188.8.131.52 Default Judgments
When consumers do not appear in court for their collection lawsuits, the creditors that filed the lawsuits may be able to obtain default judgments—often without presenting any evidence and despite the fact that consumers may have legitimate defenses.
In the Consumer Financial Protection Bureaus’ nationally representative survey of consumer experiences with debt collection, 74% of respondents who had been sued on a debt reported that they did not attended the court hearing.426 In the CFPB’s study of third-party debt buyers, respondents reported obtaining default judgments in sixty to ninety percent of their filed suits.427
Research by other groups confirms that a very high percentage of consumers do not respond to collection lawsuits428 and that a high percentage of these collection lawsuits end in default judgments.429 One study found that the rate of default judgments was higher for collection lawsuits brought by debt buyers than it was for other collection lawsuits.430
A scathing report by Human Rights Watch highlighted the role of the courts in issuing such a high volume of default judgments:
Many courts routinely award default judgments to debt buyers . . . without scrutinizing the claims at issue. One Arizona justice of the peace aptly described this to Human Rights Watch as a “greased rail” process. Many individual courts issue thousands or even tens of thousands of no questions asked default judgments in favor of debt buyers every year.431
High default rates contribute to fast disposition times, enabling the court to churn through the high volume of collection lawsuits.432 The National Center for State Courts found that 91% of debt collection contract cases were disposed of within 180 days.433
Consumer default does not mean that the consumer owes the debt. The consumer may never have received actual notice of the hearing434—potentially only learning of the collection action when wages or bank account are garnished to pay the default judgment—or may not have understood the notice that they received. They may not understand how to respond to the summons, feel intimidated by the legal process, fear deportation if they appear in court, be unable to access legal advice/representation, or think that appearing in court will not make any difference. Consumers who are elderly, ill, lack child care, have no transportation, or are unable to take time off of work also face barriers to appearing at the courthouse.
Researchers studying the types of communications with consumers that will decrease the rate of default judgments have had some success increasing both the answer rate and rate of consumers who appeared in court at the first hearing.435
426 CFPB, Consumer Experiences with Debt Collection: Findings from the CFPB’s Survey of Consumer Views on Debt 27 (Jan. 2017).
427 CFPB, Study of third-party debt collection operations, 18 (July 2016) (not including jurisdictions where the defendant’s appearance in court is necessary before the court will enter a default judgment).
428 Peter Holland, Junk Justice: A Statistical Analysis of 4400 Lawsuits Filed by Debt Buyers, 26 Loy. Consumer L. Rev. 179, 226 (2014) (comparing the results of seven prior studies between 1967 and 2010 and finding that between 70% and 94% of consumers “failed to respond” to collection lawsuits). See also FTC, Repairing a Broken System 7 (July 2010) (“panelists from throughout the country estimated that sixty percent to ninety-five percent of consumer debt collection lawsuits result in defaults, with most panelists indicating that the rate in their jurisdictions was close to ninety percent”; collecting studies).
429 See, e.g., Texas Appleseed, Debt, Access to Justice and Racial Equity: An Analysis of Consumer Debt Collection Lawsuits in Texas and Recommended Reforms (Apr. 2021) (65% of all debt collection judgments in 2020 in Texas were default judgments); Reinvestment Fund, Debt Collection in Philadelphia (Mar. 2021) (65% of debt collection lawsuits filed between January 2016 and April 2020 ended with default judgments for the plaintiff), available at https://clsphila.org; Paula Hannaford-Agor & Brittany Kauffman, Preventing Whack-a-Mole Management of Consumer Debt Cases at 6, n.18 (National Center for State Courts, Feb. 2020) (citing default judgment statistics in Black Hawk County, IA small claims: 63.6%; Collin County, Tx justice of the peace court: 19.7%; and West Valley City, UT small claims: 44%), available at https://iaals.du.edu; Tom Feltner, et al., Debt by Default: Debt Collection Practices in Washington 2012–2016 (Center for Responsible Lending, Mar. 2019) (“Over 80% of all debt buyer cases reviewed resulted in default judgments in favor of the plaintiff.”); Lisa Stifler, et al., Undue Burden: The Impact of Abusive Debt Collection Practices in Oregon (Center for Responsible Lending, Apr. 2018) (in random sample of 300 debt collection lawsuits filed by debt buyers in Oregon between 2014 and 2016, 43.7% of cases ended in default judgments), available at https://www.responsiblelending.org; Ellen Harnick, Lisa Stifler, and Safa Sjadi, Debt Buyers Hound Coloradans in Court for Debts They May Not Owe (Center for Responsible Lending, Dec. 2016) (“A review of 375 randomly selected cases filed by four debt buyers in the county courts in five Colorado counties from 2013 through 2015 revealed that 71 percent of the cases resulted in default judgments against the individuals sued.”); 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, 1449 (2016) (in analysis of data for 40 Texas counties for fiscal year 2015, 31.6% of cases ended with default judgment); Susan Shin and Claudia Wilner, The Debt Collection Racket in New York, 3 (New Economy Project, June 2013) (42% of debt collection lawsuits in New York state resulted in default judgments); Mary Spector, Debts, Defaults, and Details: Exploring the Impact of Debt Collection Litigation on Consumers and Courts, 6 Va. L. & Bus. Rev. 257, 296 (2011) (39.46% of served cases in Dallas County ended with a default judgment for the plaintiff); Claudia Wilner & Nasoan Sheftel-Gomes, Debt Deception: How Debt Buyers Abuse the Legal System to Prey on Low Income New Yorkers 6 (Neighborhood Economic Development Advocacy Project, 2010) (study of 336 cases filed by debt buyers in New York City found that 81% resulted in default judgments).
430 Susan Shin and Claudia Wilner, The Debt Collection Racket in New York 3 (New Economy Project, June 2013) (“Overall, 42% of debt collection lawsuits resulted in default judgments—but debt buyers obtained default judgments in an estimated 62% of their cases.”).
431 Chris Albin-Lackey, Rubber Stamp Justice: US Courts, Debt Buying Corporations, and the Poor (Human Rights Watch, Jan. 2016).
432 See § 184.108.40.206, supra.
433 Paula Hannaford-Agor, et al., The Landscape of Civil Litigation in State Courts 30 (Nat’l Center for State Courts, 2015).
434 See, e.g., Reinvestment Fund, Debt Collection in Philadelphia (Mar. 2021) (between January 2016 and April 2020 26% of debt collection lawsuits ended with a determination of “no service”), available at https://clsphila.org; Julia Barnard, et al., Court System Overload: The State of Debt Collection in California after the Fair Debt Buyer Protection Act (Center for Responsible Lending, Oct. 2020) at Fig. 13 (non-service was the most frequent reason for dismissal). See also National Consumer Law Center, Collection Actions § 220.127.116.11.2 (5th ed. 2020), updated at www.nclc.org/library (discussing fraudulent claims of service by the process server, also known as “sewer service”).
435 Access to Justice Lab, Problem of Default, available at https://a2jlab.org.