Legislation Moving Through House Aims to Overhaul Debt-Collection Laws

Legislation Moving Through House Aims to Overhaul Debt-Collection Laws

May 13, 2021

ABI Bankruptcy Brief

Legislation Moving Through House Aims to Overhaul Debt-Collection Laws

The “Comprehensive Debt Collection Improvement Act” (H.R. 2547), sponsored by House Financial Services Chair Maxine Waters (D-Calif.), is working its way through the House and aims to reform laws regulating debt collectors and to provide new relief to private student loan borrowers, Forbes reported. The legislation, which passed 30-23 out of the House Financial Services Committee on April 21, incorporates text similar to the following bills:

• The Small Business Lending Fairness Act, a bill by Representative Nydia Velazquez (D-N.Y.), which would amend the Truth in Lending Act (TILA) to restrict the use of confessions of judgment for small business owners, extending the protections that currently exist in consumer lending.

• The Fair Debt Collection Practices for Servicemembers Act, a bill introduced by Representative Madeleine Dean (D-Pa.) to amend the Fair Debt Collection Practices Act (FDCPA) to prohibit debt collectors from threatening a servicemember with reducing their rank, having their security clearance revoked, prosecuting them under the Uniform Code of Military Justice, or otherwise communicating with the commanding officer or any other senior officer in the chain of command above a servicemember regarding an outstanding debt.

• The Private Loan Disability Discharge Act, a bill introduced by Representative Madeleine Dean (D-Pa.), which would amend TILA to require the discharge of private student loans in the case of permanent disability of the borrower, providing rights that already exist for federal student loan borrowers.

• The Consumer Protections for Medical Debt Collections Act, a bill introduced by Representative Rashida Tlaib (D-Mich.), which would bar entities from collecting medical debt or reporting it to a consumer reporting agency without giving a consumer notice about their rights under the FDCPA and Fair Credit Reporting Act (FCRA) related to that debt, including a minimum one-year delay before adverse information is reported to a consumer reporting agency. It would also bar reporting of adverse information relating to medical debt arising from medically necessary procedures.

• The Ending Debt Collection Harassment Act, a bill introduced by Representative Ayanna Pressley (D-Mass.), which would amend the FDCPA to prohibit a debt collector from contacting a consumer by email or text message without a consumer’s consent to be contacted electronically.

• The Stop Debt Collection Abuse Act, a bill introduced by Representative Emanuel Cleaver (D-Mo.), which would extend FDCPA protections as they relate to debt owed to a federal agency, and it would limit the fees debt collectors can charge. Additionally, it requires the Government Accountability Office (GAO) to conduct a study into the use of third-party debt collectors by government agencies.

• The Debt Collection Practices Harmonization Act, a bill introduced by Representative Gregory Meeks (D-N.Y.), which would expand the definition of debt covered under the FDCPA to include money owed to a state or local government, clarifying that private debt collectors who pursue debts such as municipal utility bills, tolls, traffic tickets and court debts, are subject to the FDCPA. It also updates monetary penalties for inflation and clarifies that courts can award injunctive relief, and adds protections to consumers affected by national disasters.

• The Non-Judicial Foreclosure Debt Collection Clarification Act, a bill introduced by Representative Jake Auchincloss (D-Mass.), which would reverse the recent Supreme Court decision in Obduskey v. McCarthy and Holthus LLP by amending the FDCPA to clarify that entities in nonjudicial foreclosure proceedings are covered by the statute.

The House is expected to vote on the bill this week. Its fate in the Senate, however, is uncertain.

Unemployment Claims Fall to Pandemic Low as U.S. Businesses Seek to Hire More Workers

Applications for U.S. unemployment benefits fell last week to a fresh pandemic low, reflecting more aggressive efforts by companies to hire new workers amid a rapid economic recovery, MarketWatch.com reported. Initial jobless claims in the states dropped by 34,000 to 473,000 in the seven days ended May 8, the government said Thursday. It was the fifth decline in a row. Businesses are trying to hire more people as the economy moves toward a full opening and consumers itch to satisfy cravings for many purchases they put off during the pandemic. Massive federal spending has put more cash in people’s pockets, and dwindling coronavirus cases have given them the confidence to spend it. Yet despite record job openings, the economy only created a paltry 266,000 new jobs in April. Wall Street had forecast a much larger increase of 1 million. Unemployment claims are still more than twice as high now compared to the last month before the pandemic. The number of applications had been running in the low 200,000s before the viral outbreak early last year.​​​

In related news, nearly 900,000 Americans in Alabama, Mississippi and 11 other Republican-led states are set to see their unemployment checks slashed dramatically starting in June, as GOP governors seek to restrict jobless benefits in an effort to force more people to return to work, the Washington Post reported. The cuts are likely to fall hardest on more than half a million people who benefit from stimulus programs adopted by Congress at the height of the pandemic, including one targeting those who either are self-employed or work on behalf of gig-economy companies such as Uber. Beginning next month, many of these workers are likely to receive no aid at all. Governors in states including Mississippi, Montana and Tennessee contend that generous federal benefits parceled out over the past year have deterred people from returning to their old positions now that the public health crisis is waning. The reality is more complicated, labor experts say. The slowdown in hiring may instead reflect workers’ concerns about their safety and difficulties in obtaining child care, or their trouble finding suitable positions in hard-hit industries like tourism on top of mounting frustration over wages they see as too low. That means the loss of unemployment benefits over the next month threatens to inflict new financial harm on those who already say they’re struggling.

Secret Service Seizes $2 Billion in Fraudulent Covid Unemployment Payments, Returns Funds to States

The U.S. Secret Service has confiscated and returned to states about $2 billion in stolen Covid unemployment relief funds, agency officials said yesterday, CNBC.com reported. Programs in at least 30 states received the money after the agency determined recipients had fraudulently applied for pandemic-related unemployment. “This is typical of the cyberfraud we deal with annually. It’s just compounded based on additional funds (from) Covid relief,” Roy Dotson, Secret Service assistant special agent in charge, told CNBC. “The criminals did take full advantage of the programs to try to steal from them.” He said that the $2 billion returned to the states was a “conservative estimate” and that pandemic-related fraud investigations are ongoing. He said last year that the Secret Service sent advisories to financial institutions to flag possibly fraudulent accounts where the money may have been deposited. Dotson said fraudsters typically stole the identities of people who qualified for unemployment benefits. In other cases, he said, identities were stolen from people who hadn’t even filed for unemployment.​​​

In Reversal, Retirements Increased During the Pandemic

After decades in which it decreased, the retirement rate rose during the pandemic, according to the latest government data, the New York Times reported. In the year since the pandemic started — the 12 months ending in March 2021 — 17.0 percent of Americans aged 55 to 64 were retired, up from 16.8 percent in the two previous years. But this is still a lower percentage than in earlier decades. The retirement rate rose more for people 65 to 74: It was 65.6 percent in the year up to March 2021, versus 64.0 percent in the year before the pandemic. That brought the rate back up almost to its level in 2011, though still below its 2001 level. Job losses and business closings could have prompted some older workers to retire earlier than they’d expected, a pattern seen in previous recessions. Another factor: Older workers were more at risk than younger ones from the coronavirus. At the same time, home prices and stock market values rose, putting some owners of such assets in a better position financially to retire.​​​

Senate Democrats Take Aim at Carried Interest

Legislation that would end carried interest for investment managers was introduced yesterday by a group of Senate Democrats, Pensions&Investments reported. The proposed Carried Interest Fairness Act would take away the current 20% long-term capital gains tax rate, leaving investors to pay ordinary income tax rates of up to 37%. It would have a large effect on income that private equity and other alternative managers, for example, receive as compensation. The Joint Committee on Taxation estimates that making the change would raise $15 billion in revenue over 10 years. Introduced by Sens. Tammy Baldwin of Wisconsin, Joe Manchin of West Virginia and Sherrod Brown of Ohio, the legislation is co-sponsored by 11 other Democratic senators. Threats of ending what some legislators characterized as a tax loophole that benefits Wall Street firms have been a recurring theme. Former President Donald Trump raised it as a campaign issue, and President Joe Biden has called for Congress to end it as the economy and workers struggle to recover from the COVID-19 crisis. A White House fact sheet on President Biden's American Families Plan proposal said that permanently eliminating carried interest “is an important structural change that is necessary to ensure that we have a tax code that treats all workers fairly.”​​​

Commentary: Detroit Showed What ‘Build Back Better’ Can Look Like

Burdened by an overwhelming public health crisis, drained of resources by economic stagnation, and torn apart by racial injustice and unrest, cities are confronting the reality that conventional formulas of municipal finance and practices of working cannot sustain our urban places, according to a Bloomberg commentary. The significance of this moment was not lost on the Biden-Harris administration, which quickly advanced an ambitious mandate commensurate with the challenge: a domestic Marshall Plan called Build Back Better. Already, the first prong — the $1.9 trillion American Rescue Plan — has helped shore up city budgets, restore desperately needed funding for public transportation, and keep businesses open and families in homes. The second leg, the $2 trillion American Jobs Plan, represents a bold shift from short-term recovery to long-term transformation. However, the federal government cannot masterplan this infrastructure of economic mobility, nor should cities be expected to absorb massive volumes of funding in heavily prescribed ways, according to the commentary. Cities must have creative latitude to customize strategies to residents’ needs and build partnerships across the public, private, nonprofit and philanthropic sectors. Those relationships can multiply federal resources, unlock new forms of innovation, and engage community residents in the complexities of local problem-solving. Rather than ushering in doom, Detroit’s bankruptcy catapulted the city into reimagination, recalibration and renewal. The good news is that U.S. cities, by necessity, have become a crucible for exactly this kind of reinvention during the pandemic. COVID-19 forced local governments to create decentralized systems for testing, education, treatment and vaccine distribution, while the economic downturn and municipal debt have required them to share responsibilities with other sectors to keep critical services operational.​​​

Colonial Pipeline ‘Ransomware’ Attack Shows Cyber Vulnerabilities of U.S. Energy Grid

A major fuel pipeline that was shut down this week after a brazen cyberattack has since come back online, but security experts warned that the nation must take more seriously persistent vulnerabilities in America’s aging energy infrastructure, the Washington Post reported. The Colonial Pipeline running from Houston to New Jersey, supplying the East Coast with 45 percent of its fuel, was taken offline Friday after a hacker group known as DarkSide infiltrated the Georgia-based company’s servers and encrypted its data, demanding a fee to restore access in what is known as a “ransomware” attack. It also stole a copy of the data, possibly to later release it publicly unless Colonial paid an additional fee. Several cybersecurity experts said the incident represents the biggest known cyberattack on U.S. energy infrastructure. On Monday, Biden administration officials sought to assuage fears that the attack could lead to price spikes, fuel shortages or panicked buying up and down the East Coast.​​​

“Rewind” Any Annual Spring Meeting Sessions Through May 31

ABI’s Annual Spring Meeting has now concluded, but if you missed any of the hard-hitting sessions, replays are available through the innovative virtual platform. If you have registered for ASM, you can access the replays through May 31! Not registered? You can still sign up; click here.​​​

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New on ABI’s Bankruptcy Blog Exchange: Big Banks on the Defense After Fed Sides with Retailers on Debit Swipe Fees

For nearly a decade, the Federal Reserve avoided choosing sides in the protracted, high-stakes dispute between banks and retailers over debit card fees. But after the Fed last week embraced one of the main arguments made by merchants, many observers believe that more bad news is coming for large and midsize banks, according to a recent blog post.

To read more on this blog and all others on the ABI Blog Exchange, please click here.

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