With Debt Collection, Your Bank Account Could Be At Risk A 1968 federal law allows debt collectors not only to garnish wages but to take from a debtor's bank account. Consumer advocates say the outdated law is overly punitive and out of touch with reality.
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With Debt Collection, Your Bank Account Could Be At Risk

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With Debt Collection, Your Bank Account Could Be At Risk

With Debt Collection, Your Bank Account Could Be At Risk

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We're reporting this week on a striking change in the way debt collectors go after people in this country. On the heels of the worst recession in generations, 10 percent of working Americans between the ages of 35 and 44 are getting their wages garnished. As part of an NPR ProPublica collaboration, today we take a look at just how much money collectors can take and the impact that's having. NPR's Chris Arnold reports.

CHRIS ARNOLD, BYLINE: When some people first hear about this, they say, whoa, I didn't think you could get your wages garnished over an old credit card debt or a dentist bill. But you can, and debt collectors can take more than you might think - in about half the states in the country, 25 percent of your paycheck and everything in your bank account.


KARI FIOTTI: You've taken everything I have. You're not just taking a portion of it. You're taking my livelihood.

ARNOLD: That's Kari Fiotti who lives in Omaha, Nebraska. We heard a bit from her in the series yesterday. She had lived in Italy for 10 years with her husband and two kids, but then she got divorced. And in 2009 she moved back here.

FIOTTI: And when I came back, I fell and I broke my wrist - without insurance.

ARNOLD: Fiotti says the doctor's office wouldn't accept partial payments, which is why she couldn't pay. So the debt got turned over to collectors. It was $1,640. They sued Fiotti. She didn't show up in court for the hearing about her case, and then in May of last year, suddenly...

FIOTTI: My bank account's zero, and I'm like, whoa, what's going on?

ARNOLD: What was going on is that debt collectors had seized Fiotti's bank account. She didn't have enough to cover the debt, so they took all she did have. Fiotti was doing clerical work at the time - she says around $10 an hour. She had a kid in college, no savings. So she says it was actually kind of scary and upsetting when her bank account just got totally cleared out.

FIOTTI: I'm at zero, and then I have to overdraw myself to put groceries in the house for the week. That's really hard to do. I want to go just get $50 in groceries, and I have a $28 fee. And now I'm at $78-negative, and next week it's going to be the same thing, just to eat.

ARNOLD: In the end, Fiotti got the debt behind her with the help of a lawyer. All this might sound like the last thing the American middle-class needs right now, but in recent years millions of Americans have had their wages garnished after being sued by debt collectors. That's according to an analysis by the payroll company ADP. Much of the time, people don't show up in court to defend themselves. That makes it easier for the debt collectors. And with medical bills in particular, people can suddenly get buried in debt.

CASSANDRA ROSE: The whole side of my face just felt like it was on fire, like it was running a fever.

ARNOLD: Cassandra Rose also lives in Omaha. She says a few years ago, she couldn't afford health insurance. And she resisted going to the doctor, but she was getting these crippling headaches that went on for weeks and then months. She was dizzy.

ROSE: Just a lot of really scary things - and when you've had a headache for that long.

CONRAD GOETZINGER: And I have a friend whose mother dropped dead of an aneurysm, and that was what was in my mind, is maybe she has something that we could see now and fix.

ARNOLD: Her husband, Conrad Goetzinger, convinced her to get help. It turned out it was just migraine headaches, but doctors were concerned about a brain tumor. And the MRI and other tests got very expensive.

ROSE: It started off as 20,000. It's going to take me years to pay this off.

ARNOLD: Rose is now getting her wages garnished over that debt, and actually her husband's getting his wages garnished, too. Though he acknowledges his situation was probably more avoidable. He never finished paying off a laptop computer. In any case, they each make about $13 an hour, and between the two of them, Rose and Goetzinger are getting a total of more than $700 a month taken out of their paychecks. They say that just doesn't leave them enough to live on.

ROSE: Haley, time for bed. You need to feed and water the cats.

HALEY: OK, mom.

ROSE: OK, love you.

GOETZINGER: So, like, the children, we have to get caps on their teeth for some cavities, and we can't afford to get them done, you know. I don't want my daughter walking around with a big, shiny, front, silver tooth, you know. But when you have to choose between keeping the power on for the rest of the week or getting teeth done, unfortunately the teeth falls to a lower priority.

ROSE: It makes you feel hopeless. It makes you feel like you're working for no reason and that you're never going to be able to succeed.

WILLIAM REINBRECHT: It's a little like debtors' prison.

ARNOLD: That's William Reinbrecht. He's an attorney who represents people in Nebraska who are getting their wages garnished, often at the full amount allowed under federal law; that's 25 percent of their paycheck. And he says often there are other debts waiting in line. So when one finally gets paid off, the next garnishment kicks in.

REINBRECHT: It makes a subclass of people that are crushed by all of this, and they can't, no matter how they work, improve their economic position.

ARNOLD: Robert Foehl is general counsel for ACA International; that's a trade association for debt collectors, who he says play an important role in the economy and sometimes...

ROBERT FOEHL: A creditor might have no other avenue of recovering their debt except through a legal process.

ARNOLD: Meaning suing people and garnishing their wages. Judges who preside over these cases also say if people would just show up in court for their hearing, they'd have a lot more options. In some cases, they can work out a deal with the creditor to avoid garnishment. In St. Louis, Associate Circuit Judge Chris McGraugh has presided over many collections cases.

CHRIS MCGRAUGH: So I'll say, did you have this credit card? Yeah, I did. Did you run up this debt? Yeah, I did. Did you not pay it? Yeah, I didn't pay it. Well, you know, the law demands that you pay your debts.

ARNOLD: But at the same time, Judge McGraugh says he still sees some serious problems. He says lawyers for debt collectors, if they see a debtor actually takes time off from work and shows up in court, the lawyer sometimes will ask for a delay or a continuance and will do that several times over weeks or months until the person finally gives up and doesn't show up anymore. And then the collector gets a default judgment which means that person never got a chance to actually plead their case. Judge McGraugh says he finds the payday loan cases the most unsettling.

MCGRAUGH: Because you're talking about a person that ends up taking out $200 and years later, ends up with a $4,000 debt running at an interest of 200 percent interest. He'll never be able to get out from underneath it.

ARNOLD: And he says when the debt collector wins a judgment against the person, the court system ends up enforcing triple-digit interest rates that the person can never escape.

MCGRAUGH: I practiced law for 25 years. I had no idea, like, something like that was occurring because I see these things as egregious.

ARNOLD: The U.S. Federal Reserve recently did a study that found that half of Americans said that they couldn't scrape together $400 for, say, an emergency car repair without borrowing money. So consumer advocates say that garnishment laws in most states are just requiring people to pay too much. Chris Arnold, NPR News.

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