The Arizona Court of Appeals this week upheld the state’s controversial Predatory Debt Collection Act, rebuffing an industry challenge led by the Arizona Creditors Bar Association. The decision ensures the law, which includes measures to shield individuals from medical debt garnishments and cap interest rates, remains in effect.
The Background: Approved by voters as Proposition 209 in 2022, the law, known as the Arizona Protection from Predatory Debt Collection Act, shields those earning less than $50,000 per year from wage garnishments, raises the homestead exemption from $150,000 to $400,000, and caps interest rates on medical debt at 3%. In addition, it increases the exemption threshold for bank accounts from $300 to $5,000, effectively eliminating up to 70% of garnishments in the state.
- The Arizona Creditors Bar Association, along with other plaintiffs, contended that the language of the act, particularly the Savings Clause, was unconstitutionally vague and posed significant legal risks. They argued it was unclear whether the law applied to new debts incurred after its implementation or to any pre-existing debt, causing ambiguity that could expose debt collectors to liability.
The Ruling: After a state court judge dismissed the claims, the group appeals the ruling to the state Appeals Court. The court affirmed that the law was constitutionally sound and applied only prospectively, maintaining that any challenges regarding specific scenarios could be addressed through normal court procedures.
The court’s opinion underscored that the Savings Clause was consistent with established legal principles and provided sufficient guidance for applying the law. Furthermore, the court emphasized that striking down the law based on hypothetical situations would be inappropriate.
What This Means: The decision is a setback for the debt collection industry, which now faces heightened legal challenges in collecting certain debts in Arizona. The court’s affirmation of the law means debt collectors must navigate the newly established rules carefully to avoid potential violations that could lead to Fair Debt Collection Practices Act (FDCPA) liabilities.
