From Immediate Relief to Transformative Change: Stopping Predatory Debt Collection During the Pandemic and Beyond

Posted by Raquel Villagra

Systematic wealth extraction from communities of color hasn’t stopped for the public health crisis caused by COVID-19—and it won’t stop unless we transform our economy.

That was New Economy Project’s message on a panel held last month for Pro Bono Scholars, students from across the state who spend their final semester of law school doing pro bono work.

Our remarks started with the story of G.W., who went to the supermarket during the COVID-19 crisis and couldn’t buy supplies because his bank account was frozen. G.W. is not alone. Other low-income New Yorkers, almost all people of color, have called our hotline during this crisis because debt collectors used ill-gotten court judgments to freeze their bank accounts or garnish their wages. 

As calls to our hotline mounted, we launched a rapid response campaign calling on Governor Cuomo to put an emergency moratorium on predatory debt collection during this public health crisis. More than 60 civil rights, racial and economic justice, labor, and community groups statewide immediately joined the fight, as did 17 New York State Senators and more than 3,300 New Yorkers.

Months later, the Governor has yet to act.

Putting a stop to predatory debt collection during the COVID-19 crisis is critical to ensuring public health and safety: People shouldn’t have to choose between going to court to try to stop a garnishment and staying safe.

Ending predatory debt collection is fundamentally a matter of racial and economic justice and neighborhood equity. The debt collection industry extracts massive amounts of wealth from communities and contributes to neighborhood destabilization—especially neighborhoods of color, the same neighborhoods long targeted by high-cost and predatory financial services providers. Many people in these neighborhoods have taken on debt simply to get by—to pay for basic daily necessities, medical care, or education. These circumstances perpetuate poverty and inequality.

Enter discriminatory, abusive debt collection practices.

Bottom-feeding debt collection companies buy old, alleged debts on the cheap and exploit our courts, filing abusive lawsuits disproportionately against people in low-income communities of color. These debt collectors typically engage in deception and fraud, making false statements to the courts in order to obtain virtually automatic judgments and then freeze people’s bank accounts or garnish their wages. As we discussed on the Pro Bono Scholars panel, the debt collection industry also systematically violates due process rights: Many people don’t find out they were sued until they’re confronted with a bank account or wage garnishment—only to discover the garnishment resulted from an alleged debt they don’t even owe.

Now, we are seeing continued exploitation by the industry in a time when so many people are experiencing extreme economic hardship.

Our campaign has created an online storybank, a place for New Yorkers to share their stories about how predatory debt collection has turned their lives upside down. We have generated significant media coverage exposing the harsh reality on the ground, in low-income communities and communities of color across New York City.

Our advocacy has resulted in some limited restrictions on new debt collection lawsuits. These are not enough to to stop debt collectors from enforcing the judgments they’ve already obtained, or to address the expected flood of debt collection activity when courts resume normal operations. The economic burdens of this crisis, which disproportionately fall on low-income communities and communities of color, will persist and worsen when courts open their doors.

We encouraged Pro Bono Scholars to push for transformative solutions. New Economy Project has long advocated for policy changes that address inequities rooted in our financial system. We are working to establish a municipal public bank, growing the movement for community land trusts, and advancing the New York State Community Equity Agenda to build community wealth and promote economic democracy statewide. 

As we work to end predatory debt collection, we also need to transform our economy into one based on cooperation, racial, economic, and gender justice, and ecological sustainability, so that it works for everyone—not just now, but forever.