Access to Justice & Income

Claire Johnson Raba, University of Illinios Chicago School of Law
Dalié Jiménez, UC Irvine School of Law

This Article examines the impact of recent debt documentation reforms in California, Connecticut, and Texas on state debt collection lawsuits. It uses a difference-in-differences event study design to analyze court data over ten years and estimates the effects of these legal changes on court outcomes, including case filings, case value, attorney representation, response rates, time to judgment, and obtaining a writ of execution. We also incorporate results from a survey of court stakeholders in these jurisdictions about their views of these reforms. Our study design compares rates of case filing and outcomes between original creditor plaintiffs not impacted by the state law and court rule changes with those for third-party debt collectors. This allows us to observe the causal impact of the law on debt collectors held to higher evidentiary standards.

In the late 2000s, a series of reports by consumer advocates, government agencies, and law review articles began to shine a light on the justice problems in state debt collection lawsuits. Many of the issues advocates identified were reminiscent of the recent financial crisis: robo- signed affidavits, plaintiffs who could not prove their standing to sue, no documents or evidence to back up the debt, and allegations of sewer service. State courts and legislatures reacted to policy advocates’ demands for change by adopting new court rules and enacting statutes. While the legal changes varied, most were focused on shoring up the evidence plaintiffs should have on hand before obtaining a default judgment. Although some of the issues identified applied to both original creditors and purchasers or assignees of the debts (“third party debt collectors”), most jurisdictions subjected only third-party debt collectors to these legal changes.

These reforms were generally met with opposition by the debt collection industry. It was argued the reforms would increase the cost of collecting debt and that lower collections would result in a higher price of credit to consumers. We posit that debt collection reform impacts on the industry would be evident in changes observed in collection cases. To evaluate the effect of heightened documentation requirements in court outcomes, we collect court lawsuit data over ten years from three states that saw a legal change: Connecticut civil courts, Texas’ Justice of the Peace Courts in Harris County, and sixteen California counties that comprise 80% of debt collection filings within the state. We evaluate the causal effect of these legal changes on court case metrics and outcomes such as filing rate, defendant representation, defendant response to the lawsuit, amounts sought in the case, writs of execution sought, among other outcomes.

This is the first causal inference study evaluating debt documentation reforms. Among other observations, findings from California suggest that the 2014 debt disclosure reforms led to a ten-week delay (25%) in judgment times for third-party creditors compared to first-party creditors, and an increase in self-representation. Despite industry concerns that these reforms would reduce debt collections and increase credit costs, the study finds no significant impact on the number of cases filed, the amounts requested, or the likelihood of obtaining a writ of execution. The findings suggest that while the reforms did not decrease case filings, they did affect procedural aspects of cases, by delaying the time for plaintiffs to obtain a judgment.