Filling Void Of Consumer Collections Limits Amid Pandemic

By Robin Bergen, Nowell Bamberger, Jennifer Paul and Brendan Jordan
Law360 is providing free access to its coronavirus coverage to make sure all members of the legal community have accurate information in this time of uncertainty and change. Use the form below to sign up for any of our weekly newsletters. Signing up for any of our section newsletters will opt you in to the weekly Coronavirus briefing.

Sign up for our Massachusetts newsletter

You must correct or enter the following before you can sign up:

Select more newsletters to receive for free [+] Show less [-]

Thank You!



Law360 (April 7, 2020, 5:55 PM EDT) --
Robin Bergen
Robin Bergen
Nowell Bamberger
Nowell Bamberger
Jennifer Paul
Jennifer Paul
Brendan Jordan
Brendan Jordan
As the number of diagnosed cases of the COVID-19 virus increases in the U.S., and the restrictions on commerce increase in their severity, the impact on Americans who rely on regular paychecks to meet their monthly expenses particularly has been particularly significant.

In a recent study, nearly 20% of respondents reported that someone in their household had either been laid off or had their work hours reduced as a result of COVID-19 containment measures.[1] The week ending March 20 saw the most new unemployment benefits claims in history, surpassing the prior weekly record by nearly five times.[2] For many of those families, that is likely to result in increased defaults on existing obligations.

While the federal government had provided relief for federal student loan borrowers, restrictions on debt collection by private lenders and collectors have so far been limited. But a series of proposals at the state and federal levels may change that. Here, we examine measures related to U.S. regulatory and legislative restrictions on consumer debt collection, as well as enforcement risks related to consumer debt collection arising from COVID-19-related defaults.

Proposals To Curtail Private Debt Collection and Limit Negative Credit Reporting

A number of proposals to restrict consumer debt collection during the COVID-19 crisis are currently circulating on Capitol Hill, although none have passed.

While the stimulus legislation that passed the U.S. House of Representatives includes no restrictions on debt collection activities, congressional Democrats have introduced legislation that would both restrict debt collection during the COVID-19 crisis and prevent negative credit reporting for consumers who fail to make payments. Notably, this legislation would have impacts beyond the traditional debt collection industry, sweeping in originators of consumer debt — like banks, credit unions and consumer financing companies.[3]

On March 23, congressional Democrats, led by Rep. Maxine Waters, chairman of the House Financial Services Committee, proposed expansive legislation separate and apart from the $2 trillion stimulus package that would affect consumer lending and collection activities on a variety of fronts. Among other measures, the proposed Financial Protections and Assistance for America's Consumers, States, Businesses and Vulnerable Populations Act would prohibit:

  • Any collection of a consumer, nonprofit or small business debt by any creditor during the period of the currently declared emergency period;

  • Capitalizing or adding extra interest or fees;

  • Suing or threatening to sue to collect a debt, or continuing litigation to collect a debt;

  • Enforcing a security interest to collect a debt; or

  • Reporting a past-due debt to a consumer credit reporting agency.

Notably, the definition of a "debt collector" under the proposed legislation includes "a creditor and any person or entity that engages in the collection of debt (including the federal or a state government)." It would therefore be considerably broader than the definition of a debt collector or collection agency under existing federal or state law, which is typically limited to businesses that are primarily engaged in the business of debt collection, as distinguished from lenders.

While congressional Democrats argue for enactment of a broad array of consumer-oriented legislation, including Waters' bill, it is unclear whether such legislation will garner bipartisan support following the historic stimulus package passed last week.

On the U.S. Senate side, proposed legislation has been less expansive. On March 17, U.S. Sens. Brian Schatz, D-Hawaii, and Sherrod Brown, D-Ohio, introduced a bill that would provide for an immediate four-month moratorium on all negative credit reporting and free, unlimited credit reports and credit scores for a year after the pandemic.[4]

On March 23, U.S. Sen. Chris Van Hollen, D-Maryland, and Brown announced legislation to temporarily cap consumer lending rates at 36% during the COVID-19 outbreak.

Brown also recently introduced an amendment to the Fair Debt Collection Practices Act that would restrict the collection of debt during a national emergency, such as the COVID-19 pandemic.[5] Notably, the amendment would require that debt collectors covered under the FDCPA only communicate with debtors only for informational purposes and only in writing during a national emergency.

Finally, on March 22, the federal bank supervisors issued interagency guidance encouraging financial institutions to work with borrowers to avoid defaults, stating that supervised institutions will not be criticized for doing so and will not be required to categorize all COVID-19 related loan modifications as troubled debt restructurings — potentially avoiding the need to recognize accounting impairments as a result of modifications.[6]

At the state level, no state has yet imposed a total moratorium on debt collection activities, although limitations appear likely as the pandemic continues. On March 27, Massachusetts Attorney General Maura Healey announced regulations that effectively prohibit certain in-person consumer debt collection methods — including filing a lawsuit and garnishing wages — and limit telephone consumer debt collections for 90 days.[7]

On March 25, Ohio State Rep. Thomas West, D-Canton, introduced legislation to halt all debt collection until the end of Ohio's state of emergency.[8]

On March 19, the deputy commissioner of the Nevada Department of Business and Industry recommended that collection agencies in the state cease operations for 30 days, although that guidance does not carry the force of law. As a practical matter, however, the effective closure of small claims courts across the country will limit the ability of collection agencies to obtain judgments on defaulted debt. 

On March 21, New York Gov. Andrew Cuomo issued an executive order mandating that financial services firms grant forbearance to any debtor that requests it and has suffered financial hardship as a result of the COVID-19 outbreak.[9] Subsequent guidance issued by New York's Department of Financial Services confirms that order is meant to apply to consumer lending, such as residential mortgages.

Enhanced Enforcement Risk

In the current environment, federal and state law enforcement agencies can be expected to be particularly motivated to bring cases based on conduct identified as taking advantage of — or not being sufficiently responsive to — the COVID-19 crisis. In a March 16 memorandum to all U.S. attorneys, Attorney General William Barr directed that cases related to the pandemic be prioritized, writing:

The pandemic is dangerous enough without wrongdoers seeking to profit from public panic and this sort of conduct cannot be tolerated. Every U.S. Attorney's Office is thus hereby directed to prioritize the detection, investigation, and prosecution of all criminal conduct related to the current pandemic.

At the state level, consumer protection legislation in most states is enforced by attorneys general who are likely to find themselves under significant public pressure to bring cases related to COVID-19.

Companies and institutions engaged in the enforcement or collection of consumer debts should be particularly mindful of the risk that actions that may be interpreted as taking advantage of the COVID-19 crisis may lead to enhanced enforcement risks.

Businesses that either collect debts on behalf of others, or that have a principal business purposes of engaging in debt collection should be mindful of their obligations under the federal FDCPA and comparable state legislation enacted in many states.

While many states impose additional restrictions, the FDCPA imposes a variety of restrictions including:

  • Prohibiting harassment or abuse of debtors;

  • Prohibiting false or misleading representations, including false or misleading representations concerning the legal status of a debt or the ability to collect it; and

  • Engaging in a range of unfair practices, including accepting post-dated checks[10] or taking or threatening to take extrajudicial action to effect dispossession of property under various circumstances.

Under the Dodd-Frank Act the Consumer Financial Protection Bureau is also empowered to take steps to curb what it deems unfair, deceptive, or abusive acts or practices by financial institutions.

In the current environment, particular attention should be paid to whether business practices that otherwise would reflect the ordinary course of business may be rendered unfair or misleading in light of any government action to suspend collection activities or in light of the tolling of limitations periods for civil enforcement actions.

Licensed consumer lenders should also be mindful of avoiding changes to lending terms or interest rates that may be perceived as taking advantage of the COVID-19 crisis. At least one state regulatory agency has published guidance that increasing interest rates and otherwise treating consumers unfairly may reflect negatively on qualification for licensure. March 18 guidance from the Wisconsin Department of Financial Institutions to the payday and licensed lender industry reads:

Businesses with character recognize that this is a time for shared sacrifice, not financial exploitation. We recognize that the statutes that govern your businesses set no maximum limit on the interest you can charge, even when many are facing sudden financial distress. But fundamental human decency does. Therefore, effective immediately, this Department shall deem it an essential failure of your character and fitness if you increase your customary interest rates, fees, or any costs of borrowing in response to this crisis. We further urge you to reduce your rates and fees as low as operational expenses and sound lending practices allow.[11]

Businesses and institutions that are not in the business of consumer debt collection or licensed lending and that may therefore fall outside the scope of laws and regulations governing those industries, should nonetheless be mindful that general consumer protection legislation affords broad jurisdiction for state and federal agencies to investigate and take action against unfair trade practices, potentially including those related to consumer debt collection.

These include:

  • The Federal Trade Commission Act establishes, as a matter of federal law that, "[u]nfair methods of competition in or affecting commerce, and unfair or deceptive acts or practices in or affecting commerce, are hereby declared unlawful."[12]

  • In New York, General Business Law Section 349 broadly prohibits "Deceptive acts or practices in the conduct of any business, trade or commerce or in the furnishing of any service," and New York City's Consumer Protection Law prohibits any "deceptive or unconscionable trade practice in the sale, lease, rental, or loan or in the offering for sale, lease, rental, or loan of any consumer goods or services, or in the collection of consumer debts."[13]

  • California Business and Professions Code Section 17200 et seq., prohibits unfair competition, defined broadly to include any "unlawful, unfair or fraudulent business act or practice."

  • Massachusetts General Law Chapter 93A Section 2 provides that "[u]nfair methods of competition and unfair or deceptive acts or practices in the conduct of any trade or commerce are hereby declared unlawful."

Most other states have enacted similar legislation, although the breadth and elements of each state's laws may vary. Generally, however, such legislation may provide sufficiently broad authority for state attorneys general, federal agencies, or other law enforcement to investigate and bring action against — among other conduct — consumer finance-related practices deemed to be unfair or deceptive. 

We would expect other attorneys general to follow the lead of the regulation issued by the Massachusetts attorney general described above. That regulation categorizes certain collection methods that require people to leave their homes or have in-person contact to be unfair or deceptive, such as filing new lawsuits against debtors, repossessing vehicles, and garnishing wages. The regulation also treats unsolicited debt collection telephone calls as unfair or deceptive acts.

Given the heightened state of awareness about these issues, licensed consumer lenders and other businesses engaged in consumer finance should be proactive in ensuring compliance with existing regulations, as well as preparing to withstand heightened scrutiny of regulators. They should review all relevant policies and procedures related to consumer-facing lending, collection, and related notices.

They should also prepare and distribute to all of their consumer-facing employees — as well as any third-party agents and contractors — guidance regarding the company's current stance with respect to collection efforts in light of the COVID-19 outbreak, any exceptions enacted in response to the outbreak, and assurances regarding how management is monitoring and responding to the fast-changing dynamics of the outbreak.



Robin M. Bergen and Nowell D. Bamberger are partners, and Jennifer E. Paul and Brendan D. Jordan are associates at Cleary Gottlieb Steen & Hamilton LLP.

The opinions expressed are those of the author(s) and do not necessarily reflect the views of the firm, its clients, or Portfolio Media Inc., or any of its or their respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice.


[1] NPR/PBS NewsHour/Marist Poll at 21, http://maristpoll.marist.edu/wp-content/uploads/2020/03/NPR_PBS-NewsHour_Marist-Poll_USA-NOS-and-Tables_2003151338.pdf.

[2] A record 3.3 million Americans filed for unemployment benefits as the coronavirus slams economy, The Washington Post (March 26, 2020), https://www.washingtonpost.com/business/2020/03/26/unemployment-claims-coronavirus-3-million/.

[3] Outside the United States, other countries in Europe and elsewhere are either looking at restrictions on debt collection or have enacted them. Among the first to act was Greece, which announced on March 19, 2020 that it is suspending the operation of debt collecting for the duration of the state of emergency. https://www.thenationalherald.com/292658/new-democracy-suspends-debt-collectors-over-covid-19/.

[4] https://www.schatz.senate.gov/press-releases/schatz-brown-introduce-new-bill-to-protect-peoples-credit-scores-suspend-negative-credit-reporting-during-coronavirus-outbreak.

[5] https://www.banking.senate.gov/imo/media/doc/FDCPA small bus. and cons._20408.pdf.

[6] https://files.consumerfinance.gov/f/documents/cfpb_interagency-statement_payment-obligations-covid19.pdf; https://www.federalreserve.gov/newsevents/ pressreleases/bcreg20200309a.htm.

[7] https://www.mass.gov/news/ags-office-issues-emergency-regulation-to-protect-consumers-from-harmful-debt-collection.

[8] http://www.ohiohouse.gov/thomas-west/press/rep-west-introduces-bill-to-halt-all-debt-collections-during-covid-19-emergency.

[9] https://www.governor.ny.gov/news/no-2029-continuing-temporary-suspension-and-modification-laws-relating-disaster-emergency.

[10] This restriction is subject to exceptions where sufficient notice is given to the debtor prior to deposit of the instrument.

[11] http://www.wdfi.org/_resources/indexed/site/fi/banks/20200318_EmergencyGuidance-PaydayAndLicensedLenders.pdf.

[12] 15 U.S.C. § 45(a)(1).

[13] N.Y.C. Admin. Code § 20-700.

For a reprint of this article, please contact reprints@law360.com.

Hello! I'm Law360's automated support bot.

How can I help you today?

For example, you can type:
  • I forgot my password
  • I took a free trial but didn't get a verification email
  • How do I sign up for a newsletter?
Ask a question!