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Opportunity: Remove Debt-Imposed Barriers to Entry (State, Local)

In some states and cities, entrepreneurs are required to prove they do not owe debts to the government prior to starting a business. For some, this can make something as insignificant as a minor traffic ticket or parking violation an unnecessary hurdle to starting a business. Other places impose excessive fines and fees that trap residents in cycles of debt. A 2015 Department of Justice report, released in the aftermath of the killing of Michael Brown, revealed that Ferguson city officials aggressively raised revenue by fining residents for things as insignificant as high grass or weeds in a yard. When residents cannot pay, they are assessed late fees that quickly pile up and create artificial debt-imposed barriers to not only starting a business, but to economic self-sufficiency. A 2017 study by the U.S. Commission on Civil Rights found that these practices are widespread across U.S. municipalities and that they disproportionately target and impact the poor and communities or color. Policymakers should:

  • Remove debt-imposed barriers to entry, or “debt traps,” that prevent prospective entrepreneurs from obtaining or renewing a business license because of unpaid fines and fees unrelated to the business.
  • Eliminate unreasonable and excessively punitive fines and fees that trap would-be entrepreneurs in cycles of debt.
Supporting Evidence
  • People of color have lower average household income and are more likely to have debt in collections or in default or be delinquent on debt payments than White Americans are. Moreover, research by the National League of Cities based on a review of Census data from 20,000 cities found a positive correlation between cities’ Black and Latino populations and cities’ reliance on fines and fees.
  • It can be difficult for prospective entrepreneurs to figure out whether they have outstanding debt. One study found that none of eight states examined had a central state repository where information on the total amount owed could be found.