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Illustration of a man sitting in an armchair, surrounded by a maze of chat boxes, dollar signs and hands.
Guang Lim

Remote Justice

Payday Lenders Are Big Winners in Utah’s Chatroom Justice Program

The state’s new online system for small claims cases was meant to help residents; instead they suffered

Guang Lim

Samantha Thompson is among the many people who struggled financially during the COVID-19 pandemic.

The Grantsville, Utah, resident’s paycheck did not even cover food and rent during a particularly hard stretch last summer. Feeling trapped, she took out a high-interest payday loan from Action Rent to Own in nearby West Valley City.

Then her husband lost his job, and she faced a tough choice. “It’s more important for me to have a roof over my head than [make a payment on] a payday loan,” Thompson said. “Unfortunately, I just fell behind.”

Two months after taking out the loan, a private investigator showed up at the couple’s home to serve Thompson with a summons for a small claims lawsuit filed by Action Rent to Own. 

“The moment you don’t pay them, they take you to court,” she said.

But when she looked over the paperwork, which The Markup reviewed, there was no date or location for her hearing.

Four weeks later, Thompson received notice that a judgment had been entered against her: She now owed Action Rent to Own the $671.42 for the original loan and interest, plus another $324 to cover the company’s court fees. To recover that money, the court ordered Action Rent to Own to garnish her wages.

Unbeknownst to her, Utah had begun piloting a new chatroom-like system for small claims cases, known as online dispute resolution. It’s meant to make the courts more accessible to low-income litigants by removing the barrier of having to show up to court at a particular time, often during work hours and sometimes far from where they live. Online dispute resolution allows parties to negotiate between themselves from anywhere at any time.

But Thompson missed the notice, in the middle of the third page of the five-page court summons packet, informing her that if she didn’t register for the online dispute resolution system within 14 days a default judgment could be entered against her. The warning was followed by a case-sensitive, 55-character web address for the online dispute resolution system. On the next page, the packet listed a separate, 31-character web address also, supposedly, for the system.

“To me, it was a shock,” Thompson said when The Markup told her about online dispute resolution. “I didn’t even know that kind of system existed.”

An investigation by The Markup has found that the move to online dispute resolution has had severe consequences for many of the Utahans it was supposed to help and that the state’s courts have been slow to implement potential fixes.  

Rather than reducing the incidence of parties failing to engage in small claims cases, the rate of default judgments—court rulings in favor of one party because the other failed to respond—has increased under online dispute resolution, The Markup found.

And the big winners have been payday lenders.

In the West Valley City Justice Court, which has been using the program since September 2018, the introduction of online dispute resolution coincided with a sustained increase in the percentage of cases that end in default judgments—from about 43 percent before online dispute resolution to 59 percent after. Had the default rate stayed at 43 percent, there would have been 603 fewer default judgments in the court during the two and a half year period of online dispute resolution that The Markup examined. 

The change was driven almost entirely by small claims filed by institutional plaintiffs like payday lenders and other businesses. The default judgment rate for suits filed by individual plaintiffs stayed essentially the same, about one in five. But for institutional plaintiffs, the default rate rose significantly—from 46 to 62 percent of cases. Had the default rate for institutional plaintiffs stayed steady at 46 percent, there would have been 583 fewer default judgments during the period we examined.

That means payday lenders are winning more cases without the people they’re suing ever having responded to the lawsuit. 

Just five payday lenders—Money 4 You, Mr Money, Tosh Inc. (which does business as Check City), Dollar Loan Center, and Action Rent to Own—were responsible for 83 percent of all cases filed in West Valley City Justice Court from September 2018 through January 2021. 

With the exception of Action Rent to Own, the companies did not respond to requests for comment

“I feel like it’s more in favor of the defendant, it gives them more time to respond,” Misti Brunelle, the owner of Action Rent to Own, said. “When we were having in-person court, very, very rarely did anyone show up. … [Now] they don’t have to miss work, they don’t have to find a sitter, they can take a lunch break and hop on the phone for 10 to 15 minutes” to negotiate their case.

It’s unclear exactly how many people like Thompson may have missed the notice to sign up, but The Markup reviewed dozens of cases in which payday lenders filed motions for default judgments immediately after defendants missed the 14-day deadline to register for online dispute resolution.

Our analysis of West Valley City Justice Court case resolutions is based on two years of case disposition data immediately before the pilot program—from September 2016 to September 2018—and nearly two and a half years of data after the switch—from September 2018 through January 2021.

Utah has rolled out the program to 29 courthouses—and is expanding—but most started too recently for us to conduct a fair trend analysis. (You can find our methodology and raw data here.) 

Apart from West Valley City Justice Court, only the Orem City Justice Court had enough data for a proper analysis.

We found the default rate there dipped slightly after the court introduced the online dispute resolution system in August 2019—from 51 percent of cases to 46 percent of cases, as of January 2021. 

The most frequent filer in the court, payday lender Red Rock Financial, saw a significant drop in its default rate, from 72 percent prior to online dispute resolution to 62 percent under the system. The company did not respond to a request for comment.

It should be noted that our data for Orem City Justice Court covers only a year and a half of cases, less than our analysis of West Valley City Justice Court, and that we are missing data for Orem City Justice Court for all cases filed between September 2018 and August 2019 (because Orem did not launch online dispute resolution until August 2019).

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Utah, Unlike Other States, Punishes People Who Don’t Use the Online System 

Dozens of individual courts around the country and several other states, including Michigan, Ohio, and New Mexico, have implemented online dispute resolution systems in recent years. But Utah stands out as the only jurisdiction The Markup examined where failing to register for online dispute resolution can result in an automatic default judgment—a significant punishment that can lead to garnished wages and a tarnished credit score.

In other jurisdictions, the service is either entirely voluntary or, if a party fails to register for whatever reason, the case is simply scheduled for a regular court hearing.

Given how Utah’s system has been designed and implemented, debt litigation experts say they’re not surprised to see default judgments against defendants go up.

More and more Utahans are being railroaded onto a path of garnished wages, liens on their non-exempt assets, and even bench warrants for their arrest

Chris Peterson

“The more efficient the system, the lower the marginal cost of debt collection, the more likely that repeat, high-interest lending predators will use the system to pursue borrowers,” said Chris Peterson, a University of Utah law professor who studies debt collection practices in the state. “If default judgment rates are skyrocketing, that is profoundly disturbing and means that more and more Utahans are being railroaded onto a path of garnished wages, liens on their non-exempt assets, and even bench warrants for their arrest.”

As Thompson says was true in her case, defendants may not know the system even exists, much less that they’re supposed to use it. 

The paperwork defendants like Thompson received when they were served was so confusing that researchers who studied the system’s usability told Utah court officials in 2020 that it was likely to lead to “potential widespread impact … preventing actual users from engaging in the ODR process.”

Frequent plaintiffs like Action Rent to Own, however, are intimately familiar with online dispute resolution. The company had filed 363 small claims cases under the online dispute resolution system in West Valley City Justice Court by the time it sued Thompson in September 2021.

Brunelle, from Action Rent to Own, said she believes online dispute resolution has led to more settlements with her clients and that she’s agreed to settlements for less than the original debt and to generous payment plans under which the borrower pays as little as $10 a month. “Anyone that I have any form of communication with, I strongly advise them to log on to online dispute resolution because it’s 100 percent in their best interest,” she said.

Despite her feeling that online dispute resolution favors defendants, Brunelle’s company has seen an increase in default judgments under the new system. Before the introduction of online dispute resolution in West Valley City Justice Court, Action Rent to Own cases resulted in default judgments 49 percent of the time. Under the system, the company’s default judgment rate rose to 65 percent, a figure that spans hundreds of cases.

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Utah Has Largely Turned a Blind Eye to Payday Lenders Dominating Its Small Claims System

Utah court officials say they’re aware of the rise in default judgment rates since the launch of the online dispute resolution system and are concerned about the apparent trend.

“We wanted to drive that down. We have not achieved that yet,” said Judge Brendan McCullagh, who oversees West Valley City Justice Court. “I don’t know that we have made the system entirely more easy for plaintiffs in a way that marginally incentivizes them to [pursue debt collection] more. I think they were doing it anyway.”

Utah’s legislature has left its payday lending industry largely unregulated compared to other states, and the state is tied for the second highest typical annual interest rate for payday loans—652 percent—in the nation, according to the nonprofit Center for Responsible Lending.

Set against that backdrop, any system that makes it easier and faster to litigate debt collection lawsuits is likely to disadvantage low-income individuals, debt experts told The Markup. And researchers and critics have been warning Utah officials of these problems since at least 2020.

In June of that year, then-Utah Supreme Court justice Constandinos Himonas, who was spearheading the online dispute resolution project, co-authored a law review article in which he wrote, “Some critics, for example, worry that ODR will just be a pipeline for money lenders, such as payday loan companies, to collect on small claims.” But at the time, he concluded, “the data show no signs that Utah’s ODR system creates procedural defects or that it gives money lenders an advantage.”

Several months later, the University of Arizona published the results of its user testing study, conducted at Utah Courts’ request. The testing “demonstrated that typical online dispute resolution users experienced significant difficulty making the transition from the affidavit and summons to the online dispute resolution website,” and the authors warned that the issues may have “potential widespread impact … preventing actual users from engaging in the ODR process.”

The researchers recommended making information about the online dispute resolution system and how to access it more visible on summons paperwork, shortening the URL litigants would need to enter manually, and adding a QR code that would take them directly to the site.

It took Utah court officials a year and a half to make those small adjustments.

The court summons Thompson received in September 2021 contained the same confusing language and organization that the University of Arizona researchers had identified as a major barrier a year earlier. 

That version of the summons was in use until Feb. 12 of this year, when Utah released a new version of the paperwork with a shortened URL, a QR code that directs users to the online dispute resolution webpage, and a phone number for the court. The new summons still doesn’t mention online dispute resolution until the third of five pages. The University of Arizona usability study suggested that information about using online dispute resolution be the first thing litigants see when looking at a summons.

Thompson, for one, says she would have liked a fair opportunity to negotiate online with Action Rent to Own and come up with a payment plan that she could reasonably fulfill.

Instead, Thompson said, she feels as if the system was designed to churn through debt collection cases as quickly and with as little human involvement as possible.

“It feels like you’re getting screwed,” she said. 

With her wages being garnished by court order, Thompson is once again struggling to pay for both rent and food, and on top of it, the default judgment has hit her credit score, making it even harder for her to get a loan from anyone other than a payday lender. 

“I really can’t fight it at this point,” she said. “I have to accept it and just deal with it.”

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