Oregon gets a D for allowing debt collectors to push families into poverty

By Angela Martin of Portland, Oregon. Angela is the executive director of Economic Fairness Oregon. In 2011, she contributed "A Losing Equation".

The decision of what bills to pay and what bills to put off is a game of financial roulette tens of thousands of Oregonians are forced to play every month as they struggle to recover from the economic downturn. The priorities are obvious – keep your family housed and fed and pay for transportation plus other items necessary for work – other creditors get what’s left.

A new report from the National Consumer Law Center exposes how state exemption laws take these difficult decisions out of workers hands by giving debt collectors the ability to seize a substantial portion of a person’s wages and the tools essential for their work. The report, No Fresh Start: How States Let Debt Collectors Push Families into Poverty, finds that Oregon law fails to meet basic standards that would allow debtors to continue to work productively to support themselves and their families.

Talk with anyone who has to perform this juggling act and they will tell you how difficult it is to not pay all of the bills. The myth of the deadbeat debtor watching cable TV on their plasma screen in no way resembles the hundreds of hardworking Oregonians we’ve met in nearly every community across the state. These are people who take pride in paying their bills on time and who had enough income to support the purchases they made in better times or thought they had sufficient health insurance until they got sick. Long term unemployment, furloughs or high medical bills can turn anyone’s budget upside down and send debt collectors rushing to your door.

Creditors have a right to expect payment for legitimate debt but if our state law allows collection at the expense of a family’s ability to put food on the table or a person’s ability to stay in the workforce we all lose.

Exemption laws are designed to protect debtors and their families from poverty, and preserve their ability to be productive members of society. Under current law Oregon gets an F when it comes to protecting wages.

Oregon’s wage garnishment law allows debt collectors to push a family below the poverty level. A minimum wage earner working full time can have their weekly pay reduced to $268.50, less than the federal poverty level for a two-person family. If they work less than full time their wages may be reduced to $217.50, less than half of the federal poverty level for a family of four.

States can do a better job of protecting basic wages and still have a thriving credit market. Several states, including Texas, don’t allow wages to be garnished for consumer debt yet consumers in those states can still get car loans and credit cards. See the full report here.

Oregon’s archaic exemption laws fuel the lucrative and fast-growing debt buyer industry. When a worker’s wages are slashed below the poverty level to pay off old credit card debt that was bought for pennies on the dollar by an out-of-state debt buyer everyone loses. The debtor can’t pay the landlord or the childcare worker and the family is forced to rely on government services to make ends meet.

In 2012, the FTC received more than 125,000 consumer complaints about debt collection, representing almost 25% of all consumer complaints it received. Debt collection lawsuits are clogging up civil courts across the nation. Just ask Robert Hobbs, National Consumer Law Center’s Deputy Director and author of Fair Debt Collection. His organization hopes this report will serve as a wake-up call for states to update their exempt property laws and stop putting millions of families at risk.

So what should Oregon do? First, our exemption laws need to be updated to help preserve a person’s ability to work. That means allowing a debtor to keep a working vehicle. Current law allows a creditor to seize a car if it has a value greater than $3,000. The average price of a used car in the lowest priced category is more than twice that amount. Increasing the vehicle exemption to protect an average used compact car from exemption would help preserve a person’s ability to get to work. Other exemptions levels, including the wage garnishment threshold, need updating too and the amounts should be updated annually for inflation.

Last year Oregon lawmakers took an important step by updating the exemption laws for bankruptcy filers but most families struggling with debt don’t file for bankruptcy. Most end up facing the debt collector in court or worse yet, find out about the legal action after the fact. Updating Oregon’s collection laws will prevent over-aggressive debt collectors from reducing families to poverty. The recommendations NCLC offers in their report would also benefit the state by keeping workers in the work force, helping families stay together, and reducing the demand on funds for unemployment compensation and social services.

For more information you can read the executive summary here (PDF).

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