How Debt Collectors Are Transforming the Business of State CourtsMay 6, 2020
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…