A consumer advocacy in California has published a report calling for an overhaul of the process that allows government-created debt, such as traffic violations and probation costs, to be placed with private collection agencies. The report goes as far as to recommend that all contracts with private collection agencies should be terminated or debts should be discharged before the accounts are placed with collection agencies.
A copy of the report from the California Reinvestment Coalition can be accessed by clicking here.
Some outlets have picked up on the report and are referring to the process of outsourcing unpaid government debts to private collection agencies as “systemic racism” because these types of debts have a larger financial impact on minorities.
Court-ordered debt is not covered by either the Fair Debt Collection Practices Act or the Rosenthal Fair Debt Collection Practices Act in California, according to the report. That lack of consumer protection is another reason why the placement of accounts with collection agencies is “especially troublesome,” according to the report.
Of all the contracts between county governments in California and the private collection agencies they are using, only one contained a Code of Ethics that the agency’s employees were required to follow, according to the report’s authors.
In most cases, the amounts collected by private collection agencies do not contribute much to a county’s overall revenue, according to the report, which is another reason why the contracts should be eliminated. All of the counties using private collection agencies received less than 0.46% of its total revenue from the efforts of collection agencies, according to the report.
The harmful, often predatory collection practices employed by private collection agencies combined with the negligible returns to counties for contracting with these private actors leads to a lose-lose scenario; vulnerable residents who often are the least able to pay court-imposed fines and fees are subjected to collection practices that trap them in a cycle of poverty and debt, while counties gain little revenue from these practices. The only winners in this scenario are the private collections agencies that profit from their contracts with county court systems.
Among the recommendations made by the report are:
- Counties should end contracts with debt collectors.
- For those counties that do contract with private debt collectors, court- imposed debt collection practices should be subject to debt collection protections outlined in FDCPA and RFDCPA to ensure debt is collected fairly. This debt should not be reported to credit bureaus.
- Counties should discharge debt before sending it to private debt collectors.
- The State of California and County Courts should increase transparency about debt collections practices, contract negotiations for Master Agreements and Participating Agreements, and Ability-to-Pay programs; and institute a public process for communities to give feedback.
- Delinquent debt should not be transferred to the California Franchise Tax Board.
- California should create statewide, uniform and accessible Ability-to-Pay evaluations and processes, regardless of type of court.
