Governments Turning to Collectors as Debt Rises

Increasingly, state and local governments are considering using debt collectors to recover outstanding debt, according to David Cherner, legal counsel and legislative director of state governmental affairs for ACA International in Minneapolis.

Chener, who discussed the issue in the current edition of ACA’s ACTION monthly e-newsletter, which covers national and international government affairs, says that with government budget deficit concerns still looming, many states and smaller governmental bodies are focusing on the recovery of outstanding government debt, such as unpaid court costs, personal and property taxes and other delinquencies owed to municipalities.

Legislation in Florida, Illinois, Iowa, Kansas, Mississippi, New Jersey, Oklahoma, South Carolina, and Tennessee, has been introduced to permit a private third-party debt collector to recover outstanding government debt, Chener points out.

“States understand third-party provides an expertise they [governmental bodies] can use, they do not have that expertise,” Chener told insideARM. The legislation also makes the collection fees an add-on to any bill, so the cost of making the collections is shifted away from government to the private sector.

As governments continue to see budget constraints, Chener expects continuing use of creative ways to collect debts, which could mean increased use of outside collectors.

In the newsletter, Chener highlights some of the recent state legislation on collections:

In New Jersey, AB 2178 would permit the state, municipal courts, counties, and municipalities to place a surcharge on delinquent debts of up to 25 percent to pay the costs of hiring a private debt collector. This bill passed the state Assembly and was sent to the Senate without reference in mid-June.

Iowa Senate File 2428, signed into law in mid-May, permits the judicial branch to contract with a private collection designee for the collection of court debt 60 days after the court debt in a case is deemed delinquent. The bill requires the contract to provide for a collection fee equal to 25 percent of the amount of the court debt in a case deemed delinquent. The 25 percent collection fee is added to the court debt deemed delinquent and is the responsibility of the party owing the debt.