The New Reality of Small Debt Collection

About 10 years ago, Rich Hynes wrote an intriguing paper on consumer debt collection, asking "where are all the garnishments?"  Today, Pro Publica's Paul Kiel is out with an answer: Nebraska and Missouri ... and in the future. Kiel's story challenges the longstanding conventional wisdom that debtors are unlikely to face lawsuits and collection action for small debts. That might have been true before the mid-2000s, when Hynes wrote his paper, and in Virginia and Illinois, which Hynes studied, but it's certainly not true after the financial crisis, Kiel reports, especially in certain high-volume-low-dollar-collection-heavy states. I can hardly do justice to Kiel's revealing data collection and analysis, but here are a few highlights to whet your appetite: (1) debt buyers are among the primary drivers of this trend, not collection agencies, and their industry has consolidated and matured recently, (2) the number of lawsuits against consumers on small debts has absolutely exploded starting in about 2006, the year Hynes's article was published (again, thanks almost entirely to debt buyers, "In 1996, there were around 500 court judgments in New Jersey from suits filed by debt buyers. By 2008, that number had reached 140,000."), (3) these buyers repeatedly clean out consumer bank accounts with garnishments seizing an average of only $350, "Plaintiffs in Missouri tried to garnish debtors’ bank accounts at least 59,000 times in 2012." There's more of interest in Kiel's report--a must-read for those (like myself) who have for years downplayed the threat of enforcement of small debts. It really depends where the debtor lives and whether the debt is acquired by a buyer. 

Debt collector image courtesy of Shutterstock