Debt Collection Industry Deems Itself Essential to “Financial Health” of Consumers, Fights Covid-19 Shutdown

Debt collectors, facing growing demands to freeze the collection of debt across the country amid the economic hardship caused by the coronavirus pandemic, are mobilizing their lobbyists to push back.

In New York, residents are receiving a 30-day reprieve from the collection of state-owned medical and student debt. Chicago Mayor Lori Lightfood this week similarly announced an end to the collection of city debt, including late parking fines, through at least April 30.

The momentum has reached the federal government. The Education Department is suspending collections on federal student loans and urging private collection agencies to stop pursuing borrowers. Sen. Sherrod Brown, D-Ohio, has sponsored legislation that prevents debt collectors from engaging in a variety of practices, such as disconnecting utility services or garnishing wages, until 120 days after a major disaster or emergency such as the current coronavirus crisis.

All of this has the industry deeply concerned. The Association of Credit and Collection Professionals, also known as ACA International, a lobby group for debt collectors, has fired off letters to Brown and federal officials, sharply criticizing the push to suspend debt collection.

The lobbying group is not only arguing that debt collection is more important than ever for servicing medical providers and other issuers of debt, but also appealing to concerns around identity. The suspension of debt collection, they argue, would cause undue burden on the debt collection industry’s “diverse workforce.”

Mark Neeb, the chief executive of ACA International, wrote that he is concerned that “certain lawmakers have suggested that eliminating the work of the ARM Industry is a prudent action that should be taken in response to the coronavirus,” a reference to the accounts receivable management industry, a term of art for debt collectors.

Women, Neeb wrote, “make up 70 percent of the total debt collection workforce and 40 percent is ethnically diverse.” Shutting down debt collection during the crisis, Neeb argued, would negatively “impact the diverse workforce that makes up the collection industry” and “many of these employees and businesses would face extreme hardship.”

ACA International declined to comment for this story.

The group, which spent $780,000 lobbying federal officials last year, has worked to expand the industry’s ability to inundate debtors with robocalls and legal threats. Unending debt-collection calls amid shelter-in-place orders only add to the level of tension in homes across the country.

The injection of race and gender into the debt collection debate, as a shield to guard the debt collection industry, is ironic given the demographics of those most harmed by predatory collection practices.

Wealth inequality among racial groups have led to a disproportionate number of communities of color facing aggressive collection practices. The ACLU, in a report on predatory debt practices, notes that “race and ethnicity profoundly influences who is vulnerable to predatory private debt collection.” The report lists examples of arrest warrants for unpaid medical debt and late rent.

The Urban Institute has previously estimated that around 71 million Americans have debt in collections, a number that may now soar as unemployment hits new heights over the economic slowdown. While debt is ubiquitous in America, racial disparities persist.

Black college graduates on average owe more than $25,000 more than whites in student debt. An investigation by ProPublica found that court judgments in debt collection lawsuits were twice as high in black communities than in mostly white neighborhoods.

ACA International is also couching its opposition to a moratorium on debt collection as beneficial to consumers. Any freeze on debt collection activity, the group warms, would lead to “fewer choices for consumers” and would “leave them in the dark about how they can address outstanding obligations.” The industry has called attention to so-called “hardship” policies to self-regulate debt relief for consumers in distress. 

“Consumers,” Neeb wrote, “need the information that ACA members provide to maintain their financial health.”

The educational motivations of public-minded debt collectors notwithstanding, consumer advocates aren’t convinced.

“Americans who lose their jobs, have to stop work because of illness, or have paychecks suspended during the COVID-19 crisis may struggle to pay mortgages and other loans, utility bills for essential services, and for other necessities,” said a spokesperson for the Consumer Federation of America.

“Debt collection activities, including legal proceedings, garnishments, repossessions, and debt selling, must be prohibited during the state of emergency. Consumers should be able to stop automatic payments. No interest or fees should be assessed for failure to pay debts during this time. That’s the bottom line. We are in an economic crisis and consumers must be given relief.”

April Kuhenhoff, a staff attorney with the National Consumer Law Center, pointed out that the new 3.3 million new unemployment claims spotlights the need for consumer relief. “Targeted, temporary relief to try to say, court hearings should be postponed, post-judgment collection like wage garnishment and bank account garnishment, that should all be stayed,” said Kuhenhoff. “We’re just looking at some common sense provisions that can protect consumers as they are sorting through a very stressful period of time.”

While debt collectors lobby to maintain business operations, representatives of firms that issue credit card, car loans, and online consumer loans, are lobbying for access to bailout money. Earlier this week, the American Financial Services Association, which represents lenders, sent a letter to congressional leaders, urging them to loosen standards for the Federal Reserve’s Term Asset Backed Securities Loan Facility, a taxpayer-backed initiative that began in 2008 to support securitized consumer debt. The program was relaunched in recent days, one of several programs industry officials hope to utilize.