From the onset of COVID-19, debt collectors swiftly worked to assist the millions of Americans experiencing financial hardships caused by the pandemic through voluntary forbearance of collection activity and adjustments in response to changes in applicable law and regulations, and creditor customer requirements. As the pandemic continues, federal and state regulators are starting to take a strong look at how debt collectors are responding to the crisis. Debt collectors should review their ongoing legal and regulatory obligations and take steps to prepare for potential scrutiny.
The following observations are a starting framework for enhancing policies and procedures for the COVID-19 era. Of course, companies should be sure to tailor their compliance policies, including COVID-19-related policies, to the particulars of their organization and applicable legal requirements.
1. Revisit or Adopt a Hardship Policy
Revisit hardship policies—or implement one—that properly account for COVID-19. Hardship policies address situations where a collection agency knows, or has a reason to know, a consumer cannot afford payments. In these hardship situations, continuing collection efforts may constitute harassment under the Fair Debt Collection Practices Act (FDCPA), the state equivalents and/or an abusive practice under prohibitions against Unfair, Deceptive, and Abuse Acts and Practices (UDAAP), and, with regard to furnishers, the Fair Credit Reporting Act (FCRA) and its implementing regulation, Regulation V. Generally, hardship policies will account for a consumer’s medical issues, temporary unemployment, and acute natural or declared disasters (e.g., hurricanes, earthquakes, etc.). Under a typical hardship policy, collection agencies will modify or cease collection efforts until the event triggering the hardship has passed, and furnishers will make adjustments to credit reporting.
Existing hardship policies may fail to include pandemics as an event triggering the hardship policy. In addition, collection agencies may not be prepared to handle a hardship event that affects such a large portion of the population at the same time. This may subject collection agencies to the risk of violating the FDCPA and UDAAP, among others, by continuing to seek collections from borrowers that they know are undergoing hardship due to COVID-19.
An effective hardship policy should contain, at a minimum, the following and take into consideration a wide range of circumstances and events that may occur, including pandemics.
- A non-exhaustive list of circumstances and events that would trigger the hardship policy. This should include circumstances affecting individual consumers (e.g., illness) and events impacting entire populations (e.g., hurricanes or pandemics).
- Accommodations available to consumers experiencing a hardship (e.g., forbearance or temporary cessation of collection efforts). Of course, the types of accommodations available will depend largely on the type of debt being collected, whether it has been charged off, and who the creditor is.
- How consumers can request a hardship accommodation and what information or documentation they must provide to obtain one.
- For collectors that also are furnishers, how a hardship accommodation impacts credit reporting.
- Training for consumer-facing employees to (i) identify consumers who may be undergoing financial hardship, (ii) properly record the hardship in the collections system, and (iii) modify collection efforts accordingly.
- A mechanism for identifying new laws and executive orders introduced to address emergencies that may impact collections and for updating procedures accordingly.
Generally speaking, such policies should be implemented consistently across similarly situated consumers; good record-keeping, discussed below, is therefore critical.
2. Record Business Operational Changes Due to COVID-19
Collection agencies should document all business operation changes implemented in direct response to COVID-19, including in response to creditor customers, to demonstrate compliance with existing and newly enacted laws, regulations, administrative orders, and contractual requirements. This may translate to new coding for consumer accounts in forbearance, changing procedures for specific portfolios, and more. Examiners may request data, policies, and sample communications between collection agencies and consumers to assess legal compliance or resulting consumer harm.
3. Furnishing to Credit Reporting Agencies
For debt collectors that also engage in furnishing, it is important to consider and plan for how a hardship accommodation impacts credit reporting. While outside the scope of this article, the national credit reporting agencies’ Metro-2® format provides options to furnishers for reporting accounts as affected by a natural or declared disaster (found in CDIA FAQ 58).
As mentioned above, debt collectors need a mechanism for identifying new laws and executive orders that legislatures and governors introduce to address emergencies that may impact collections, including credit reporting. With respect to COVID-19, for example, the federal CARES Act includes requirements for reporting pre-charged-off accounts that are granted a hardship accommodation. For agencies that collect pre-charged-off accounts on behalf of creditors, check out the CFPB’s guidance on those requirements in Consumer Reporting FAQs Related to the CARES Act and COVID-19 Pandemic.
4. Supervisory Examinations Continue
Despite the disruptions from the pandemic, the CFPB and state supervisory exams continue. Examiners are conducing supervisory activities remotely and in a targeted fashion. On May 15, 2020, the CFPB quietly announced a new “targeted supervisory approach, called Prioritized Assessments, to focus on those markets and institutions that pose the greatest risk of consumer harm as a result of pandemic-related issues” (emphasis added). Given the number of federal and state measures implemented since the onset of the pandemic that affect collection activity, it is unsurprising that debt collectors have begun to be subject to these Prioritized Assessments. It is likely that state regulators will follow the CFPB’s lead and turn their attention to COVID-19-related issues. For example, the Wisconsin Department of Financial Institutions released a strongly worded emergency guidance on April 13, 2020, stating that “[d]ebt collectors who fail to respect those hardships [caused by the pandemic] should expect to be judged harshly.”
Companies subject to such targeted examinations and/or enforcement investigations will be required at a minimum, to demonstrate compliance with applicable laws, regulations, and administrative/executive orders that were introduced in response to this pandemic. Second, companies should expect a careful review of their hardship policies and practices, and how they were applied during the pandemic. It will be an uphill battle for anyone to argue that a person suffering financial hardship due to COVID-19 should not qualify under a hardship policy.
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