.

Check out Turo, a peer-to-peer car sharing, sort of the Airbnb of car rentals. Renters search for available vehicles listed by people who are willing to rent their vehicle often at prices much lower than car rental companies.  

Another possible option if you need a rental for vacation is RvShare.com, where you can rent RVs and motor homes directly from local owners. UPDATE: RV Share became an affiliate advertiser after we published, so booking your RV rental thru the link above helps support this site financially.

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Conclusion

I did not want to write this article! Christopher and I made several good faith attempts to resolve this issue, but there comes a point where the ridiculousness of a situation just needs to be called out.

Mistakes happen, I understand that, but what’s important is how those mistakes are handled and Enterprise handled this issue very poorly. Research indicates that for every complaint expressed, there are over 25 unregistered complaints. Many dissatisfied customers just quietly take their business elsewhere. When you are the largest company in an Oligopoly that statistic may not be as meaningful. 

We have had to expend too much effort trying to resolve an issue that never should have occurred in the first place. This situation has caused financial hardship, embarrassment, major inconvenience, and wasted a great deal of time.

Enterprise Rent-A-Car expended great effort explaining and justifying why Christopher was on the DNR list, but virtually no effort was expended to see if a mistake was made. I was told that it is not possible for Christopher to be removed from the DNR list and if that is true, it is unconscionable that Enterprise does not even consider correcting its mistakes or letting customers make amends.

As things stand now, avoiding Enterprise completely may not be possible. That is assuming they do not blacklist me on the DNR list for publishing this article. Enterprise Rent-A-Car may be the only option when a third party is providing a rental car. Enterprise will no longer be my primary choice for car rentals and I plan on doing a test rental on Turo in the future.

The DNR list and resulting research results inspired the writing of an "Open Letter to the Black Church".


After we published, we heard about a Black diversity and inclusion business program manager from Microsoft who had his Avis rental car repossessed by mistake


Home,   Rental that caused Do Not Rent Blacklisting,    False Hope for Removal,   Efforts to Resolve,    How the DNR List is Suppose to Work,   Relevant Facts about Enterprise,   Legal Analysis,   Racism at Enterprise,   Taylor Family Prison Profits,   Alternatives When Black Listed,   Conclusion

The disturbing history of how conservatorships were used to exploit, swindle Native Americans

Court.rchp.com Editorial note by Randall Hill,

First Nation's People are the only group this country has treated as badly or worse than Black people. This was their land and it was stolen from them by deceit and genocide.

I've heard other ethnic groups, sometime in response to racism complaints from African-Americans talk about how their ancestors were discrimination against when they first immigrated to the United States. Every white immigrant group who came to this country did so voluntarily and for the most part had a home country to return to if they so choose. In fact, the first immigrants, the Piligrams, who the Thanksgiving myth is based upon were saved by First Nation People and then they betrayed them.

In the 1920s, a white community conspired to kill Native Americans for their oil money. Yet another example of how our predatory legal system was used to systematically oppress. Below is the documentary, "Back In Time: Osage Murders – Reign of Terror", which tells the story.

The shared history of betrayal is fresh in the memory of black people. There's irony in the title of this article, because the genocide and land theft were among the first exploitations. Conservatorships were simply one of the many atrocities committed against the indigenous people who were the original settlers of what we now call the United States.


by Andrea Seielstad, University of Dayton

Pop singer Britney Spears’ quest to end the conservatorship that handed control over her finances and health care to her father demonstrates the double-edged sword of putting people under the legal care and control of another person.

A judge may at times deem it necessary to appoint a guardian or conservator to protect a vulnerable person from abuse and trickery by others, or to protect them from poor decision-making regarding their own health and safety. But when put into the hands of self-serving or otherwise unscrupulous conservators, however, it can lead to exploitation and abuse.

Celebrities like Spears may be particularly susceptible to exploitation due to their capacity for generating wealth, but they are far from the only people at risk. As a lawyer with decades of experience representing poor and marginalized people and a scholar of tribal and federal Indian law, I can attest to the way systemic inequalities within local legal practices may exacerbate these potentially exploitative situations, especially with respect to women and people of color.

Perhaps nowhere has the impact been so grave than with respect to Native Americans, who were put into a status of guardianship due to a system of federal and local policies developed in the early 1900s purportedly aimed at protecting Native Americans receiving allotted land from the government. Members of the Five Civilized Tribes of Oklahoma – Cherokee, Choctaw, Chickasaw, Creek, and Seminole nations – were particularly impacted by these practices due to the discovery of oil and gas under their lands.

The Osage Nation were once among the wealthiest people in the world. FPG/Hulton Archive/Getty Images

 

Swindled by ‘friendly white lawyers’

A conservatorship, or a related designation called a guardianship, takes away decision-making autonomy from a person, called a “ward.” Although the conservator is supposed to act in the interest of the ward, the system can be open to exploitation especially when vast sums of money are involved.

This was the case between 1908 and 1934, when guardianships became a vehicle for the swindling of Native communities out of their lands and royalties.

By that time, federal policy had forced the removal of the Five Civilized Tribes from eastern and southern locations in the United States to what is presently Oklahoma. Subsequent federal policy converted large tracts of tribally held land into individual allotments that could be transferred or sold without federal oversight – a move that fractured communal land. Land deemed to be “surplus to Indian needs” was sold off to white settlers or businesses, and Native allotment holders could likewise sell their plots after a 25-year trust period ended or otherwise have them taken through tax assessments and other administrative actions. Through this process Indian land holdings diminished from “138 million acres in 1887 to 48 million acres by 1934 when allotment ended,” according to the Indian Land Tenure Foundation.

During the 1920s, members of the Osage Nation and of the Five Civilized Tribes were deemed to be among the richest people per capita in the world due to the discovery of oil and gas underneath their lands.

However, this discovery turned them into the victims of predatory schemes that left many penniless or even dead.

Reflecting on this period in the 1973 book “One Hundred Million Acres,” Kirke Kickingbird, a lawyer and member of the Kiowa Tribe, and former Bureau of Indian Affairs special assistant Karen Ducheneaux wrote that members of the Osage Nation “began to disappear mysteriously.” On death, their estates were left “not to their families, but to their friendly white lawyers, who gathered to usher them into the Happy Hunting Ground,” Kickingbird and Ducheneaux added.

Lawyers and conservators stole lands and funds before death as well, by getting themselves appointed as guardians and conservators with full authority to spend their wards’ money or lease and sell their land.

Congress created the initial conditions for this widespread graft and abuse through the Act of May 27, 1908. That Act transferred jurisdiction over land, persons and property of Indian “minors and incompetents” from the Interior Department, to local county probate courts in Oklahoma. Related legislation also enabled the the Interior Department to put land in or out of trust protection based on its assessment of the competency of Native American allottees and their heirs.

Unfettered by federal supervisory authority, local probate courts and attorneys seized the opportunity to use guardianships to steal Native Americans estates and lands. As described in 1924 by Zitkála-Šá, a prominent Native American activist commissioned by the Secretary of Interior to study the issue, “When oil is ‘struck’ on an Indian’s property, it is usually considered prima facie evidence that he is incompetent, and in the appointment of a guardian for him, his wishes in the matter are rarely considered.”

Activist and writer Zitkála-Šá. Wikimedia Commons

The county courts generally declared Native Americans incompetent to handle more than a very limited sum of money without any finding of mental incapacity. Zitkála-Šá’s report and Congressional testimony documented numerous examples of abuse. Breaches of trust were documented in which attorneys or others appointed conservators took money or lands from Nation members for their own businesses, personal expenses or investments. Others schemed with friends and business associates to deprive “wards.”

‘Plums to be distributed’

One such woman in Zitkála-Šá’s report was Munnie Bear, a “young, shrewd full-blood Creek woman … [who] ran a farm which she inherited from her aunt, her own allotment being leased.” Munnie saved enough money to buy a Ford truck and livestock for her farm, with savings remaining in a bank account. Once oil was discovered, however, the court appointed a guardian, who appointed a co-guardian and retained a lawyer, each of whom deducted monthly fees that depleted Bear’s funds. During the period of her guardianship, she was unable to spend any money or make any decisions about her farm or livestock, nor did she control her bank investment.

Zitkála-Šá’s report displays the extent of this practice:

“Many of the county courts are influenced by political considerations, and … Indian guardianships are the plums to be distributed to the faithful friends of the judges as a reward for their support at the polls. The principal business of these county courts is handling Indian estates. The judges are elected for a two-year term. That ‘extraordinary services’ in connection with the Indian estates are well paid for; one attorney, by order of the court, received $35,000 from a ward’s estate, and never appeared in court.”

Wards were often kept below subsistence levels by their conservators while their funds and lands were depleted by the charging of excessive guardian and attorneys’ fees and administrative costs, along with actual abuse through graft, negligence and deception.

Reports like that of Zitkála-Šá’s resulted in Congress enacting the Indian Reorganization Act of 1934. This put the Indian land that had not fallen into non-Indian hands during the federal policy of allotting plots back into tribal ownership and secured it in the trust of the United States. It also ended the potential for theft through guardianship.

But the lands and funds lost as a result of guardianships were not restored nor did descendants of those swindled ever enjoy the benefit of their relatives’ lands and monies either.The Conversation


Republished with permission under license from The Conversation.

Every year, millions try to navigate US courts without a lawyer

Court.rchp.com Editorial by Randall Hill

As unemployment benefits, eviction moratoriums and other pandemic related safety nets expire, millions of people will find themselves in legal situations they are unprepared to handle. When my legal issues started after my 2011 jobloss, my legal research skills became some of my most valuable assets. Court.rchp.com exist in part because just about every other self represented person I saw in court lost cases they should have won, just as I won most of my cases in court. 

If you know you're at risk for adverse legal action, don't wait before it's too late, start educating yourself now! Court.rchp.com contains a wealth of free self-help legal information that you can use to begin more knowledgable about the law.


by Lauren Sudeall, Georgia State University and Darcy Meals, Georgia State University

Judge Richard A. Posner, a legendary judicial figure, retired abruptly in 2017 to make a point: People without lawyers are mistreated in the American legal system.

In one of his final opinions as a judge on the United States Court of Appeals for the Seventh Circuit, he expressed frustration at the dismissal of one self-represented litigant’s lawsuit, writing that the prisoner, Michael Davis, “needs help – needs it bad – needs a lawyer desperately.”

Unfortunately, Davis’s circumstances are far from unique. Many lower-income people have no lawyer to help them navigate the legal system, either in civil or criminal cases.

Eighty percent of state criminal defendants cannot afford to pay for a lawyer, and only those who are actually incarcerated are constitutionally entitled to appointed counsel. Many people facing misdemeanor charges can, if convicted, be subjected to significant fines and fees, or face the loss of benefits (including housing) or deportation. Yet, they have no right to an attorney, and those who cannot afford a lawyer will go without one.

Unlike in the criminal context, there’s no federal constitutional right to counsel in civil cases. Civil cases can involve a range of critical issues, including housing, public benefits, child custody and domestic violence. And while some civil litigants may be entitled to counsel in certain jurisdictions, in most of these cases, people who cannot afford a lawyer will be forced to go it alone. Doing so may mean that they fail to make it through the process, have their case dismissed or lose what otherwise would have been a winning case.

As directors of the Center for Access to Justice at Georgia State University College of Law, we agree with Judge Posner. People like Michael Davis desperately need help. Without legal assistance, their issues will likely be unresolved or, worse, wrongly resolved against them.

Going to court? You’re on your own. tlegend/shutterstock.com

 

Unrepresented

In some states, as many as 80 to 90 percent of litigants are unrepresented, even though their opponent has a lawyer. The number of these “pro se litigants” has risen substantially in the last decade, due in part to the economic downturn and the relationship between poor economic conditions and issues like housing and domestic relations.

The Legal Services Corporation, the single largest funder of civil legal aid for low-income Americans in the nation, reported in June that 86 percent of low-income Americans receive inadequate or no professional legal help for the civil legal problems they face. Here in Georgia, state courts heard more than 800,000 cases involving self-represented litigants in 2016 alone.

In some types of cases, not having counsel can make a dramatic difference. Take the example of low-income tenants facing eviction. Across the county, roughly 90 percent of landlords are represented by counsel, while 90 percent of tenants are not. Simply having a lawyer increases the odds of being able to stay in one’s home. When tenants represent themselves in New York City, they are evicted in nearly 50 percent of cases. With a lawyer, they win 90 percent of the time.

Navigating the system

Why is having a lawyer so important? The reality is that even the most mundane legal matters can require dozens of steps and complex maneuvering.

In one study, researchers identified almost 200 discrete tasks that self-represented litigants must perform in civil cases – from finding the right court to interpreting the law, filing motions, compiling evidence and negotiating a settlement. Some of these tasks require specialized knowledge of the law and of the court system. Almost all require time away from work and caring for children. Many also require the ability to get to the courthouse, to read and to speak English or access a translator.

The Access to Justice Lab at Harvard Law School has also tracked how labyrinthine the justice system can be. Just starting a routine process – like establishing a legal guardian for a minor – can take many steps, and even these can vary in unexpected ways, given the natural variation among judges and the particulars of a specific case.

Regardless of the type of case, missing just one step could mean you have to start the process all over again or even cause the case to be dismissed, sometimes without the option to refile.

People often quip that there are far too many lawyers. Yet the reality is that, while there are a lot of lawyers in certain geographic areas and certain specialties, in many rural areas – sometimes referred to as “legal deserts” – there are actually far too few lawyers.

Our center recently published a map of Georgia’s legal deserts. In our state, there are five counties without any lawyers at all and another 59 with 10 lawyers or fewer.

To make matters worse, in many of those counties, public transportation and internet access are sparse, and a significant percentage of the population doesn’t even have access to a vehicle.

The Self-Represented Litigation Network, a nonprofit focused on reforming the system to help those representing themselves, has also used mapping tools to depict how access to the justice system can vary across the country and sometimes even within the same state.

Immigrant Children

One of the most shocking aspects of ou systems is that under US law, children arrested for illegally entering the country don’t have the right to demand a court-appointed lawyer or interpreter. The video below, "UNACCOMPANIED: Alone in America", demonstrates how heartless our legal system can be.

Changing the statistics

So, what do we do about the fact that the legal system is, for many people without a lawyer, nearly impossible to navigate? We believe that it will take a variety of different approaches to solve this issue.

Some experts, like John Pollock with the National Coalition for a Civil Right to Counsel, have focused on expanding the right to counsel in civil cases implicating basic human needs. Others have advocated for expansion of the right to counsel in lower-level criminal cases where the consequences – including obstacles to housing or employment, or deportation – can still be incredibly high.

In Washington, nonlawyers can be trained and licensed to offer legal support to those unable to afford the services of an attorney.

Still others, like Self-Represented Litigation Network founder Richard Zorza, emphasize simplification of legal processes, including changing or eliminating the procedural and evidentiary rules that make the process so difficult. For example, the Tennessee Supreme Court has approved plain-language forms and instructions, written at a fifth- to eighth-grade reading level, for use in uncontested divorces between parties with minor children.

Maybe it’s a matter of increasing available self-help resources or placing the onus on the courts and requiring judges to play a more active role in solving the problem.

Which approach is best? It may depend on the case – and an effective solution will include a combination of the above. Some cases will require nothing less than full-service representation by a lawyer, while in other contexts, streamlined procedures and simpler forms may be sufficient for pro se litigants to get a fair shake.

Whatever the solution, the problem is clear: Self-represented litigants’ grievances are real and, for too many, justice is out of reach.The Conversation


Republished with permission under license from The Conversation. NOTE: The Immigrant Children segment was added by Randall Hill and was not apart of the original article.

‘Landmark’ verdicts like Chauvin murder conviction make history – but court cases alone don’t transform society

by Jennifer Reynolds, University of Oregon

American courts in 2021 have already handed down several potentially historic rulings, from the Supreme Court’s recent decision restricting voting rights in Arizona and potentially nationwide to a Minnesota jury’s conviction of police officer Derek Chauvin for murdering George Floyd last year.

Cases like these are often called “landmark” cases, because they set forth ideas and ideals that may bring about significant changes in the political and legal landscape.

Many analysts considered the Chauvin trial, in particular, to be a landmark. In it, police officers actually testified against one of their own, which is rare, and the jury held a white police officer criminally accountable for killing a Black man. On June 25, 2021, the judge sentenced Chauvin to 22.5 years in prison for murdering Floyd after he attempted to use a counterfeit bill to buy cigarettes.

People all over the world have followed the Chauvin trial closely, as the culminating event after a year of global protests against police brutality and racism.

Landmark trials may go down in history, but as a law professor specializing in alternative dispute resolution, I know that they do not instantly transform the social order.

Courts are limited in the kinds of disputes they can hear and the sorts of relief they can provide. Moreover, major court cases and other moments of reform in American history often result in legislative backlash and a “recalibration,” as my colleague Stuart Chinn has argued. Those reactions may slow or even undermine the momentum for social change.

And even famously “just” verdicts haven’t necessarily pushed U.S. society in a linear direction toward its constitutional ideals.

Black woman in a face masks cries on a city street, with a hand over her mouth
A woman in New York weeps after the guilty verdict was announced in the Derek Chauvin murder trial on April 20, 2021. David Dee Delgado/Getty Images

Big verdicts, slow change

A well-known example is Brown v. Board of Education, in which the Supreme Court held unanimously that the doctrine of “separate but equal” in public schools violated the 14th Amendment.

The 1954 Brown decision, which ended legal segregation in the nation’s schools, inspired civil rights activists, drew broader attention to the struggle for racial equality and was instrumental in enforcing and encouraging racial desegregation.

But the main objectives of Brown – integrating public schools and leveling the educational playing field – have not been realized.

Many schools are still effectively segregated, in part because of ongoing legal and practical challenges associated with integration. In the 1974 case Milliken v. Bradley, for example, the Supreme Court limited the ability of federal courts to compel integration across school districts. That decision, handed down 20 years after Brown v. Board of Education, has made it difficult if not impossible to fulfill Brown’s promise of integration.

Black journalists read papers touting decision in Brown v. Board
Brown v. Board of Education made front-page headlines seven decades ago, but school segregation remains a problem nationwide. Bettmann / Contributor via Getty

Another instructive example from the same era is Gideon v. Wainwright. In the Gideon case, the Supreme Court held that under the Sixth Amendment, the state must provide attorneys to criminal defendants who could not otherwise afford them.

Following through on this constitutional mandate has proven difficult. Many parts of the country allocate grossly inadequate resources to the defense of indigent defendants. New Orleans’ 60 public defenders, for example, handle approximately 20,000 cases each year, according to a 2017 report.

Without timely access to legal counsel, many low-income defendants languish in jail for prolonged periods before their case gets to trial, while waiting to be assigned a public defender. Others are pressured into unwanted or unjust plea bargains by lawyers buried under crushing caseloads.

Necessary but not sufficient

Law students learn by the end of their grueling first year that trials alone are not effective mechanisms for addressing complex social and political problems.

Yet landmark trials are important. Legal proceedings are opportunities to articulate and reinforce American ideals around equality and justice and to expose bias and unfairness. They calibrate and restrain state power, test the merit of legal claims and create a public record.

Trials are an official public rendering of guilt or liability. Without them, the United States would lose much of the law’s ability to inspire and call attention to social change.

But as the Brown and Gideon cases show, legal decisions grounded in constitutional ideals of equality and justice do not automatically lead to an individual or collective moral reckoning.

Implementing the aspirational ideals set forth in landmark verdicts requires legislation, systems design, negotiation, collaboration, dialogue, activism and education.

Legal alternatives, too, such as restorative justice – which provides both perpetrators and victims with alternative routes to accountability and healing – increasingly are recognized as crucial tools for managing individual disputes and moving society toward greater justice.

Assessing the Chauvin trial

The legal proceedings around George Floyd’s murder aren’t actually over yet.

Still to come are the prosecution of the other Minneapolis officers present at Floyd’s killing and a federal civil rights case against Chauvin and his fellow officers. There will likely be an appeal process, too; legal verdicts can be overturned.

Ultimately, however, the meaning of the Chauvin murder trial within the larger context of the struggle for racial justice will depend, in part, on how people outside the courtroom respond to calls for reform.

A large crowd celebrates the Chauvin verdict outside Cup Foods in Minneapolis, where George Floyd was murdered
Minneapolis residents celebrate the Chauvin guilty verdict at the site of George Floyd’s murder. Nathan Howard/Getty Images

This explains why so many people reacted to the Chauvin verdict with relief and also something akin to dissatisfaction. They realized that one guilty verdict, standing on its own, is not enough to address persistent and systemic inequities in the United States.

Police departments and officers, city officials, activists, community members, business owners, state and federal actors – all of these people share collective responsibility for defining George Floyd’s legacy in modern American history.

Landmark cases are moments in time; legacies unfold over generations. If Americans want safer communities and more ethical policing, the work starts now.


Republished with permission under license from The Conversation.

Debt Collectors Have Made a Fortune This Year. Now They’re Coming for More.

After a pause for the pandemic, debt buyers are back in the courts, suing debtors by the thousands.

by Paul Kiel and Jeff Ernsthausen,

Earlier this year, the pandemic swept across the country, killing 100,000 Americans by the spring, shuttering businesses and schools, and forcing people into their homes. It was a great time to be a debt collector.

In August, Encore Capital, the largest debt buyer in the country, announced that it had doubled its previous record for earnings in a quarter. It primarily had the CARES Act to thank: The bill delivered hundreds of billions of dollars worth of stimulus checks and bulked-up unemployment benefits to Americans, while easing pressures on them by halting foreclosures, evictions and student loan payments. There was no ban on collections of old credit card bills, Encore’s specialty.

At the same time, the pandemic compelled households to cut spending. Finding themselves with enough money to settle old debts, people responded to collectors’ calls and letters. Debt-buying executives couldn’t help marveling at their good fortune. All this created “a perfect storm from a cash perspective,” the CEO of Portfolio Recovery Associates, Encore’s main competitor, told Wall Street analysts.

After its record second quarter, analysts expect Encore to blow past $200 million in profit this year and reward stockholders with 40% earnings growth compared with last year. Portfolio Recovery is set for similar growth. The share prices of both have soared off their early April lows.

Investors didn’t even show much concern when, in early September, the Consumer Financial Protection Bureau sued Encore, saying that it had broken the terms of a consent agreement struck in 2015. The agency had previously charged the company with “pressuring consumers with false statements and churning out lawsuits using robo-signed court documents,” as it said at the time. (In a statement, Encore said the CFPB’s recent suit was unnecessary because it had fixed the alleged problems “years ago.”)

In recent months, the only real bad news for debt buyers was that local courts across the country temporarily shut down. Debt collection lawsuits provide a key source of revenue for the companies, a way to extract payment from consumers, typically low-income, who don’t offer it up.

But now even that hiccup is over. After a bit of a lull in the spring, Encore and other debt buyers are back at it, filing suits by the thousands every week, according to ProPublica’s analysis of state court filings.

In August alone, Encore filed about 1,000 suits in Indiana and over 2,000 suits in the metro Atlanta area. Other debt buyers jumped back in as well. In Chicago, Portfolio Recovery filed over 3,000 suits in July, while LVNV, a major debt buyer privately owned by Sherman Financial Group, filed over 2,700 suits in Maryland in August. For all these companies, ProPublica found, the volume was well above the number they’d filed before the coronavirus arrived, in January or February of this year. No national numbers on suits exist.

In statements, the companies said they have been actively working with consumers during the COVID-19 pandemic and only sue as a last resort on a small portion of accounts.

Elizabeth A. Kersey, a spokesperson for Portfolio Recovery, said the company’s hardship program “allows for the suspension of collection efforts for ninety (90) days upon notification of a hardship event.” The company is currently not seeking new orders to seize debtors’ wages or bank account funds, she said.

Ryan Bell, an Encore executive, said, “We have consistently and proactively communicated to consumers the various relief options we’ve put in place in response to COVID-19, including temporarily stopping collections.” The company said it had stopped seeking orders to garnish bank accounts. It is, however, seizing wages.

Sherman Financial did not respond to requests for comment.

If Congress is unable to pass any further stimulus , unemployment is likely to remain high. In that scenario, debt buying companies and the banks that sell defaulted accounts to them expect more Americans to fall behind on their credit card bills over the coming months.

Even that scenario turns out to be rosy for the debt buyers. While good times can mean that Encore collects on more debt than it expected, bad times typically bring a glut of people suffering under loans they cannot repay. The result is that Encore can scoop up the raw materials for its profit machine — defaulted accounts — more cheaply. Or as Encore CEO Ashish Masih put it to Wall Street: The company is “particularly excited about the prospects for increased supply in the future.”

“The same giant debt buyers known for fighting consumer protection laws at every turn have been raking in cash during this pandemic,” Sen. Elizabeth Warren, D-Mass, told ProPublica. “They are now licking their chops in anticipation of profiting even more off families who have their hours further cut or can’t find a job, and can’t keep up with their bills or their mortgage. This is disgraceful and reinforces the need for Congress to protect consumers and small businesses from this predatory behavior.”

In recent years, Encore has bought around 2 million to 3 million U.S. accounts per year, according to public filings. Last year, on average, the company paid 8.6 cents on the dollar for each account. For a typical debt of $3,142, Encore paid $271.

To earn a profit on that investment, Encore and other debt buyers pursue debtors in near perpetuity. Encore is still collecting tens of millions of dollars each year from debts it bought in 2009 or earlier. The key to that persistence is the courts.

Since the early 2000s, debt buyers have flooded local courts nationwide with suits. The companies regularly account for more than a quarter of all debt collection cases in a given jurisdiction, according to ProPublica’s review of collection filings over several states.

That disproportionate presence has been particularly apparent in recent months, as the banks themselves have mostly opted to suspend filing new suits. In normal times, Capital One files far more lawsuits than other banks, in numbers similar to those filed by Encore and Portfolio Recovery. But since March, although Capital One continued to seize pay via garnishments secured before COVID-19 struck, it has largely stopped filing new suits.

ProPublica did find one exception among the major banks that commonly file a significant number of suits: Citigroup, which resumed filing suits at its normal levels in July. The bank, for instance, filed over 200 suits in Oklahoma in August, more than it had filed there in January and February combined.

In a statement, Citi spokesperson Jennifer Bombardier said the bank has a special assistance program for customers impacted by COVID-19 and that it is not seeking to garnish the bank accounts of customers it has sued. The bank also did not sell charged-off accounts to debt buyers “for up to 120 days” in the states “most impacted by COVID-19,” she said.

Encore sued Nicole Campbell of Brooklyn, New York, in July. Her first task was to figure out what to do. The suit was over $3,023.76 in debt she incurred years ago with CareCredit, a card offered by Synchrony Bank to people who need to cover medical costs, such as dentistry and eyecare. She knew she should answer the complaint by going to the courthouse, but she was wary of going there during the pandemic and wasn’t even sure whether it was open.

Even attorneys have difficulty finding their way. “Courts have been returning to full operation, but there’s so much confusion as to what’s happening,” said Susan Shin, legal director of the New Economy Project in New York City. “It’s hard to know what to advise people on what to do with their case.”

With help from an attorney with the New Economy Project, Campbell responded to the suit by mail. She’s not sure what to expect next but said she doesn’t have much time to worry about it. She cares for three boys, 5, 11 and 14, on her own and has to figure out how to get them to school on the city’s part-time schedule while helping them with online lessons when they’re home. She juggles this with her own job as a customer service rep: That also has a rotating, part-time schedule in order to minimize the number of people in the office.

“It’s crazy to me they’re filing all this during this time when there’s so much going on,” she said.

Such collection suits are most common among workers with income under $40,000 per year and particularly common in mostly Black neighborhoods. The suits routinely result in judgments, which in turn usually result in attempts at garnishment, according to a ProPublica analysis of Missouri court filings. Past studies have put the number of workers who have their wages garnished each year at around 4 million. In most states, plaintiffs can seize up to a quarter of a worker’s take-home pay or clean out their bank account.

In recent years, when state legislatures have moved to protect more funds from garnishment, Encore has been there to oppose the measures. In 2018, a Connecticut bill proposed to automatically protect up to $1,000 in a bank account. An Encore executive, Sonia Gibson, argued against it, writing in a letter, “Since the average amount we collect through bank garnishments is typically around $700, an automatic exemption of $1,000 would leave us unable to use bank garnishments.” The bill died.

Last year in California, Encore joined with other debt buyers to combat a similar bill that aimed to protect around $1,700.

“It was a really huge fight,” said Ted Mermin, head of the California Low-Income Consumer Coalition and a professor at the University of California, Berkeley, School of Law. “And you’ve got to think, ‘Why?’ Who on earth thinks it’s a good idea to take someone’s last dollar? The only people who would do this are debt collectors who have no ongoing relationship with someone.” The bill narrowly passed and became law.

In Washington state, lawmakers last year sought to protect more workers from wage garnishment. Under federal law, earnings above $217.50 in a week are eligible to be seized, a level that has remained the same since 2009 because it’s tied to the $7.25 federal minimum wage. The Washington bill, which ultimately passed, aimed to tie the exemption to the state’s much higher minimum wage, which this year is $13.50 an hour. In 2020, about $472.50 in weekly take-home pay would be protected. That was much too high for Encore. Gibson argued in a letter that people earning that much shouldn’t be “completely exempt from garnishment.”

As an alternative to automatic protections, Encore generally argues that consumers should have to file exemptions in court to demonstrate they really can’t afford to have their money taken. Consumer advocates say that such exemptions, which often exist in state laws, are rarely invoked by debtors because they either don’t know about them or don’t understand the process.

On paper, Randall Ward would seem to be well-insulated from garnishment. He lives in the small town of Marianna, Florida, and state law protects the wages of anyone deemed the “head of household,” which is defined as someone who earns more than half the household’s income and has dependents. Since Ward helps care for his 20-year-old son with Down syndrome and a granddaughter, his pay from his job as a manager at a Waffle House is eligible for protection.

But when Encore, after having won a judgment against Ward the previous year, sought to garnish his wages this past February, Ward didn’t understand that he qualified for the “head of household” exemption. So, starting in March, Encore began taking a quarter of Ward’s take-home pay. The size of the debt, a Citibank card that had ballooned to $5,220 with interest and court costs, meant that Ward, even with what he’s proud to call a “good job,” was in for many lean months.

The only way to make ends meet, he said, was to cancel health insurance for himself, his son and his wife, “because I could not pay the bills if I didn’t do it.”

Then the virus forced his restaurant to close for several weeks and his pay stopped altogether. The family was without income as he waited for his unemployment claim to go through. When, finally, he could go back to work, the garnishments returned. Encore has said in public statements that it looks to work with consumers, especially those who’ve been impacted by COVID-19. Ward said that was not his experience.

“They’re just ruthless about it,” he said. “I would hate to see that happen to anybody.”

Encore declined to comment on individual accounts.

Collection suits can have a lasting negative effect on consumers. A recent study by economists from Dartmouth’s Tuck School of Business and the University of California, San Diego, focused on debtors who, after being sued, agreed to pay in order to avoid garnishment. The settlements left consumers worse off: They were more likely to fall behind on other debts or end up in foreclosure or bankruptcy, the study found. The main reason was that paying up on one debt had drained those consumers’ cash buffer and that left them vulnerable to falling behind on others.

Even in good economic times, low-income consumers live on the edge, so the CARES Act aid was particularly helpful to them. According to a Federal Reserve survey, the temporary $600 boost to weekly unemployment insurance benefits actually resulted in higher pay for about 40% of those who received them. On top of that came the $1,200 stimulus checks ($2,400 for married couples) with an additional $500 for each child.

In July, the Fed found households with income under $40,000 a year had significantly more savings than normal: Whereas last year just 39% said they would have covered an unexpected $400 expense with cash, this summer, 48% said they would.

Debt collectors were a clear beneficiary of those extra funds. According to a survey by the Bureau of Labor Statistics, while most people used the stimulus payments to buy food and other essentials, about 25% used at least some of the money to pay down debts.

But Felipe Severino, a Tuck School of Business professor and one of the authors of the paper on debt collection settlements, said there may be negative long-term consequences for households who used the extra money to settle older debts. The companies say they do not charge interest on the old, charged-off debts they collect so the debts are not growing.

“I would argue it’s not a very good use of their money,” he said. With less of a safety net, those households are more likely to find themselves behind on their bills again.

Furthermore, he said, stimulative government aid like the CARES Act is meant to be “spent and magnify across the economy” in the near term by, for instance, leading to increased purchases at local businesses. That doesn’t happen when the money goes to debt collectors.

The flood of government aid, along with the sudden contraction in spending due to COVID-19, has led to an unpredictable economy, one where unemployment has shot up without the usual tide of delinquencies, bankruptcies and foreclosures. But now, banks are predicting that tide to finally arrive in the coming months.

In July, Capital One reported a loss for the quarter despite delinquencies actually going down. The reason was the bank set aside $2.9 billion as a provision for future credit losses, a kind of safety net for the future.

Encore did not appear to need such precautions. “Our liquidity puts us in a strong position to capture the substantial purchasing opportunity, which we believe is sure to follow,” Masih, the CEO, told analysts.


Republished with permission under license from ProPublica.

How Debt Collectors Are Transforming the Business of State Courts

Lawsuit trends highlight need to modernize civil legal systems

Overview

The business of state civil courts has changed over the past three decades. In 1990, a typical civil court docket featured cases with two opposing sides, each with an attorney, most frequently regarding commercial matters and disputes over contracts, injuries, and other harms. The lawyers presented their cases, and the judge, acting as the neutral arbiter, rendered a decision based on those legal and factual arguments.

Thirty years later, that docket is dominated not by cases involving adversaries seeking redress for an injury or business dispute, but rather by cases in which a company represented by an attorney sues an individual, usually without the benefit of legal counsel, for money owed. The most common type of such business-to-consumer lawsuits is debt claims, also called consumer debt and debt collection lawsuits. In the typical debt claim case, a business—often a company that buys delinquent debt from the original creditor—sues an individual to collect on a debt. The amount of these claims is almost always less than $10,000 and frequently under $5,000, and typically involves unpaid medical bills, credit card balances, auto loans, student debt, and other types of consumer credit, excluding housing (mortgage or rent).

For more than a decade, the American Bar Association and legal advocacy organizations such as the Legal Services Corporation and the National Legal Aid and Defenders Association have sounded alarms about worrisome trends underway in the civil legal system. And court leaders have taken notice. In 2016, a committee of the Conference of Chief Justices, a national organization of state supreme court heads, issued a report recommending that courts enact rules to provide a more fair and just civil legal system, especially with respect to debt collection cases. Chief justices of various supreme courts, with support from private foundations, have established task forces to probe the issue further.

However, until relatively recently, these discussions were largely confined to court officials, legal aid advocates, and other stakeholders concerned about the future of the legal profession. In most states, policymakers have not been a part of conversations about how and why civil court systems are shifting; the extent to which the changes might lead to financial harm among American consumers, especially the tens of millions of people in the U.S. who are stuck in long-term cycles of debt; and potential strategies to address these issues. 

To help state leaders respond to the changing realities in civil courts, The Pew Charitable Trusts sought to determine what local, state, and national data exist on debt collection cases and what insights those data could provide. The researchers supplemented that analysis with a review of debt claims research and interviews with consumer experts, creditors, lenders, attorneys, and court officials.

The key findings are:

  • Fewer people are using the courts for civil cases. Civil caseloads dropped more than 18 percent from 2009 to 2017. Although no research to date has identified the factors that led to this decline, previous Pew research shows lack of civil legal problems is not one of them: In 2018 alone, more than half of all U.S. households experienced one or more legal issues that could have gone to court, including 1 in 8 with a legal problem related to debt.
  • Debt claims grew to dominate state civil court dockets in recent decades. From 1993 to 2013, the number of debt collection suits more than doubled nationwide, from less than 1.7 million to about 4 million, and consumed a growing share of civil dockets, rising from an estimated 1 in 9 civil cases to 1 in 4. In a handful of states, the available data extend to 2018, and those figures suggest that the growth of debt collections as a share of civil dockets has continued to outpace most other categories of cases. Debt claims were the most common type of civil case in nine of the 12 states for which at least some court data were available—Alaska, Arkansas, Colorado, Missouri, Nevada, New Mexico, Texas, Utah, and Virginia. In Texas, the only state for which comprehensive statewide data are available, debt claims more than doubled from 2014 to 2018, accounting for 30 percent of the state’s civil caseload by the end of that five-year period.
  • People sued for debts rarely have legal representation, but those who do tend to have better outcomes. Research on debt collection lawsuits from 2010 to 2019 has shown that less than 10 percent of defendants have counsel, compared with nearly all plaintiffs. According to studies in multiple jurisdictions, consumers with legal representation in a debt claim are more likely to win their case outright or reach a mutually agreed settlement with the plaintiff.
  • Debt lawsuits frequently end in default judgment, indicating that many people do not respond when sued for a debt. Over the past decade in the jurisdictions for which data are available, courts have resolved more than 70 percent of debt collection lawsuits with default judgments for the plaintiff. Unlike most court rulings, these judgments are issued, as the name indicates, by default and without consideration of the facts of the complaint—and instead are issued in cases where the defendant does not show up to court or respond to the suit. The prevalence of these judgments indicates that millions of consumers do not participate in debt claims against them.
  • Default judgments exact heavy tolls on consumers. Courts routinely order consumers to pay accrued interest as well as court fees, which together can exceed the original amount owed. Other harmful consequences can include garnishment of wages or bank accounts, seizure of personal property, and even incarceration.
  • States collect and report little data regarding their civil legal systems, including debt cases. Although 49 states and the District of Columbia provide public reports of their cases each year, 38 and the district include no detail about the number of debt cases. And in 2018, only two states provided figures on default judgments in any of their state’s debt cases. Texas is the only state that reports on all types of cases, including outcomes, across all courts. 
  • States are beginning to recognize and enact reforms to address the challenges of debt claims. From 2009 to 2019, 12 states made changes to policy—seven via legislation and five through court rules—to improve courts’ ability to meet the needs of all debt claim litigants. Examples of such reforms include ensuring that all parties are notified about lawsuits; requiring plaintiffs to demonstrate that the named defendant owes the debt sought and that the debt is owned by the plaintiff; and in some states, enhanced enforcement of the prohibitions on lawsuits for which the legal right to sue has expired.

Based on the findings of this analysis and these promising efforts in a handful of states, Pew has identified three initial steps states can take to improve the handling of debt collection cases:

  • Track data about debt claims to better understand the extent to which these lawsuits affect parties and at which stages of civil proceedings courts can more appropriately support litigants.
  • Review state policies, court rules, and common practices to identify procedures that can ensure that both sides have an opportunity to effectively present their cases.
  • Modernize the relationship between courts and their users by providing relevant and timely procedural information to all parties and moving more processes online in ways that are accessible to users with or without attorneys.

In 2010, the Federal Trade Commission (FTC) issued a report on the lack of adequate service to consumers in state courts that concluded, “The system for resolving disputes about consumer debts is broken.”1 In the decade since, this problem has not abated and if anything has become more acute. Furthermore, the challenges that this report reviews regarding debt collection cases epitomize challenges facing the civil legal system nationwide. This report summarizes important but inadequately studied trends in civil litigation, highlights unanswered questions for future research, and outlines some initial steps that state and court leaders can take to ensure that civil courts can satisfy their mission to serve the public impartially.

Methods

This study involved a three-step approach to analyze debt collection lawsuit trends in state courts and the significance for consumers. To identify common characteristics and potential consequences of these cases, Pew researchers conducted a literature review of approximately 70 peer-reviewed and gray studies and performed semistructured interviews with experts from state and local courts, consumer advocacy organizations, and the credit and debt collection industries. To analyze the volume of debt claims in the United States and the extent to which courts track and report relevant data, researchers reviewed data from the National Center for State Courts (NCSC), including national caseload statistics from 2003 to 2017 and breakdowns of civil case types in 1993 and 2013, the most recent year for which this level of detail is available. Researchers also collected and analyzed annual court statistical reports for all 50 states and the District of Columbia from 2017 and, where available, from 2005, 2009, 2013, and 2018. Pew researchers conducted quality control for each step to minimize errors and bias. For more information, see the full methodological appendix.

Fewer people are using the courts for civil cases

Beginning in at least the 1980s and continuing through the first decade of the 21st century, caseload volume in civil courts was on an upward trajectory.2 After peaking in 2009, however, it began to decline and by 2017 had dropped to levels not seen in 20 years.3 (See Figure 1.)

 

Court systems in 44 states, the District of Columbia, and Puerto Rico reported total civil caseloads to NCSC’s Court Statistics Project in 2009 and 2017, and of those, 41 systems described lower caseloads over that span, both in raw numbers and per capita.4

A full examination of drivers of the decline in civil caseloads is outside the scope of this analysis. However, evidence indicates that the drop is not the result of a decrease in legal issues that people could bring to the court. A recent Pew survey found that in 2018, more than half of U.S. households had a legal issue that could have been resolved in court, and that 1 in 4 households had two or more such issues.5;

Civil Courts and Available Data

State courts hear cases in five categories: criminal, civil, family, juvenile, and traffic. For the purposes of this report, and in keeping with the way courts typically divide their dockets, civil cases are organized into five categories:

Debt collection: Suits brought by original creditors or debt buyers claiming unpaid medical, credit card, auto, and other types of consumer debt exclusive of housing (e.g., mortgage or rent).

Mortgage foreclosure: Suits brought by banks and other mortgage lenders seeking possession of a property as collateral for unpaid home loans.

Landlord-tenant: Predominantly eviction proceedings, with a smaller subset of suits brought by landlords for unpaid rent.

Tort: Personal injury and property damage cases; medical malpractice; automobile accidents; negligence; and other claims of harm.

Other: Other contract disputes; real property; employment; appeals from administrative agencies; civil cases involving criminal proceedings;6 civil harassment petitions; and “unknown” cases where the case type was undefined or unclear.

Further, state civil courts are tiered based on the dollar amount of the claims they hear:7

  • General civil matters, characterized by high dollar amounts (minimum value of $12,000 to $50,000, depending on the state; no maximum).
  • Limited civil matters of moderate dollar amounts (minimum value of zero to $10,000 and maximum of $20,000 to $100,000, depending on the state).
  • Small claims with the lowest dollar amounts (no minimum value; maximum of $2,500 to $25,000, depending on the state).

State laws dictate the jurisdiction—city, county, state, etc.—in which a plaintiff can file a suit and, based on the dollar amount of the claim, the tier of court appropriate to the claim. Courts that disaggregate their data in annual statistical reports typically report on claims filed in the general and limited civil courts based on the above five case types (or some variation). However, most states do not disaggregate information on claims filed in small claims jurisdiction courts.

Most civil cases today are brought by businesses against individuals for money owed

The most recent national data available show that, as the overall volume of cases has declined, business-to-consumer suits, particularly debt collections, mortgage foreclosure, and landlord-tenant disputes, have come to account for more than half of civil dockets.8 (See Figure 2.) As a committee of the Conference of Chief Justices put it in 2016, “Debt collection plaintiffs are almost always corporate entities rather than individuals, and landlord-tenant plaintiffs are often so.”9

 

As of 2013, civil business-to-consumer lawsuits exceeded all court categories except traffic and criminal, and that same year, state courts heard more business-to-consumer cases than family (or “domestic relations”) and juvenile cases combined.10 (See Figure 3.)

 

Although organizing civil litigation cases into discrete categories can be useful for broad analytical purposes, determining exactly how many cases fall into each group is not so simple. For example, some landlord-tenant disputes involve individual landlords rather than companies, so a subset of cases within that category may not fall under the business-to-consumer umbrella. On the other hand, a large share of cases filed in small claims court are low-dollar-value business-to-consumer lawsuits, but because courts typically do not distinguish small claims by case type, the exact proportion is difficult to determine. Accordingly, Figures 2 and 3 almost certainly understate the share of civil court cases that involve businesses suing individual consumers because it treats small claims as a wholly separate category.

Debt claims increasingly dominated civil court dockets

The most recent national data show that, as of 2013, debt collection lawsuits—which most often involve unpaid medical, auto loan, or credit card bills—have become the single most common type of civil litigation, representing 24 percent of civil cases compared with less than 12 percent two decades earlier.11 (See Figure 4.) From 1993 to 2013, the number of debt cases rose from fewer than 1.7 million to about 4 million.12 These figures correspond with an increase in share from an estimated 1 in 9 of 14.6 million state civil cases nationwide (11.6 percent) to about 1 in 4 of 16.9 million cases (23.6 percent)13. Further, in a national survey by the Consumer Financial Protection Bureau (CFPB), nearly 1 in 20 adults with a credit report reported having been sued by a creditor or debt collector in 2014.14

 

Notably, the 2013 data show that 75 percent of civil case judgments were for less than $5,200,15 which means that in most states, debt claims are typically filed in a limited or small claims court. In fact, NCSC observed in 2015 that small claims courts “have become the forum of choice for attorney-represented plaintiffs in lower-value debt collection cases.”16 As was the case for the business-to-consumer cases shown in Figure 3, the data in Figure 4 probably undercount debt claims because they do not include any debt collection cases filed in small claims court.

Only a few state courts have consistently reported data on debt claims since 2013, but the available information indicates that these lawsuits continue to dominate court dockets. For example, in 2018, the number of debt collection lawsuits filed across all Texas courts was more than twice what it was in 2014.17(See Figure 5.) The state’s small claims courts—known as justice courts—alone experienced a 140 percent increase in debt cases over that five-year period.18 In total, collectors filed one debt claim for every 19 adults in the state over that span.19

Similarly, Alaska’s District Court, which tries all civil matters in the state for values of $100,000 or less, heard 48 percent more debt claims in fiscal year 2018 than 2013.20

 

Pew found that in 2018, only 12 states—Alaska, Arkansas, Colorado, Connecticut, Missouri, Nevada, New Mexico, Texas, Utah, Vermont, Virginia, and Wyoming—reported statewide debt claims caseload data for at least one of their courts on their public websites.21 Virginia, for instance, reports debt claims data for the state’s district courts—which hear cases with values up to $25,000—but not the circuit courts, which hear cases with values of $4,500 and up.22 Despite these differences, debt claims are consistently among the most common types of cases in the courts that report relevant information. (See Figure 6.) However, in light of the limited number of states and courts reporting, more data and research are needed to gain a complete picture of what is happening nationwide and state by state.

 

Factors Contributing to the Rise of Debt Claims

The increase in debt claims parallels two major national trends: a rise in household debt and the emergence of the debt-buying industry.

Americans’ household debt nearly tripled from $4.6 trillion in 1999 to $12.29 trillion in 2016, roughly overlapping with the period of rapid growth in debt collection litigation.23 Further, as of 2018, an estimated 71 million people—nearly 32 percent of U.S. adults with a credit history—had debt in collections reported in their credit files, and 1 in 8 households across all income levels had a problem or dispute related to debt, credit, or loans.24

Most household debt in collection stems from a financial shock, such as a job loss, illness, or divorce, and reflects the broader financial fragility of many American households. Nationwide, 2 in 5 adults say that, without selling personal property or borrowing the money, they would not have enough cash to cover an emergency expense costing $400,25 and 1 in 3 families report having no savings.26 Medical debt can be particularly devastating and accounts for more than half of all collections activity.27

Unsurprisingly, low- and moderate-income Americans are disproportionately affected by debt collection. A 2017 CFPB survey found that people in the lowest income bracket were three times as likely as those in the highest income group to have been contacted about a debt in collection and that people with lower incomes also were more likely to have been sued for a debt.28

Creditors who pursue consumer debts into collection include banks and credit unions, hospitals and other medical providers, utility companies, telecommunications companies, auto and student lenders, and, increasingly, debt buyers—firms that purchase defaulted debts from the original creditors at a fraction of the face value, sometimes less than one cent on the dollar, and then attempt to collect on the full amount owed.29

Debt buyers are key figures in many debt collection lawsuits and may have played a significant role in the rise of civil debt cases. During the same 20-year time frame that debt claims increased, 1993 to 2013, the total dollar value of debts purchased by debt buyers grew from $6 billion to $98 billion.30 (See Figure 7.)

Debt buyers employ various collection methods, but studies show that they are increasingly relying on litigation.31 Two of the largest publicly traded debt buyers, Encore Capitol and Portfolio Recovery Associates, saw their legal collections grow 184 percent and 220 percent, respectively, from 2008 to 2018.32

As a result, debt buyers are among the most active civil court users, and in some states, a small number of debt buyers account for a disproportionate percentage of civil cases filed. For example, in Massachusetts, nine debt buyers represented 43 percent of civil and small claims caseloads in 2015, and in Oregon, six debt buyers accounted for 25 percent of all civil cases from 2012 to 2016.33

 

Courts are not designed to respond to the realities of debt claims

Although civil court dockets have changed, the rules they operate on have largely stayed the same. Courts expect both parties to mount a case and present legal arguments so that the judge can make a decision based on the facts.

However, that is not how today’s debt collection lawsuits play out.

Debt claim defendants rarely have legal representation

The U.S. Constitution provides the right to an attorney for most criminal defendants regardless of ability to pay,34 but that right extends to people being sued in civil court only in very limited instances. Instead, civil case litigants on both sides must pay for their own representation, and data show that such representation is on the decline, especially for those being sued. NCSC found that from the 1990s to 2013, the share of general matters cases in which both sides had a lawyer dropped by more than half, from 96 percent to 45 percent.35

In business-to-consumer suits, and especially debt collection cases, most plaintiffs can afford an attorney, and filing multiple lawsuits in a single court can lower the cost per lawsuit filed. Consumers, however, typically have legal representation in less than 10 percent of debt claims. Studies from 2010 through 2019 show that the share of debt claim defendants who were served—that is, provided with official notification of the suit against them—who had an attorney ranged from 10 percent in Texas to zero in New York City.36 (See Figure 8.)

 

These low representation rates have real-world implications. Without representation, consumers are unlikely to know their full range of options or recognize opportunities to challenge the cases against them.

For example, every state has a statute of limitations for debt collection lawsuits, ranging from three years in Mississippi to 10 in Rhode Island.37 These laws create an expiration date after which creditors cannot use the courts to collect on a debt. However, enforcement of that prohibition typically falls on the defendant rather than on the courts. For example, if a plaintiff sues on such an expired debt, also called a time-barred debt, the defendant must raise the question of a statute of limitations in order for the court to consider whether the case is even eligible to be heard. But without professional legal help, most consumers would not have the requisite knowledge to demand that the plaintiff prove that the case was filed in time.

Of course, even defendants with representation may lose in court if the facts favor the plaintiff. However, analyses from jurisdictions across the country indicate that when consumers are represented by attorneys, they are more likely to secure a settlement or win the case outright.38 For example, a study of nearly 297,000 debt cases in Virginia district and circuit courts disposed between April 2015 and May 2016 found that debt cases were more likely to be dismissed if defendants were represented by an attorney.39 Similarly, a study of over 165,000 debt cases disposed in Utah from 2015 to 2017 found that 53 percent of represented defendants won their cases, compared with 19 percent of those without representation.40

These data indicate that the absence of legal counsel can have serious repercussions for defendants in consumer debt claims. The problem has become sufficiently widespread that in 2016, the Conference of Chief Justices (CCJ) and Conference of State Court Administrators’ (COSCA) Civil Justice Improvement Committee declared that lack of representation among defendants is “creating an asymmetry in legal expertise that, without effective court oversight, can easily result in unjust case outcomes.”41

Debt lawsuits frequently end in default judgment, indicating that many people do not respond when sued for a debt

Why do so few consumers in debt claims have lawyers? One reason is the prohibitive cost of a lawyer. But another, indicated by the outcome of large shares of debt collection cases, is that many consumers do not participate in the lawsuit at all.

Courts are designed to allow the opposing sides to present legal arguments and facts to support their positions, after which the judge, acting as a neutral arbiter, makes a decision based on that information.

What Are the Steps of a Debt Claim?

In most civil cases, the parties follow the state’s civil procedure:42

  1. Plaintiff (e.g., creditor or debt buyer) files a complaint in court and provides notice of the lawsuit to defendant (i.e., person being sued).
  2. Defendant responds with a written answer. If the defendant does not respond, the court issues a default judgment for the plaintiff.
  3. The two parties exchange documents, including discovery (questions and requests for information) and pleadings (written motions and other legal maneuvers).
  4. Court holds one or more hearings and possibly a trial. If a trial is held, parties can present evidence to a judge or jury.
  5. Judge issues a ruling, which either party may appeal.

A judge presides over the hearings and possible trial, but the litigants manage nearly every step before that, and court processes, such as scheduling a hearing, are driven by their actions. Parties can also settle the case at any time by, for example, negotiating with each other or working with a neutral mediator.

For low dollar amounts, small claims courts use a different procedure, originally designed to provide streamlined and simplified proceedings, particularly for litigants without attorneys.43 Written answers are optional, rules of evidence do not apply, and in many jurisdictions, the parties have no immediate right to appeal. The common steps are:

  1. Plaintiff files a complaint in court and notifies the defendant about the lawsuit.
  2. Parties come to court for a trial in front of a magistrate or other judicial officer.

If one side doesn’t participate, however, the process cannot operate as intended. Judges do not independently evaluate the merit of a case before them; they rely on the defendant to argue that the case is invalid. With no defendant to argue, and regardless of the reason for the defendant’s failure to respond, court procedure dictates that the plaintiff wins automatically via a default judgment.44

And default judgments are alarmingly common in debt claims. Multiple studies have shown that more than 70 percent of debt cases end in default judgments:

  • In New York City, 4 in 5 cases filed from 2006 to 2008 resulted in a default judgment in favor of debt buyers.45
  • In five Colorado counties, 71 percent of collections lawsuits filed from 2013 to 2015 by debt buyers ended in default judgments for the plaintiffs.46
  • More than 80 percent of debt claims cases filed by debt buyers in Washington state’s superior court from January 2012 to December 2016 resulted in default judgments in favor of the plaintiffs.47

In these cases, the court has ruled in favor of the debt collector for the simple reason that the consumer has not participated in the case. Although the evidence on why people do not respond to the suits is scant, the available information suggests that three factors drive many of these instances: practical realities of consumers’ lives, unfamiliar plaintiffs, or a lack of notification about the suit.

Some consumers who owe a debt see no value in responding to a lawsuit. For example, the presiding judge of the Maricopa County (Arizona) Justice Courts has suggested that some defendants believe that their cause is futile and simply give up in the face of debts they cannot afford to pay.48 Some defendants may be intimidated or confused by the complexities of the system, while others might be daunted by the prospect of defending themselves if they cannot afford an attorney.49 One collections attorney observed that some defendants choose not to respond because they cannot afford to take off—or do not see the value in missing—work to go to court if they cannot afford to pay the debt, find child care, or secure transportation.50

Observational and interview data reveal that consumers often do not recognize the name of the company that filed the lawsuit. Debt buyers present a unique challenge in this regard because they are not the original lenders. Consumers frequently report not responding because they do not recognize the debt buyer suing them.51

Further, although some consumers may actively choose not to respond to debt claims, many are not aware that they are being sued. Some evidence, including interviews with civil court judges, suggests that inadequate notice is responsible for a meaningful share of instances in which defendants fail to respond to debt claims.52 Many states’ legal requirements regarding conducting service—the process of notifying defendants about a legal action against them—do not include any mechanism for ensuring that people are actually contacted.53 For example, in many jurisdictions, the plaintiff is responsible for serving the defendant with court papers but often only by first-class mail to the defendant’s last known address. Plaintiffs are typically not obligated to ensure that they have the correct address.

Further, in some debt claims cases, bad actors may employ faulty or fraudulent service as a litigation tactic. In California, Illinois, and New York, enforcement actions have been brought against debt claims plaintiffs for “sewer service”—a practice in which a process server knowingly fails to serve the defendant but attests to the court that service was made.54

In its 2010 report, the FTC urged states to adopt “measures to make it more likely that consumers will defend in litigation.”55 Although some states are taking action to ensure that defendants are properly informed of lawsuits against them, many continue to rely on plaintiffs to notify their opponents while providing little or no oversight.56

Whatever the reason for the consumer’s failure to appear, default judgment in debt claims usually means that the court makes no finding as to the validity of the debt, the accuracy of the amount sought,57 or whether the correct consumer was sued, but simply orders the defendant to pay the debt sought. As a result, debt collectors sometimes win cases that feature inaccurate information or are filed after the legal right to sue has expired.58And despite their lack of a factual or legal foundation, default judgments carry the same weight and enforcement power as any other court decision.

Racial Disparities in Debt Claims

Research indicates that debt collections and related lawsuits disproportionately affect African American and Hispanic communities.59 In a study in New York City, 95 percent of people with default debt claims judgments entered against them lived in low- or moderate-income neighborhoods, and more than half of those individuals lived in predominantly African American or Latino communities.60 A similar analysis of court judgments over a five-year period in St. Louis, Chicago, and Newark, New Jersey, found that even after accounting for income, the rate of default judgments in mostly black neighborhoods was nearly double that of mostly white ones.61

Default judgments can exact heavy tolls on consumers

Debt collection lawsuits that end in default judgment can have lasting consequences for consumers’ economic stability. Court and attorney fees can amount to hundreds of dollars, and consumers can face wage garnishment and liens or even civil arrest for failure to comply with court orders. Over the long term, these consequences can impede people’s ability to secure housing, credit, and employment.

"People don’t appreciate the impacts of a small claim judgment. If this is on your record, you’re not going to get a housing loan or a car loan, and it impacts other areas of your life. And all for a very small debt claim."

Peter Holland, consumer attorney MARYLAND

Excess costs

Once a default judgment is entered, the consumer typically owes more than the original debt.62 All 50 states and the District of Columbia allow courts to award debt collectors pre- and post-judgment interest—that is, interest on the money owed before the court judgment and on the judgment amount. The rates vary dramatically across states—from 1.5 percent in New Jersey to 12 percent a year in Massachusetts—and apply only in cases for which the state has not set or does not permit use of a contract rate, which is typically outlined in the terms for credit cards, loans, and other consumer debt products.63

Consumers who find themselves paying high interest rates on default judgments can face an even deeper cycle of debt. For instance, in 2014, a collector in Washington state won a judgment for a $9,861 medical debt. Although the defendant had paid roughly $8,500 by 2019, she still owed an additional $8,500 because of interest—Washington statute sets the post-judgment interest rate at 12 percent—and other costs.64

In many states, a default judgment can also require the consumer to bear court and collector’s attorney fees. For example, one study from Maryland found that on average, courts ordered defendants in debt collection cases to pay principal of $2,811, but court costs, plaintiff attorneys’ fees, and interest added $512—more than 18 percent of the principal—to the total judgment.65

Court-enforced collection

Default judgments grant debt collectors access to a range of legal channels to pursue the debt, including the ability to garnish consumers’ paychecks and bank accounts and to put liens on property. A 2017 study by Automatic Data Processing Inc., one of the nation’s largest payroll providers, found that 1 in 14 U.S. workers were having paychecks garnished, and that among workers earning $25,000 to $39,000 a year, debt collection was one of the most common reasons.66

Under federal law, debt collectors are entitled to seize no more than 25 percent of a consumer’s paycheck.67 States have discretion to limit collectors to even less than the federal cap, but rules vary widely. Four states—North Carolina, Pennsylvania, South Carolina, and Texas—generally prohibit the garnishment of wages to pay off consumer debts.68 In contrast, Alabama, Arkansas, Georgia, Idaho, Kansas, Kentucky, Louisiana, Maryland, Michigan, Mississippi, Montana, Ohio, Utah, and Wyoming offer no protections beyond the federal minimum.69

The seizure of money from a bank account can be even more devastating than wage garnishment because it is unrestricted in 16 states, potentially leaving consumers with empty accounts.70 In one study from Missouri, for example, of 13,000 bank accounts garnished by collectors in 2012, more than 7,500 were entirely drained because there was less money in the account than the consumer owed.71 Bank account garnishment can also circumvent wage garnishment caps, because once a paycheck is deposited into a bank account, it is no longer subject to the limits set by federal or state law, and all the money can be legally garnished.72

Moreover, state seizure protections tend to be infrequently adjusted for inflation or changing times. Pennsylvania’s exemption law, for example, protects sewing machines, a few other specific items, and up to $300 in additional property but leaves everything else available to debt collectors.73

Asset garnishments and property liens can cause significant financial stress, especially for people whose finances are already precarious, such as the one-third of Americans who report having no savings and the 51 percent of working adults living paycheck to paycheck.74 These seizures can prevent people from selling or refinancing a home, taking out a loan, or making payments on other bills, and they can last for years. In Missouri, for example, a judgment to garnish assets is valid for 10 years and can be renewed by court order.75

Despite efforts by policymakers to restrict debt-related seizures, a 2019 review by the National Consumer Law Center (NCLC) found that every state and the District of Columbia fell short of protecting enough income and savings to ensure that consumers facing court-enforced collections could still meet basic needs.76

Arrest and incarceration

In the most extreme circumstances, consumers can be arrested and even incarcerated as a result of a debt collection judgment. Although nationwide, state laws prohibit the jailing of individuals for inability to pay a debt, in 44 states, people can be held in contempt of court and subject to a civil arrest warrant, typically issued by the court at the plaintiff’s request, if they fail to appear in court for post-judgment hearings or to provide information related to their finances.77 Defendants can be incarcerated without access to an attorney or, in some cases, without even knowing a judgment was entered against them.

Such incarceration is relatively rare, but when it does occur, it can cause significant harm to consumers,most notably loss of wages and disruption in employment.78 In addition, the bond that people must pay to get out of jail can perpetuate the cycle of debt.79 For instance, an elderly married couple jailed in Maryland in 2014 for failing to appear in court over a housing-related debt of about $3,000 were ordered to pay a $2,900 cash bond—nearly doubling the underlying debt.80

A lack of readily available data obscures procedural problems and consumer harm

Although this research highlights key issues in debt collection lawsuits, the picture of the challenges and consequences remains incomplete because state court data are scarce.81 NCSC’s 2015 report remains the only national study of debt claims from the past 10 years, and despite a sample size of more than 925,000 cases from 152 courts in 10 urban counties, that study examined just 5 percent of state civil caseloads nationally.82

Pew identified 12 states with at least some courts that provide public data on debt claims, as described previously, but those reports are not sufficiently robust to document trends over time. Just seven states—Alaska, Colorado, Connecticut, New Mexico, Texas, Utah, and Wyoming—have tracked statewide debt claims caseloads since 2013, and only Texas reports on debt collection cases for all its courts.83 Further, only Texas and Colorado identify debt claims as a category within the general civil and small claims dockets in publicly available reports. In 2018, just New Mexico and Texas reported a cross section of cases and disposition types, including default judgments, for at least one court type,84 and Texas was the only state to publish the disposition (including default judgment rate) for debt claims at all dollar amounts and in all courts.

Even fewer states provide details about how debt claims cases are resolved.

 

Court systems have difficulty producing statewide reports in part because they are decentralized and fragmented and generally collect data only for their own administrative purposes.85 Without better data than are currently available, however, states and researchers cannot effectively evaluate whether debt claims are increasing, what might be driving that growth, and what the implications are for consumers.

In some states, however, the landscape of available data is beginning to change. Texas is still the clear leader in reporting, but other states, notably Arkansas, Nevada, and Virginia, have started including debt collection lawsuits in their annual reports. Nevada also includes a more detailed breakout of the types of debt involved in debt claims, such as payday loans and credit cards. This information can help policymakers and court officials understand whether courts are serving the public as intended and make informed decisions about how to best allocate resources to ensure that taxpayer investments are directed toward the areas of greatest need.

States are beginning to recognize and enact reforms to address the challenges of debt claims

In addition to tracking and reporting debt claims trends, more and more court officials are beginning to take steps to examine court processes and rethink how debt claims proceed. To date, this work has generally involved policy and practice reviews and system modernization through technology solutions. Although these efforts are generally still in the early stages of development, with little data on their effectiveness, they nevertheless present an opportunity to examine some initial attempts at reform.

Importantly, the potential benefits of these changes are not limited to debt claims. Rather, they point to opportunities to modify court operations and processes to improve experiences for court users on a range of issues and case types. Future Pew research will examine other challenges facing state civil courts and look at how these and other reforms might bolster access.

Reviews of state policies, rules, and common practices

To strengthen consumer protections in the processing of debt litigation, the FTC recommended that states require debt collectors to include more information in their complaints about the alleged debt, adopt measures to reduce the chance that collectors will sue for debts that are beyond the statute of limitations, and enact laws “to prevent the freezing of a specified amount in a bank account including funds exempt from garnishment.”86

States have begun to take steps to improve consumer protection—including those outlined in the FTC’s recommendation—particularly bolstering requirements for litigant notification, documentation of claim validity, and enforcement of statutes of limitation. (See Table 1.) These efforts represent promising first steps, but further research is needed to examine their effectiveness in improving court access.

 

New policies require courts to verify that all parties are notified about lawsuits and court dates

A few jurisdictions have begun to modify court rules to improve their notification requirements. Massachusetts changed its small claims court rules to require that plaintiffs in debt collection cases verify the addresses of defendants using reliable sources, such as municipal or motor vehicle records, and demonstrate to the court that they successfully served the case information to the correct address.87 New York City adopted a procedure that requires debt collection plaintiffs to provide the court with a stamped, unsealed envelope addressed to the defendant with a return address to the court. The envelope contains a standardized notice of the lawsuit, which the court mails.88 The court will not enter a default judgment if the Postal Service returns the notice as undeliverable.

In addition to confirming that all parties have been notified about the lawsuit, courts in some states have made small but important changes to ensure that consumers understand what the lawsuit is about. Because consumers sometimes believe that they either do not owe the debt or have already paid it or do not recognize the creditor or debt buyer that is suing them, Maryland strengthened its rules to require that pleadings include details about the underlying debt to help consumers more easily identify the debt, reduce confusion, and improve response rates.89

Additional documentation requirements oblige courts to ensure that debt claims are accurate and valid

Some states have acted to enhance the integrity of debt claims dispositions by requiring courts to examine the plaintiff’s case before issuing a judgment, regardless of whether the defendant is present. These states require that plaintiffs provide documentation as a matter of course rather than expecting defendants to ask plaintiffs to prove their cases.

Legislatures are leading these efforts in several states. North Carolina, for instance, passed a law in 2009 prohibiting courts from entering a default judgment unless the plaintiff provides “authenticated business records” that include the original account number and creditor, the amount of the original debt, an itemization of charges and fees claimed, and other information.90 And in California, debt buyers must provide specific evidence related to their ownership of a debt, the amount of the original debt, and the name of the original creditor.91

In addition, court leaders have begun to set rules that require proof of the validity of a debt, even if the defendant is not in court. As of 2018, 11 states—California, Colorado, Delaware, Maine, Maryland, Massachusetts, Minnesota, New York, North Carolina, Oregon, and Texas—mandated documentation by court rule or statute. And in a 2018 policy resolution, the CCJ and the COSCA urged members “to consider enacting rules requiring plaintiffs in debt collection cases to file documentation demonstrating their legal entitlement to the amounts they seek to collect before entry of any default judgment where state legislation or court rules do not currently require the filing of such documentation.”92

Debt buyers, as well as consumer advocates, back requiring additional documentation that a debt is owed. For example, the Receivables Management Association International, a debt buyer trade group, “supports uniform standards on account documentation provided that they serve a legitimate purpose and is information that originating creditors are required to maintain.”93

State laws enhance prohibition of judgments on time-barred debts

In May 2019, the CFPB proposed amendments to its rules that enforce the federal Fair Debt Collection Practices Act.94 The draft rules included a new provision stating that “a debt collector must not bring or threaten to bring a legal action against a consumer to collect a debt that the debt collector knows or should know is a time-barreddebt.” As described earlier, most states currently place the responsibility on the defendant to question whether a debt has expired,95 and it is unclear whether the proposed rule would authorize courts to review cases for timing compliance even if a consumer does not raise the defense.

In the absence of specific federal rules, however, state legislators have taken up the issue of time-barred debt. Oregon law, for instance, prohibits a debt collector from knowingly filing legal action on a time-barred debt.96 Debt industry representatives argue that suing on time-barred debt is already illegal and that plaintiffs do not knowingly file such lawsuits.97 However, court data and judicial oversight are needed to confirm these assertions and to ensure that courts are not ruling in favor of collectors on invalid claims.

Modernization of court-user interactions

Some states are investing resources to leverage technology and adapt court procedures to better support self-represented litigants and improve court accessibility, affordability, and participation. These efforts include modifying court forms, enhancing outreach to consumers, and adopting online tools that make legal information and basic court services more easily available to users.

Providing relevant timely procedural information to all parties

Clear, accessible procedural information has the potential to yield significant benefits to court users and court operations. For example, Harvard Law School’s Access to Justice Lab conducted a randomized control trial in partnership with the Boston Municipal Court and found that debt claim defendants who received mailings from the court participated in their lawsuits at twice the rate of people who received no information by mail.98

Courts in several states have undertaken modernization efforts, such as updating legal documents with easy-to-understand language; providing information in multiple languages; and using illustrations, videos, and other alternative formats.99 In Alaska, for example, courts have created a self-help debt collection case website, developed a variety of plain-language forms, solicited feedback from the legal community on the revised forms, and proposed changes to court rules to facilitate participation by litigants without lawyers100 in response to an internal analysis, which showed widespread problems with debt claim cases.101

Similarly, Collin County, Texas, Justice of the Peace Chuck Ruckel, who hears more debt claims than any other case type and estimated that up to 98 percent of defendants in those cases have no lawyer, said the most common question he receives is, “What should I do?” His court distributes a self-help packet, titled “When a Debt Claim Case Has Been Filed Against You” and produced by the Texas Court Training Center, that helps people understand the steps they need to take when being sued.102

One critical consideration for courts is whether the information they provide is not merely available but in fact helpful to users. In 2019, the CCJ and COSCA passed a resolution103 calling on courts to generate “documents, forms, and other information … that is clear, concise, and easily comprehensible to all court users” and to explore online services as well as written self-help. These tools, whether static written information, interactive online content, in-person guidance, or some combination of the three, must be useful and usable.104

Some courts incorporate technology as a tool

Research increasingly suggests that technology holds promise for improving legal information and consumer outreach.105 In particular, several states, such as Illinois, Maine, Michigan, and Ohio, have created online legal assistance portals that contain self-help tools including explanatory articles, answers to common questions, step-by-step instructions for resolving a legal issue, and automated “interviews” that help litigants clarify and address their legal issues and complete court forms.106 Some portals also provide links to lawyer referral services, self-help centers, legal aid programs, and other community resources. 

In addition, some court systems have begun harnessing technology to enable remote litigant participation in legal processes, particularly through online dispute resolution (ODR), a tool already used in the private sector to resolve disagreements between consumers and online merchants. In the court context, ODR allows people to handle civil legal disputes without setting foot in a courtroom, and state and local leaders are increasingly looking to this approach to streamline people’s interactions with civil courts and help court staff better manage caseloads. Since early 2019, chief justices of the supreme courts in Hawaii, Iowa, Texas, and Utah have highlighted ODR as a key priority in their State of the Judiciary addresses.107

Some jurisdictions—such as West Valley City, Utah, and Franklin County, Ohio—have begun using ODR for small debt claims in part to reduce the time that cases take to resolve.108 However, moving debt collection cases online is not a panacea. Without recognized best practices, some experts say, ODR could present its own risks for consumers. Lisa Stifler of the Center for Responsible Lending noted that “ODR has the potential to offer avenues to consumers to respond to lawsuits against them, but there are concerns about consumers unknowingly waiving rights or legal claims or defenses.”109

To address such concerns, the NCLC put out guidance for courts to consider when moving debt cases online.110 Additionally, as part of its upcoming research agenda, Pew plans to conduct evaluations of this technology to assess the risks and benefits for courts and ODR users.

 

Conclusion

From 1993 to 2013, the number of debt claims filed in civil courts across the country increased to the point of becoming the single largest share of civil court business over that span, particularly as people used civil courts less for other issues. The analysis underpinning this report found that, as a category, debt claims have largely one-sided outcomes, raising troubling questions about legal proceedings and case dispositions. It also revealed gaps in the available data as well as other topics that would benefit from additional research, such as why fewer people are using civil courts than in the past and whether technology and policy changes intended to modernize court systems are delivering the desired results.

This report examined early efforts in a handful of states to address these questions and challenges and identified three initial steps that state and local government officials can take to mitigate the challenges associated with debt claims and other business-to-consumer cases: Increase the collection and reporting of debt claim data; revise policies and rules; and update civil legal system processes, particularly through the use of technology, to make the system easier to navigate for people without attorneys.

However, these potential state actions, while important and necessary, amount only to a preliminary effort to make the civil legal system more accessible because the issues facing civil courts are long-term and far-reaching. For instance, court leaders, the legal community, and advocates have for years been raising concerns that the civil legal system is failing not only people sued for a debt but also people facing eviction, navigating child custody issues, pursuing a divorce, seeking a protective order, or dealing with some other event with life-changing consequences. This report aims to expand the conversation among policymakers at all levels of government about modernizing the civil legal system to better serve all of its users.

Appendix: Methodology

This study took a three-step approach to analyzing debt collection lawsuit trends in state courts and their impact on consumers. To identify common characteristics and consequences of these cases, Pew researchers conducted a literature review of peer-reviewed and gray studies and semistructured interviews with subject-matter experts. To analyze the volume of debt claims in the U.S. and the extent to which courts track relevant data, researchers reviewed annual court statistical reports in all 50 states and the District of Columbia. Pew researchers conducted quality control for each step to minimize errors and bias.

Literature review

Pew researchers conducted a literature review of consumer debt and debt collection lawsuits in the U.S. using keyword searches via four search engines—EBSCO, Hein Online, Google, and Google Scholar—to identify research related to debt collection lawsuits. Search terms included but were not limited to: “debt claim,” “debt collection lawsuit,” “debt litigation,” and “debt collection data.” Researchers also reviewed studies available on the websites of 24 organizations with a focus on debt collection or debt claims lawsuits. These searches generated approximately 130 apparently relevant articles, of which roughly 70 were found to contain information applicable to this study. The researchers examined and coded each article to identify common characteristics and themes in debt collection lawsuits.

Expert interviews

To collect additional insight on debt claims characteristics and consequences, Pew researchers performed semistructured interviews with three court officials, five consumer advocates and academics, and three credit lenders and debt collection attorneys. 

Court data analysis

To identify the proportion of civil cases that were debt claims in 1993 and 2013, Pew researchers used data reported in two studies conducted by NCSC.111 Although the studies contained different sample courts, based on geographic diversity and other characteristics, NCSC considered each to be nationally representative. NCSC found that across all state courts, 64 percent of 16.9 million civil cases are contract disputes and that contract caseloads consisted primarily of debt collection (37 percent), landlord-tenant (29 percent), and foreclosure (17 percent) cases. Pew researchers calculated that debt collection lawsuits represented approximately 24 percent of the civil caseload (0.37 × 0.64 = 0.236), or 3.98 million cases (16.9 million × .236), which is higher than the other aggregated case types.

NCSC’s 1993 study reported 14.6 million civil cases in state courts, of which 8.6 million were filed in limited jurisdiction courts. In general jurisdiction courts, contracts accounted for 18 percent (or 1.08 million) of the 6 million general jurisdiction cases and 7 percent (or 602,000) of the 8.6 million limited jurisdiction cases. Contracts therefore made up 11.5 percent (1.08 million + 0.602 million/14.6 million) of the civil caseload. Debt collection was certainly less than 100 percent of the contract caseload. Both 1993 and 2013 figures are underestimated, as a significant percentage of small claims are also debt collection cases but are not counted in the contract caseloads.

Pew researchers used data collected by the NCSC Court Statistics Project (CSP) to analyze changes in state civil caseloads from 2009 to 2017. Idaho, Illinois, Mississippi, New Mexico, and Oklahoma did not report civil court data to CSP in 2017. A total of 40 states, as well as the District of Columbia and Puerto Rico, reported decreases in total civil filings from 2009 to 2017. Forty-three states, plus the District of Columbia and Puerto Rico, reported a decrease in civil filings per capita. Hawaii, North Dakota, and South Carolina reported increases in total civil filings but decreases in filings per capita. And the only states to report increases in total and per capita civil filings were Pennsylvania and Texas.

To identify debt claims reporting trends, Pew researchers searched state court websites for annual statistical reports. These reports are called by various names—e.g., annual report, court statistical report, court caseload report, etc.—and commonly include civil court data. Where available, researchers gathered and reviewed reports for calendar or fiscal years 2005, 2009, 2013, 2017, and 2018. Through this process, Pew was able to collect civil court data for 49 states and the District of Columbia, though the availability of data for each fiscal or calendar year varied. For Iowa, the court administrator’s staff provided the reporting that is shared with the state Legislature and bar association.

Table A.1

49 States and D.C. Provide Court Statistics Reports Online, Though Available Years Vary

Data websites by state

State Civil Data Website
Alabama http://www.alacourt.gov/Publications.aspx 
Alaska http://www.courts.alaska.gov/admin/index.htm#annualrep 
Arizona https://www.azcourts.gov/statistics/Annual-Data-Reports/
2017-Data-Report
 
Arkansas https://www.arcourts.gov/forms-and-publications/annual-reports 
California  https://www.courts.ca.gov/13421.htm 
Colorado

https://www.courts.state.co.us/Administration/Unit.cfm?
Unit=annrep
 

Connecticut  https://jud.ct.gov/statistics/civil/ 
Delaware https://courts.delaware.gov/AOC/AnnualReports/FY18/index.aspx 
District of Columbia  https://www.dccourts.gov/about/organizational-performance/
annual-reports
 
Florida https://www.flcourts.org/Publications-Statistics/Statistics/
Trial-Court-Statistical-Reference-Guide
 
Georgia http://jcaoc.georgiacourts.gov/content/ annual-reports 
Hawaii https://www.courts.state.hi.us/news_and_reports/reports/
annual_report_stat_sup_archive
 
Idaho https://isc.idaho.gov/annual-reports 
Illinois http://www.illinoiscourts.gov/SupremeCourt/
AnnReport.asp
 
Indiana  https://publicaccess.courts.in.gov/ICOR/ 
Iowa State does not provide court statistical data online. 
Kansas http://www.kscourts.org/Court-Administration/stats/index.html 
Kentucky https://courts.ky.gov/aoc/statisticalreports/Pages/default.aspx 
Louisiana https://www.lasc.org/press_room/annual_reports/default.asp 
Maine https://www.courts.maine.gov/news_reference/stats/index.html 
Maryland

https://mdcourts.gov/publications/annualreports 

https://datadashboard.mdcourts.gov/#/court/district/activity 

Massachusetts https://www.mass.gov/lists/massachusetts-court-system-annual-reports 
Michigan  https://courts.michigan.gov/education/stats/Caseload/Pages/
default.aspx
 
Minnesota http://www.mncourts.gov/About-The-Courts/
PublicationsAndReports.aspx
 
Mississippi https://courts.ms.gov/research/reports/reports.php 
Missouri  https://www.courts.mo.gov/page.jsp?id=296 
Montana https://courts.mt.gov/courts/statistics 
Nebraska  https://supremecourt.nebraska.gov/administration/
publications-reports
 
Nevada https://nvcourts.gov/AOC/Templates/documents.aspx?
folderID=4479
 
New Hampshire https://www.courts.state.nh.us/cio/data-and-reports.htm#
reports-header
 
New Jersey https://www.njcourts.gov/public/stats.html 
New Mexico https://www.nmcourts.gov/reports-and-policies.aspx 

New York

http://ww2.nycourts.gov/reports/annual/index.shtml 
North Carolina

https://data.nccourts.gov/explore/?sort=modified

https://www.nccourts.gov/ about/data-and-statistics

North Dakota https://www.ndcourts.gov/state-court-administration/
annual-report
 
Ohio http://www.supremecourt.ohio.gov/Publications/default.asp 
Oklahoma http://www.oscn.net/news/ 
Oregon https://www.courts.oregon.gov/about/pages/
reports-measures.aspx
 
Pennsylvania  http://www.pacourts.us/news-and-statistics/research-and-
statistics/caseload-statistics
Rhode Island https://www.courts.ri.gov/PublicResources/annualreports/
Pages/default.aspx
 
South Carolina https://www.sccourts.org/annualreports/ 
South Dakota https://ujs.sd.gov/Resources/PublicInformation.aspx 
Tennessee http://www.tncourts.gov/media/statistical-reports 
Texas http://www.txcourts.gov/statistics/annual-statistical-reports/ 
Utah https://www.utcourts.gov/stats/ 
Vermont https://www.vermontjudiciary.org/about-vermont-judiciary/
court-statistics-and-reports
 
Virginia http://www.courts.state.va.us/courtadmin/
aoc/judpln/csi/home.html
 
Washington http://www.courts.wa.gov/caseload/?fa=caseload.
showarchived
 
West Virginia http://www.courtswv.gov/public-resources/press/
Publications/index.html
 
Wisconsin https://www.wicourts.gov/publications/statistics/circuit/
circuitstats.htm
 
Wyoming https://www.courts.state.wy.us/circuit-courts/circuit-court-reports
-and-statistics/
 

Sources: “National Center for State Courts AOC State Links,” https://www.ncsc.org/Topics/Court-Management/Administrative-Offices-of-the-Courts/State-Links.aspx; The Pew Charitable Trusts internal review of state court websites.

Next, the researchers reviewed the civil court data in each identified source and documented information related to:

  • Civil case filings and outcomes, particularly whether the data were disaggregated by case type.
  • Types of civil cases reported.
  • Small claims filings and outcomes.
  • Debt claims filings and outcomes.
  • Definitions of small claims and debt claims.

If a source did not contain the information sought, the research team searched for other public sources on courts’ websites that may include this information—e.g., a data dashboard, etc., using the phrases “civil case data,” “caseload statistics,” or “caseload data.” To ensure that all relevant sources of publicly available court data were examined, the team also contacted court administration offices in all 50 states and the District of Columbia.

Next, the researchers compiled three simple descriptive statistics to assess reporting trends:

  • The number of states that disaggregate their filings and outcomes information by case type.
  • The number of states that include debt claims as a subcategory within one or more tiers or dollar thresholds of civil cases (small claims, limited civil, general civil).
  • The number of states that report on the number of self-represented litigants.

To identify small and debt claims filings and outcomes trends, researchers collected data from the state reports identified above for years 2005, 2009, 2013, 2017, and 2018 and documented the following information (where available):

  • Small claims maximum limit.
  • Small claims caseload and default judgments.
  • Debt claims caseload and default judgments.

Pew researchers were unable to find publicly accessible reports for the following years and states as of October 2019:

  • 2005: Georgia, Iowa, Kentucky, Nebraska, Oklahoma, Vermont, West Virginia, Wyoming.
  • 2009: Iowa, Kentucky, Oklahoma, Vermont.
  • 2013: Iowa.
  • 2017: Idaho, Iowa.
  • 2018: Arkansas (labeled 2018 annual report but reporting on 2017 data), Idaho, Illinois, Iowa.

In addition, 20 states and the District of Columbia report their data on a calendar year basis, while 29 do so on a fiscal year.

  • Calendar year states: Arkansas, District of Columbia, Illinois, Indiana, Kentucky, Louisiana, Michigan, Minnesota, Montana, New Hampshire, New York, North Dakota, Ohio, Oregon, Pennsylvania, Rhode Island, Virginia, Washington, West Virginia, Wisconsin, Wyoming.
  • Fiscal year states: Alabama, Alaska, Arizona, California, Colorado, Connecticut, Delaware, Florida, Georgia, Hawaii, Idaho, Kansas, Maine, Maryland, Massachusetts, Mississippi, Missouri, Nebraska, Nevada, New Jersey, New Mexico, North Carolina, Oklahoma, South Carolina, South Dakota, Tennessee, Texas, Utah, and Vermont.
  • Iowa does not produce public reports.

Where available, the research team performed descriptive analyses of small claims and debt claims trends from fiscal 2005 to fiscal 2018 to assess:

  • Differences in filings, including per capita, and default judgment rates.
  • Small claims caseload as a percentage of total civil caseload.
  • Debt claims caseload as a percentage of small claims caseload.

Limitations

Several factors can contribute to small claims and debt claims trends in each jurisdiction, such as the maximum dollar amount a plaintiff can sue for in a small claims court, rules and regulations governing the evidence required to file a debt collection lawsuit, the statute of limitations, filing fees, or the availability of electronic filing. Because of timing and resource constraints, assessing all these factors across the states and the District of Columbia was beyond the scope of this analysis. But this study was able to identify which of the six states that reported some information about debt claims caseloads in 2013 or earlier had also experienced a change in rules or court proceedings specifically targeting debt claims.

Endnotes

  1. Federal Trade Commission, “Repairing a Broken System: Protecting Consumers in Debt Collection Litigation and Arbitration” (2010), https://www.ftc.gov/sites/default/files/documents/reports/federal-trade-commission-bureau-consumer-protection-staff-report-repairing-broken-system-protecting/debtcollectionreport.pdf.
  2. National Center for State Courts, “State Court Statistics, 1985-2001: United States” (Inter-University Consortium for Political and Social Research, 2005); K. Genthon, senior court research analyst, Court Statistics Project, National Center for State Courts, email to The Pew Charitable Trusts, Sept. 5, 2019.
  3. Genthon, email. Due to differences in reporting, the National Center for State Courts is unable to demonstrate adjusted caseload data pre- and post-2003 to enable them to be charted together. However, NCSC has consistently reported a general upward trend from the 1980s to 2003.
  4. Court Statistics Project, “State Court Caseload Digest, 2017 Data” (Conference of State Court Administrators and National Center for State Courts, 2019), http://www.courtstatistics.org/~/media/Microsites/Files/CSP/Overview/CSP Caseload Digest 2017 Data print.ashx; National Center for State Courts, “State Court Statistics, 2009” (2012), https://www.icpsr.umich.edu/icpsrweb/NACJD/series/80.
  5. E. Rickard, “Many U.S. Families Faced Civil Legal Issues in 2018” (The Pew Charitable Trusts, 2019), https://www.pewtrusts.org/en/research-and-analysis/articles/2019/11/19/many-us-families-faced-civil-legal-issues-in-2018.
  6. For example, cases involving civil asset forfeiture, in which prosecutors file a lawsuit in civil court to keep property (e.g., car or money) that was allegedly used or seized in a crime.
  7. National Center for State Courts, “Civil Jurisdiction Thresholds” (2015), https://www.ncsc.org/~/media/Files/PDF/Topics/Civil%20Procedure/Civil%20Jurisdiction%20Thresholds%20History.ashx.
  8. P. Hannaford-Agor, S.E. Graves, and S.S. Miller, “The Landscape of Civil Litigation in State Courts” (National Center for State Courts, 2015), https://www.ncsc.org/~/media/Files/PDF/Research/CivilJusticeReport-2015.ashx. Notably, debt collection lawsuits are not resolved by arbitration, so even if certain types of cases are leaving the courts, debt collection is probably not one of them. In 2009, the Minnesota attorney general brought a federal lawsuit against a private arbitration company for colluding with creditors to collect on debts, and as a result, private arbitration companies have declared a moratorium on providing their arbitration services for debt collectors pursuing debts. See: American Arbitration Association, “Notice on Consumer Debt Collection Arbitrations,” http://www.adr.org; Consumer Financial Protection Bureau, “Arbitration Study: Report to Congress, Pursuant to Dodd-Frank Wall Street Reform and Consumer Protection Act § 1028(a)” (2015), http://purl.fdlp.gov/GPO/gpo57021; State v. National Arbitration Forum (Minn. Dist. Ct. Hennepin Cty., July 17, 2009).
  9. National Center for State Courts, “Appendix I: Problems and Recommendations for High-Volume Dockets” (2016), https://www.ncsc.org/~/media/Microsites/Files/Civil-Justice/NCSC-CJI-Appendices-I.ashx.
  10. Court Statistics Project, “Examining the Work of State Courts: An Overview of 2013 State Court Caseloads” (2015), http://www.courtstatistics.org/~/media/Microsites/Files/CSP/EWSC_CSP_2015.ashx; Hannaford-Agor, Graves, and Miller, “The Landscape of Civil Litigation.”
  11. Hannaford-Agor, Graves, and Miller, “The Landscape of Civil Litigation”; B.J. Ostrom and N.B. Kauder, “Examining the Work of State Courts, 1993: A National Perspective From the Court Statistics Project” (Court Statistics Project, 1995), https://www.bjs.gov/content/pub/pdf/ewsc93-npscp.pdf; National Center for State Courts, “Call to Action: Achieving Civil Justice for All” (2016), https://www.ncsc.org/~/media/microsites/files/civil-justice/ncsc-cji-report-web.ashx. See the appendix for details on how Pew researchers identified these findings.
  12. Hannaford-Agor, Graves, and Miller, “The Landscape of Civil Litigation”; Ostrom and Kauder, “Examining the Work of State Courts, 1993.” See the appendix for more information on how Pew estimated the debt claims caseloads in 1993 and 2013.
  13. Hannaford-Agor, Graves, and Miller, “The Landscape of Civil Litigation”; Ostrom and Kauder, “Examining the Work of State Courts, 1993.”
  14. Consumer Financial Protection Bureau, “Consumer Experiences With Debt Collection: Findings From the CFPB’s Survey of Consumer Views on Debt” (2017), https://files.consumerfinance.gov/f/documents/201701_cfpb_Debt-Collection-Survey-Report.pdf. Pew researchers estimated this figure using data from the study.
  15. Hannaford-Agor, Graves, and Miller, “The Landscape of Civil Litigation.”
  16. Ibid., 33. “… it raises troubling concerns that small claims courts, which were originally developed as a forum in which primarily self-represented litigants could use a simplified process to resolve civil cases quickly and fairly, provide a much less evenly balanced playing field than was originally intended.”
  17. Texas Office of Court Administration, “Annual Statistical Report for the Texas Judiciary, Fiscal Year 2018” (2018), https://www.txcourts.gov/media/1443455/2018-ar-statistical-final.pdf.
  18. Ibid.
  19. Ibid. Pew researchers estimated this figure using data from the report.
  20. Alaska Court System, “Alaska Court System Annual Report FY 2013” (2014); Alaska Court System, “Alaska Court System Annual Report FY 2018” (2018), https://public.courts.alaska.gov/web/admin/docs/fy18.pdf.
  21. This analysis is based on states that report the required information on the court’s website. Some states may track this data but not report it on the website. See the appendix for the list of court websites used in this study.
  22. Virginia’s Judicial System, “Caseload Statistics of the General District Courts, January 2018 Through December 2018” (2019); Virginia’s Judicial System, “Virginia Courts in Brief” (2019), http://www.courts.state.va.us/courts/cib.pdf; Virginia’s Judicial System, “PLN-GCMS 10.01 Caseload Statistics of the General District Courts, January 2018 Through December 2018 Filings” (2018), http://www.courts.state.va.us/courtadmin/aoc/judpln/csi/home.html.
  23. Federal Reserve Bank of New York, “Quarterly Report on Household Debt and Credit” (2010), https://www.newyorkfed.org/medialibrary/interactives/householdcredit/data/pdf/DistrictReport_Q22010.pdf; Federal Reserve Bank of New York, “Quarterly Report on Household Debt and Credit” (2016), https://www.newyorkfed.org/medialibrary/interactives/householdcredit/data/pdf/HHDC_2016Q2.pdf.
  24. Urban Institute, “71 Million U.S. Adults Have Debts in Collection” (2018), https://www.urban.org/urban-wire/71-million-us-adults-have-debt-collections; Rickard, “Many U.S. Families Faced Civil Legal Issues in 2018.”
  25. B. Adler, B. Polak, and A. Schwartz, “Regulating Consumer Bankruptcy: A Theoretical Inquiry,” The Journal of Legal Studies 29, no. 2 (2000): 585-613; Board of Governors of the Federal Reserve System, “Report on the Economic Well-Being of U.S. Households in 2017” (2018), https://www.federalreserve.gov/publications/files/2017-report-economic-well-being-us-households-201805.pdf; J.M. Collins, “Exploring the Design of Financial Counseling for Mortgage Borrowers in Default,” Journal of Family and Economic Issues 28, no. 2 (2007): 207-26; C.E. Herbert, Report to Congress on the Root Causes of the Mortgage Foreclosure Crisis (2010).
  26. The Pew Charitable Trusts, “What Resources Do Families Have for Financial Emergencies?” (2015), https://www.pewtrusts.org/en/research-and-analysis/issue-briefs/2015/11/emergency-savings-what-resources-do-families-have-for-financial-emergencies.
  27. Consumer Financial Protection Bureau, “Consumer Credit Reports: A Study of Medical and Non-Medical Collections” (2014), https://files.consumerfinance.gov/f/201412_cfpb_reports_consumer-credit-medical-and-non-medical-collections.pdf.
  28. Consumer Financial Protection Bureau, “Consumer Experiences With Debt Collection.”
  29. Federal Trade Commission, “The Structure and Practices of the Debt Buying Industry” (2013), https://www.ftc.gov/sites/default/files/documents/reports/structure-and-practices-debt-buying-industry/debtbuyingreport.pdf; Consumer Financial Protection Bureau, “Market Snapshot: Online Debt Sales” (2017), https://www.consumerfinance.gov/documents/2249/201701_cfpb_Online-Debt-Sales-Report.pdf.
  30. R.J. Hobbs and C.L. Carter, Fair Debt Collection (National Consumer Law Center, 2008). Ch. 1.3.4.2, citing The Nilson Report: Issues 792 (July 2003); 806 (March 2004); 835 (June 2005); 857 (May 2006); 880 (May 2007); 901 (April 2008); 921 (March 2009); 946 (April 2010); 969 (April 2011); 992 (April 2012); 1019 (June 2013); 1041 (May 2014).
  31. C. Albin-Lackey, “Rubber Stamp Justice: US Courts, Debt Buying Corporations, and the Poor” (Human Rights Watch, 2016), https://www.hrw.org/sites/default/files/report_pdf/us0116_web.pdf; P. Kiel, “So Sue Them: What We’ve Learned About the Debt Collection Lawsuit Machine,” ProPublica, May 5, 2016, https://www.propublica.org/article/so-sue-them-what-weve-learned-about-the-debt-collection-lawsuit-machine; A. Kuehnhoff and M. Best (staff attorneys at the National Consumer Law Center), testimony before the Joint Financial Services Committee (May 2, 2019), https://www.nclc.org/images/pdf/debt_collection/testimony-debt-collection-may2019.pdf; L. Stifler, T. Feltner, and S. Sajadi, “Undue Burden: The Impact of Abusive Debt Collection Practices in Oregon” (Center for Responsible Lending, 2018), https://www.responsiblelending.org/research-publication/undue-burden-impact-abusive-debt-collection-practices-oregon.
  32. Encore Capital Group Inc., “Form 10-K, 2008” (2009), https://investors.encorecapital.com/financial-information/annual-reports; Encore Capital Group Inc., “Form 10-K, 2018” (2019), https://investors.encorecapital.com/financial-information/annual-reports; PRA Group Inc., “Form 10-K, 2008” (2009), https://ir.pragroup.com/sec-filings; PRA Group Inc., “Form 10-K, 2018” (2019), https://ir.pragroup.com/sec-filings.
  33. Kuehnhoff and Best, testimony; Stifler, Feltner, and Sajadi, “Undue Burden.”
  34. Scott v. Illinois, 440 U.S. 367 (1979); Gideon v. Wainwright, 372 U.S. 335 (1963).
  35. Hannaford-Agor, Graves, and Miller, “The Landscape of Civil Litigation.”
  36. T. Feltner, J. Barnard, and L. Stifler, “Debt by Default: Debt Collection Practices in Washington 2012-2016” (Center for Responsible Lending, 2019), https://www.responsiblelending.org/research-publication/debt-default-debt-collection-practices-washington-2012-2016; Stifler, Feltner, and Sajadi, “Undue Burden”; C. Wilner et al., “Debt Deception: How Debt Buyers Abuse the Legal System to Prey on Lower-Income New Yorkers” (New Economy Project, Legal Aid Society, MFY Legal Services, and Urban Justice Center, 2010); Legal Services Corp., “Fiscal Year 2019 Budget Request” (2018), 9-10, https://www.lsc.gov/media-center/publications/fiscal-year-2019-budget-request; P.A. Holland, “Junk Justice: A Statistical Analysis of 4,400 Lawsuits Filed by Debt Buyers,” Loyola Consumer Law Review 26, no. 2 (2014): 179-246, https://core.ac.uk/download/pdf/56360427.pdf; M. Spector, “Debts, Defaults and Details: Exploring the Impact of Debt Collection Litigation on Consumers and Courts,” Virginia Law & Business Review 6, no. 2 (2011): 257, https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1975121. This problem is part of a larger trend in civil litigation nationwide. The NCSC found that attorney representation among defendants declined dramatically across all civil cases from 1992 to 2013, falling from 97 percent to 46 percent in general jurisdiction cases over that span. See: Hannaford-Agor, Graves, and Miller, “The Landscape of Civil Litigation,” 31.
  37. Federal Trade Commission, “Time-Barred Debts,” accessed Jan. 22, 2020, https://www.consumer.ftc.gov/articles/0117-time-barred-debts; Rhode Island Gen. Law § 9-1-13; Mississippi Code § 75-3-118.
  38. Holland, “Junk Justice.” One Maryland study of lawsuits in which defendants had pro bono legal counsel showed that debt buyers obtained monetary judgments in only 15 percent of those cases.
  39. National Center for State Courts, “Virginia Self-Represented Litigant Study: Outcomes of Civil Cases in General District Court, Juvenile & Domestic Relations Court, and Circuit Court” (2017), https://ncsc.contentdm.oclc.org/digital/collection/accessfair/id/810.
  40. Legal Services Corp., “Fiscal Year 2019 Budget Request,” 10.
  41. National Center for State Courts, “Call to Action.”
  42. American Bar Association, “Steps in a Trial,” accessed Feb. 3, 2020, https://www.americanbar.org/groups/public_education/resources/law_related_education_network/how_courts_work/steps_in_a_trial2/.
  43. B. Yngvesson and P. Hennessey, “Small Claims, Complex Disputes: A Review of the Small Claims Literature,” Law & Society Review 9, no. 2 (1975): 219-74, http://doi.org/10.2307/3052976.
  44. See for example, Albin-Lackey, “Rubber Stamp Justice”; Legal Services Corp., “Fiscal Year 2019 Budget Request”; Feltner, Barnard, and Stifler, “Debt by Default”; J. Fox, “Do We Have a Debt Collection Crisis? Some Cautionary Tales of Debt Collection in Indiana,” Loyola Consumer Law Review 24 (2011): 355; Holland, “Junk Justice”; M. Spector and A. Baddour, “Collection Texas-Style: An Analysis of Consumer Collection Practices in and out of the Courts,” Hastings Law Journal 67 (2015): 1427; Stifler, Feltner, and Sajadi, “Undue Burden.” In 2015, the NCSC found that fewer than 5 percent of cases were adjudicated on the merits of the case. See: Hannaford-Agor, Graves, and Miller, “The Landscape of Civil Litigation.”
  45. Wilner et al., “Debt Deception.”
  46. E. Harnick, L. Stifler, and S. Sajadi, “Debt Buyers Hound Coloradans in Court for Debts They May Not Owe” (Center for Responsible Lending, 2016), https://www.responsiblelending.org/research-publication/debt-buyers-hound-coloradans-court-debts-they-may-not-owe.
  47. Feltner, Barnard, and Stifler, “Debt by Default.”
  48. Albin-Lackey, “Rubber Stamp Justice.”
  49. R.W. Staudt and P.L. Hannaford, “Access to Justice for the Self-Represented Litigant: An Interdisciplinary Investigation by Designers and Lawyers,” Syracuse Law Review 52 (2002): 1017.5
  50. C. Brugnoli (attorney, Brugnoli Law Firm), interview with The Pew Charitable Trusts, June 11, 2019.
  51. Federal Trade Commission, “Repairing a Broken System.”
  52. New York Appleseed and Jones Day, “Due Process and Consumer Debt: Eliminating Barriers to Justice in Consumer Credit Cases” (2010), https://www.ftc.gov/sites/default/files/documents/public_comments/protecting-consumers-debt-collection-litigation-and-arbitration-series-roundtable-discussions-august/545921-00031.pdf; Federal Trade Commission, “Repairing a Broken System”; Albin-Lackey, “Rubber Stamp Justice.”
  53. National Association of Professional Process Servers, “Civil Rules Guide for All 50 United States and the District of Columbia” (2017), https://www.sheriffs.org/sites/default/files/Civil%20Rules%20Guide%202017%20Redux.pdf.
  54. See lawsuits against debt collectors for fraudulent service, in J.K. Steinberg, “A Theory of Civil Problem-Solving Courts,” NYU Law Review 93 (2018): 1579.
  55. Federal Trade Commission, “Repairing a Broken System.”
  56. Albin-Lackey, “Rubber Stamp Justice.”
  57. Ibid.; M. Spector, “Litigating Consumer Debt Collection: A Study,” Banking and Financial Services Policy Report 31, no. 6 (2012), http://debtbuyeragreements.com/wp-content/uploads/2014/04/BFS_0612_1-MBS-053112.pdf.
  58. Albin-Lackey, “Rubber Stamp Justice”; Spector, “Litigating Consumer Debt Collection.”
  59. See Wilner et al., “Debt Deception”; Holland, “Junk Justice”; C. Ratcliffe et al., “Debt in America: An Interactive Map” (The Urban Institute, 2017); P. Kiel and A. Waldman, “The Color of Debt: How Collection Suits Squeeze Black Neighborhoods,” ProPublica, Oct. 8, 2015, https://www.propublica.org/article/debt-collection-lawsuits-squeeze-black-neighborhoods.
  60. Wilner et al., “Debt Deception.”
  61. Kiel and Waldman, “The Color of Debt.”
  62. Hannaford-Agor, Graves, and Miller, “The Landscape of Civil Litigation.”
  63. American Institute of CPAs, “Pre and Post Judgment Interest Analysis Matrix,” accessed Oct. 14, 2019, https://www.aicpa.org/interestareas/forensicandvaluation/resources/economicdamages/prejudgment-postjudgment-matrix.html.
  64. M. Baker, “Debt Collectors That ‘Sue, Sue, Sue’ Can Squeeze Washington State Consumers for More Cash,” The Seattle Times, March 23, 2019, https://www.seattletimes.com/seattle-news/times-watchdog/with-a-chance-to-sue-sue-sue-debt-collectors-squeeze-washington-consumers-for-more-cash/.
  65. Holland, “Junk Justice.”
  66. ADP Research Institute, “The U.S. Wage Garnishment Landscape: Through the Lens of the Employer” (2017), https://www.adp.com/tools-and-resources/adp-research-institute/research-and-trends/-/media/RI/pdf/WageGarnishment_WhitePaper.ashx; ADP Research Institute, “Garnishment: The Untold Story” (2014), https://www.documentcloud.org/documents/1301187-adp-garnishment-report.html.
  67. U.S. Code § 1673, Restriction on Garnishment. Garnishments may not exceed the lesser of 25 percent of disposable earnings or the amount by which disposable earnings are greater than 30 times the federal minimum wage.
  68. C. Carter, “No Fresh Start in 2019: How States Still Allow Debt Collectors to Push Families Into Poverty” (National Consumer Law Center, 2019), https://www.nclc.org/images/pdf/debt_collection/report-still-no-fresh-start-nov2019.pdf. In North Carolina, all wages are exempt only if the consumer is supporting a family.
  69. Ibid.
  70. Ibid. The 16 states are Arkansas, Delaware, Georgia, Hawaii, Kansas, Kentucky, Louisiana, Maine, Michigan, Missouri, New Jersey, Pennsylvania, Rhode Island, Texas, Utah, and Wyoming. At most, these states protect a few special types of accounts, such as college savings accounts.
  71. Kiel, “So Sue Them.”
  72. P. Kiel, “Old Debts, Fresh Pain: Weak Laws Offer Debtors Little Protection,” ProPublica, Sept. 16, 2014, https://www.propublica.org/article/old-debts-fresh-pain-weak-laws-offer-debtors-little-protection.
  73. North Carolina General Assembly Session Law 2015-241, S. 7.23.(a), An Act to Make Base Budget Appropriations for Current Operations of State Departments, Institutions, and Agencies, and for Other Purposes (2015), https://www.ncleg.net/enactedlegislation/sessionlaws/html/2015-2016/sl2015-241.html; Carter, “No Fresh Start in 2019”; Tennessee Department of Economic and Community Development, Broadband Accessibility Grant Report–FY 2018-2019 (2019), https://www.tn.gov/content/dam/tn/ecd/documents/broadband/BroadbandAccessibility-Grants—FY19-Annual-Report.pdf.
  74. The Pew Charitable Trusts, “What Resources Do Families Have for Financial Emergencies?”; NORC at the University of Chicago, “Most Working Americans Would Face Economic Hardship If They Missed More Than One Paycheck” (2019), http://www.norc.org/NewsEventsPublications/PressReleases/Pages/most-working-americans-would-face-economic-hardship-if-they-missed-more-than-one-paycheck.aspx.
  75. Missouri Ann. Stat. 511.370.
  76. Carter, “No Fresh Start in 2019.”
  77. American Civil Liberties Union, “A Pound of Flesh: The Criminalization of Private Debt” (2018), https://www.aclu.org/report/pound-flesh-criminalization-private-debt. The six states that do not have a statute are Alabama, New Mexico, North Dakota, South Dakota, West Virginia, and Wyoming.
  78. See for example A.M. Holsinger, “Analyzing Bond Supervision Survey Data: The Effects of Pretrial Detention on Self-Reported Outcomes” (Community Resources for Justice, 2016), https://www.crj.org/publication/analyzing-bond-supervision-survey-data-effects-pretrial-detention-self-reported-outcomes/.
  79. American Civil Liberties Union, “A Pound of Flesh.”
  80. Ibid.
  81. R.L. Sandefur, “Paying Down the Civil Justice Data Deficit: Leveraging Existing National Data Collection,” South Carolina Law Review 68, no. 2 (2016): 295-309.
  82. Hannaford-Agor, Graves, and Miller, “The Landscape of Civil Litigation.”
  83. Colorado also reports “money” claims for all civil cases (small claims, county, and district court), but its most populous county, Denver County, was not included in statewide reporting after 2014.
  84. Others provide a higher-level case category—e.g., contracts. Debt collection claims are a subset of contracts, though they are sometimes reported separately.
  85. Hannaford-Agor, Graves, and Miller, “The Landscape of Civil Litigation,” 7. “Part of the difficulty stems from the inability of many case management systems to collect and generate reports about civil caseloads.”
  86. Federal Trade Commission, “Repairing a Broken System.”
  87. Massachusetts Trial Court, Massachusetts Uniform Small Claims Rules, Rule 2(b).
  88. New York State Courts, Uniform Rules for New York State Trial Courts, 22 NYCRR §§ 208.6(h), 208.14-a (2014).
  89. Maryland Court, Rules of Civil Procedure, District Court, 3-306 (2016), https://govt.westlaw.com/mdc/Document/N9C0587909CEAFullText&originationContext=documenttoc&transitionType=CategoryPageItem&contextData=(sc.Default). Utah also modified its discovery rule 26(a) in 2011, requiring initial disclosure of documents underlying a debt claim, but only after the defendant files an initial answer. A default judgment can still be entered absent that disclosure. See: Utah Courts, Rules of Civil Procedure, 26(a) (2011), http://www.utcourts.gov/resources/rules/urcp/urcp026.html.
  90. North Carolina Gen. Stat. § 58-70-115, 150, 155 (2009, 2011), https://www.ncleg.net/EnactedLegislation/Statutes/HTML/ByArticle/Chapter_58/Article_70.html.
  91. United States Census Bureau, “Understanding Census Bureau Address Ranges,” April 15, 2016, https://www.census.gov/newsroom/blogs/research-matters/2016/04/understanding-census-bureau-address-ranges.html.
  92. Conference of Chief Justices and Conference of State Court Administrators, In Support of Rules Regarding Default Judgments in Debt Collection Cases, Resolution 4 (2018), https://ccj.ncsc.org/~/media/Microsites/Files/CCJ/Resolutions/08222018-Debt-Collection-Default-Judgments.ashx.
  93. Receivables Management Association International, “The Debt Buying Industry” (2015), https://rmassociation.org/wp-content/uploads/2017/04/White-Paper-The-Debt-Buying-Industry.pdf.
  94. Consumer Financial Protection Bureau, Proposed Rule: Regulation F, Debt Collection Practices, 12 CFR Part 1006 (2019), https://www.consumerfinance.gov/policy-compliance/rulemaking/rules-under-development/debt-collection-practices-regulation-f/.
  95. In at least two states—Mississippi and Wisconsin—debts are extinguished when the applicable statute of limitations expires. See: Wisconsin Stat. Ann. § 893.05 (1979), https://docs.legis.wisconsin.gov/statutes/statutes/893/I/05; Mississippi Code Ann. § 15-1-3 (2010).
  96. Oregon Laws 625, Sec. 1 (2017), https://olis.leg.state.or.us/liz/2017R1/Downloads/MeasureDocument/HB2356.
  97. Receivables Management Association, “Out-of-Statute Debt: What Is a Smart, Balanced, and Responsible Approach?” (2015), https://rmaintl.org/wp-content/uploads/2017/04/RMA_Whitepaper_OOS.pdf.
  98. D.J. Greiner and A. Matthews, “The Problem of Default, Part I” (Harvard University, 2015). The study found little difference in the effectiveness of the two mailings. As of 2019, a subsequent study was underway.
  99. See for example J. Greiner, D. Jiménez, and L. Lupica, “Self-Help, Reimagined,” Indiana Law Journal 92, no. 3 (2016): 1119-73; J. Madans, “Experiencing Self-Help in CA Courts” (working paper, Judicial Council of California, 2019); New York Appleseed and Jones Day, “Due Process and Consumer Debt.”
  100. Alaska Court System, “Self-Help Services: Debt Collection Cases,” accessed Aug. 8, 2019, http://courts.alaska.gov/shc/debt/forms.htm.
  101. S. Marz (director of self-help services, Alaska Court System), interview with The Pew Charitable Trusts, May 23, 2019.
  102. Texas Justice Court Training Center, “When a Debt Claim Case Has Been Filed Against You,” accessed Oct. 29, 2019, https://www.tjctc.org/SRL/debt-claim.html; Hon. C. Ruckel (justice of the peace, Collin County Justice Court, Precinct 3), interview with The Pew Charitable Trusts, May 23, 2019. 
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Republished under with permission under license from PEW.

Bankruptcy courts ill-prepared for tsunami of people going broke from coronavirus shutdown

by Paige Marta Skiba, Vanderbilt University; Dalié Jiménez, University of California, Irvine; Michelle McKinnon Miller, Loyola Marymount University; Pamela Foohey, Indiana University, and Sara Sternberg Greene, Duke University

As more Americans lose all or part of their incomes and struggle with mounting debts, another crisis looms: a wave of personal bankruptcies.

Bankruptcy can discharge or erase many types of debts and stop foreclosures, repossessions and wage garnishments. But our research shows the bankruptcy system is difficult to navigate even in normal times, particularly for minorities, the elderly and those in rural areas.

COVID-19 is exacerbating the existing challenges of accessing bankruptcy at a time when these vulnerable groups – who are bearing the brunt of both the economic and health impact of the coronavirus pandemic – may need its protections the most.

If Americans think about turning to bankruptcy for help, they will likely find a system that is ill-prepared for their arrival.

The courts are sheltering in place too. 

It’s a hard road

There are many benefits to filing bankruptcy.

For example, it can allow households to avoid home foreclosure, evictions and car repossession. The “automatic stay” triggered at the start of the process immediately halts all debt collection efforts, garnishments and property seizures. And the process ends with a discharge of most unsecured debts, which sets people on a course to regain some financial stability.

The process helps the average household erase approximately US$50,000 in unsecured debt – such as payday loans and credit card and medical bills.

We know from our empirical research, however, that filing for bankruptcy comes with costs. In a Chapter 7 case, known as a liquidation when a debtor’s property is sold and distributed to creditors, households may be required to surrender some of their assets. The post-bankruptcy path to financial stability is often bumpy.

In a Chapter 13 reorganization case, households must commit to making monthly payments equal to their disposable income for three to five years. But the majority of people, unfortunately, are unable to keep up with their payments for that long and do not end up eliminating their debts.

Monetary costs can also be substantial. Attorney fees average $1,225 to $3,450. Court fees are over $300. And of course, there are also other downsides, such as social stigma, negative credit and lower future earnings.

Pent-up demand

Nonetheless, struggling Americans may find bankruptcy one of few viable options to address their worsening money problems, particularly as the pandemic shows no signs of ending soon.

Yet, as a consequence of nationwide shelter-in-place orders, consumer bankruptcy filings have declined significantly in recent weeks.

In the last 10 days of March, when states began issuing such orders, we found that Chapter 13 filings fell 45% compared with the last 10 days of March 2019, based on a docket search on Bloomberg Law. Filings in all of April – when most states were under lockdown – plunged 60%, while Chapter 7 filings were down 40%.

This suggests that there’s pent-up demand for bankruptcy protection – in terms of what we’d normally expect – on top of the impact from the coronavirus recession.

The current limited physical access of many bankruptcy courts presents additional problems, especially to already vulnerable groups. There is significant variation in how courts are handling the situation, but most require access to technology. This means that ethnic and racial minorities, seniors and people living in rural areas face systemic barriers to filing because of their more limited access to transportation and technology.

Self-represented filers, who navigate bankruptcy alone to avoid the hefty attorneys’ fees, face additional challenges and make up approximately 9% of bankruptcy cases. These filers typically have lower income and fewer assets – and thus are less able to afford the benefits of having an attorney – and are more likely to be black.

In some districts, only attorneys can file electronically, so people handling the process themselves must mail in their petition or find some other way of getting it to the courts, such as via physical drop boxes.

But such methods still assume access to technology. A computer, the internet and a printer are needed to access and print the petition. Libraries and other institutions that traditionally provide technology access for those who do not have it are, for the most part, closed.

Some courts are allowing initial email submission of the petition from those without attorneys, but petitioners are still required to follow up by sending original documents via the mail or drop boxes. Access to a computer, the internet and a printer remains necessary.

Finally many states require “wet signatures” on bankruptcy petitions. That is, people have to sign their names in ink, as opposed to using an electronic signature. To smooth filings while courts are physically closed, several states have waived this requirement for those using an attorney.

But even then, access issues still abound. People must first send their attorney the vast array of documents needed for filing – typically amounting to dozens of pages. Filers still need to be able to copy, scan and email documents. For those without computer access, they have to mail original documents, a somewhat risky proposition when important papers could get delayed, stolen or lost.

A bad time to file

In other words, the middle of a pandemic is not the best time to file for bankruptcy.

But with limited debt forbearances, over 30 million out of work and insufficient employment aid, we expect to see a great deal more distress – both financial and otherwise – in the coming months.

And without more aid to individuals soon, U.S. bankruptcy courts will likely face a tsunami of filings, not only from average Americans but companies as well. This will clog up the system, which is why many experts are calling on Congress to shore up bankruptcy courts with more judges and funding.

But a first priority should be shoring up individuals, for whom bankruptcy is seen as a last resort. If more aid isn’t forthcoming, the bankruptcy system may be too overwhelmed to handle even that.

Republished with permission under license from The Conversation