Consumer Finance Insights
May 5, 2020

COVID-19 and State Debt Collection Restrictions: What States Are Doing to Curb Debt Collection and the Industry’s Response

A number of state officials and regulators have taken steps to decrease the economic burdens stemming from COVID-19 on consumers in their states, including by placing additional restrictions on debt collection practices.  Among the more notable of these efforts took place on March 26, 2020, when Massachusetts Attorney General (AG) Maura Healey implemented, and filed with the Secretary of State’s Office, an emergency regulation designed to curb debt collection in the commonwealth during the COVID-19 pandemic.  According to a press release from AG Healey’s office, this regulation, 940 CMR 35.00, et seq., “puts additional restrictions in place to prevent debt collectors and creditors from harassing [Massachusetts] residents,” many of whom have suffered “substantial medical and financial hardship” at the hands of COVID-19.  Specifically, the regulation makes it an “unfair or deceptive act or practice” for creditors to engage in any of the following practices 90 days from the regulation’s effective date of March 26, 2020, or until Massachusetts declares an end to its state of emergency:

  • “initiate, file, or threaten to file any new collection lawsuit”;
  • “initiate, threaten to initiate, or act upon any legal or equitable remedy for the garnishment, seizure, attachment, or withholding of wages, earnings, property or funds for the payment of a debt to a creditor”;
  • “initiate, threaten to initiate, or act upon any legal or equitable remedy for the repossession of any vehicle”;
  • “apply for, cause to be served, enforce, or threaten to apply for, cause to be served or enforce any capias warrant”;
  • “visit or threaten to visit the household of a debtor at any time”;
  • “visit or threaten to visit the place of employment of a debtor at any time”; and
  • “confront or communicate in person with a debtor regarding the collection of a debt in any public place at any time.”

The regulation further prohibits “initiat[ing] a communication with any debtor via telephone,” except if that communication is “solely for the purpose of informing a debtor of [or discussing a mutually agreeable date for] a rescheduled court appearance.”  940 CMR 35.04.  AG Healey described the regulation as an effort to “protect [Massachusetts residents] from further harm” in light of COVID-19.

But not everyone agrees that the regulation is warranted—or even helpful to Massachusetts consumers.  On April 20, 2020, ACA International (ACA), a membership organization comprised of debt-collection entities, initiated a legal challenge to the emergency regulation.  ACA’s complaint for declaratory and injunctive relief, filed in the U.S. District Court for the District of Massachusetts, takes both practical and legal issue with the regulation.  ACA argues that the regulation has already negatively impacted the revenues of its Massachusetts-member businesses, in turn “endangering” their continued existence.  ACA also rejects AG Healey’s premise that the regulation protects Massachusetts consumers, arguing that, in reality, consumers “may . . . have more time to deal with their delinquent accounts and in some cases . . . have more money to allocate toward reduction of legally owed debt,” including through the use of stimulus funds.

In terms of legal challenges, ACA argues that AG Healey exceeded her authority in promulgating the regulation, and violated a variety of constitutional provisions and state laws, including the First Amendment.  For instance, ACA claims that 940 CMR 35.04—the section of the regulation prohibiting “communication with any debtor via telephone”—violates the First Amendment’s free speech protections by targeting speech based on “the topic discussed or the idea or message expressed.”  ACA similarly contends that 940 CMR 35.03, which prohibits initiating new debt collection lawsuits, runs afoul of the First Amendment’s protection of the right to petition courts, arguing that AG Healey lacks the authority to “deem [such] petitioning activity by creditors and debt collectors to be an unfair and deceptive act.”

Although ACA’s lawsuit is the first of its kind challenging emergency regulations and orders targeting debt collection practices, Massachusetts is far from the only state seeking to expand the scope of its debt collection restrictions in light of COVID-19.  Washington, D.C., for example, has taken virtually identical action, prohibiting, among other things, the “[i]nitat[ion], fil[ing], or threaten[ing] to file any new collection lawsuit,” during the “health emergency and for 60 days” thereafter.  Nevada went a step further than Massachusetts, ordering all collection agencies operating within the state to close, and mandating that out-of-state agencies “cease collection efforts with Nevada consumers/residents” altogether.  Although this prohibition expired on April 16, 2020, it remains to be seen how and if the state will act as the effects of COVID-19 continue to be felt.  Perhaps it will respond with a more limited action, like those taken by California and Illinois.  Governor Newsom of California signed an executive order on April 23, 2020, forbidding debt collectors from “garnishing COVID-19-related financial assistance.”  And Illinois has taken the even-less-drastic step of “encouraging” debt collectors to “work with consumers to accommodate” COVID-19 hardships, and recommending “suspend[ing] collection activity for . . . 60 days.”

It is clear that states have already, or are beginning to take, action to curb debt collection practices.  These actions are above-and-beyond simply deeming debt collection agencies as non-essential businesses, and instead place direct restrictions on debt-collection activity.  This leaves the door open for debt collectors and other organizations such as the ACA to present additional legal challenges to restrictions enacted in response to COVID-19.