Introduction

Across Arizona, 30% of people with a credit file have debt in collections. This tracks closely with the national average of 29%. How these consumers experience the collections process can vary widely, due to minimal protections afforded by federal and state Unfair and Deceptive Acts and Practices (UDAP) laws. The absence of greater protections puts consumers at risk of predatory collection practices that can be financially devastating due to low thresholds for income and property protected against being seized by debt holders. 

Medical debt stands out in the discussion of consumer debt. It is estimated to be the largest source of bankruptcies in the United States and exceeds $140 billion. Medical debt generally arises out of necessity, due to a medical emergency or persistent healthcare needs. Sixteen percent (16%) of Arizonans with a credit file have medical debt in collections, with a median amount of about $1,000 according to the Urban Institute based on an analysis of consumer credit files.  However, this understates medical debt, since it is not reported to credit agencies until it is 180 days past due and it is not always immediately moved into collections and debt moved to a collection agency is not always reported to credit agencies. Further, some medical debt is also disguised as credit card debt. 

Further exacerbating the precarious situation that some debt holders find themselves in, an analysis of the civil court system finds that debtors almost never have legal representation, while creditors do, creating a legal imbalance. This is a growing concern given findings by the Pew Charitable Trust in 2020 of an alarming increase in the use of courts to collect on debts by businesses since the early 1990s. According to one study from 1993 to 2013, the share of civil claims for debt in state courts more than doubled from less than 12% to 24% of claims.

The protections in the Predatory Debt Collection Protection Act will provide greater protections for the issues raised above, bringing Arizona much more in line with the recommendations provided by the National Consumer Law Center to enable those in debt to pay off what they owe without placing them in a position where their ability to meet their daily living needs are not impacted by the loss of housing, transportation, or other resources.

This report provides an analysis of the Predatory Debt Collection Protection Act initiative along three themes:

1. The Initiative’s Impact on Arizona Law and Comparisons to Other States
2. The Initiative’s Impact on Medical Debt
3. The Initiative’s Impact on Debt Collection through the Courts

Key Findings: 

The key findings of this analysis are:

• Arizona’s Unfair and Deceptive Practices (UADP) laws leave families who owe money at risk of financial calamity.  The Predatory Debt Collection Protection act significantly improves the portion of earnings and assets protected from creditors in line with best practices.
• 30% of Arizonans with a credit file have debt in collections, making them vulnerable to the state’s weak UADP laws.
• 16% of Arizonans with a credit file had medical debt in collections, with the median medical debt in calculations at $942. This underestimates medical debt as it cannot be reported to credit agencies until it is at least 6 months past due and collectors often push for payment via credit card–which turns it into credit card debt instead of medical debt.

If sued in Justice Court, court decisions almost universally lead to the debtor facing wage garnishment, resulting in creditors pulling funds directly from the debtor’s bank account or other means of forced payments. The average award was $2,000.

For more information, contact: Dave Wells, Research Director, Grand Canyon Institute, at DWells@azgci.org or at (602) 595-1025, Ext. 2. 

The Grand Canyon Institute (GCI) is a nonpartisan, nonprofit organization dedicated to informing and improving public policy in Arizona through evidence-based, independent, objective, nonpartisan research. GCI makes a good faith effort to ensure that findings are reliable, accurate, and based on reputable sources. While publications reflect the view of the Institute, they may not reflect the view of individual members of the Board.