Pew: Growth in Debt Lawsuits Presents Challenges for Courts, Consumers

WASHINGTON—A report released today by The Pew Charitable Trusts finds that lawsuits brought by a company with an attorney versus an individual who often has no legal representation are increasingly dominating state civil courts. Less than 10 percent of defendants in debt collection lawsuits studied from 2010 to 2019 had counsel, compared with nearly all plaintiffs.

The report, “How Debt Collectors Are Transforming the Business of State Courts,” examines trends in debt collection lawsuits across state and local civil courts over the past two decades and finds that, although debt claims represented just 1 in 9 civil cases in all state courts in 1993, they made up 1 in 4 by 2013—with available state data since 2013 suggesting that this trend has continued.

Debt claims were the most common type of civil case in eight of the 12 states for which at least some court data were available—Alaska, Colorado, Missouri, Nevada, New Mexico, Texas, Utah, and Virginia.

“As the COVID-19 pandemic continues to shutter businesses and disrupt the national economy, the number of debt collection lawsuits may continue to grow,” said Erika Rickard, director of the civil legal system modernization project at Pew. “This coming wave presents a critical opportunity for court leaders and other policymakers to take action to ensure that all parties in state civil courts have the chance to be heard and receive a ruling based on the facts.”

Other key findings from Pew’s report include:

• People sued for debts rarely have legal representation, but those who do tend to have better outcomes. According to studies in multiple jurisdictions, consumers with legal representation in a debt claim are more likely to win their case outright or reach a mutually agreed settlement with the plaintiff.
• Debt lawsuits frequently end in default judgment, indicating that many people do not respond when sued for a debt. Over the past decade in the jurisdictions for which data are available, courts have resolved more than 70 percent of debt collection lawsuits with default judgments for the plaintiff. Unlike most court rulings, these judgments are issued, as the name indicates, by default and without consideration of the facts of the complaint—and instead are issued in cases where the defendant does not show up to court or respond to the suit. The prevalence of these judgments indicates that millions of consumers do not participate in debt claims against them.
• Default judgments exact heavy tolls on consumers. Courts routinely order consumers to pay accrued interest as well as court fees, which together can exceed the original amount owed. Other harmful consequences can include garnishment of wages or bank accounts, seizure of personal property, and even incarceration.
• States collect and report little data regarding their civil legal systems. Although 49 states and the District of Columbia provide public reports of civil cases each year, 38 states and the District include no detail about the number of debt cases. And in 2018, only two states provided figures on default judgments in any of their state’s debt cases. Texas is the only state that reports on all types of cases, including outcomes, across all courts.
• States are beginning to recognize and enact reforms to address the challenges of debt claims. From 2009 to 2019, 12 states made changes to policy—seven via legislation and five through court rules—to improve courts' ability to meet the needs of all debt claim litigants.

“By having clear data on the number of debt claims in our courts, we’re able to see the rise of these cases across our state,” said Nathan Hecht, chief justice of the Texas Supreme Court and president of the Conference of Chief Justices. “The shifting landscape of cases resolved in civil courts requires us to look closely at the way we handle these cases.”

The report identified several steps that states can take to improve the handling of debt collection cases:

• Track data about debt claims to better understand the extent to which these lawsuits affect parties and at which stages of civil proceedings courts can more appropriately support all litigants. 
• Review state policies, court rules, and common practices to identify procedures that can ensure that both sides in a debt collection case have an opportunity to effectively present their cases. Examples of such reforms include ensuring that all parties are notified about lawsuits; requiring plaintiffs to demonstrate that the named defendant owes the debt sought and that the debt is owned by the plaintiff; and in some states, enhanced enforcement of the prohibitions on lawsuits for which the legal right to sue has expired.
• Modernize the relationship between courts and their users by providing relevant timely procedural information to all parties and moving more processes online to make them more accessible to users with or without attorneys.

“Debt collection cases epitomize the challenges facing the civil legal system nationwide,” added Rickard. “But state leaders are beginning to act to address critical issues of access and efficiency. The steps outlined in this report can help them do even more to improve the handling of these cases and the outcomes for all parties.”

The Pew Charitable Trusts is driven by the power of knowledge to solve today’s most challenging problems. Learn more at www.pewtrusts.org.