Criminal-Justice Reforms Are Squeezing the Bail-Bond Industry

By Laura Kusisto 

The bail-bond industry is under intense pressure as more states virtually wipe out cash bail and financial firms look for an exit from an increasingly controversial profit center in the criminal-justice system.

Most recently, private-equity firm Endeavour Capital says it has sold its stake in California-based Aladdin Bail Bonds, one of the country's largest bail bond providers. The move came after Endeavour and its investors faced pressure from the American Civil Liberties Union and others who say bail is part of a justice system that discriminates against minorities and low-income defendants.

Endeavour follows other major financial firms that have abandoned the bail bond industry, amid falling revenues, growing criticism from activists and an uncertain political environment. Tokio Marine HHC, a Houston-based insurance company owned by Japan's Tokio Marine Holdings Inc., said in April it was selling Bail USA Inc., a bail-bond underwriter, and no longer providing insurance for bail bond companies. Randall & Quilter Investment Holdings Ltd., an insurance company based in Bermuda, said in a December 2018 financial report that it was divesting itself of its U.S. bail bond business.

Endeavour didn't respond to questions about why it sold Aladdin, and hasn't disclosed the buyer in the recent sale.

Aladdin and Randall & Quilter didn't respond to requests for comment.

The decisions to exit bail-bond companies come as the industry enters a period of decline. The amount of bail bonds written has fallen about 10% to just over $14 million in 2018, according to an analysis of industry data by insurance-ratings firm A.M. Best Co. From 2009 through 2016 the industry grew by about 25%, but more recently it experienced two straight years of declines.

Bail-bond companies have long been essential to the U.S. criminal-justice system, helping defendants who can't afford bail get out of jail by posting the cash for their release and ensuring they show up in court. In exchange, they charge a fee of about 10% of the amount of bail and can seize collateral if a defendant misses court.

The most serious pressure on the bail-bond industry has been a host of changes to local laws governing how judges release inmates pretrial, as state politicians question the value of bail. More than 20 states and numerous counties have largely eliminated cash bail for low level and nonviolent offenders in recent years.

"If criminal-justice reform were to take effect in enough states, they could be in serious trouble," said David Blades, a senior industry analyst at A.M. Best, of bail-bond companies. He added that he doesn't believe the industry is yet under existential threat.

Industry experts said the bail industry's gradual decline could become a free fall if a law passed in 2018 goes into effect in California. The state is by far the industry's largest market, accounting for one-quarter of the bail-bond industry's revenue, according to the American Bail Coalition, a trade association for bail insurance companies.

The California measure would replace cash bail with an algorithm that would help determine whether those accused of a crime were safe to be released. Implementation has been suspended until a referendum is held in November.

"Everybody is collectively holding their breath to see what happens in California," said Jeff Clayton, the American Bail Coalition's executive director.

Even without specific regulatory changes, Mr. Clayton said the industry is finding itself under pressure because judges are letting more low-risk offenders go free, leaving bail-bond companies to deal with higher-risk offenders who require more monitoring.

Activists have also targeted the bail-bond industry by pressuring insurers and financial firms that "provide the financial underpinning for the entire bail bond industry," said Udi Ofer, director of the justice division at the ACLU.

The ACLU and another progressive civil-rights advocacy group, Color of Change, embarked on a campaign that included sending letters to Endeavour and meeting with the private-equity firm to try to get it to sell its stake in Aladdin, which the fund described as the largest retail pretrial release service provider in the country, operating 50 locations and employing 600 people.

When that failed, Mr. Ofer said, they targeted pension funds and university endowments that invested in Endeavour's most recent fund. Many of those groups were based in Endeavour's home state of Oregon, which doesn't allow commercial bail bonding.

"We believe the bail industry would benefit from certain reforms," John von Schlegell, managing director and co-founder of Endeavour, wrote last year in a letter to a consultant who worked on the ACLU's campaign. "We offered to discuss those and other reform ideas with you and you disregarded that offer, stating your overriding opposition to any private enterprise involved in the criminal justice system."

Mr. Ofer called Endeavour's decision to sell Aladdin "a major milestone in the movement to end the for-profit bail industry in the United States and end the practice of wealth-based incarceration."

An investor group led by Endeavour purchased a controlling stake in the holding companies affiliated with Aladdin in 2012, according to an annual financial statement from one of those companies, Seaview Insurance Co.

Multiple Endeavour investors declined to discuss the firm's decision to exit its Aladdin investment, saying that they didn't have input into how the private-equity firm invests their funds.

Ben Eisen contributed to this article.

Write to Laura Kusisto at [e-mail]

(END) Dow Jones Newswires

February 21, 2020 10:50 ET (15:50 GMT)

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