Report calls for changes in debt collection legal process in Minnesota

A gavel in a courtroom in the St. Louis County Courthouse in Duluth.
A gavel in a courtroom in the St. Louis County Courthouse in Duluth.
MPR News file | 2018

A new report from the Minnesota State Bar Association says the state’s court system for debt collection isn’t working for consumers.

According to the report from the association’s Access to Justice Committee, released Tuesday, confusing court processes are difficult to navigate for people trying to pay back debt — and debt litigation disproportionately affects low-income people and communities of color.

Attorney General Keith Ellison said the report indicates a need for a change in the court system for debt claims.

“We want the debt collection process in Minnesota to be fair and dignified,” Ellison said. “The data shows that we’re not doing as good a job as we could in making sure that our courts are a place where everyone gets a fair shot dealing with their debts.”

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Lawsuits over debt make up a big part of Minnesota’s civil court cases — over half in 2019, according to the report.

The majority of defendants in these cases don’t have legal representation. Many fall into the “legal services gap”: They make too much money to qualify for legal aid, but not enough to hire a lawyer. That means they end up navigating the system without legal help. Plaintiffs, on the other hand, are usually represented by attorneys.

The report found that the state’s courts weren’t designed to handle this scale of debt cases with unrepresented consumers.

Erika Rickard from Pew Charitable Trusts partnered with the Minnesota State Bar Association on the report. She said it’s an issue she’s seeing across the county.

“Debt collection lawsuits are flooding ... state court dockets,” Rickard said. “It’s a big shift that, up until recently, has largely gone unnoticed by state leaders, and yet has profound implications for states, for taxpayers and for consumers.”

The report noted that most people don’t participate in debt lawsuits against them, and that some don’t even realize they’re being sued and need to show up to a court date. The study found that 67 percent of debt collection lawsuits in Minnesota end in a default judgement for the plaintiff. That can lead to high costs and court-enforced debt collection.

Part of the problem, according to the study, is that Minnesota has two possible routes for settling debt claims. If the claim is for less than $4,000 — which the majority are — plaintiffs can either bring it to district court or conciliation (small claims) court. The report said conciliation court is generally cheaper and easier to navigate, and more defendants participate when their case is brought through that system.

But many plaintiffs still take their cases to district court — where defendants are less likely to show up to their hearings, and where the process can be more costly and complex.

In addition, the system disproportionately affects Black, Latino, and low-income people. The report found that Black and Latino Minnesotans are sued at twice the rates of non-Hispanic white Minnesotans.

The report suggests a few solutions — including a requirement that all debt cases totaling less than $4,000 be filed in conciliation court instead of in district court. It also recommends creating online resources for people who are representing themselves in debt cases, and expanding resources like legal aid for people who are trying to repay their debts.

Dori Rapaport is the executive director of Legal Aid Service of Northeastern Minnesota, and chaired the committee that created the report.

“These recommendations will help self-represented consumers engage in their cases and make the justice system more accessible,” Rapaport said as the report was released Tuesday.

Ellison said he appreciates the report’s recommendations.

“This is a wake-up call,” he said. “It’s important for all of us to stop, pause, and do something about it.”