There might not be any debtors prisons
High-interest loan companies are using Utah’s small claims courts to arrest borrowers and take their bail money. Technically, the warrants are issued for missing court hearings. For many, that’s a distinction without a difference.
Cecila Avila was finishing a work shift at a Walmart. David Gordon was at church. Darrell Reese was watching his granddaughter at home. Jessica Albritton had pulled into the parking lot at her job, where she packed and shipped bike parts.
All four were arrested by an armed constable, handcuffed and booked into jail. They spent anywhere from a few hours to a couple of days behind bars before being released after paying a few hundred dollars in bail or promising to appear in court.
None of the four, who live in northern Utah and were detained last year, had committed a crime. They had each borrowed money at high interest rates from a local lender called Loans for Less and were sued for owing sums that ranged from $800 to $3,600. When they missed a court date, the company obtained a warrant for their arrest.
Avila was handcuffed and marched down the main aisle in the Walmart in front of customers and co-workers. “It was the most embarrassing thing,” said Avila, 30, who has worked at the store for eight years. At the time of the arrest, Loans for Less had applied to garnish her wages. “It just didn’t make any sense to me,” she said. “Why am I being arrested for it?”
It’s against the law to jail someone because of an unpaid debt. Congress banned debtors prisons in 1833. Yet, across the country, debtors are routinely threatened with arrest and sometimes jailed, and the practices are particularly aggressive in Utah. (ProPublica recently chronicled how medical debt collectors are wielding similar powers in Kansas.
Technically, debtors are arrested for not responding to a court summons requested by the creditor. But for many low-income people, who are not familiar with court proceedings, lack access to transportation, child care options or time off, or move frequently and thus may not receive notifications, it’s a distinction without a difference.
Reese, a 70-year-old Vietnam veteran, said he missed a hearing because he couldn’t afford to put gas in his car. Gordon, 46, said he was never personally notified of the court date. Avila and Albritton, 32, said they couldn’t take time off work.
In Utah, payday lenders and similar companies that offer high-interest, small-dollar loans dominate small claims court. Loans for Less, for example, filed 95% of the small claims cases in South Ogden, a suburban city of 17,000 about a half-hour north of Salt Lake City on the interstate, in fiscal year 2018, according to state data.
Across Utah, high-interest lenders filed 66% of all small claims cases heard between September 2017 and September 2018, according to a new analysis of court records conducted by a team led by Christopher Peterson, a law professor at the University of Utah and the financial services director at the Consumer Federation of America, and David McNeill, a legal data consultant and CEO of Docket Reminder.
Companies can sue for up to $11,000 in Utah’s small claims courts, which are stripped of certain formalities: There are rarely lawyers, judges are not always legally trained and the rules of evidence don’t apply.
Lenders file thousands of cases every year. When defendants don’t show up — and they often don’t — the lenders win by default. Once a judgment is entered, companies can garnish borrowers’ paychecks and seize their property. If borrowers fail to attend a supplemental hearing to answer questions about their income and assets, companies can ask the court to issue a bench warrant for their arrest.
Most people scramble to meet bail to avoid being incarcerated. Others, like Avila, Gordon and Albritton, are booked into jail and held until they pay. They often borrow from friends, family, bail bonds companies and even take on new payday loans.
“Bail” has a different meaning in Utah than it does in other states — one that tilts the power even more in the direction of lenders and other creditors. In 2014, state legislators passed a law that made it possible for creditors to get access to bail money posted in civil cases. Prior to that, bail money would return to the defendant. Now, it is routinely transferred to high-interest lenders. The law has transformed the state’s power to incarcerate into a powerful tool to guarantee that loan companies get paid.
As Peterson put it, “They’re handcuffing and incarcerating people in order to get money out of them and apply it towards insanely high interest rate loans.”
Read how the woman from the loan company first talks to people in the lobby and then how she and the judge work nicely together. Plan on filing for bankruptcy? She still tries to get you to pay her anyway.
At first blush, Utah would seem an unlikely home to a concentration of companies that specialize in peddling high-interest loans to low-income, often minority customers. Utah has one of the lowest unemployment rates in the country, and its population is more middle class and white than the rest of the U.S. Yet a quarter of the state’s population lives in a household that earns less than $39,690 a year.
The presence of 417 payday and title loan stores in Utah — more than the number of McDonald’s, 7-Eleven, Burger King and Subway stores combined — is symptomatic of an age in which financial precariousness is widespread. Across the country, wages have stagnated for decades, failing to keep up with the cost of living. That helps explain why 12 million Americans take out payday loans every year, according to Pew Charitable Trusts. As an often-quoted study by the Federal Reserve Board has noted, a quarter of adults in the U.S. would not be able to handle an unexpected $400 expense without borrowing or selling something to pay for it.
There’s also a policy reason behind the ubiquity of payday lenders in Utah. After the U.S. Supreme Court relaxed restrictions on interest rates in 1978, Utah became one of the first states to scrap its interest rate limits in the hopes of luring credit card and other finance companies. A favorable regulatory climate in Utah made lenders feel welcome. The first payday loan store opened in Salt Lake City in 1985, and other companies soon flocked.
Don't forget that it was ByeDone who wrote the bill that made it more difficult for us to declare bankruptcy. Just another bipartisan bill that congress had to pass for their donors.
Some policymakers have proposed a federal interest rate cap that would effectively ban payday loans. In May, presidential candidate Sen. Bernie Sanders, I-Vt., and Rep. Alexandria Ocasio-Cortez, D-N.Y., introduced the Loan Shark Prevention Act, which would cap interest rates at 15%. Last month, a group of lawmakers introduced the Veterans and Consumers Fair Credit Act, which would extend the 36% interest rate maximum for active-duty service members to everyone. “You have to ask yourself, if it’s immoral to give this type of loan to somebody who is in the military now, how is it OK to give the loan to anybody else?” said Rep. Glenn Grothman, R-Wis., the only Republican sponsor of the bill. Both bills will face substantial difficulty getting through the Senate, according to experto.
Read more about the people who have gotten caught up in this cycle of debt and prison. Read the whole damn thing.