According to Governing.com, the Kentucky Department of Revenue has collected $50 million from students without a court order.
The average consumer who falls behind on their bills will eventually be contacted by a collections agency about repaying the money they owe. But some Kentucky residents have a different collection agency to contend with – the state’s revenue department.
In the last 12 years, the Kentucky Department of Revenue has collected $50 million from students who owe money to one of Kentucky’s major public universities, according to Governing.com. This money was collected by garnishing borrowers’ paychecks and tax refunds. And thanks to a 25 percent collection charge, the state agency has collected millions more in fees.
Unlike a typical collections agency, the Kentucky Department of Revenue doesn’t need a court order to garnish an individual’s paycheck. However, it’s uncommon for a local college or hospital to use the state’s authority as a means of collecting unpaid debts, according to the Lexington Herald-Leader.
Furthermore, it should also be noted that if a borrower defaults on federal student loans, the lender may garnish up to 15 percent of one’s disposable without taking the borrower to court.
Earlier this year, a lawsuit was brought against the University of Kentucky HealthCare for garnishing $3,800 in wages from a woman who had fallen behind on her medical bills. Fayette Circuit Court Judge James Ishmael agreed that this was an abuse of power and ordered the University of Kentucky to stop this debt collection practice.
The University of Kentucky is now appealing this decision to the Kentucky Supreme Court. And five other universities have filed a "friend of the court" brief supporting their appeal, saying this ruling could have negative consequences for these schools.
The other schools are Morehead State University, Western Kentucky University, Murray State University, the Kentucky Community and Technical College System, and Eastern Kentucky University. These five colleges have used the department to collect $59 million in unpaid debts.
Jane Fitzpatrick, the general counsel at Morehead State University, was responsible for authoring the motion. Morehead State University began using the department in 2009 and has since collected $8.4 million from borrowers.
She says this practice is the college’s main source of collecting on unpaid debts. After cuts in state funding over the years, tuition payments now make up two-thirds of Morehead State’s budget. Therefore, the school is negatively impacted when students don’t pay their bills.
But critics of this practice say the Kentucky Department of Revenue is abusing its power and circumventing consumers’ rights to due process. A private collection agency has to take borrowers to court before it can attempt to collect on unpaid debts, but the revenue department does not. And, according to one plaintiff’s lawyer, the 25 percent collection fee exceeds what a private collections agency could charge.
This practice began in 2004 after the General Assembly passed a law that greatly expanded the department’s ability to collect on unpaid debts. Department spokesperson Glenn Waldrop told the Herald-Leader the department currently collects for 19 different state agencies.
Doug Richards, the lawyer for the UK HealthCare patient in the initial lawsuit, estimated that many of the borrowers affected by this practice are low-income. Richards is filing another lawsuit on behalf of hundreds of other UK HealthCare patients.