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1.3.1.5 Race, Ethnicity, and Debt Collection

Racial and ethnic disparities exist with respect to who is in debt. For example, a national study by the Urban Institute found that debt in collection was more prevalent in areas with more African Americans and Latinos and less prevalent in areas with more non-Hispanic whites and Asians.98 Other studies have reported disparities with respect to particular types of debt such as medical99 and student loan100 debts.

Racial and ethnic disparities are also evident in data about who is contacted about a debt. The CFPB’s survey of consumer experiences with debt collection found that non-white101 and Hispanic102 respondents were more likely to have been contacted about a debt in collection than white and non-Hispanic respondents. These differences between white and non-white respondent contact rates lessened but did not disappear when controlling for income.103 Of those contacted about a debt, the CFPB found that similar percentages reported having been sued.104 Another nationally representative survey of households with credit card debt found that seventy-one percent of African American middle-income households were called by bill collectors, compared to fifty percent of white middle-income households, despite similar rates of default and late payments.105

Studies have found racial and ethnic disparities in the filing of collection lawsuits,106 the quality of claims filed in those lawsuits,107 and the likelihood of obtaining default judgments.108 Analysis of collection actions in St. Louis, Chicago, and Newark found that the risk of judgment was twice as high in majority black census tracts compared to majority white census tracts, holding income constant.109 Additionally, in St. Louis, holding income constant, defendants living in majority black census tracks were twenty percent more likely to be subject to garnishment proceedings after obtaining a judgment.110

Racial disparities were even evident in data about who is able to successfully discharge debt in bankruptcy. A study of national bankruptcy data found that “for debtors living in black areas, the odds of having a case dismissed [failing to achieve a bankruptcy discharge] were about twice as high as those of debtors living in white areas, controlling for the court district where the case was filed, income, and other financial characteristics of the debtor.”111

Wealth and asset gaps might explain at least some of the observed disparities in debt collection.112

Footnotes

  • 98 Breno Braga et al., Local Conditions and Debt in Collection 2, 14 (Urban Institute, June 2016). See also Caroline Ratcliffe, et al, Debt in America: An Interactive Dashboard (Urban Institute, Dec. 2017) (reporting that in the United States, 45% of individuals living in predominantly non-white areas have a debt in collection, compared to 27% of individuals living in predominantly white areas).

  • 99 See also Caroline Ratcliffe et al, Urban Institute, Debt in America: An Interactive Dashboard (Dec. 2017) (reporting that in the United States, 21% of individuals living in predominantly non-white areas have a medical debt in collection, compared to 16% of individuals living in predominantly white areas); Michael Karpman and Kyle J. Caswell, Urban Institute, Past-Due Medical Debt among Nonelderly Adults, 2012–2015, 7–8 (Mar. 2017) (30.9% of black, non-Hispanic adults ages 18–64 reported past-due medical debt, compared to 23.6% of Hispanic respondents, 23.4% of white, non-Hispanic respondents, and 16.6% of “other race, non-Hispanic” in 2015); Jacqueline C. Wiltshire, Medical Debt and Related Financial Consequences Among Older African American and White Adults, Am. J. of Pub. Health (Apr. 14, 2016) (reporting that older African Americans had 2.6 times higher odds of having medical debt than did older whites, and older African Americans were more likely to be contacted by a collection agency and borrow money because of medical debt, while older whites were more likely to use savings).

  • 100 Ben Miller, New Federal Data Shows a Student Loan Crisis for African American Borrowers (Center for American Progress, Oct. 16, 2017) (for students entering college in 2003–2004, the median percentage of original student loan balance owed 12 years after college entry was 113% for African Americans, 83% for Latinos, and 65% for whites).

  • 101 Consumer Fin. Protection Bur., Consumer Experiences with Debt Collection: Findings from the CFPB’s Survey of Consumer Views on Debt, 17 n.17, 18 (Jan. 2017) (44% of non-white respondents were contacted about a debt in collection, compared to 29% of white respondents; “[t]he non-white category includes individuals who self-identified alone or in combination as: Black or African American; American Indian or Alaska Native; Asian; or Native Hawaiian or other Pacific Islander”). See also FINRA Investor Education Foundation, Financial Capability in the United States 2016, p. 27 (July 2016) (31% of African American respondents to the 2015 National Financial Capability Study reported being contacted by a debt collection agency in the past year, compared to 18% of all survey respondents).

  • 102 Id. at 18 (39% of Hispanic respondents were contacted about a debt in collection, compared to 31% of non-Hispanic respondents). See also Renato Rocha, Three Key Findings on Hispanics with Debt in Collection: Results from CFPB’s Recent Survey (UnidosUS, Feb. 8 2017), available at http://blog.unidosus.org.

  • 103 Id. at 18 n.18. (“the estimated difference for whites compared with non-whites narrows by roughly one-quarter when comparing consumers with similar incomes in a regression framework”; no regression analysis was reported for Hispanic and non-Hispanic respondents).

  • 104 Id. at 28 (14% of non-white consumers who were contacted about a debt reported being sued, compared to 16% of white consumers and 15% of Hispanic and non-Hispanic consumers of other races, who were contacted about a debt reported being sued).

  • 105 Catherine Ruetschlin & Dedrick Asante-Muhammad, Demos and NAACP, The Challenge of Credit Card Debt for the African American Middle Class (Dec. 2013), available at www.demos.org.

  • 106 Peter A. Holland, Junk Justice: A Statistical Analysis of 4,400 Lawsuits Filed by Debt Buyers (Mar. 2014) (“In Maryland, debt buyers disproportionately sued in jurisdictions with larger concentrations of poor people and racial minorities. For example, Prince George’s County has only 15% of the [sic] Maryland’s population, yet 23% of all debt buyer complaints were filed against Prince George’s County residents.”); Richard M. Hynes, Broke but Not Bankrupt: Consumer Debt Collection in State Courts, 60 Fla. L. Rev. 1, 3 (2008) (study of civil litigation in Virginia concluded that “civil litigation is disproportionately concentrated in cities and counties with lower median income and homeownership rates; higher incidences of poverty and crime; and higher concentrations of relatively young and minority residents”).

  • 107 The Legal Aid Society, Debt Deception: How Debt Buyers Abuse the Legal System to Prey on Lower-Income New Yorkers (May 2010), available at www.neweconomynyc.org (reporting that, in a sample of 451 legal hotline calls, 66% of debt collection cases against black and Latino clients were “clearly meritless,” as compared to 35% of all cases).

  • 108 Mary Spector and Ann Baddour, Collection Texas-Style: An Analysis of Consumer Collection Practices in and out of the Courts, 67 Hastings Law Journal 1427, 1458 (June 2016) (study in Texas also indicated “a somewhat higher likelihood of default judgments in precincts with a higher non-White population”); Annie Waldman & Paul Kiel, Racial Disparity in Debt Collection Lawsuits: A Study of Three Metro Areas, ProPublica, Oct. 8, 2015 (“Data from St. Louis indicated that suits against residents of majority black census tracts were more likely to result in default judgments or consent judgments and residents of majority black census tracts were less likely to be represented by an attorney when they were sued.”); Susan Shin & Claudia Wilner, The Debt Collection Racket in New York: How the Industry Violates Due Process and Perpetuates Economic Inequality (New Economy Project, June 2013) (New York zip codes with highest concentration of default judgments include predominately non-white neighborhoods in Albany and Buffalo and middle-income black communities in Queens); The Legal Aid Society, Debt Deception: How Debt Buyers Abuse the Legal System to Prey on Lower-Income New Yorkers (May 2010) (in a study of 457,322 lawsuits filed by debt buyers in New York City, 56% of default judgments were entered against consumers living in predominantly black or Latino neighborhoods).

  • 109 Annie Waldman & Paul Kiel, Racial Disparity in Debt Collection Lawsuits: A Study of Three Metro Areas, ProPublica, Oct. 8, 2015.

  • 110 Id. (garnishment data was not available in the other jurisdictions).

  • 111 Paul Kiel and Hannah Fresques, Data Analysis: Bankruptcy and Race in America, ProPublica, Sept. 27, 2017, at 11.

  • 112 See Breno Braga, et al. Urban Institute, Local Conditions and Debt in Collection, 24 (June 2016) (noting that the racial disparities identified in the study were consistent with literature documenting a racial wealth gap in the United States); Annie Waldman & Paul Kiel, Racial Disparity in Debt Collection Lawsuits: A Study of Three Metro Areas, ProPublica, Oct. 8, 2015, at 19 (noting that residents of majority black census tracts were sued on debts that were, on average, smaller in size than residents of white census tracts and that this might be evidence of the impact of the wealth gap on debt collection, since white consumers might be able to pay small debts more readily than black consumers).