Arizona Debt Collection Law and Ballot Initiative Under Fire in the Courts

court scale with bookSeveral plaintiffs, including the Arizona Creditors Bar Association and accounts receivable management industry groups and agencies, are challenging the state’s law on the grounds it is unconstitutional and if it is not invalidated by the courts, needs guidance for regulated entities.

12/06/2022 1:15 P.M.

4 minute read

A group of plaintiffs led by the Arizona Creditors Bar Association and Protect Our Arizona, an Arizona political action committee, are challenging the constitutionality of the Arizona Predatory Debt Collection Act, which passed through a ballot initiative in the Nov. 8 midterm elections.

The law will add protections against wage garnishment and increase the amount of assets in homes, vehicles, bank accounts and household goods protected from being sold to pay debt collectors.

It will reduce maximum interest rates on medical debt from 10% to 3% annually, increase the amount of certain assets exempt from debt collection, annually adjust exemptions for inflation beginning 2024, and allow courts to reduce the amount of disposable earnings garnished in cases of extreme economic hardship.

Of note, while it will limit the interest rate on medical debt, the rest of the items in the law apply to all consumer debt. It also raises homeowners’ homestead exemption from $150,000 to $400,000.

The law, also known as Proposition 209, took effect Dec. 5 when Arizona’s election results were certified.

The lawsuit in Arizona Superior Court and Maricopa County (PDF) is twofold. The plaintiffs seek to invalidate the law for its lack of guidance to implement it and conflicting interpretations on the garnishment procedures; or, if it is not invalidated, for the courts to provide the plaintiffs with guidance not included in the law.

They also seek rulings on how various provisions of the law apply to contracts and judgments in relation to the Dec. 5, 2022, effective date.

The lawsuit states:

“Prop 209 was pitched to voters as a law reducing medical debt interest rates. But

Prop 209 did much more. It set new exemption limits on property subject to debt collection and decreased the portion of a judgment debtor’s income subject to garnishment. Voters were assured under Prop 209’s Savings Clause that the law would not affect any debt related to any current contracts because the act would be applied prospectively only.”

And continues:

“Thus, the Court should declare that Prop 209’s provisions: (a) do not apply to debt arising out of contracts or agreements entered into before the Effective Date; (b) do not apply to post-judgment enforcement actions occurring after the Effective Date where the underlying contracts were entered into before the Effective Date, regardless of when the underlying judgment was entered; and (c) do not apply to non-contract judgments where the underlying cause of action accrued before the Effective Date; but (d) do apply to both debt arising out of contracts entered into and non-contract judgments entered after the Effective Date.”

The plaintiffs are seeking clarification of the effective date but argue that, based on the savings clause, contracts entered before Dec. 5, 2022, should use the previous exemption rates.

Hearing Set

The plaintiffs’ case is assigned to Arizona Judge John Blanchard and a hearing is set for Wednesday, Dec. 7.

At the time of publication, the hearing was set for the plaintiffs to show why the request for declaratory and injunctive relief should be granted. The plaintiffs also seek a ruling on a temporary restraining order (PDF) to prevent the statutory changes in Proposition 209 to “ensure the orderly management of contract relationships, judicial economy, and certainty in post-judgment enforcement actions in the State of Arizona.”

How Did We Get Here?

Healthcare Rising Arizona, a political action committee and health advocacy organization, advanced the debt collection ballot initiative by collecting enough signatures from voters for it to be considered Nov. 8.

It faced challenges in state court and the Arizona Supreme Court from Protect Our Arizona, an accounts receivable management industry-supported group.

On Aug. 24, the Arizona Supreme Court said in its expedited decision that the summary language that would be on the ballot was sufficient and “alerted a reasonable person to the principal provisions’ general objectives.” It was not false or misleading, the court said.

Protect Our Arizona started its efforts earlier this year when Healthcare Rising Arizona secured the signatures for the ballot initiative, ACA International previously reported on the court’s decision.

The objections to the ballot initiative from Protect Our Arizona included that it was a false and misleading summary for voters, particularly because it states the initiative “does not change existing law regarding secured debt.”

The law as it stands is expected to significantly impact garnishments, according to ACA’s Vice President of State Unit and Government Affairs Andrew Madden.

Amber Russo, president of Kino Financial Co. in Tucson, Ariz., and spokeswoman for Protect Our Arizona, told in October that “the initiative could make it harder for average Arizonans to access credit if it passes.”

“The same group of people that Healthcare Rising is trying to protect, they’re actually going to end up hurting them in the long run,” Russo said in the article.

If you have executive leadership updates or other member news to share with ACA, contact our communications department at [email protected]. View our publications page for more information and our news submission guidelines here.

If you have executive leadership updates or other member news to share with ACA, contact our communications department at [email protected]. View our publications page for more information and our news submission guidelines here.




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