While the COVID-19 pandemic has led to the adoption of certain piecemeal consumer protection policies and/or guidances by individual states and the federal government, there have yet to be any sweeping changes to existing federal consumer debt collection laws or regulations in the wake of the pandemic. There has been a push, though, for the enactment of comprehensive consumer protection provisions. One proposed piece of legislation would prohibit nearly all debt collection activities during certain times of distress such as we are currently experiencing with the COVID-19 crisis.
Senate Bill 3565 (“Bill”), introduced by Democratic Senator Sherrod Brown of Ohio on March 22, 2020 and dubbed the “Small Business and Consumer Debt Collection Emergency Relief Act of 2020”, would severely curtail debt collection efforts during the covered period of any major disaster or emergency (terms that are specifically defined in the text of the Bill). Creditors to which the Bill’s restrictions would apply include any person or entity to which an obligation for payment is owed, including lessors of real or personal property and utility providers. The restrictions on collections apply to all debt collectors–creditors themselves as well as any person or entity that engages in collection of a debt.
The Bill, which is a proposed amendment to the Fair Debt Collection Practices Act, provides broad relief from collections to individual consumers and small business debtors. In its current form, the Bill broadly defines the word “debt” as an obligation arising out of a transaction with a consumer or a small business, created prior to the covered period of the disaster or emergency declaration, that is past due either at the commencement of such period of disaster or emergency, or at any time during such period. Expressly excepted from the definition of “debt” is federally related mortgage loans.
Under the provisions of the Bill, debt collectors are prohibited with respect to any debt owed by a consumer or a small business from undertaking any of the following:
- Capitalizing unpaid interest;
- Applying a higher interest rate triggered by the nonpayment of the debt to the debt balance;
- Charging a fee triggered by the nonpayment of the debt;
- Suing or threatening to sue for nonpayment of a debt;
- Continuing pursuit of litigation to collect a debt that was initiated before the date of passage of the Bill;
- Submitting or causing to be submitted a confession of judgment to any court;
- Enforcing a security interest through repossession, limitation of use, or foreclosure;
- Taking or threatening to take any action to enforce collection, or any adverse action for nonpayment of a debt, or for nonappearance at any hearing relating to a debt;
- Commencing or continuing any action to cause or to seek to cause the collection of a debt, including pursuant to a court order issued before the covered period, from wages, federal benefits, or other amounts due to a consumer or small business, by way of garnishment, deduction, offset, or other seizure;
- Causing or seeking to cause the collection of a debt, including pursuant to a court order issued before the covered period, by levying on funds from a bank account or seizing any other assets of a consumer or a small business;
- Commencing or continuing an action to evict a consumer or small business from real or personal property; or
- Disconnecting or terminating service from utility service, including electricity, natural gas, telecommunications or broadband, water, or sewer.
The Bill also addresses actions a debt collector may (and may not) take once the covered period of the disaster or emergency has passed. For example, a debt collector may not, after the covered period ends, add to the past due balance any interest or fee that is prohibited during the covered period (as specified above). For a debt with a defined payment pay-off period, debt collectors are required to extend such time period by one payment period for each payment that was missed during the disaster or emergency period. Once collection resumes, debt collectors must allow consumers and small businesses to commence payments at the same amount and on the same schedule that was in effect prior to the disaster or emergency period. For debts without defined payment pay-off periods (open ended credit plans as defined in section 103 of the Truth in Lending Act (15 U.S.C. 1602) or other open credit plans), debt collectors must allow consumers and small businesses to repay the past-due balance in a manner that does not exceed the amounts permitted by the methods described in section 171(c) of the Truth in Lending Act 15 U.S.C. 1666i-1(c). Alternatively, the Bill contains a kind of catch-all provision, allowing debt collectors of debts with no defined payment period, to allow consumers and small businesses a reasonable time in which to repay the debt in affordable payments.
SB 3565 also addressed the types of communications permitted by debt collectors during the disaster of emergency period. Such communications to consumers or small businesses relating to collection of a debt are strictly limited to written communication absent express permission given directly to the debt collector by the consumer or small business, or express permission from a court of competent jurisdiction. Moreover, even written communication from a debt collector must include a disclosure informing the recipient the communication is for informal purposes only and is not an attempt to collect a debt. The language of the Bill requires the disclosure be very conspicuous and includes specific minimum requirements for typeface/font and placement in the correspondence.
The Bill also contains severe civil penalties for violation of its provisions, imposing liability for each violation of up to 10 times the amount provided for in Section 813 of the Fair Debt Collection Practices Act.
The Bill has been read twice in the Senate and referred to the Committee on Banking, Housing and Urban Affairs. If passed, it will become effective upon enactment and will be applicable to the current COVID-19 Emergency, with the covered period to commence the day after passage.