Impose a moratorium on debt collection lawsuits

Indebted Americans and the economy would be better off if the US put a temporary stop to lawsuits by third-party debt collectors. 

Melanie Stetson Freeman/The Christian Science Monitor/File
In this 2009 file photo, Stephanie Maple of Atlanta looks over notes she kept about calls from a debt collection agency. She says a debt collector threatened to take her house and put her husband in jail if they didn't pay an old debt.

Everyone gets the Great Recession, it seems. Too much debt. Too few jobs.

But what we often forget is the squeeze that those twin problems impose during a slow recovery. Some 15 million Americans are out of work and many of them are staring at debts they cannot pay. About one-third of them have been productively employed virtually their entire working life, and suddenly they find themselves in their mid-50s and out of work for the first time.

Put yourself in those middle-aged shoes for a moment. You are overqualified for entry level jobs. Employers are looking for younger workers. You can’t pay your bills, but creditors still have the right to demand payment.

And demand they do.  They threaten to sue if you don’t pay and eventually they do. Each year between 4 million and 5 million debt-collection lawsuits are filed by third party debt collectors. Our courts are overwhelmed with such cases.

Never mind that much of this litigation is predicated on weak supporting evidence, where the amounts claimed are not accurate, or even target the wrong person. The Wall Street Journal and The New York Times have thoroughly documented the abuse within our court system – including that one-third of the states actually allow a person to be jailed for failing to pay a debt.

All this legal action exacts a heavy financial toll. In 2011, there were 1.4 million personal bankruptcies in the United States and the financial loss to creditors was in the range of $150 billion. 

Much of this could be avoided by one simple action:  a moratorium on third-party credit card debt collection litigation until the national unemployment rate falls below 6 percent.

We know this idea sounds extreme; but consider these four points: 

  1. A moratorium on certain types of debt collection litigation during periods of high unemployment provides time for the unemployed to get back to work and establish the financial equilibrium to avoid bankruptcy.
  2. A moratorium isn’t a free ride for anyone.  No debt would be forgiven – merely postponed until the nation returns to a more “normal” employment environment.  Consumers and creditors both gain, since the former is better able to pay their debts voluntarily. 
  3. The temporary moratorium would be limited to third party debt collectors, companies that acquire charged off credit card debt for pennies on the dollar and then often use high-pressure tactics to force consumers to pay. 
  4. The moratorium would only apply while the national unemployment rate exceeded 6 percent. Interest would continue to accrue on the debt. The moratorium period couldn’t be counted when calculating the statute of limitation for filing a lawsuit against the consumer.

These unemployed debtors have not asked for anything free, only a chance to get back on their feet and live a productive and responsible life. Denying them a temporary moratorium would create a growing dependency on government for millions of Americans and a bigger burden on our already frayed social safety net. 

– Bill Bartmann is CEO of CFS II, a debt-collection company in Tulsa, Okla., and has helped to settle the debts of more than 4.5 million people without ever filing suit against a customer.

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