In summary

Justice in debt-collection cases is one-sided. Borrowers almost never have legal representation in court — the state should guarantee the right to a lawyer.

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By Prasad Krishnamurthy

Prasad Krishnamurthy is a professor of law at the UC Berkeley School of Law,

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Emma Elizabeth Gonzalez, Special to CalMatters

Emma Elizabeth Gonzalez is the directing attorney at the Public Law Center in Orange County,

In principle, a court is a forum in which the parties resolve disputes by discovering the truth. In practice, by rubber-stamping hundreds of thousands of creditor judgments against unrepresented or even absent defendants, California’s courts have become a pliant arm of the debt-collection industry. With many legal protections for California’s borrowers because of COVID-19 set to expire, better regulation and representation are urgently required to reverse this disturbing practice. 

Justice in debt-collection cases is one-sided. According to a study by the Center for Responsible Lending, defendants were represented by attorneys in only 2% of debt cases in California. In two-thirds of these cases, the plaintiff creditor obtained a default judgment because the defendant did not show up to court, often because they were never properly served. 

In recent years, the dockets of California’s courts have been dominated by debt collection. From 2012 to 2017, the top 20 debt buyers in California filed nearly 440,000 collection cases in the 10 largest counties in the state. These numbers could accelerate as a result of COVID-19, further imperiling low-income and minority borrowers. 

Because they are unlikely to face an opposing attorney or any defendant at all, creditors rarely obtain the required information under state and federal law to win a litigated case. For example, the California Fair Debt Buying Practices Act requires debt buyers to document and establish the chain of ownership of the debt, the amount and age of the debt, and the identity of the borrower and the original creditor prior to filing a complaint in court. Yet 60% of cases by debt buyers are filed without this legally required documentation. Even when plaintiffs do submit documentation, their documents often do not refer to the facts of the case or do not match those facts.

These shoddy practices are usually a result of robo-signing. Debt buyers and their attorneys submit sworn statements that are prepared in bulk but do not establish, with any particularity, the validity and ownership of the debt. 

We suggest one modest reform and one more ambitious one to protect Californians from illegal collection practices and lawsuits. 

The modest reform: Prohibit these illegal collection practices. Under the Debt Collection Licensing Act, the California Department of Financial Protection and Innovation is responsible for licensing debt collectors. The department also has the authority, under the California Consumer Financial Protection Law, to prohibit unlawful, unfair, deceptive or abusive acts or practices.  

The financial protection department should declare the systematic filing of complaints by debt collectors, with documentation that is insufficient under the law, to be an abusive practice. Using electronic court records, regulators could obtain a random sample of every debt collector’s filings and determine whether they are abusing the legal process through insufficient or inaccurate filings. Abusive filing practices should result in the loss of a license if they are not corrected. 

The ambitious reform: Low-income defendants should be entitled to legal representation in civil cases. For the legal system to work, defendants need a competent lawyer. The right to civil representation is far from a revolutionary concept. For decades, Article 6(1) of the European Convention on Civil Rights and Article 47 of the European Union Charter of Fundamental Rights have guaranteed such a right. At least 20 EU member states now mandate either free or subsidized legal representation in all civil cases. 

California could set an important precedent by becoming the first state to guarantee legal representation in civil cases. As in Europe, low-income defendants would receive free representation, with a sliding scale so that defendants’ payments increased with their income. 

Momentum for this change has been building. California already provides a right to counsel in certain civil cases affecting health, safety, child custody, due process, equal protection and proceedings involving prisoners. In addition, the Sargent Shriver Counsel Act has created a number of highly successful pilot programs implementing the right to counsel in civil cases affecting basic human needs.

Whether it’s to buy a home, a car or an appliance, attend college, or cope with sickness and unemployment, debt is a part of life for most Californians. California borrowers deserve a system in which creditors follow the law, not one in which they obtain faulty judgments against absent defendants. 

Better regulation by the financial protection department can curb some creditor abuses, but only when California enacts a right to legal representation in civil cases will we approach justice for borrowers in California’s courtrooms. 


Both authors are members of the California Department of Financial Protection and Innovation’s Debt Collection Advisory Committee. Prasad Krishnamurthy has previously written about student diversity at the University of California.

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