EDITORIAL: St. Louis Area's Black Neighborhoods Hardest Hit by Debt Lawsuits
October 26, 2015 (St. Louis Post-Dispatch (MO)) Aggressive debt buyers, banks, hospitals, utilities, vehicle and high-cost lenders have seized what little money most of the poor residents in some of the St. Louis-area's largely black communities have earned. Generational poverty is being cited as the reason for judgments that allowed collectors to seize at least $34 million from residents of mostly black neighborhoods in St. Louis.
Aggressive debt buyers, banks, hospitals, utilities, vehicle and high-cost lenders have seized what little money most of the poor residents in some of the St. Louis-area's largely black communities have earned.
Generational poverty is being cited as the reason for judgments that allowed collectors to seize at least $34 million from residents of mostly black neighborhoods in St. Louis and St. Louis County between 2008 and 2012.
ProPublica, the nonprofit investigative public interest newsroom that studied debt collection and the law, says the cause is not racial bias directly, but the result of generations of discrimination that have left black families with few places to turn when they come under financial pressure.
The organization spent about a year investigating five years of court judgments related to debt collection and lawsuits in the St. Louis, Chicago and Newark areas. It found that the neighborhoods hardest hit by debt collection lawsuits in the St. Louis region are the north county suburbs.
What those suburbs have in common, other than being the target of aggressive debt collectors and lawsuits, is that beginning in the 1960s, their populations shifted from majority white to majority black. The investigation also found that about a quarter of the population in St. Louis and the north county suburbs is mostly black, but that more than half the court judgments for debt collection were in these neighborhoods.
The ProPublica analysis showed that the rate of judgments was twice as high in neighborhoods that had mostly black residents as compared to those that had mostly white residents, no matter what the incomes of the families were.
The findings did not lead to the conclusion that the lenders or collectors were motivated by racial bias, but that black families have fewer resources to draw on when they encounter financial pressure and don't have the sort of credit ratings that lead to favorable loans. The result is they often default on their debts or borrow from predatory lenders and end up in what is called a cycle of debt, meaning that a loan is either refinanced or rolled into another loan from the same creditor.
These are poor black families that were raised by poor black families in a succession that goes on with little hope for reprieve. By and large, they aren't families that didn't work hard enough or didn't care. They aren't people who scoffed at paying their debts. Overwhelmingly they are people who got a little behind with one bill or another and got caught in the vice grip of collection agencies and wage garnishments.
Yolonda Fountain Henderson, 50, elected last spring as the first black mayor of Jennings, discovered that she and five of the eight sitting City Council members, seven of whom are black, have been sued over a debt.
The typical househould income in Jennings is about $28,000 a year. Federal survey data show that with that level of income, most families spend all of what they have on basic necessities -- mortgage or rent, food and utilities. There is nothing left over.
When a family with that sort of income gets hit with a wage garnishment, the effect can be devastating. There are few laws to protect such families from garnishments, and collectors can seize up to a quarter of a worker's after-tax pay or 10 percent if the worker is the head of household.
If a paycheck is deposited into a savings account, or there is other money in an account, that can also be seized. When garnishment protections are available, it is usually up to the debtor to figure out how to take advantage of them. Few do.
April Kuehnhoff, an attorney at the National Consumer Law Center, said the study raised "crucial questions about how racial disparities are entering the debt collection system and what we can do to eliminate these disparities." Ms. Kuehnhoff told authors Paul Kiel and Annie Waldman that the findings should encourage lawmakers to reform overly punitive federal and state collections laws.
Sometimes hundreds of collection suits, typically over small amounts on credit cards, can pass the desk of local judges in a day. Defendants usually don't make it to court, and when they do, they rarely have an attorney. A local attorney specializing in consumer issues said there are some reforms the state General Assembly could undertake to help people overwhelmed with debt.
One would be to change the state law requiring an affirmative defense in statute of limitation conflicts. That means if a debt collector files for collection outside of the time limit allowed, a debtor is required to proved that the collection suit has been filed improperly. "It would change everything," the consumer advocate said, adding that "only some very sophisticated consumers would know" they could do this, or should do it to stop the collection.
A couple of other suggestions would be to enforce a state law requiring collectors to sue debtors in the county or city where the debt was acquired, so no venue changes that make it difficult for a debtor to get to court. Also, lower caps on garnishments could help keep the debtors from depleting their incomes and getting caught in the cycle of debt.