Debtors' Prisons Making a Comeback?


Debtors' prison conjures up Dickensian visions of squalor and misery, but it may be making a comeback, albeit in a more civilized form. Minnesota offers fresh evidence that if you’re in debt, you may be looking at hard time.

Technically, debtors' prisons were outlawed by Congress back in the 19th century, so there are no physical jails in the U.S. to incarcerate those who owe money to banks, lenders, service providers, and retailers across the country.

But that doesn’t mean that law enforcement can’t take on a greater role. Minnesota may be ground zero for jailing residents who fall behind on their debt. According to a Minneapolis Star Tribune analysis of state court data, arrest warrants against debtors have risen 60% since 2006, with a total of 845 cases in 2009.

Three pieces of economic data underscore the debt picture in the U.S. One of them is positive. The other two aren’t.

1. Consumer debt looks better: The good news is U.S. debt delinquency is down. The Federal Reserve reports in its most recent quarterly survey that U.S. individual debt is down for the first time since 2006.

2. More poverty: The first piece of bad news is that the U.S. poverty rate is up, significantly. The U.S. Census Bureau reports that the poverty rate rose to 14.3% in 2009. That’s the highest level since 1994.

3. Higher foreclosure rate: Another big factor contributing to individual U.S. debt is the home foreclosure rate. RealtyTrac estimates we’ll finish 2010 with a record 1.2 million U.S. home repossessions. The firm says that another 3.2 million will be in “some stage of foreclosure.”

While the first statistic shows that Americans are serious about cutting down debt, the last two reveal it’s an uphill climb. Often that uphill climb puts consumers in the path of consumer debt issues that can indeed land them in jail. And debtor’s prison turns out to look just like regular prison.

The Tribune reports that, on average, Minnesotans who wind up in jail due to debt issues spend 48 hours behind bars, right there with the state’s more hardened criminals. Similar reports have popped up in Arkansas, Arizona, Washington, and Illinois. Recently a Kenny, Illinois man was locked up until he made good on a $300 debt to a lumber yard.

Consumer advocates say that debt collectors are pushing hard for law enforcement’s help in collecting on late debt payments.

“The law enforcement system has unwittingly become a tool of the debt collectors,” Michael Kinkley, an attorney in Spokane, Washington who has represented arrested debtors, said in an interview with The Tribune. “The debt collectors are abusing the system and intimidating people, and law enforcement is going along with it.”

Three big debt collection agencies – Unifund CCR Partners, Portfolio Recovery Associates (Stock Quote: PRAA), and Debt Equities LLC – are responsible for 15% of all arrest incidents related to overdue debt situations, the newspaper reports.

But does it make sense for states and municipalities to fill up jail cells with citizens who can’t afford to pay their bills? In Minnesota, the average night in jail costs taxpayers over $160. The Tribune highlighted recent court cases where people were incarcerated for owing under $100 – despite the fact that it costs taxpayers significantly more to hold the person in jail overnight.

That didn’t stop Minnesota authorities from putting 57-year-old Joy Uhlmeyer, a medical services professional, in jail overnight for her credit card debt. According to The Tribune, the police didn’t inform Uhlmeyer of her “crime” until 16 hours after she’d been waiting in jail.

At her hearing, Uhlmeyer conveyed her frustration, saying, “they have no right to do this.” But maybe they do after all.

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