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State legislature moves to limit 'modern debtors' prison'

A bill, now headed to the governor for signature, removes incentives for debt-collection agencies to try to get people jailed, at least briefly, in disputes over debt repayment.

State Rep. Derek Stanford of Bothell

State Rep. Derek Stanford of Bothell

Washington lawmakers have passed a bill that would make throwing debtors in jail less appealing to collection agencies.

State Rep. Derek Stanford, D-Bothell, had introduced a bill to end what he called “modern debtors’ prison.” On Thursday, the House approved his amended bill, HB 1864, which cleared the Senate earlier this week. The bill, which is supported by the collection industry trade group, now goes to the governor for her signature. Stanford said he doesn’t anticipate any problems there.

The bill would not bar collection agencies from asking judges to issue civil bench warrants for the arrest of debtors who fail to show up for hearings, which Stanford originally sought to do. But it would prohibit collectors from seizing jailed debtors’ bail money to pay off the debt. In addition, it would require more detailed notice to debtors, and would increase the amount of personal assets exempt from garnishment. The asset exemptions for bank accounts and securities would not apply to collection actions by state agencies for six years.

Stanford, who said his bill was inspired by my reports last year for Crosscut and Northwest Public Radio (the latter co-reported with Doug Nadvornick), said his bill would fix loopholes used by collection agencies that are “bad actors” to abuse the system. “It’s a step forward for consumer protection,” he said. “It will make it little less attractive for collectors to go through the process of jailing debtors if they can’t seize the bail.”

The bill, which previously had passed the House unanimously, was opposed by most House Republicans this time around because the Senate version included increased garnishment protections and the exemption for state agencies. The vote was 57-40. Stanford’s office said that exemption for state agencies was necessary because otherwise the bill would have cost the state money, a deal-killer given the state’s budget deficit.

House Republicans argued that it was unfair to the private sector to apply different rules to state agencies, even though the Washington Collectors Association supported the legislation. In the Senate, the vote was 37-12, with Republicans splitting over the measure because of the state agency exemption.

The final version of the bill raises the exempt amount in a debtor’s bank account from $200 to $500, and also increases the exempt value of a debtor’s vehicle, from $2,700 to $3,250.

In October, I reported in Crosscut that even though the constitutions of Washington and most other states explicitly prohibit jailing people for debt, many in Washington and throughout the country are still being incarcerated in civil debt cases. They typically are charged with contempt of court for failure to appear at a hearing to examine their finances and determine what assets can be seized.

In many cases, judges order that their bail money be turned over to the collection agency to satisfy their unpaid debt — a practice the Federal Trade Commission has urged Congress to halt. Sometimes bail is set at the same amount as the judgment debt, which makes the court look like an arm of the collection agency. Using bail money to satisfy judgments allows collectors to sidestep rules that block them from seizing exempt assets such as Social Security payments. And, the FTC said, it gives the public “the misimpression that judgments debtors are being incarcerated for failing to pay the judgment creditor.”

Stanford’s bill, which borrows from proposals by the FTC and U.S. Sen. Al Franken, D-Minn., would require that courts and collection agencies provide fuller information to debtors in notifying them about court dates — including the name of the original creditor, proof that it’s a valid debt, and the amount of the debt broken down by principal, interest, fees, and other charges.

There are no statistics available on how many people in Washington are jailed for contempt of court in civil debt cases. But observation of the Yakima County District Court’s debt collection calendar hearings showed that bench warrants and arrests are routine. Experts say these practices are common in some other Washington counties as well.


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Comments:

Posted Sun, Apr 17, 5:02 p.m. Inappropriate

Great! Get sick, fail to pay your bill, don't show up in court to contest the summons, get thrown in jail, loose your job. What a racket. Dicken's England anyone? Why not put people in work houses to pay off their debt. (kidding of course)

GaryP

Posted Mon, Apr 18, 7:25 a.m. Inappropriate

People can't be allowed to thumb their noses and the legal system. Sure, some people got themselves into a mess through bad luck, but some got there by systematically playing the system. It's even more unfair for someone to see redress of their uncollectable debt through the courts and have that mechanism cut off as well because some deatbeat knows he can get away with everything.

Goforride

Posted Mon, Apr 18, 12:50 p.m. Inappropriate

This is clear abuse of the legal system. You can't use the criminal courts to collect on a debt, but you can trap an unwary debtor and then send him to jail. Then when courts were transferring bond payments to collection agencies the courts had become an agent of the collection agency.

Debtors prison was outlawed years ago for a good reason. And no one who is nearly bankrupt through a medical problem plans on skipping out.

GaryP

Posted Mon, Apr 18, 12:51 p.m. Inappropriate

PS
Don't think someone is credit worthy? Don't loan them the money.

GaryP

Posted Mon, Apr 23, 8:54 p.m. Inappropriate

Why is this an issue?

If the debtor doesn't show up, the collection agency usually gets a judgement that they can execute on the debtor's assets.

This idea of prison is harassment; look at criminals who don't go to prison, but get a slap on the hand...

Repeal this...if creditors make bad credit decisions, let them live with the losses....

NO DEBTORS PRISON.

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