Are Debtors’ Prisons Next?
posted by Frank Pasquale
Ah, the perils of unintended consequences. The federal government in the 1990s made direct deposit a default method of paying Social Security and some other benefits. Now “Social Security recipients could now more easily pledge their future checks as collateral for small short-term loans.” And the “payday loan” industry has found a lucrative new niche–”volume has climbed to about $48 billion a year from about $13.8 billion in 1999.”
Responding to the manifest failures of under-regulated consumer finance markets, many are now claiming that predatory borrowing was a bigger problem than predatory lending. I wonder if they’d find predatory “Ms. [Jennifer] Rumph, whose medical problems include severe asthma and two hip replacements,” and who appears to support herself and her children with disability benefits:
After Ms. Rumph fell behind on her payments, Miracle Finance sued her in small-claims court in Abbeville, Ala. Although federal law says creditors can’t seize Social Security, disability and veteran’s benefits to pay a debt, enforcement of the law is scant, and many Social Security recipients are unaware of their legal rights. Lenders and their debt collectors routinely sue Social Security recipients who fall behind in their payments, and threaten them with criminal prosecution, senior advocates say.
Debtors must go to court to prove their case. Ms. Rumph says she didn’t know any of this and was afraid to go to court. Miracle Finance won a $1,500 default judgment in July, and four days later sought a court order requiring Ms. Rumph to appear in person to detail her income and assets.
I suppose some analogue to the “fugitive disentitlement” doctrine might leave hard-liners unmoved by Ms. Rumph’s plight. Nevertheless, the payday borrowing boom in general should lead to reconsideration of exactly what the purportedly narrowing “consumption gap” between rich and poor is actually based on.
February 14, 2008 at 7:53 am
Posted in: Consumer Protection Law, Law and Inequality
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Responses (3)
KipEsquire - February 14, 2008 at 9:42 am
So your one (utterly non sequitur) anecdote about a deadbeat pensioner completely nullifies all the hard data about unethical home borrowers who filed utterly fraudulent mortgage applications?
Just because a deadbeat has one income stream that is exempt for attachment doesn’t mean she doesn’t have others. Or are you suggesting that any and every recipient of Social Security should be sumarily exempt from any and all civil actions attempting to collect a valid debt?
Just trying to get a feel for what color the sky is in your world.
Maryland Conservatarian - February 14, 2008 at 12:12 pm
“…and many Social Security recipients are unaware of their legal rights.”
Maybe we need to have a Single-payer legal system to get all these lawyers out to the people who need them instead of just sitting around writing law review articles…
Paul Gowder - February 15, 2008 at 10:32 pm
Kip, your position is utterly absurd. There’s a big knowledge differential between borrowers and lenders. Not so when the borrower actually misrepresents their income, but when it’s just a matter of cluelessness and miscalculation — when the lenders target college students with no income for credit cards — the responsibility is rightly placed on the bank. The bank has the information and experience to know what will happen. The borrower does not.
That’s one modality of predatory lending: exploiting cluelessness and immaturity.
Here’s another: exploiting vulnerability. People who are at the worst times in their lives often can’t get credit elsewhere, and get screwed by the sub-prime industry. Now, you might claim that the borrower is better off than if no loan was available at all — but there are good economic reasons to think that exploitative loans act as a substitute for non-exploitative loans, and that if the exploitative ones were outlawed, there’d still be a sub-prime lending market.
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