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The Return of the Debtor's Prison

posted on 2011-04-04 by Bryce Covert

Judges have signed off on more than 5,000 warrants allowing borrowers who don't pay to be jailed since the start of 2010. Portfolio Recovery Associates, a debt buyer, made $44 million last year on $281 million in revenue, a 16% net margin.

You wouldn't be crazy to think that debtor's prisons are a thing of the past. Debtors have historically been treated pretty poorly: under Roman law, a debtor's body could be chopped up and the pieces given to his creditors (although they were more likely to be turned into slaves). So debtor's prisons, in comparison, might seem less harsh. But they were squalid and debtors weren't given any provisions. No sentences were set; you were there until you paid up. Borrowers owing as little as 60 cents could be jailed indefinitely. They were officially abolished in the United States in 1883.

But they're now making a comeback in a modern form. As the debt-collection industry buys up bad debt and then seeks payment, it's started relying on arrest warrants to get its way, throwing those who miss court appearances or don't pay in jail. The Minneapolis StarTribune was one of the first to report on the resurgence: after analyzing court data it found "the use of arrest warrants against debtors has jumped 60 percent over the past four years, with 845 cases in 2009." The practice is inconsistent, varying state-by-state, and the actual punishment varies. But there have been some cases that stand out:

In Illinois and southwest Indiana, some judges jail debtors for missing court-ordered debt payments. In extreme cases, people stay in jail until they raise a minimum payment. In January, a judge sentenced a Kenney, Ill., man "to indefinite incarceration" until he came up with $300 toward a lumber yard debt.

It's impossible to say how widespread this is across the country as no national statistics are kept. But the Wall Street Journal recently reported on the same phenomenon:

More than a third of all U.S. states allow borrowers who can't or won't pay to be jailed. Judges have signed off on more than 5,000 such warrants since the start of 2010 in nine counties with a total population of 13.6 million people, according to a tally by The Wall Street Journal of filings in those counties.

In Minnesota, arrest warrants have been issued for debts totaling as little as $85. It's not free to put people in jail, either, and taxpayer dollars cover the cost. Not to mention the distraction from pursuing violent offenders. Law enforcement "can't quickly access arrest orders for dangerous criminals because their computer system is clogged with debt cases," reports the WSJ.

And there's something else we're being distracted from. In Joe Nocera's weekend NYTimes column, he told the story of Charlie Engle, a marathoner who has been serving a 21-month sentence for mortgage fraud. Was he a lender who suckered borrowers into loans they couldn't afford? A banker who sliced and diced mortgages into securities with AAA ratings? No. He's a borrower who supposedly lied on two liar's loans (although as Nocera reports, the evidence for that is pretty fuzzy). So while Angelo Mozilo walks free, making a nice profit for his company and himself, Engle goes to jail.

Banks and debt collectors are making a tidy profit, while the customers they prey upon are being thrown in the slammer. "We have now imprisoned one generation of debtors after another," Samuel Johnson observed in 1758, "but we do not find that their numbers lessen." His words ring true today.