The Color of Debt: How Collection Suits Squeeze Black Neighborhoods
October 21, 2015 1:07 PM Subscribe
The Color of Debt: How Collection Suits Squeeze Black Neighborhoods — a ProPublica investigation into racial disparities in debt collection lawsuits
In fact, when ProPublica attempted to measure, for the first time, the prevalence of judgments stemming from these suits, a clear pattern emerged: they were massed in black neighborhoods.The authors offer six recommendations for reforming debt collection practices:
The disparity was not merely because black families earn less than white families. Our analysis of five years of court judgments from three metropolitan areas - St. Louis, Chicago and Newark - showed that even accounting for income, the rate of judgments was twice as high in mostly black neighborhoods as it was in mostly white ones.
These findings could suggest racial bias by lenders or collectors. But we found that there is another explanation: That generations of discrimination have left black families with grossly fewer resources to draw on when they come under financial pressure.
Over the past year, ProPublica has investigated a little-known but pervasive shift in the way debt is collected in America: Companies now routinely use the courts to pursue millions of people over even small consumer debts. With the power granted by a court judgment, collectors can seize a chunk of a debtor's pay. The highest rates of garnishment are among workers who earn between $25,000 and $40,000, but the numbers are nearly as high for those who earn even less.
A garnishment hits this kind of household budget like a bomb. Federal law and most state laws protect only the poorest of the poor from having their wages seized, otherwise allowing plaintiffs to seize up to a quarter of a worker's after-tax pay. If that paycheck is deposited in a bank, that and other money in the account can be seized to pay down the debt. When garnishment protections do exist, the burden is usually on debtors to figure out if and how the laws protect their assets.
The clients at Beyond Housing, a St. Louis nonprofit that provides assistance to low-income families, are roughly half white and half black. But the staff has noticed a dispiriting difference: white clients are far more likely to have some kind of support to draw on, whether it's their own assets or help from a family member.
For black clients, "so much of that kind of help has been already tapped out," said Linda Ingram, the manager of the foreclosure intervention department. The lack of resources makes it harder for black clients to extricate themselves from debt. It also means the most stable members of a family can easily get overstretched.
1. Lower how much can be taken from debtors' wages
2. Restrict how much can be taken from debtors' bank accounts
3. Provide clear notice to debtors about laws that protect them
4. Limit attorney's fees to reflect actual work on a suit
5. Cut interest on judgments to reasonable level
6. Improve enrollment in programs to help low-income debtors
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