As looming personal debt crisis emboldens collectors, Philly’s small claims court needs a bigger role | Editorial

Philadelphians are amassing a staggering amount of debt. An October survey conducted by the Pew Philadelphia Research and Policy Initiative found that nearly 1 in 3 are behind on their credit card bill. And the Census Bureau recently found that through the end of February, 35% of households in the Philadelphia metro area were struggling to pay for usual household expenses.

In addition to a tidal wave of evictions expected when moratoriums run out, the pandemic has laid the groundwork for a debt crisis. Much of this will play out in court — in Philadelphia that means Municipal Court’s small claims court, a sibling of landlord tenant court where evictions are filed.

» READ MORE: More must be done to help Black and brown Philadelphians in debt | Opinion

A new report by Community Legal Services and Reinvestment Fund reveals a number of concerning realities in debt collection cases: lack of legal representation for debtors, unreliable service of notifications, and a system that enables large companies to wield tremendous power, often in the absence of a judge or the person who owes the debt.

According to the report, 84% of the 90,809 small claims cases filed in Philadelphia between January 2016 and April 2020 were filed by only 10 entities — with the top four filing nearly 60,000 cases. These include companies like Midland Funding, which makes a profit by buying and collecting on debt, and banks like Capital One.

Black residents are more likely to be sued in small claims court, and are involved in cases with lower claim amounts than those of other races. It is well-documented that Black people get worse terms on credit and loans. The new report suggests that collection of these set-to-fail agreements are also more zealous.

Echoing issues explored by this board on service of notices in eviction cases, the report finds that between 2016 and 2020 a quarter of cases were dismissed because documents couldn’t be properly served. In the majority of the rest of cases, defendants lose by default — again raising questions about service of notices. Defaults mean that liens can be placed on defendants’ houses and bank accounts frozen without notification or review of the claim’s merit.

» READ MORE: Philadelphia's eviction process blindsides renters

Legal representation has a big impact on case outcomes. About a third of people who are represented by a lawyer win their cases, compared with 1% for unrepresented. And yet only 6% of defendants appear with a lawyer. Unrepresented defendants don’t go before a judge but negotiate a payment agreement with the debt-collecting lawyer. A breach of the agreement allows the collector to pursue the defendants’ bank account and property even years later, after the debt has grown with interest.

Cases in small claims court are for less than $12,000, with nearly half of the claims for less than $2,000. These relatively small sums can carry big and long-term impact on people’s lives.

A Pew report from February sheds light on the experience of Philadelphians. Pew surveyed defendants in small claims court in 2018. A staggering 85% said that they thought people sued in small claims court need a lawyer. Fewer than half found it easy to understand what was happening in court. The report also shows the fallout of debt collection: 22% of those who appeared in court fell behind on bills or had utilities disconnected, and 16% went without food and other basic needs in order to pay debt collectors.

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To their credit, Municipal Court’s leadership, including President Judge Patrick Dugan and Judge Matthew Wolf — the new supervisor of the court’s civil division that includes both landlord-tenant and small claims courts — have in the last few months addressed issues raised with how the final notice before an eviction is served. Just last month, after an editorial about the issue, the court began to include time and manner of service of eviction final notices in the docket information.

Similarly to housing court, defendants in small claims court need more information, and for service to improve, so default judgments can be minimized. The court could consider requiring documentation to support fillings, at least ensuring that fraudulent claims aren’t furthered.

The impact of debt collection cases, despite being less immediately traumatic than evictions, could ultimately carry as much harm. This welcome new research and attention on debt collection brings needed scrutiny to a court system that has remained opaque — and that can have outsized influence on people’s lives.