Firm accused of violating debt-collection law says money owed to Iowa courts isn’t really ‘debt’

A firm accused of violating debt-collection laws while trying to secure payment of court judgments for the Iowa Judicial Branch says the money it tries to recover from Iowans can’t legally be considered “debt.”

A federal lawsuit filed late last year alleges that the law firm of Linebarger, Googan, Blair & Sampson, which is one of the nation’s largest collectors of money owed to governmental agencies, has used deceptive, high-pressure tactics to force Iowans to pay their court-ordered fines and penalties.

With at least 2,300 governmental clients nationwide, Linebarger reportedly collects more than $1 billion in government debt each year, but has come under scrutiny for its debt-collection tactics and has been accused of threatening debtors with arrest and jail.

The lawsuit was filed last September by Iowa Legal Aid, a California public-interest group called Public Justice, and the Terrell Marshall Law Group of Seattle. It seeks to hold the Linebarger firm accountable to the provisions of both the federal Fair Debt Collection Practices Act and the Iowa Debt Collection Practices Act.

In what could be an indicator of its defense strategy going forward, the Linebarger firm is arguing in court that it is not a debt-collection company but a “law firm that has represented the Iowa Judicial Branch pursuant to a contract for services.” It says the terms “debt,” “debt collection” and “debt collector” are not applicable to its work “because government fines and legally imposed fees are not ‘debt’ ” as claimed in the lawsuit.

In 2010, the Iowa Judicial Branch hired Linebarger to collect money owed to the state. As part of that contract, the state is to pay Linebarger a collection fee of 25% of all debt that is collected. However, when Linebarger sends collection notices to Iowans, the firm allegedly adds 25% onto the amount that is owed and characterizes the total amount as the court-ordered obligation. It then instructs the recipients to pay that amount to the state or face contempt-of-court action and the possible revocation of their driver’s licenses.

Between 2012 and 2018, Linebarger allegedly collected more than $58.6 million from Iowans pursuant to the company’s contract with the Judicial Branch. During the same time period, Linebarger — which employs just two attorneys licensed in Iowa — received nearly $12 million in collection fees, according to the lawsuit.

In responding to that specific allegation, the Linebarger firm said it “lacks information sufficient to admit or deny” the receipt of $12 million in fees through the Iowa contract.

The lawsuit alleges Linebarger has violated several elements of the state and federal debt-collection laws in that its collection letters fail to itemize the debts that are owed; suggest that failure to pay could result in driver’s license revocations or jail time; and call for payment of expenses that no court has made part of any  judgment.

The lawsuit also claims that in Iowa’s urban counties, people needing court-appointed attorneys are often represented by public defenders and court debt is typically collected by county attorneys, who do not charge fees for their collection efforts. The result is that rural Iowans tend to be “saddled with significantly higher debt” than similarly situated people living in urban areas.

Last summer, Gov. Kim Reynolds signed into law Senate File 457, which made major changes to the way Iowa imposes and collects court debt. Under the new law, now in effect, court debt that would have been assigned to Linebarger for collection will be collected by the Iowa Department of Revenue. However, it’s not clear whether Linebarger will continue to collect the debt already assigned to the firm.

The case is scheduled to go to trial on April 11, 2022.