Washington state’s Senate approved a batch of new bills Monday aimed at helping struggling consumers break out of debt in a state known for having some of the most punishing debt-collection laws in the country.
The moves come after a Seattle Times investigation last month detailed how Washington state’s laws are stacked in favor of collection companies over consumers in financial distress, including allowing companies to collect interest at 12 percent when they win a judgment in court.
Some industry workers have described that interest rate — the highest flat rate in the country — as an enticement for collection companies to take debtors to court rather than try to work out payment plans with them.
Under the new legislation, which sailed through chamber 44-4, the state will lower the post-judgment interest rate to 9 percent, still higher than the national average, which is under 8 percent. Lawmakers had initially considered a bill that would have set the rate at 7.5 percent, but scaled that back after pushback from the industry, which has developed into a powerful lobbying force in recent years with particular focus on maintaining allies in the state Senate.
“This is a really important step forward for Washington consumers that will help a lot of people get their books back in order,” said Sen. Jamie Pedersen, D-Seattle.
Antonio Ginatta, who advocates for low-income residents at Columbia Legal Services, said he still thinks the 9 percent interest rate is too high and hopes lawmakers can lower it further in the future. He said the interest is supposed to make the recipient whole by accounting for inflation.
“It’s not supposed to be a windfall,” Ginatta said.
The interest rate legislation, HB 1602, also shields more wages from garnishment in the debt-collection process. As The Times reported, Washington’s current law allows consumers to keep 35 times the federal minimum wage each week — or $253.75 per week. The new legislation will do that calculation based on the state minimum wage — or $420 per week.
In touting the bill, Pedersen said it would protect about $35,000 in wages per year. But, at $420 per week, it appears to actually protect less than $22,000.
Massachusetts’ laws protect more than $30,000 per year, calculating it based on 50 times the state minimum wage per week.
The Times article detailed how Washington state’s garnishment laws can also pile fees on top of a consumer’s bill because it requires debt collectors to renew the garnishment every 60 days. The industry has supported changing that statute — other states have much longer or no renewal time periods — but the new legislation doesn’t alter that rule.
Ginatta said he also wants to look closer at the garnishment process. He said consumer advocates may seek to eliminate fees in the garnishment process and potentially extend the 60-day renewal period.
The bill will now go back to the House, which already passed an earlier version of the bill, for approval before going to the governor for final passage.
Another bill, HB 1066, advanced through the Senate 31-17 and would prohibit debt collectors from initiating a lawsuit without filing it in court, a process known as “pocket service.” The practice allows collection companies to send a court summons and complaint to consumers before filing them in court.
The process can leave consumers baffled over whether the documents are real and unaware that the 20-day deadline to respond begins when they receive the summons, not when they’re actually filed in court.
Under that process, allowed in the state’s Superior Court system, some debt collectors have been able to later file the case in court and win a default judgment the same day. Attorney General Bob Ferguson said he requested the legislation, which was sponsored by Rep. Christine Kilduff, D-University Place, after hearing from consumers stung by the practice.
“Pocket service is an unfair shortcut for debt collectors intended to blindside Washingtonians with default judgments, allowing debt collectors to seize wages, bank account funds, or even foreclose on homes. It’s about time we put a stop to this confusing practice,” Ferguson said in a statement.
Sen. Mike Padden, R-Spokane Valley, used to work as an attorney for collection company Valley Empire. He opposed the bill, saying it didn’t make sense to eliminate the rule for debt collectors but not for other types of legal actions.
“It’s just not a good piece of legislation,” Padden said. “It’s not going to do much.”
The bill will now go to the governor’s office for final approval.
Lawmakers also advanced two others bills on debt collection. One would halt the revival of debt when someone makes a payment after the statute of limitations expires on collecting the money. Another focuses on medical debt and would, among other things, prohibit medical bills from being sent to collection agencies until 120 days after the initial bill gets sent to the patient.