Effects of Debt Lawsuits on Civil Courts—and Consumers—Obscured by Lack of Data

Information gaps hinder tracking of cases and outcomes, and system modernization efforts

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Effects of Debt Lawsuits on Civil Courts—and Consumers—Obscured by Lack of Data
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Over the two decades from 1993 to 2013, debt lawsuits came to dominate civil court dockets in a significant number of states. And as of 2018, they were still the most prevalent type of civil case in nine of 12 states for which some data is available. Despite this prevalence, however, less than a third of states collect comprehensive data on debt lawsuits, while 38 states and the District of Columbia provide no detail about the number of debt cases on their civil dockets.

In the face of these lawsuits, courts have struggled to ensure a level playing field for consumers, who often navigate the process on their own. Debt claims typically involve a private business represented by a lawyer suing an individual consumer, who in more than 90% of cases does not have an attorney. And these suits frequently end in default judgments—automatic rulings for the plaintiff that are not based on the facts and occur when a defendant does not participate in a case. In the jurisdictions for which data is available, courts issued default judgments in more than 70% of debt lawsuits. However, without comprehensive state-level data showing the extent of inadequate representation, default judgments, and other problems associated with debt claims, courts and state leaders do not have the information they need to enact effective policy changes.

A new report from The Pew Charitable Trusts, “How Debt Collectors Are Transforming the Business of State Courts,” examines this lack of data and explains which information is needed to shed light on the scope of challenges facing the civil legal system and the need for modernization. As the report notes, states generally collect and publish scant data on their civil legal systems. A 2015 report from the National Center for State Courts is the only national study that includes debt claims from the past 10 years, and it examined just 5% of civil caseloads nationally. Courts have difficulty producing statewide reports in part because they are decentralized and fragmented, and typically only collect data for internal administrative purposes. For example, in 2018, only New Mexico and Texas reported a cross-section of debt claims cases and outcomes for at least one court level.

Despite the lack of robust data, the available anecdotal information has driven a number of states to enact reforms related to debt collection lawsuits. Between 2009 and 2019, 12 states made policy changes—seven through passed laws and five through changes in court rules—to improve the debt claims process for litigants. In 2009, North Carolina passed a law requiring third-party debt buyers—companies that purchase consumer debt from the original creditors, typically for a fraction of the face value, and then attempt to recover the full amount owed—to prove that a debt is valid before the court will grant a default judgment. Similarly, the 2017 Colorado Fair Debt Collection Practices Act authorized courts to withhold default judgments unless the plaintiff can demonstrate that they own the debt, that the defendant owes the debt, and that the amount is accurate. But these states still need better data to help courts and policymakers track the impact and effectiveness of these changes.

Knowing more about debt lawsuits can help courts improve their rules and business processes to better ensure that both parties in a dispute have the opportunity to be heard and receive a decision based on the facts and evidence presented. Likewise, understanding court trends in other case types, such as housing or domestic relations, could foster review and improvement of court policies and procedures and spur widespread modernization efforts.

Erika Rickard is project director and Qudsiya Naqui is an officer with The Pew Charitable Trusts’ civil legal system modernization project.

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