As a collection and banking attorney, I am often asked whether (or when) I think collections will restart now that we are somewhat “beyond” COVID-19, although not fully. In my own practice I have seen an increase in demand letters to businesses and consumers for past due accounts or debts. Banks and businesses need to start collecting past due accounts and my sense is a slew of consumer and commercial collections are forthcoming in 2024, though it won’t be anything like the financial crisis of 2008.
During COVID-19, and thereafter, federal and/or state/local exemptions and protections were implemented by the government for debtors, borrowers, and consumers. Some protections, like the federal moratorium on residential evictions, ended on or before August 26, 2021 (and in 2021). There were also the PPP loan monies allocated to certain businesses, much of which was forgiven (or otherwise went uncollected). Nearly two years later, there are no longer any protections in place, except for the COVID-19 student loan forbearance (pause), which ends on September 1, 2023. On September 1, 2023, interest resumes and payments will be due beginning in October 2023.
As a short case study, I analyzed a few clients who are either residential/commercial landlords or otherwise what I could call “in the business of collections” (ex: banks, businesses, etc.). Looking into one of our residential landlord clients, there were nearly 20 evictions filed after the end of the eviction moratorium date and prior to the end of 2021. In 2022, 38 evictions were filed for the same client, and to date, there have been 17 residential evictions filed in 2023. It appears that they are starting to trickle in for both residential and commercial clients but leading with commercial clients and properties.
With regard to commercial and consumer collections, there was definitely a halt during COVID-19 in 2020 and continuing into 2021, especially against consumers. One of my collection clients filed only twelve lawsuits against consumers during the year 2021. In 2022, there were approximately twenty-five “general” consumer and/or commercial collections lawsuits filed by a client who does commercial and consumer collections. Generally speaking, I would assert that most of these collection lawsuits were commercial collections against businesses (instead of consumer collections for loans, credit accounts, or other consumer collection actions). Many of the lawsuits were for notes, mortgages, and enforcement of security agreements against businesses that had failed or were failing.
Delaying a collection or calling a debt due has its disadvantages. Most notes and contracts are written to protect lenders from waiving any rights to collection or enforcement of their notes, even if they postpone collection actions or calling a default. A common defense to a collection action that seems “delayed” is “laches.” Merriam-Webster defines “laches” as, “negligence in the observance of duty or opportunity specifically: undue delay in asserting a legal right or privilege.” Commonly referred to as “No Waiver by Lender” in documents, this section in the contract allows lenders and creditors to not “waive” their rights to collection or enforcement of documents, even if there is some sort of delay (intentional or unintentional) in the commencement of a collection or enforcement action. Taking special note of the term “undue delay,” a court will also evaluate whether the debtor is prejudiced by said delay in its decision if “laches” applies as a defense or proven cause of action against a lender. Based on what I’m seeing in my practice, I would even go so far as recommending starting the process of collecting, as “laches” is a real defense to delays in collections and has even been seen more recently asserted as a cause of action.
As collection attorneys, we are continually trying to predict “when” debts will start being collected in this post-COVID-19 era. I do note that based on my personal and professional experiences, commercial collections have required far more demand letters than consumer collections. However, is it because commercial collections are somewhat more straightforward and not governed by the Fair Debt Collection Practices Act (“FDCPA”) or the Wisconsin Consumer Act? Or is it because the entities collecting consumer protections are still holding back enforcement of loan documents to give consumers “more time?” Whatever the reason, let’s hope that all collection and lending attorneys are aware that there is at least one potential “consequence” to sitting on the past-due debts of consumers and entities.
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