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Webinar Panel: Thoughts on the HEROES Act and Regulation of the Debt Collection Industry

In the supplemental comments my colleague John Berlau and I sent to the Consumer Financial Protection Bureau (CFPB) on its proposed debt collection rule last September, we stressed “the vital role debt collection firms play in a market economy, as ‘part of the ‘plumbing’—the underlying architecture—that makes our modern credit markets possible.” I made a similar argument last month on a webinar over at AccountsRecovery.net and how legislation to constrain the debt collection industry would disrupt credit markets, ultimately hurting consumers.

The webinar, titled “Dissecting the HEROES Act and How Congress is Impacting the ARM Industry,” featured myself, Jenny Lee of Arent Fox, Joann Needleman of Clark Hill, and Mike Gibb of AccountsRecovery as moderator.

As the webinar’s title implies, the conversation focused on the HEROES Act, the 1,800-page Phase 4 COVID-19 relief bill introduced by House Democrats in May, and what the legislation would mean for the debt collection industry. Beyond proposing trillions of dollars in new deficit spending, the bill includes a number of progressive pet projects unrelated to the pandemic—chief among them provisions to create a temporary moratorium on debt collection by restricting the ability of debt collectors to service accounts.

In addition to pointing out the temporary moratorium on debt collection, at 7:35 in the webinar, I note the debt collection facility the HEROES Act would create at the Federal Reserve. This new entity would make low-cost, long-term loans to debt collectors to compensate them for financial loses accrued while not being able to collect on accounts. On that point, I mention that it’s interesting that House Democrats have such disdain for the debt collection industry that they would essentially subsidize them to not do their job.

On whether the HEROES Act has any chance of getting passed or signed by the president, at 11:46, I explain that Senate Majority Leader Mitch McConnell has declared the bill “dead on arrival” but that passage in the House sets a legislative precedent that lawmakers could turn to in the future.

When the discussion pivoted to the regulation of debt collectors at the state level, Joann Needleman made the point at 32:51 that states should be warry of passing their own debt collection moratoriums, especially since the data pre-coronavirus showed that “the rate of default was not extremely high.” She also argued that “it’s hard to align why there has been this alarmist reaction” at the state level over the activity of debt collections during the pandemic, and that perhaps it is “a better conversation to have after we get through the summer and see where we are, and at that point we can assess and see whether these moratoriums do make sense in light of where consumers are.”

Later in the webinar we talked about what (if any) action the CFPB should take against the debt collection industry during this pandemic. At 41:48, Jenny Lee made the point that “the bureau is loathed to make large commitments in certain industry areas without first gathering all the facts” and that “the director is meeting on multiple conference calls with trade associations and banks, doing outreach, to respond to their requests for regulatory relief.”

At the end of the webinar, Mike Gibb asked us for concluding remarks and to leave the audience with our most important points. I’ll go ahead and restate those now: 

  1. Pay attention to the states and to the political landscape; these calls for debt collection regulation aren’t going away anytime soon.
  2. If you’re a debt collector and active with your trade association, share the stories of how you’re working with consumers to deliver relief; these help highlight how markets can regulate themselves. 
  3. Check out CEI.org and our #NeverNeeded project to stay up to date on all the work we’re doing to improve our coronavirus recovery.