Hello and welcome back to MarketWatch’s Extra Credit column, a weekly look at the news through the lens of debt. This week, we’re taking a look at the intersection of consumer debt and the criminal justice system.
Much of the headline-grabbing work surrounding criminal justice reform has been focused on conditions those accused of crimes face as they make their way through the system, including mass incarceration, harsh sentencing guidelines and poor prison conditions.
But there are also pernicious financial consequences, including debt accumulation, to getting enshared in this system for both defendants and their families. This week, we’re taking a closer look at what activists and scholars call crimsumersim, or the way the criminal justice system coerces defendants to purchase products and services that are often predatory.
Over the past few weeks, the Debt Collective, a membership group of debtors, has been working to draw attention to the risk of falling into debt as a result of interactions with the criminal justice system, starting with two initiatives. One effort, which we’ll dig into later on, aims to help consumers dispute bail debt in California. But first up, how the organization provided debt relief to tens of thousands of people in the parole system.
A novel approach with roots in Occupy Wall Street
The Debt Collective’s novel approach to debt cancellation first brought them attention back in 2012. The group, which formed during Occupy Wall Street, realized that they could buy up loans on the secondary market, the sphere where debt buyers and creditors buy and sell portfolios of consumer debt for pennies on the dollar, and simply cancel it.
They started with medical debt and by 2014 they were cancelling loans held by students who had attended for-profit colleges. Now, they’ve expanded that strategy to private probation debt through Rolling Jubilee, an affiliated organization. Earlier this year, it bought up $3.2 million-worth of this debt, owed by 20,522 debtors, for roughly $98,000 and cancelled it, “no strings attached,” as Mackenzie Halter, a Debt Collective legal fellow, put it.
For those who owe probation debt, there are risks of severe consequences. When someone enters a probation period, there are often financial costs to that supervision, including fees associated with reporting to a probation officer, participating in any kind of residential reentry program, wearing a monitoring device (if required), and more.
Many localities contract with private companies to provide these services and collect those fees. If consumers fall behind on these payments, they can be sent to jail. The debt Rolling Jubilee bought up and cancelled was held by one of these private companies.
Though the cancellation efforts are focused on this specific type of debt, organizers say one of the goals of the initiative is to draw attention to all of the ways debt infiltrates a defendant’s experience from arrest to release.
“Incarceration is this massive long journey that encompasses multiple ways of wealth extraction,” said Manuel Galindo, a carceral debt organizer with the Debt Collective. “Carceral debt encompasses all forms of debt that are either worsened or created due to an individual’s involvement with the criminal legal system.”
One of the first forms of debt defendants encounter
One of the first forms of debt people encounter when they enter this system is bail debt — the other focus of the Debt Collective’s recent initiatives. When someone gets arrested, depending on the locality and the crime they’re accused of, a condition of them being able to go home while they await trial is being able to post some kind of cash bail. The median bail amount in California — where the Debt Collective’s work on this issue has been focused — is $50,000, according to a 2015 paper from the Public Policy Institute of California.
If a defendant can’t afford to pay the full amount to the court, they might use a bail bond company, who will ask them to pay a fee, often around 10% of the bail, known as a premium. If the defendant fails to show up in court, the court can collect the full bail amount from the company. Many bail bond companies will offer defendants payment plans — they pay a percentage of the premium up front and pay the rest off over time — to make posting bond more manageable.
In most cases, the companies will require the defendant to have a co-signer on hook for the conditions of the bond contract, including ensuring the defendant shows up to court, being liable for the bail if the defendant doesn’t show up, and any payment plan.
““Incarceration is this massive long journey that encompasses multiple ways of wealth extraction””
— Manuel Galindo, a carceral debt organizer with the Debt Collective
The legacies of racism embedded in the criminal justice system have meant that low-income men of color and Black men in particular are more likely to get caught up in it. Because of their ties to this group, low-income women of color are frequently asked to serve as co-signers on bail bond contracts, said Joshua Page, an associate professor of sociology at the University of Minnesota.
“Those who typically do it are often friends and family members, often women, often mothers, sisters, wives, ex-partners,” Page said. “The co-signing process brings in an enormous population of people who aren’t accused of any crime themselves.”
Page, who worked as a bail bond agent as part of his research, saw how the relationship between these agents, co-signers and defendants plays out first hand. Immediately after someone is arrested, the bail bond agent can often be a source of information for the defendant and their family when there is little available, Page said. The incarcerated person may not have a private attorney, public defenders have heavy caseloads, and courts can be hard to navigate, he noted.
Then, at the point when a co-signer is presented with a contract, they’re reviewing it in a high-pressure situation — they want to get their loved one out of jail, Page noted. Even if a bail bond agent is trying to provide the co-signer with all the relevant information, it may be difficult for them to digest it. Page observed that discussions about contract terms were often rushed.
Co-signers may believe that the only sum they’ll ever have to pay is the payment they make to initiate the payment plan. They sometimes think that if their loved one has the charges dropped, they won’t be on the hook for the rest of the contract, Page said.
“Sometimes it’s in the middle of the night, there’s tons of fine print to read, there’s lots going on,” Page said. “Often because it’s a stressful, high adrenaline environment and the process is really quick, people aren’t fully aware of all the complications of these contracts.”
In reality, the contract the co-signers are agreeing to makes them just as liable as the defendant for the full premium that’s non-refundable, even if their loved one shows up to court or the case gets dropped, he said.
The debt can have financial, emotional and psychological impacts, Page said.
Co-signers may have to face tradeoffs like, “do they pay the bail or do they pay their bills, which leads to material harm,” Page said. “It also creates a lot of social tension, it’s not just financial debts that are created, they’re also social debts.”
Bail bond companies accused of misleading co-signers
It’s not just the high-stress nature of the situation in which co-signers agree to these contracts that can cause them to misunderstand their impact. Some argue the bail bond companies are systematically misleading co-signers about their obligation and violating the consumer protection laws that govern other types of debt products. That’s a theory Danica Rodarmel started developing as a law student.
After Rodarmel graduated, she opened a clinic in the Bay Area to help consumers contest their bail debts and try to hold bail bond companies accountable to consumer protection laws. In the clinic, she kept hearing from co-signers who had agreed to bail someone out “and clearly did not understand what their legal obligation under that contract was.”
The bail debt issue, “exists at a complicated intersection of different laws,” Rodarmel said. “We’ve got criminal law, we’ve got consumer law, we’ve got insurance regulation,” said Rodarmel. In California, the state’s Department of Insurance licenses bail agents and regulates some aspects of bail transactions. Rodarmel argues that the bail bond industry has taken advantage of the confusion surrounding oversight of the sector to claim consumer protection laws don’t apply to their product.
Through the clinic, Rodarmel started making the case that these laws do actually apply to bail bond companies. Rodarmel often found that co-signing clients who came through her clinic hadn’t been given a specific disclosure that warned them of their obligations under the contract. Creditors are required to provide such a warming to co-signers in California. In other cases, Rodarmel would hear from co-signers who were being harassed by bail bonds companies over the debt, which she argued was a violation of California’s Fair Debt Collection Practices Act.
Rodarmel sent letters to the bail companies on behalf of her clients asking them to discharge the debt based on these arguments. Through the clinic’s efforts, clients have seen nearly $400,000 in debt eliminated, according to the Lawyers’ Committee for Civil Rights of the San Francisco Bay Area, the organization that houses the clinic.
“When I first started sending demand letters about how these laws applied to them, their answer was always ‘no they don’t,’” she said. Still, “most of them pretty quickly and easily folded on the request to just discharge the debt.”
Right now, a case is winding through California’s court system that could have implications for Rodarmel’s argument that bail bond companies are subject to consumer law. The Lawyers’ Committee for Civil Rights of the San Francisco Bay Area is part of the team of attorneys representing the plaintiffs.
The class action lawsuit filed against Bad Boy Bail Bonds in 2019 alleges that the company violated California consumer protection law by not providing co-signers with the required disclosure. Kiara Caldwell, the named plaintiff in the case, was told in 2018 by a Bad Boy Bail Bonds representative that a friend, who had been arrested over a shoplifting incident, could be released from jail if she paid $500 in cash and filled out certain paperwork, court documents allege.
The representative told Caldwell that the paperwork she was signing would require her friend to pay off her own financed bail bond in installments, according to court documents Caldwell filed. In reality, Caldwell signed multiple contracts, including one that put her on the hook for a $4,500 balance to be made in installment payments, the suit alleges. The entire visit to the bail bond office didn’t last longer than 15 minutes and Caldwell was never presented with the co-signer disclosure, court documents allege.
Earlier this year, a California superior court judge granted a request from Caldwell to stop Bad Boy Bail Bonds from collecting or enforcing agreements signed by co-signers who were never provided the release. Bad Boy Bail Bonds is appealing the decision, which was stayed as part of the appeal proceedings.
Jeffrey Cohon, a lawyer representing Bad Boy Bail Bonds, said the bail industry “has no legal obligation” to comply with the consumer protection statute that requires the notice. The Department of Insurance is responsible for regulating the bail industry, he said, and in the decades the statute has been around, the agency has never sought to apply it to the bail industry.
Cohon pointed out that bail bond companies, including Bad Boys, are required to submit their rate sheets and any other forms they use in the bail bonds process to the Department of Insurance. “If there was an issue over the use of a particular form, or the inadequacy of a particular form, or the need to use an additional form, that would have been up to the Department of Insurance to say,” Cohon said.
For its part, the Department of Insurance filed a friend of the court brief in the support of Caldwell, arguing that “neither the bail agent’s submission to the Department of its bail premium financing agreement nor the Department’s silence regarding its use shields an agent from liability under the consumer credit contract laws.”
More broadly, attempting to force the bail bond industry to provide the additional form, “is really another angle to abolish or undermine the bail industry,” Cohon said. He emphasized that the industry allows people, who may not have the means to pay the full bail amount, a way to access their right to await trial at home affordably. If advocates have an issue with the cost of bail, Cohon argues, they should take it up with the legislature.
“Are you suggesting that if this form is going to be disseminated that all of these people would never enter into these transactions?” Cohon said. He added that forcing the bail industry to give the notice could lead to more consumer protection laws being applied to the industry, which could make bail more expensive, as companies go through an “extraordinary vetting process” to comply with the laws.
Similar strategy has been successful previously
The Debt Collective’s Abolish Bail Debt tool is based on the idea that bail bond companies in California are required to provide notification to co-signers and follow other consumer protection laws. It generates a dispute letter based on information a co-signer inputs alleging the debt is invalid because they didn’t receive the notice or were subject to illegal harassment.
“If you signed a contract to bail somebody else out and they did not give you this piece of paper, the law is very clear, and becoming more clear through this litigation, that they cannot hold that debt against you,” Rodarmel said. “The idea of the tool is to really make this kind of relief much more widely available to people who really don’t need to be going through legal services to get that because it is so straightforward.”
In the few weeks since the Debt Collective launched the tool, it hasn’t been used by many co-signers yet to contest their debts, organizers say.
“The idea behind the tool is that it does bring some sort of legal aid to a small group of people, but it broadens understanding,” said Galindo. “The fact is that by having people succeed in these fields using these novel applications, you can start to show people that this form of debt is unjust and it’s not just unjust, it’s arbitrary.”
The Debt Collective has had some success with this type of strategy before. In 2015, the organization created a form that borrowers could use to apply to have their student loan debt cancelled under borrower defense to repayment, a law that allows borrowers to have their federal loans discharged in cases where they were misled by their schools.
Though the provision had been on the books since the 1990s, it was rarely used until the Debt Collective created the form and began organizing student loan borrowers around the concept. Borrowers flooded the agency with applications to have their debt discharged, participated in a debt strike and other protests. About a year later, the Department of Education streamlined the process borrowers could use access relief through the borrower defense law.
“At the time we introduced it it was a novel idea, this wasn’t really being done, those legal strategies weren’t being applied,” Halter said.
Now the bail debt tool is in a phase where it’s similarly a novel strategy, Halter said. It’s impact on the laws surrounding bail debt broadly has yet to be seen.
In addition to these kinds of on-the-ground advocacy efforts, Rodarmel said she’s also pushing to get regulators to pay more attention to this issue.
“The reality is this problem exists because of a government failure at the pre-trial system level and then government failures to take action about these violations of the law by a pretty huge industry,” she said. “I’m interested in encouraging government actors and agencies to take this on because I really do think it’s the state’s responsibility.”