Washington D.C. — Today the Consumer Federation of America released a new study proving that some payday, vehicle title, and similar high-cost lenders routinely obtain warrants to arrest their customers.
The study is based on a unique data set gathered with original screen scraping software that harvested information on every small-claims court hearing scheduled in the state of Utah for one year. The analysis studied 21,653 small-claims court hearings associated with 17,008 active cases. The study also includes more detailed findings drawn from a statistically significant, representative sample of 377 small-claims cases.
“This study provides a troubling example of a ‘debt-to-jail pipeline,’” said Christopher Peterson, Director of Financial Services of CFA. “Some payday lenders are using the criminal justice system to collect triple digit interest rates from insolvent consumers.”
Key findings include:
- High-cost lenders dominated small-claims court dockets, accounting for over 68 percent of all small-claims court hearings. In Utah, the small-claims court system has evolved into a publicly subsidized debt collection system for high-cost lenders that make unaffordable loans to vulnerable consumers.
- High-cost lenders were the most aggressive plaintiffs in small-claims courts suing over smaller amounts and litigating over longer durations than other plaintiffs. The median high-cost lender sued their customer over a $994 debt—nearly a third of the median $2,875 sought by other plaintiffs. And high-cost lender lawsuits in small-claims court extend for an average of at least 14 months—over twice as long as lawsuits initiated by other plaintiffs. Many high-cost loan collection lawsuits go on for several years.
- High-cost lenders routinely obtain arrest warrants against their customers from small-claims court judges. Nearly three in ten high-cost lender lawsuits resulted in a bench warrant for the arrest of the borrower for contempt of court. Utah small-claims judges issue bench warrants for the arrest of over 3,100 high-cost borrowers per year. And, 91 percent of all small-claims arrest warrants are issued in high-cost lending cases.
Although the report focuses on data from Utah, the study has national implications. Utah is increasingly a home for so called “rent-a-bank” lending operations that attempt to export the Utah regulatory environment to all other states. Moreover, many states have similarly lax payday and vehicle title lending rules that could lead to comparable abuses in their own small-claims court systems.
“Our study serves as a warning sign for policy makers all across America that without oversight and consumer protection laws, predatory lenders will debase our courts and criminal justice systems to collect usurious loans,” explained Peterson. “This report is further confirmation that Congress should adopt the Veterans and Consumers Fair Credit Act which would establish a national usury limit to protect every American from predatory, triple-digit interest rate debt.”
Under current law the Military Lending Act imposes an interest rate cap of 36% per annum on consumer credit extended to active duty military servicemembers and their families. The bipartisan Veterans and Consumers Fair Credit Act, H.R 5050 (Garcia, IL-D; Grothman, WI-R; Green TX-D; et. Al.), S. 2833 (Merkley, OR-D; Brown, OH-D; Reed, RI-D; Van Hollen, MD-D; et al.), would expand the Military’s interest rate limit to apply to veterans and all other consumers.