State Sen. Nancy Skinner (D-Berkeley) announced Wednesday that she has introduced new legislation (SB 1200), in an effort to reduce excessively high-interest rates that California courts can levy when issuing legal judgments on consumer and personal debt.
SB 1200 is aiming to limit the amount of time that Californians can be burdened with long-term debt.
“For years, state law has required courts to charge exorbitant interest rates on legal judgments, exacerbating the debt owed by California families,” Sen. Skinner said.
“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, creditors and debt collectors have increasingly turned to the courts to obtain legal judgments against Californians for personal or consumer debt — which include unpaid credit cards, overdue medical bills, or outstanding traffic violations.
The court-ordered interest on these legal judgments accrues at 10% per year, on top of high-interest rates that have already been levied by the creditor.
According to Senator Skinner — debt collectors, who often buy and sell debt, can keep renewing judgments on an unpaid debt long after the 10 years a legal judgment is supposed to retire.
These renewals also allow the interest to continue to accrue at 10% per year — consequently, creating overwhelming debt loads.
Senator Skinner said communities of color have been disproportionately impacted by debt collection judgments, wage garnishments, and asset seizures.
From 2012 to 2017, top debt collectors seized over $700 million from California residents through wage garnishments alone.
How SB 1200 works
Under SB 1200, annual interest on unpaid consumer and personal debt under a legal judgment would be reduced from 10% to 3%.
The same interest-rate reduction would apply to legal judgments on unpaid debt obtained by government agencies.
In addition, SB 1200 would establish restrictions on the renewal of legal judgments for unpaid debt after 10 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 added.
“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.”