Unholy Alliance: California Courts’ Use of Private Debt Collectors

California’s use of private debt collection companies for criminal justice fines and fees debt disproportionately impacts communities of color and perpetuates a cycle of poverty. The California Reinvestment Coalition reviewed participating agreements between 17 county governments/courts and private debt collector agencies to determine the effectiveness and efficiencies of private debt collectors and the court’s Ability-to-Pay (ATP) programs. The study found that court-ordered debt is not covered under the Fair Debt Collection Practices Act (FDCPA), a federal law passed in 1977 to protect consumers from unfair debt collection practices. It also found that private debt collection agencies make commissions off the debt they collect. The total revenue from debt collected by private agencies in the counties reviewed was insignificant compared to the total revenue, and the debt collection process varied from county to county, creating an uneven system of justice.

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Key Findings:

• 15 of the 17 county governments/courts studied contracts with private debt collectors.
• In 2016-2017, revenue collected by private debt collectors ranged from .001 percent to .46 percent of overall county revenue.
• Private debt collectors can use abusive, unfair, or deceptive practices towards debtors because traffic and criminal justice fines and fees are excluded from the term debt within the FDCPA.
• Private debt collectors receive higher commission fees for collecting debts over five years old, encouraging them to allow debt to age to receive higher commission fees; commission fees range from 12-18 percent for newly delinquent debt and 14.9-25.8 percent for delinquent debt over five years old.
• Debt accounts can be transferred to the California Franchise Tax Board (FTB) for collections; the FTB has the power to garnish wages and withhold tax refunds.
• Private debt agencies may report unpaid debt to credit bureaus.
• Only 12 county courts had supporting documentation regarding ATP evaluations and most were only applicable for traffic infractions.

Recommendations:

• California counties should end contracts with private debt collection agencies.
• Court-imposed debt should be subjected to protections in FDCPA and Rosenthal Fair Debt Collection Practices Act.
• Discharge all debt more than five years old.
• Increase transparency for debt collections practices, Master Agreements and Participating Agreement with debt collectors, and Ability-to-Pay programs.
• End the transfer of delinquent debt to the California Franchise Tax Board.
• Create a statewide and uniform Ability-to-Pay evaluation and processes.