A bill recently introduced in the House of Representatives would temporarily expand federal protections under the Fair Debt Collections Practices Act (FDCPA)—the federal statute that limits aggressive debt-collection activities. The House proposal, H.R. 7796 (titled the “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 indicates, the Senate bill, S. 3565 (titled the “Small Business and Consumer Debt Collection Emergency Relief Act of 2020”)—which we previously reported on here—would extend FDCPA consumer protections to small businesses; the House proposal would not. Under H.R. 7796, the term “debt” would remain defined as an obligation arising out of 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 H.R. 7796 would begin on its date of enactment, ending 120 days following the conclusion of the emergency period first declared on March 13, 2020.
Both bills would impose a moratorium on enforcing security interests, repossessions, evictions and utility shutoffs during the effective period, and would bar debt collectors (defined to include creditors) from threatening to take such actions. Likewise, for structured debt, both bills would require creditors to extend repayment periods by the number of payments missed during the national emergency. For open-ended debt, S. 3565 would require creditors to allow a “reasonable time” for repayment, whereas H.R. 7796 would require that such repayment conform to Section 171(c) of the Truth in Lending Act.
Compared to S. 3565, the scope of prohibited debt-collection activities under H.R. 7796 is narrower and less defined. For example, under S. 3565, debt collectors would be barred from charging fees and imposing higher interest rates due to non-payment, whereas H.R. 7796 would seemingly permit such charges to accrue so long as the creditor did not attempt to evict the debtor or repossess her property until the effective period expired. Similarly, S. 3565 would stay ongoing debt-collection litigation and prohibit the filing of new legal actions during the effective period. By comparison, H.R. 7796 would bar creditors from “tak[ing] or threaten[ing] to take any action to ‘deprive an individual of their liberty’ as a result of nonpayment[.]” That vague language would seemingly allow civil litigation to proceed as usual, so long as evictions and repossessions were postponed until the period of national emergency was lifted.
Both H.R. 7796 and S. 3565 are still in committee—however, given the economic upheaval wrought by COVID-19, there is reason to believe some version of the proposed legislation will eventually become law. While the bills differ in important ways, if enacted, either would dramatically impact debtors and creditors alike. For creditors in particular, it is critical to note that both H.R. 7796 and S. 3565 contain robust enforcement mechanisms, handing out heavy penalties for violators. Businesses will need to carefully navigate vague and ambiguous provisions to avoid liability, while also protecting their interests.
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