A bill recently introduced in the House of Representatives would temporarily expand federal protections under the Fair Debt Collections Practices Act (FDCPA) — the federal law that limits aggressive debt collection activities. The House proposal, HR 7796 (titled “Consumer Relief During COVID-19 Act”), is similar to a Senate bill that was introduced in March.
Two major differences between the bills, however, are worth noting:
First, as its title suggests, Senate Bill S. 3565 (entitled the “Emergency Small Business and Consumer Debt Recovery Relief Act of 2020”) – which we had previously reported here—would extend the FDCPA consumer protections to small enterprises; the House’s proposal would not. Under HR 7796, the term “debt” would continue to be defined as an obligation arising from a consumer transaction.
Second, while the Senate bill would expand consumer protections during any declared national emergency, the House version would limit the expansion to the ongoing national emergency declared in response to COVID-19. If enacted in its current form, the “effective period” under HR 7796 would begin on its date of enactment, ending 120 days after the end of the emergency period first declared on March 13, 2020.
Both bills would impose a moratorium on security enforcement, foreclosures, evictions and utility shutdowns during the effective period, and prohibit debt collectors (defined as including creditors) from threatening take such measures. Similarly, for structured debt, both bills would require creditors to extend repayment periods by the number of payments missed during the national emergency. For debts of indefinite duration, S. 3565 would require creditors to allow a “reasonable time” for repayment, while HR 7796 would require that such repayment be in accordance with Section 171(c) of the Truth in Lending Act.
Compared to S. 3565, the scope of debt collection activities prohibited under HR 7796 is narrower and less defined. For example, under S. 3565, debt collectors would be prohibited from charging fees and charging higher interest rates for non-payment, while HR 7796 would apparently allow such fees to be charged. accrue so long as the creditor has not attempted to evict the debtor or repossess his property until the expiration of the effective period. Similarly, Section 3565 would suspend ongoing debt collection litigation and prohibit the filing of new lawsuits during the effective period. By comparison, HR 7796 would prohibit creditors from “tak[ing] or threaten[ing] take action to “deprive an individual of his or her liberty” due to non-payment[.]This vague language would apparently allow civil litigation to proceed as usual, as long as evictions and foreclosures are postponed until the national emergency period is lifted.
HR 7796 and S. 3565 are still in committee, however, given the economic upheaval caused by COVID-19, there is reason to believe that a version of the proposed legislation will eventually become law. Although the bills differ in important ways, if passed, either would have a huge impact on debtors and creditors. For creditors in particular, it is essential to note that HR 7796 and S. 3565 contain robust enforcement mechanisms, imposing heavy penalties on violators. Businesses will have to carefully navigate vague and ambiguous provisions to avoid liability, while protecting their interests.
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