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Collection agencies back increasing rates on defaulted debts

Gilman Halsted, Wisconsin Public Radio

A statewide association of collection agencies is backing a change in state law that would hike interest rates for consumers who default on their debts.

The proposed increase in the default interest rate would only affect unpaid debts up to $10,000. It's an effort to roll back a change in law that took place in 2011, when the legislature lowered the rate on all default debts from 12 percent to one percent plus the prime rate.

Tina Hanson heads the Wisconsin Collectors Association. She says the lower interest rate has actually encouraged people not to pay what they owe to the small businesses and hospitals that collection agencies work with.

“What this is hurting is the plumber down the street,” Hansen said. “This is hurting your roofer and your local grocery store. These are the people that are being affected by this, because there's no incentive for the consumer to pay back these bills.”

Critics of the bill, however, say it discriminates against low income consumers who often can't afford an attorney to defend themselves against a creditor in small claims court. Chris Stombaugh of the Wisconsin Association for Justice says the increased rate should apply equally to larger debts and to personal injury claims made by consumers against corporations.

“We agree that people need to pay their debts: people of all sizes need to pay their debts,” Stombaugh said.“Every Wisconsinite should be treated alike, whether you are a person who owns a collection agency or a person who's been injured. It's really just about fairness.”

Backers of the current bill, however, say there aren't enough votes in the state Senate to approve raising the interest rate across the board.