Commentary: Collections agencies may be in fashion, but they solve nothing

The Czech Labor and Social Affairs Ministry is reducing the rate at which welfare benefits are to be disbursed from 18 times a year to three and the number of locations at every Labor Office that these payments can be disbursed from three to one. As far as it goes, this is good news for the efficiency and simplification of a complicated system. However, what is not good is the current proposal to facilitate collections of social welfare benefits to cover debt (or to be precise, the collection of whatever portion exceeds an amount equivalent to double the minimum living standard).

This proposal violates the very purpose of support for the poor; the argument that such collections can also be applied to pensions or wages does not make this a better idea. Last year, Mayor Řápková of Chomutov shocked the country by illegally confiscating aid for material distress from welfare recipients and transforming it into compensation for private collections agencies. This may now become the legal norm throughout the entire Czech Republic.

One individual plan, please

What is problematic about the proposed changes? To start with, the opposition is criticizing the fact that the sole disbursal point for welfare will be the Labor Office. They argue that this change will deprive municipal officials of the ability to participate in decisions regarding the allocation of aid in material distress and will rest all decision-making with the Labor Office, which is said to be too distant from local reality and unable to evaluate client needs. The opposition has forgotten that Labor Office bureaucrats are still citizens of the town who just happen to be working for the state administration. What is most important is the bureaucrats’ education, experience, and ability to negotiate with clients, not what chair they happen to be sitting in. I know dozens of local municipal social department officials who are so overwhelmed by their own prejudices that they cannot even greet their clients politely.

Both such departments (social affairs and labor) are obligated to develop an individual plan for each long-term unemployed client. There could be no more logical step than for these plans to be unified and boldly, methodically implemented. Given the existing burdens on the men and women working for the Labor Office, it is not realistic to predict they would have enough time (or expertise) to prepare, realize and evaluate such plans such that they might truly fulfill their purpose of systematically supporting improvement in clients’ competencies such that they can return to the labor market.

One catch in changing the disbursal of welfare from a function municipalities perform for the state to a direct function of the state administration (the Labor Office) might also occur during the process of arranging for cooperation between those disbursing welfare and those providing important social services. Municipal social welfare departments are the more natural partner for nonprofit organizations, as they are closer to the important competencies of the municipality with respect to the management of the network of social work counseling and prevention on the scene.

Immersion into poverty

The Labor and Social Affairs Ministry’s proposals would combine the two welfare categories of state social support and aid in material distress and transform them into family benefits, disability benefits, and poverty benefits. These benefits would be based on various line-items that would replace the existing benefit system.

These benefits are intended to cover clients’ basic living costs, primarily for the provision of clothing,food, housing and transportation, including the costs associated with children’s school attendance and further education. Along with unemployment support, these benefits are meant to primarily serve to activate clients and return them to the labor market. They are not intended to be drawn over the long term, and from practice we know that unemployment for more than a few months leads to a loss of competitiveness and work habits. Spending a long time in a poor economic situation increases lethargy.

The plans to make it easy for collections agencies to “attach” benefits is diametrically opposed to all of the above purposes. If a significant portion of these social transfers are taken away from their recipients, this de facto contravenes their purpose. In practice this will always have an impact on the overall economic situation of the client. Instead of activating clients, this will immerse them into permanent poverty and the need to economize with disproportionately low funds, particularly in families which must provide for their children’s education and rearing.

Pay your own collections agent

Collections agents never transfer all of the funds confiscated from social benefits to whomever owns the debt, but keep some of them as compensation. Last year, during the collections in Chomutov, the agencies managed to keep an average of 10 times more compensation than the value of the debts being confiscated. Dr Jan Bárta of the Czech Academy of Science’s Institute on the State and Law said at the time: “If I were under obligation to pay a debt, whether from my social welfare benefits or from any other source of money, I would see this as a voluntary payment, which is certainly correct. However, it would really bother me to learn that I am expected to pay the collections agent his fee from a percentage of the amount confiscated.”

This permission for collections agents can be replaced with other tools, primarily the thorough exploitation of the instrument for assigning a “special recipient” for benefits, or expanding this mechanism to include other payments related to the provision of accommodation (i.e., not just rent). To be clear: This instrument already makes it possible for regular payments to be deducted from the benefits, without the client’s consent, and deposited directly into the account of, for example, a landlord.

Payment schedules are another effective instrument in cases of indebtedness; these work best when a client participates in setting them up and when they are connected to systemic support for changing the client’s money management practices. Social workers, primarily, are the ones who know how to do this, and the mechanism offers an appropriate opportunity to connect the clients’ individual plan, as conceived at the Labor Office, with social work intervention.

No loan sharks allowed

In addition to these tried-and-true instruments, it is also important to continue to strengthen our tools for supporting employment, whether through public service or public benefit work. It is essential to aim for closing the income gap between the minimum wage and social benefits. It is also important to protect those who are not passive – who work instead of going on welfare – from the threat of collections. However, such people’s wages are currently very easy to attach in the event of indebtedness. Last but not least, prevention of indebtedness needs to be undertaken, and that, primarily, is what field social workers know how to do. They are the front line in the fight against loan sharks of all kinds, including offers of fast loans, and in the fight against the reviled owners of residential hostels, who prey on clients’ benefits through their overpriced rents.

Collections agencies are neither a panacea nor the right medicine we should be prescribing the poor.