The Democratic State Senator from Berkeley, Nancy Skinner, recently introduced legislation (SB 1200), to prevent California courts from levying excessively high-interest rates when issuing legal judgments on consumer and personal debts.
California is attempting to limit the amount of time that citizens can be burdened with long-term debt through SB 1200, Kron4 reported.
“For years, state law has required courts to charge exorbitant interest rates on legal judgments, exacerbating the debt owed by California families,” Sen. Skinner explained.
“SB 1200 will help relieve financially struggling families by slashing high-interest rates on legal judgments and limiting the amount of time families are forced to struggle under mounting debt.”
According to the Pew Research Center, Californians are increasingly being sued for personal or consumer debt by creditors and debt collectors.
These legal judgments accrue 10% interest per year, in addition to the high-interest rates that the creditor has already imposed.
Senator Skinner wrote that debt collectors, who frequently buy and sell debts, can continue to renew judgments long after the 10 years when a legal judgment is supposed to expire.
The interest accrued on these renewals also continues to be 10% per year, thus creating an overwhelming amount of debt.
As Sen. Skinner pointed out, debt collection judgments, wage garnishments, and asset seizures disproportionately impact communities of color.
Between 2012 and 2017, top debt collectors collected $700 million from California residents solely through wage garnishment.
How SB 1200 Will Help Families in Debts
Under SB 1200, the annual interest rate on unpaid consumer and personal debt will be lowered from 10% to 3%.
Legal judgments obtained by government agencies would also be eligible for interest-rate reductions.
Additionally, SB 1200 would restrict the renewal of legal judgments for unpaid debts after ten years.
“We should not require our courts to add to the burden of financially strapped families; it’s time to rein it in,” Sen. Skinner continued.
“There’s no reason for Californians to be subjected to unreasonably high-interest rates that can more than double or triple what they originally owed.” the Senator added.