Law360 (November 16, 2022 at 8:27 p.m.
The study also found racial disparities in debt collection filings and said Michigan lags behind its peers in consumer protection during the debt collection process.
The report by the Michigan Supreme Court Commission on Justice for All found that debt collection cases accounted for 37% of all civil court filings in state district courts in 2019, the most recent year for which data were analyzed. data. They were the second most common type of case filed after traffic cases.
The growth in the volume of debt collection lawsuits in recent years “was driven almost entirely by debt-buying companies,” the commission found.
Third-party debt-buying companies are increasingly the plaintiffs behind debt collection lawsuits in Michigan courts, accounting for 60% of debt collection filings, according to the report. The top three applicants by volume in recent years were third-party debt buyers: Midland Funding filed 20% of Michigan debt collection cases between 2017 and 2019, Portfolio Recovery Association 12%, and Jefferson Capital Systems 8%. 8%, according to the commission.
The tendency for debt buyers to file lawsuits raises “unique concerns,” the commission wrote, because consumers do not have a direct relationship with the debt buyer. When contacted by a debt buyer before or during a court action, a consumer may not recognize the name of the company, may think the debt buyer’s communications are a scam, and may ignore collection attempts and court documents until that it is too late and a default judgment is entered. . Judgment by default is the result in 68% of Michigan debt collection cases, usually because the defendant failed to respond, the study found.
Looking at geographic data, the report found that two to three times as many debt collection lawsuits are filed against consumers in majority-black neighborhoods compared to majority-white neighborhoods at all income levels.
“More information is needed to understand the reasons for these disparate filing rates,” the commission said, noting possible answers in racial disparities in access to low-interest credit and in disparities in generational wealth that mean it’s less Black borrowers are likely to be able to get help from a family member to repay a loan.
Compared to neighboring states, Michigan also has more lenient reporting requirements for a debt collector to file a claim in district court, according to the report. Plaintiffs are only required to provide an account number and a balance owed, with no need to provide documentation verifying the amount owed or proving ownership of the debt, unlike in Illinois, Indiana and Minnesota.
“Other states in the region require documentation such as the original agreement or a monthly statement showing that the defendant used the account in question, the balance owed with fees and interest itemized, and documentation showing the chain of ownership of the debt if was sold to a debt buyer,” the report says.
Less than 0.5% of defendants in debt collection cases had legal representation, according to the report, while 96% of plaintiffs were represented by a lawyer.
The debts in question involved all non-mortgage consumer debt, including amounts owed on credit cards, car loans, medical bills, and payday loans. According to the study, the median amount sought in debt collection lawsuits was $1,600 in 2018-2019.
Once the default judgment is entered, judges will grant the garnishment in 78% of cases, most often on state income tax returns, but also on wages, bank accounts and other income.
The fact that so many cases end up in default judgments, with dire consequences such as wage garnishment, raised red flags for the commission about “whether consumers actually received notice of the process, whether the complaint and summons provided a meaningful and understandable notice to consumers about the claims. against them, and whether consumers understood” the judicial process.
The commission recommended a series of policy changes that would provide more time to notify defendants of a lawsuit and expand mailing options and alternative methods of service; increase the amount of information the plaintiff is required to include in the complaint; and revising court forms to make them easier for self-represented litigants to understand.
“This groundbreaking research will help us improve the way trial courts handle debt collection cases to make the process easier to navigate and more equitable, efficient and consistent,” said commission chairperson Michigan Supreme Court Justice Brian Zahra in a statement accompanying the report’s release. .
The commission also said it would work on pilot programs that offer alternatives to litigation, describing debt collection lawsuits as costly and time-consuming for creditors, consumers and courts.
“As debt collection accounts for a substantial and growing portion of cases, this work is a vital step toward our goal of a civil justice system accessible to all,” said commission vice chair Angela Tripp, director from Michigan Legal Help.
Tripp called on “other branches of government” to also take steps to address debt collection practices.
The report was compiled with the assistance of The Pew Charitable Trusts and the data consulting firm January Advisors.
–Editing by Jill Coffey.
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