Consumer Group Issues Scathing Report on Debt Collection Laws; ACA Responds

A report released Thursday from the National Consumer Law Center claims that states have failed to protect the assets and income of consumers who have had a judgment entered against them in debt collection cases. The narrowly-focused report is being hyperbolically marketed under the subtitle, “How States Let Debt Collectors Push Families into Poverty.”

The NCLC examined exemption provisions in all 50 states and the District of Columbia, Puerto Rico, and the Virgin Islands. Exemption provisions are laws that protect certain assets and income from seizure and define what percentage of a debtor’s wages can be garnished after a judgment has been won by a creditor or debt collector. Federal laws are in place to offer basic protection to consumers – for example, making Social Security payments exempt from garnishment and protecting 75 percent of any income – but state laws typically go further in defining what is off limits.

The group claimed that none of the jurisdictions met NCLC-defined standards that would allow debtors “to work productively to support themselves and their families” post-judgment.

A main focus of the report is the debt buying industry and its shift to using the court system to collect debts. Using allegations of sewer service and robo-signing of affidavits, both hot issues in the ARM legal industry, the report outright states that many judgments obtained by debt buyers and their legal collection representation are not valid.

The report indicates that many of the debts bought by debt buyers are very old, but fails to mention that statute of limitations laws already prevent ARM companies from suing on those debts. [EDITOR’S NOTE: If you need help with state statute of limitations, check out insideARM’s report “Time is Running Out: Statute of Limitations for Debt Collection.”]

ARM industry trade group ACA International quickly responded to the report.

“The NCLC’s report is all splash but woefully lacking of real substance,” ACA said in a statement. “Instead of focusing on the experience of the typical American consumer, NCLC is focused solely on aiding the financial position of its primary audience—consumer attorneys—and the enactment of its extreme model state legislation.”

ACA noted that the report is cast as “an indictment of the entire consumer debt collection industry when, in reality, the report is far more narrowly focused on current state law that applies in extreme circumstance.”

“The NCLC goes right to the lowest common denominator to incite fear—legal action, garnishment and repossession—which are actions of last resort by creditors after all other attempts to work with a consumer to resolve a rightfully owed debt have failed,” said ACA.

The recommendations the NCLC make in their “Model State Law” include exempting a car so that debtors can get to and from work if their wages are being garnished, exempting a minimum of $1,200 of funds in a bank account, and that any exemption laws are indexed to inflation.