Approaches to Equitable Debt Collection
By Jim Clark, Director of Government Affairs
Balancing a budget is a perennial challenge for governments across the country. Governments are faced with the unprecedented challenge of delivering on an increased need for services in the face of impacted revenue streams. Governments may rely on collecting revenue from taxes, fines, and fees as a way to bridge the gap.
The public sector must balance its responsibility to maintain fiscal stability with its commitment to equitably serve its constituents — especially those who may be struggling financially. Many cities and counties are finding ways to collect debt equitably in an effort to maintain fiscal health while ensuring that they aren’t disproportionately impacting the most vulnerable segments of their population.
CityBase works with state, county, and municipal governments across the United States to make it easier for people to pay their bills and request services, and for governments to manage those requests and payments. Marrying the principles of technology and equity creates a unique opportunity to lower the burden to access for constituents while inspiring innovation at City Hall.
In this blog, find information on:
The Unintended Consequences of One-Size-Fits-All Fee Policies
Incentivizing Compliance Through Greater, More Equitable Access
Expanding Assistance by Partnering with Specialized Third Parties
Examples from the Field: City Programs That Improve Equitable Debt Collection
The Unintended Consequences of One-Size-Fits-All Fee Policies
Fines and fees have been seen by some as a tool to balance budgets and by others as an enforcement mechanism. But penalties, surcharges, and collection fees can quickly turn a violation into a crisis.
For example, in 2018, Alabama Appleseed and other stakeholders surveyed people convicted of traffic violations, misdemeanors, and felonies in Alabama. Respondents reported taking drastic measures to attempt to pay down criminal justice debt. The study found:
- 38% reported committing a crime to help pay down their court debt;
- 44% took on payday loans — extraordinarily expensive debts that charge triple-digit interest;
- 83% skipped bills for necessities like rent and car payments — putting them at risk of eviction and car repossession, as well as damaging their credit and driving up interest and penalties.
Each government has their own unique set of circumstances. There isn’t a one-size-fits-all solution or approach. Every unit of local government has to tailor their approach to their own circumstances. It’s critical that each government evaluate their mindset and approach. Financial situations may be much different across your constituency.
We’ve seen the one-size-fits-all approach disproportionately affect lower-income constituents and minority communities.
As an example, a February 2018 ProPublica article highlighted a single mother in Chicago who accumulated $6,700 in tickets, late fines, and impound fees. The majority of the tickets were for not having a city sticker or license plate tags (which she could not obtain because her car could not pass an emissions test). The article reported the City garnished her tax refunds and impounded her car. As a result, she had no transportation for work or her son’s school, and she filed for Chapter 13 bankruptcy.
As a reference point, a city sticker in Chicago costs $90.88 (passenger vehicle), and annual license plate tags run around $151. In other words, what originally cost close to $250 ended up costing $6,700.
We’ve been pleased to see Mayor Lori Lightfoot quickly implement reforms to address situations like these as part of her equity platform.
Clearly, there are unintended consequences to a fines and fees policy. By employing a more equitable approach, constituents can be in compliance without facing a financial crisis.
Leverage Data to Understand Your Constituency
Diversity is the hallmark of any community. The people you serve across the community have diverse circumstances. Adopting public policy can be beneficial to some, yet cause inequities to others.
It is critical that you have a keen sense of the impacts of the fines and fees that you adopt.
A good start is to assess your government’s practices as it relates to fines and fees:
- What current approaches are working across your constituency?
- Just as important, what approaches are not?
It is important that you use data to better understand the people you serve. Information is power, and leveraging data science will not only give you a better picture of the different communities you serve, it opens up a whole new world to adopt programs for your constituents based on their circumstances. For more best practices in using data to enact equitable policies, watch our webinar on the topic.
Using data will allow you to identify patterns, such as what communities are struggling with compliance to your fines and fees policy.
Using a database of more than 54 million parking, standing, and vehicle compliance tickets issued in the City of Chicago between January 1, 1996, and May 14, 2018, ProPublica was able to break down by ward and zip code data such as total amount owed, amount paid, and most common violations.
The analysis showed the impact of fines and fees citywide, and revealed disparities within the 50 wards that make up the City of Chicago.
For instance, the 28th Ward had a total debt owed from tickets issued of $64M, while the 19th Ward had a total debt of only $6.5M. Clearly, residents of the 28th ward are struggling to stay in compliance as compared to the 19th.
This type of analysis shows you just where and how folks are struggling, and could inform your approach in a potential change in policy.
So dig in! The better understanding you have of your constituents, the more effective you can be in implementing policy that promotes equity in your debt collection practices.
Incentivize Compliance Through Greater, More Equitable Access
One way to improve access is by making it easier for people to pay their bills. As we navigate our way through the COVID-19 pandemic, offering safe and convenient payment options is fast becoming a necessity. It’s important to understand that the most convenient payment option will often vary.
To account for that diversity of needs, consider providing multiple payment options for people to satisfy their obligations, whether that be online, by calling an interactive voice response (IVR) line, or by making it easier for someone to pay in person by cashier or self-service options.
We’ve found with our clients that by making a variety of payment channels available, you can improve the payment experience of your customers across the entire population.
By grouping related services (like a payment plan or a relevant government subsidy) in the same place you’re providing the option to pay, you can increase awareness and enrollment in those programs.
For example, for people who do not have checking accounts or credit cards, their only option may be to pay in person. If they lack access to reliable transportation, coming downtown to pay a bill at city hall is an additional challenge.
This is where you encounter the social costs of a policy. People will have to take a day off of work or school to head downtown to complete the transaction, costing time, more money, as well as a loss in productivity.
In addition, an unbanked person will most likely have to pay with cash or a money order, where they’ll incur an additional premium by visiting a check cashing store.
Across the country, governments are increasingly exploring how to make it easier for people to be compliant with their obligations.
When we talk about equity through access, that means providing various payment options that are most convenient to the people you serve, both online and in person. For example, we partnered with a regional utility company to provide self-service payment kiosks that cover 80% of the State of Alabama. In April 2020 when the utility closed payment centers due to COVID-19 safety measures, the utility saw a +19% spike in kiosks usage, indicating that many people may not have convenient or cost-effective alternatives to paying their bills in person.
By providing in-person payment options that are located in different neighborhoods across a community, cities ensure a person doesn’t have to take time off of work, pay for expensive parking downtown, or wander City Hall wondering what agency or department will take your payment.
By creating an environment for equitable compliance, a constituent doesn’t have to leave their neighborhood to do business with their government while avoiding late fees, service shutdown, or a boot/tow.
Expand Assistance by Partnering with Specialized Third Parties
There are many organizations that can provide assistance, but oftentimes a person will not know such assistance even exists.
So why not proactively offer these services?
There are a lot of financial technology companies out there offering different types of assistance programs for constituents. For example, an organization called SpringFour has developed a platform that allows any organization to connect their customers or employees with financial health resources. These include 13,000 curated financial health resources such as utility savings, financial counseling, property tax issues, senior citizen services, and legal services.
The National League of Cities has started programs to address the fines and fees complex nationwide, by starting Local Interventions for Financial Empowerment Through Utility Payments (LIFT-UP), which helped five cities reduce their residents’ water utility debt by utilizing financial coaching and restructured debt terms into their collections practices.
The Center for Financial Security at the University of Wisconsin-Madison evaluated this program, which shows that participating cities were better able to collect overdue water utility payments with less reliance on costly debt collection agencies or resorting to shutting off service to customers.
The overall message here is, you’re not alone. There are resources and organizations out there that you can collaborate with to build a more equitable experience for all of your constituents.
Examples from the Field: City Programs That Improve Equitable Debt Collection
Every state, county, city, and community has their own unique challenges and approach. Some local governments are putting their equitable collection policies into practice successfully.
San Francisco Financial Justice Project
In 2016, San Francisco Treasurer José Cisneros started the San Francisco Financial Justice Project, the nation’s first effort embedded in government to assess and reform fines, fees, and financial penalties that disproportionately impact struggling residents.
Their two goals are to listen to community members to identify fine and fee pain points and implement doable solutions for government and the courts.
Through this effort, they were able to achieve:
- Elimination of administrative fees charged to people exiting jail and the criminal justice system
- Reduced fees to allow people who are low-income to pay off parking tickets and other citations
- Lowered costs of tow and boot fees for low-income constituents
- Creation of an income verification database to make it easier and simpler for departments and the courts to discount fines and fees for people with lower incomes
Chicago Fines and Fees Reform
Earlier we heard some anecdotes from ProPublica’s series on the City of Chicago’s fines and fees complex. Their use of city data was a major part of then-candidate Lori Lightfoot’s equity message, and as soon as she was elected the 56th Mayor of the City of Chicago, she went right to work.
Working with the City Clerk of Chicago, Chicago Mayor Lori Lightfoot introduced a fines and fees reform package. The reforms were a result of a fines/fees and access collaborative comprised of stakeholders throughout the community.
The reform package included:
- Ending doubling of city sticker tickets (city sticker tickets previously doubled from $200 to $400 after late fees)
- Ending the practice of automatically suspending driver’s licenses for non-moving violations
- Reinstating the 15-day grace period to renew a city vehicle sticker before issuing a ticket, and the 30-day grace period to purchase a sticker before facing a penalty
- Stopping the practice of issuing multiple tickets on the same day or consecutive days for vehicle sticker violations
- City sticker ticket amnesty program (the program is focused on city sticker tickets that would bring people into compliance)
- Automatic six month payment plan for all, lower down payments, longer time to pay for those with financial hardships
- Allowing drivers whose cars have been booted for unpaid fines a 24-hour extension to either pay their fines in full or enter into a payment plan before their car is towed to the pound
The Chicago City Council passed the Mayor’s fines/fees reform package and it is now law. This is a classic example of a policy rooted in understanding your constituency, incentivizing compliance, and collaborating with third parties to promote equity.
Chicago Public Library Fines/Fees Reform
This is a favorite of mine, as it demonstrates how a policy can affect residents across an entire city.
This year, Mayor Lori Lightfoot implemented a policy that permanently eliminated fines for overdue books, becoming the largest city and public library system in the United States to adopt such a policy.
With library patronage steadily decreasing, this was a way to both bring people back to the library (particularly children), and recover a library’s most precious assets…books.
Chicago Public Library data shows that one in five suspended library cards citywide belong to children under age 14.
Additionally, Chicago Public Library reported that an amnesty program from 2016 resulted in more than 15,000 new patrons and the return of more than $800,000 worth of Chicago Public Library material.
As a result of this new policy, Chicago Public Library saw a 240% increase in the number of books returned.
This has created a policy of inclusion for both youth and low-income residents who cannot afford late fees and fines.
Improving Financial Health in Your Community
There are many different ways to protect the financial health of your constituents during these challenging times while still conducting the business that is essential to the fiscal health of your city or county. These cases were a win-win for city government and the people living in those cities. The key is to start looking at your debt collection policies and practices, and dig into the consequences of those practices: both positive and negative. You can learn a lot from those insights to better meet your constituents where they are, and account for their diverse needs to improve access and equity in your communities.
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Want to learn more about this topic? Watch our webinar: Approaches to Equitable Debt Collection, and subscribe to the CityBase YouTube channel for more webinars and other videos.
