Podcast with Michaela Park: Pathways to Financial Security

This podcast accompanies the student note Pathways to Financial Security.

Transcript

00:00

Consumer Law practitioners and scholars have long argued that credit scores perpetuate historical social discrimination along lines of race, class and gender. But what happens when abusers weaponize this financial tool and the structural inequities baked into it and coerce debt from their partners? And what does the new California statute created to rectify such coercion actually do? Welcome to the California Law Review podcast. Our goal is to provide an accessible and thought-provoking overview of the scholarship we publish. Today we will be discussing pathways to financial security a new legal avenue for survivors of course debt in California, a piece by Berkeley Law 3L Makayla Park, published in Issue Two of Volume 111 in April 2023. Thank you so much for taking the time to talk with us about your piece.

00:53

Yeah, of course, happy to be here.

00:56

To begin, can you summarize your main argument for the listeners?

01:02

Yeah, so um, California legislatures recently passed Family Code section 6342.5, which I'm just going to be referring to as the Coerced Debt Statute um in 2020 and it went into effect of January of 2022. So it's been about a year since it's been in effect. And this statute permits family courts to include in domestic violence restraining orders a finding that the survivor is not responsible for any debt coerced by the abuser, or otherwise obtained by the abuser without the survivors knowledge. Survivors can then use this order to support a claim or defense against a creditor or debt collector in civil collection actions. So while California legislators are clearly taking meaningful steps to expand the landscape of remedies available to survivors, of coerced debt, that the statute in its current form contains some key gaps that may invite judicial interpretation, as well as challenges from creditors, which together may undercut its effectiveness for survivors. And more broadly, it continues to place the onus of detecting coerced debt and navigating the complex consumer credit system on survivors and their advocates. So moving forward, policy solutions should aim to rectify these greater inequities inherent in these systems.

02:17

What motivated you to write this piece?

02:20

Prior to law school, I worked as a confidential sexual violence advocate. But I didn't learn about this specific issue until I took Professor Nancy Lemon's domestic violence seminar. And after learning about the issue, I became very interested in it. And there's been a lot of advocacy efforts, actually, through Berkeley's Consumer Law Center around this issue. And just understanding that there have been so many statutes that have passed recently, it's been definitely a very, very important issue, but also a very rapidly developing issue that's been exciting to research and learn about as well.

02:53

You talk about coerced debt and describe it as a modern phenomenon. I imagine coerced debt is not a subject all people are familiar with given us recency. Can you define this term and outline why this concept is now emerging?

03:06

Sure. So first, I do just want to note that virtually everything we do know about coerced debt is due to Professor Angela Littwin's work and 2012 to identify and describe this form of abuse. And since then others including Professor Adrian Adams, um Eric Sussman at the Center for Survivor Agency and Justice, Sabrina Hammett-Freefrom, and Carlos Sanchez. autumns at the National Consumer Law Center have continued her work and are currently at the forefront of advocacy efforts, but they've really begun to develop the initial work that Professor Littwin did. But she describes coerced debt as a type of economic abuse that takes the form of non-consensual credit-related transactions made in the course of a violent relationship. Abusers may utilize one or more of three methods to coerce debt, including fraud, force, and misinformation. Coerced debt by fraud may look like an abuser taking out credit cards in the survivor's name without their knowledge, such as by filling out credit card applications that arrive in the mail for the survivor, or may involve an abuser obtaining the survivor's consent to use a certain amount of credit, but then later borrowing beyond that scope that the survivor had initially permitted. Coerced debt by force may involve coercing the survivor into signing loan documents with threats of physical or other types of violence, and coerced debt by misinformation may involve tricking a survivor into relinquishing their rights to property but by for example, like relying on language barriers, and the amount of debt that abusers can accrue varies widely so one survivor reported around $7,000 in utility debt, while another reported over a million dollars in debt as a result of her husband triple-mortgaging their home. And researchers have also found that about over half of survivors and abusive relationships reported experiencing some kind of coerced debt, so it is fairly common. And the ubiquity of coerced debt and the wide range of methods that are available to survive or, excuse me, to abusers to coerced debt is in part due to the lending practices that have emerged out of the rise of financialization in the 1970s. So in short, financialization refers to the historical shift in the generation of capital from production to speculation and appreciation. So in other words from labor to debt, and the resulting increased volume, velocity and complexity of financial flows. So relevant here, financial institutions in order to generate this type of liquidity have not only pushed lending into more marginal markets, but have also created new processes to facilitate lending that are increasingly speed driven, information based, automated, and depersonalized. So more specifically, in the past, banks required face to face meetings in order to authorize lines of credit. But lenders now increasingly rely on personal information as well as low level employees to screen out identity thieves. So in other words, as debt has become a feature of economic life, and credit has become easier to access with greater consequences if debt accumulates, and as lending increasingly relies on personal information which is easily accessible by intimate partners. It's never been easier for abusers to exert financial control over their partners by using the survivor's credit.

06:15

And building off of this topic, of course, that your article also mentions the idea of coercive control. What is it and how does it relate to coercive debt.

06:24

So researchers and advocates have generally understood domestic violence to take one of two forms: the first being intermittent or situational violence, and the second being ongoing violence that's primarily about control. And this latter form of violence is commonly referred to as coercive control. And this describes a course of calculated conduct, excuse me, that an abuser deploys in order to dominate their partner. Abusers through coercive control interweave repeated physical abuse with intimidation, isolation, and control to create conditions for the survivor, in which even questioning the abuser's behavior is dangerous. And the specific tactics an abuser may employ vary, but economic abuse is incredibly common. One study reported that 99% of survivors reported experiencing some form of economic abuse during the course of an abusive relationship. And so, many of the coercive control tactics are not unique to intimate partner relationships. But some researchers do argue that coercive control is distinct from other forms of abuse, such as elder abuse, and that it is a gender strategy. This is not necessarily to say that women are more frequently subjected to coercive control than men, but it is to say that coercive control is often successful, in large part, because abusers exploit societal gendered power asymmetries. So for instance, in heterosexual relationships, strategies of control maybe confused with a stereotypical imbalance in decision making that we expect in typical heterosexual relationships. Or it may actually be masked by the fact that that decision-making is flipped, such as where the survivor may earn more money than their partner, or does, in fact, make the crucial decisions about household purchases. So in this sense, the type of infrastructure of control and these relationships is to some degree, a replica of the greater infrastructure of gender discrimination. And it's also important to note that though this concept was introduced over two decades ago, at this point, theories of coercive control are still primarily confined to the context of heterosexual relationships. So it's unclear how transposable this framework is to LGBTQ relationships. But in sum, while financialization created the specific tools of coerced debt, coercive control forms the the greater environment for coerced debt.

08:49

Now that we understand what coercive debt and coercive control are, what sort of impact does this form of economic abuse have on victims and survivors, and what sort of remedies are currently in place for said victims?

09:01

So all forms of economic abuse create long lasting consequences for survivors' economic, physical, and mental health. Coerced debt, however, intensifies, expands, and prolongs these consequences. Beyond immediately burdening a survivor with economic hardships, the damaged credit score that almost always results from coerced debt can prevent a survivor from becoming economically independent for years after the abuse. This is in part because where in the past credit reports were primarily utilized by lenders, today credit scores are widely used to screen out applicants such as by landlords and employers. So in the sense a good credit score is effectively in an essential tool for economic survival. For example, during an abusive relationship, survivors may rely on credit to pay for food, or as they're leaving the relationship to take measures that increase their safety, such as staying at a hotel, and after an abusive relationship, survivors often rely on on good credit for housing and employment and even utilities. And where survivors are unable to repay debts, they face fairly severe harassment, abuse and threats from debt collectors, and this is especially true when the debtor is black. And these collection tactics can be incredibly traumatizing for survivors, especially for whom the debt functions as a reminder of their abuse. So there are four primary remedies that are ostensibly available to survivors. The first is the credit repair process. The second is criminal prosecution of the abuser for identity theft. The third would be civil actions against the abuser in contract, tort, and property or against the creditor under the civil identity theft law. And lastly, domestic violence restraining orders. So though these remedies address harm survivors experience due to coerced debt, they either provide relief that's insufficient for survivors to reestablish their financial security, or they're completely foreclosed to survivors due to evidentiary problems that coerced debt poses. So for example, blocking fraudulent debt from a survivors credit report through the credit repair process is virtually impossible. Though survivors like other victims of identity theft can freeze their credit, place a fraud alert on their accounts, and dispute inaccurate information with the credit reporting agencies, they suffer more complex, more extensive, and more types of fraud than the conventional identity theft victim, such that these steps are highly ineffective. And additionally, many creditors do not even permit clients to dispute accounts or charges that result from domestic violence. The consumer credit system, by and large, does not have any type of mechanism that acknowledges domestic violence. Um and for similar reasons, identity theft prosecution also presents high barriers to relief. Survivors can have difficulty acquiring a police report, as police officers often don't believe them, especially when the survivors a person of color, poor, and even when they are able to acquire a police report, these cases are rarely prosecuted, and when they are the statutes are a poor fit especially where the coerced debt involved the survivors partial consent, such as where the abuser borrowed beyond a permitted scope. Similarly civil action against the abuser to recover the debt or against the creditor to enjoin them from attempting to collect on a report that debt may be more effective than other remedies where it is successful. But survivors may have difficulty proving that the debt was the result of coercion or fraud, and judges are often unwilling to view some tort claims as applicable to the domestic violence context. And lastly, domestic violence restraining orders, which can include tailored economic relief are the most accessible form of recourse for survivors. But again, judges may fail to provide adequate relief. And because protection orders do not bind creditors, survivors who do obtain a domestic violence restraining order are not protected from debt collection. And it's also important to note that all of these remedies may endanger or re-traumatize survivors. So for example, resolving financial fraud through the credit repair process can inadvertently alert an abusive partner to the survivor's location. And contacting the police for any type of these remedies may be a prohibitive barrier to relief due to past experiences of police brutality or abuse. So ultimately, because existing remedies are primarily aimed at victims of financial crimes perpetrated by strangers, these avenues to relief are largely unavailable to survivors.

13:34

The central thrust of your article relates to a new California statute passed by state legislatures who have been trying to fix this problem. You specifically mentioned in focus on AB2517, recently codified as Family Code section 6342.5. Can you explain what this code does in detail?

13:52

So while this statute is not explicitly geared towards coerced debt, it does attempt to create a path to relief for survivors of coerced debt by effectively joining two existing remedies, which I just described, the domestic violence restraining orders and civil actions against creditors and collectors. So this statute allows a survivor of coerced debt seeking a restraining order to request that the judge include in the order of finding that specific debts were incurred as the result of domestic violence and without the survivor's consent, and the statute provides that acts that may support this finding include, but are not limited to, the crimes prescribed in Section 530.5 of the penal code, which is the criminal identity theft statue. And survivors can then use this order to support a civil claim or cross complaint against a creditor to establish that they are the victim of identity theft in connection with the creditor's claim and prevent the creditor from collecting on the debt.

14:49

You note that while 6342.5 may demonstrate that state legislatures awareness of economic abuse is growing, it is unclear what material effect this new legislation will have on survivors. Can you elaborate for our listeners on why this might be the case?

15:04

Yeah, so this statute may offer some survivors, of coerced debt with a tangible form of relief, but it does leave gaps open that invite, you know, judicial interpretation of the statute as well as challenges from creditors that may leave the position of many survivors unchanged. And this overall largely continues to place the onus of addressing coerced debt and all of the various complexities that I've described on survivors and their advocates.

15:29

Specifically, what are the benefits and limitations of 6342.5.

15:34

So legislatures have expanded an existing remedy that has proven to be one of the most successful legal avenues for survivors. So where these findings are granted and do prove to be a successful defense against collection efforts by creditors, the statute will help to streamline the path to relief for survivors. However, the statue may fail to deliver for three key reasons. First, it provides courts with significant discretion to determine which types of coerced debt qualify for domestic violence finding under the statute. Though the statutory language doesn't limit courts to considering acts that fall under the identity theft statute, it is unclear whether judges will read the statute more broadly, such as to include the forms of domestic, or excuse me, the forms of coerced debt that may have involved the survivors partial consent. And this is largely in part because California has yet to define economic abuse under the law. Federal law just recently defined economic abuse and amendments to the Violence Against Women Act, but it's unclear what effect this federal definition of economic abuse will have on state court judges. Second, the statute does not bind creditors. So as creditors are not party to the domestic violence restraining order or any hearing associated with it, they're not bound by the family courts finding, and so they can still pursue civil action against the survivor. And though a survivor may be able to use the order in a subsequent action by a creditor to collect on the debt, the creditor can still dispute that finding by submitting evidence to the court. And this is compounded by the third issue, which is that the statute relies on existing and narrow ideas of financial crime, it does not expand any existing understandings of it. The existing definition of identity theft may continue to bar some victims, of coerced debt from relief, either under the Family Code through the domestic violence restraining order finding or in those civil actions by creditors. And so just to be clear, my understanding of the actual effect of the statute is still prospective. From what I've been able to find only one case has involved the statute. And that case involved what may be understood as a more typical form of financial abuse; that was a case decided in March of 2023. But even there, the court construed financial abuse very narrowly and viewed the survivor's request to assign responsibility for the mortgage of the home that they shared with their abuser and the restraining order as a way of circumventing the standard divorce discovery process.

18:01

Later in your article, you mentioned that legislators and policymakers, including the ones behind 6342.5 have failed to consider an important facet of coerced debt. Specifically, you write that coerced debt is uniquely a product of modern financialization and gender subordination. Can you break down what this means?

18:19

Gender subordination has been intensified and transformed in our current context, even as women ostensibly continue to gain economic independence, gender subordination has been increasingly economized, such that economic independence for women itself takes on new anti-democratic meanings. And namely, this this involves personal responsibility for disappearing public infrastructure of care. So as neoliberalism has privatized and dismantled much of our infrastructure for care work, such as welfare and other forms of benefit, the work and cost of supplying these otherwise public provisions has been returned to individuals and returned disproportionately to women. So neoliberalism in this sense, has effectively tied gender subordination with current remedies and support systems. And in this sense, financial freedom for women in our current context has been actually transformed into a new tool of subordination. Coerced debt is a product of this form of gender subordination, not only in the sense that abusers exploit societal gender power asymmetries through coercive control, but also in the sense that the effects of and barriers to rectifying course are intentionally woven into the remedies and remaining public forms of support and are cast as economic independence?

19:37

When taking into account this facet of coerced debt, how does that change the calculus when looking for remedies for financial abuse? What sorts of solutions should legislators be considering given this element of coerced debt, which was not considered during the crafting of 6342.5?

19:52

So I think first and foremost, this framing primarily serves to re emphasize what actually many advocates and scholars such as Deborah Wiseman have noted it, which is that there needs to be a balance between remedies that empower survivors to regain their financial security and solutions that seek to make the consumer credit system more equitable in the first place. So, I'm proposing that California legislators should amend the law to improve the effectiveness of existing remedies, but also to implement new mechanisms that help to prevent coerced debt. In other words, to take an approach that would bolster individual rights while simultaneously building a regulatory model that would hold financial institutions accountable for the role that they play in this form of abuse. Specifically, I'm looking at two proposals. The first is that legislators fortify the coerced debt statute by restricting the ability of furnishers of credit information from reporting coerced debt, and second that legislators address course debt at a more structural level by implementing a mandatory training and reporting program for banks that would help to shift the onus of detecting coerced data onto predators. So this two pronged approach would in effect target the effects of coerced debt to stages and the quote-on-quote, reporting lifecycle of debt at its inception and after it has been incurred, but not yet reported. And fortunately, legislators and advocates such as many of the individuals I previously mentioned have already begun the process of passing legislation that would implement these solutions, although recent efforts have failed. So in a sense advocacy efforts have been growing in the past years. And hopefully this will provide the needed impetus to begin really kind of materializing these types of solutions.

21:36

Makayla, thank you so much for joining us and discussing your article. 

21:40

Of course, thank you so much for taking the time.

21:45

We hope you've enjoyed this episode of The California Law Review podcast. If you would like to read Makayla's article. You can find it in Volume 111, Issue 2 of the California Law Review at californialawreview.org. For updates on new episodes and articles, please follow us on Twitter. You can find a list of the editors who worked on this volume of the podcast in the show notes. See you in the next episode.