The Justice for All Commission (JFAC) on Wednesday released a comprehensive report on debt collection in Michigan. The findings reveal that debt collection cases dominate Michigan’s civil court dockets, with over half of all cases filed by five large national companies that purchase credit card, medical, and utility debts for pennies on the dollar from original creditors. For example, in 2019, more than 200,000 debt collection cases were filed, representing 37 percent of all civil cases filed in district court, second only to traffic cases. Researchers also found that 60 percent of those cases were filed by third party debt collectors.
Further, half of all debt collection lawsuits in Michigan are brought against people living in low-income and majority Black neighborhoods. Of particular note: consumers in debt collection cases rarely have representation while creditors are almost always represented. When both sides have legal representation, cases are much more likely to be dismissed or to reach a settlement.
With the input and support of a wide range of stakeholders, the report details a roadmap for the judiciary to make data-informed innovations and improvements to the process of debt collection that will make Michigan a national leader.
“The Michigan Constitution requires that the Supreme Court aid in the administration of justice, and this groundbreaking research will help us improve how trial courts handle debt collection cases to make the process easier to navigate and more equitable, efficient, and consistent,” said Michigan Supreme Court Justice Brian Zahra, JFAC chair. “As a former trial court judge, I understand how difficult it is for unrepresented litigants to navigate court rules and procedures. These difficult hurdles for parties without a lawyer create barriers to the fair administration of justice in our courts.”
Key report findings are:
• More than half of debt collection cases are brought by five large national companies, and Michigan consumers are on their own to navigate these lawsuits in court. Defendants are sued for an average claim amount of $1,600.
• Most debt collection cases in Michigan—68 percent—end in an automatic win for the plaintiff, also known as a default judgment. While fewer than 0.5 percent of Michigan defendants in debt collection cases have formal legal representation, the opposite is true for the litigating companies—a total of 96 percent of plaintiffs in debt collection lawsuits are represented by an attorney. And unlike most Great Lakes states, Michigan does not have a policy requiring claims to be proven regardless of whether the defendant engages in the lawsuit. As a result, defendants lose more than two out of three cases.
• 3 in 4 debt collection cases that reach a judgment end with a court authorizing the seizure of a debtor’s assets, wages, and even state tax returns—a rare tactic in other states that is widely used across Michigan. For almost half of all Michigan defendants who are sued, the claim amount exceeds their income and liquid assets.
• Debt collection lawsuits disproportionately target Black and low-income neighborhoods. Consumers living in majority Black communities are twice as likely to have a debt collection lawsuit filed against them and have higher rates of receiving a default judgment or a garnishment than those living in majority White neighborhoods.
Even though debt collection lawsuits are the highest volume case type, the JFAC found there are no clear or consistent rules that outline how courts and judges should review these cases.
“With debt collection accounting for a substantial and growing share of caseloads, this work is a critically important step forward toward our goal of a civil justice system that is accessible to all,” said JFAC Vice Chair Angela Tripp. “Action by the judiciary regarding the report recommendations will help address the challenges identified in the report; however, we must recognize that while our role focuses on court processes and the administration of justice, other branches of government must also take steps to tackle the problems they can solve.”
Recommendations of the JFAC report include:
• Modernizing serving of process rules to help ensure that consumers receive notice of the lawsuit filed against them.
• Increasing the amount of information to be included in the complaint to help ensure that the plaintiff has provided sufficient evidence to support a default judgment.
• Creating court documents and forms that consumers can easily understand and use.
• Improving our understanding of debt collection in Michigan through a more optimized use of court records.
• Engaging with consumers who have faced debt collection litigation to understand the barriers they encounter in court processes.
• Developing pilot projects to find alternatives to litigation that help creditors, consumers, and courts.
Over the past three decades, civil courts across the country—including Michigan—have seen their dockets flooded by cases in which businesses sue consumers to collect a debt. As of 2019, debt collection lawsuits were the most common type of civil case in the nation.
In 2020, the state’s Supreme Court launched the JFAC as part of a multi-year strategy to achieve 100 percent to Michigan’s civil justice system. With technical support from The Pew Charitable Trusts, January Advisors, and the Joyce Foundation, the JFAC work group solicited input from a wide range of stakeholder groups—attorneys, legal aid representatives, advocates, and court staff—to inform the recommendations.
For additional information about the Justice for All Commission, visit www.courts.michigan.gov/administration/special-initiatives/jfa.
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