They Loan You Money. Then They Get A Warrant For Your Arrest, If You Don’t Pay

Cecila Avila was finishing a work shift at a Walmart. David Gordon was at church. Darrell Reese was watching his granddaughter at home. Jessica Albritton had pulled into the parking lot at her job, where she packed and shipped bike parts. All four were arrested by an armed constable, handcuffed and booked into jail. They spent anywhere from a few hours to a couple of days behind bars before being released after paying a few hundred dollars in bail or promising to appear in court.

None of the four, who live in northern Utah and were detained last year, had committed a crime. They had each borrowed money at high interest rates from a local lender called Loans for Less and were sued for owing sums that ranged from $800 to $3,600. When they missed a court date, the company obtained a warrant for their arrest. Avila was handcuffed and marched down the main aisle in the Walmart in front of customers and co-workers. “It was the most embarrassing thing,” said Avila, 30, who has worked at the store for eight years. At the time of the arrest, Loans for Less had applied to garnish her wages. “It just didn’t make any sense to me,” she said. “Why am I being arrested for it?” It’s against the law to jail someone because of an unpaid debt. Congress banned debtors prisons in 1833. Yet, across the country, debtors are routinely threatened with arrest and sometimes jailed, and the practices are particularly aggressive in Utah.

Technically, debtors are arrested for not responding to a court summons requested by the creditor. But for many low-income people, who are not familiar with court proceedings, lack of access to transportation, child care options or time off, or move frequently and thus may not receive notifications, it’s a distinction without a difference. Reese, a 70-year-old Vietnam veteran, said he missed a hearing because he couldn’t afford to put gas in his car. Gordon, 46, said he was never personally notified of the court date. Avila and Albritton, 32, said they couldn’t take time off work. In Utah, payday lenders and similar companies that offer high-interest, small-dollar loans dominate small claims court. Loans for Less, for example, filed 95% of the small claims cases in South Ogden, a suburban city of 17,000 about a half-hour north of Salt Lake City on the interstate, in fiscal year 2018, according to state data. Across Utah, high-interest lenders filed 66% of all small claims cases heard between September 2017 and September 2018, according to a new analysis of court records conducted by a team led by Christopher Peterson, a law professor at the University of Utah and the financial services director at the Consumer Federation of America, and David McNeill, a legal data consultant and CEO of Docket Reminder.

Companies can sue for up to $11,000 in Utah’s small claims courts, which are stripped of certain formalities: There are rarely lawyers, judges are not always legally trained and the rules of evidence don’t apply. Lenders file thousands of cases every year. When defendants don’t show up — and they often don’t — the lenders win by default. Once a judgment is entered, companies can garnish borrowers’ paychecks and seize their property. If borrowers fail to attend a supplemental hearing to answer questions about their income and assets, companies can ask the court to issue a bench warrant for their arrest.

Darrell Reese, a Vietnam veteran, with his granddaughter on his porch. Reese was arrested after he missed a court hearing because, he said, he couldn’t afford to put gas in his car.

Arrest warrants were issued in an estimated 3,100 small claims cases during the period studied by Peterson’s team. Almost all of the warrants — 91% — were issued in cases filed by payday, auto title or other high-interest lenders. The number of people who are jailed appears to be small. The state does not track the information, but examining a sampling of court records and identified at least 17 people who were jailed over the course of 12 months.

Most people scramble to meet bail to avoid being incarcerated. Others, like Avila, Gordon and Albritton, are booked into jail and held until they pay. They often borrow from friends, family, bail bonds companies and even take on new payday loans. “Bail” has a different meaning in Utah than it does in other states — one that tilts the power even more in the direction of lenders and other creditors. In 2014, state legislators passed a law that made it possible for creditors to get access to bail money posted in civil cases. Prior to that, bail money would return to the defendant. Now, it is routinely transferred to high-interest lenders. The law has transformed the state’s power to incarcerate into a powerful tool to guarantee that loan companies get paid.

As Peterson put it, “They’re handcuffing and incarcerating people in order to get money out of them and apply it towards insanely high interest rate loans.”

Small claims cases are heard once a month at City Hall in South Ogden, a former frontier town nestled between Hill Air Force Base and the Wasatch Mountains. On a sunny Monday morning in July, I walked past black-and-white portraits of City Council members and paused in front of a metal detector outside the courtroom on the ground floor. “Are you here for small claims court?” a bailiff asked. “Yes,” I said.

“You can check in with her,” he said, pointing at a makeshift station in a hallway in front of the courtroom. “You probably won’t need to go inside to see the judge.” The person standing at a high-top post office-style table a few feet from a wall decal that read “Welcome to the South Ogden City Kiosk” was not a court official. She was Valerie Stauffer, 44, a senior collections officer with Loans for Less. Reddish-brown hair tied back, the bespectacled Stauffer clutched dozens of beige and blue file folders, one for each borrower whose case was on the docket that day. She then piled them into a foot-high stack on the table next to her car keys and phone Loans for Less offers auto title and installment loans, which are higher-stakes versions of payday loans. Traditional payday loans, often for sums in the low hundreds of dollars, are typically due on the borrower’s next payday. The loans carry interest with annual percentage rates that run into triple digits. Borrowers provide postdated checks or access to their bank account as collateral. Auto title loans involve similarly stratospheric interest rates — Loans for Less charges up to a 300% APR — and larger sums of money, since the money is secured by the title to a borrower’s car. The loans are then paid back within a month, or in installments that might stretch over several months.

Loans for Less has six employees across two branches in Salt Lake City and Ogden. More than half of its borrowers, the company said, are repeat customers. The company’s website promises to help borrowers “get the cash you need” for the “lowest possible rates.” Loans for Less, the website says, is “up-front, fair, and honest with everyone.” At 9 in the morning, there were already a handful of defendants lining up to meet with Stauffer. She quickly leafed through the stack to identify a borrower’s case and spoke to each one in a hushed voice. Stauffer handed out questionnaires requesting details of each person’s financial life: employer’s name, bank account numbers, whether the defendant rents or owns a home.

Borrowers sued by Loans for Less line up to meet with Valerie Stauffer, far left, a senior collections officer with the company, at the City Hall in South Ogden, Utah, where small claims cases are heard. I spoke to Stauffer in between her meetings. She said that Loans for Less is “a little more aggressive than most.” Not all lenders will take borrowers to court, garnish their wages or request bench warrants, she said. Stauffer quickly added that she tackles the “more extreme” cases: “The ones that have taken the money and ran,” she said. “The ones who have no intention of paying their money back.”

We continue with debtors prison Pt II. This is a terrible shame in the 21st Century that people are taken to prison because of debt under the guise of legal loopholes.

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