California needs to stop debt collectors from pushing working families over the edge

In California, almost a quarter of the adult population has a consumer debt in collection. That’s more than 7 million people, with communities of color being disproportionately affected.

Among white residents, 17% of people have a debt in collection, U.S. Census Bureau figures show. But in communities of color, 28% of people do, largely due to long-standing racial inequities that affect income levels and generational wealth.

Making sure that old debts don’t push people struggling to make ends meet over a financial precipice is not just an economic justice issue; it’s a racial justice issue, too. Ensuring that California’s workers are better protected from debt collectors could help.

Senate Bill 1477 would build on past legislation and double the amount of weekly wages that are protected from debt collection, from $600 a week to $1,200 a week for most workers, helping reduce the share of excess wages that can be seized.

While shielding $1,200 a week from wage seizure may seem like a lot to some people in the debt collection industry, United Ways of California calculated that the real cost of living in California is $80,406 annually, or over $1,600 per week for a family of four. With inflation around 8%, a surge in first-time food bank users, an average gas price of more than $5 a gallon and the most expensive rental housing in the nation, California families can’t afford to lose their wages.

Between 2012 and 2017, top debt collectors seized over $700 million in the 10 most populated California counties, destabilizing families around the state. That’s over $140 million a year. Many workers do not know their wages are being seized until their check is short. Suddenly, they have to make hard choices, like paying rent or paying for medicine, but not both.

This financial harm occurs because debt collectors have an unfair advantage in the courts. In California, almost two of every three resolved debt collection cases result in so-called default judgments in favor of the debt collector. A default judgment is when the court gives the debt collector what it asks for because the worker did not respond to the lawsuit — often because they didn’t receive notice of the lawsuit, couldn’t take time off of work or time away from caring for their family, or couldn’t find an attorney to file a response.

Automatic protections like those in SB 1477 are important because workers get protection even if they never receive notice that they are being sued.

Most people don’t have legal representation or know how to navigate the legal system on their own. Over a five-year span, more than 98% of defendants in debt collection cases did not have an attorney, a report from the Center for Responsible Lending found. But in the small number of cases in which a worker did have an attorney, the case was dismissed 100% of the time. That suggests that most if not all wage seizures would not happen if people had access to legal representation.

Before becoming a public servant, I was a bankruptcy attorney. I can tell you from firsthand experience that most people want to pay their debts, and they do — if they can. By definition, people whose wages are being seized are in economic crisis, and we shouldn’t allow debt collection to wreck their lives.

At a time when so many families are struggling with their finances, California must protect the wages of our workers.