Will debt collection explode when the country reopens from the COVID-19 shutdown?

Yes — debt collection of all types will explode when the country reopens.  Certainly, collection lawsuits will go up and eventually foreclosures will also.  The IRS will come back to life and go after taxpayers who owe money with a vengeance.  But in this article, we want to talk about “normal” debt collection in the form of calls, credit reporting, and collection letters.

I say normal debt collection will go up.  Why?  Let’s discuss.

Most debt collection companies are holding back on collection efforts right now

Some of this is good will.  And some is the desire to not be a poster child for the idea that collection agencies are heartless.  Don’t want to blow up the phone of a nurse at the ER who is risking her life caring for patients.

And some of it is the collection agency employees are not able to be in big call centers due to restrictions.

But after all of this passes?

Consumers are going to be struggling financially for years to come due to the economic earthquake that has happened

Millions have lost their jobs.  Some will rebound nicely but others may not or will only make a portion of what they made before the world changed.

Bottom line is income is going to be down.

How about debt?  More or less after this is over?

I’m confident in saying more debt.  Consumers are in survival mode right now and many are surviving by maxing out credit cards.  Not paying mortgages and credit cards by getting a forbearance.  Many federal student loans are not requiring payments right now.  The IRS has suspended most payments.

So income will be down and debt will be up for a lot of consumers.

More debt collectors will be fighting to recover more debt from consumers who have less money and fewer assets

Debt collectors are not making much money now.  So when they are freed from restrictions, they have to make up for lost money and lost time.

But the consumers the collectors are going after have less income.  Fewer assets.

So what will at least some debt collectors do?

Break the law.

Push the envelope.

Why?

To get ahead of the other collectors.  Imagine there are five collectors:

1. Collector one follows the law (primarily the FDCPA — Fair Debt Collection Practices Act)
2. Collector two decides to break the law a little bit — not much but a little bit
3. Third collector goes even further
4. Collector four goes very far in breaking the law
5. Finally, collector five goes crazy.

Now in the competition for the limited consumer dollars, who wins?

Not collector one who follows the law.

Maybe collector two makes a bit more money but not as much as collector three.  

And collector four — maybe doing illegal block parties and office parties — scares the consumer to death and gets even more money.

Collector five is lying and making outrageous threats to take money.

So it is a race to the bottom.

What is there to stop collectors from breaking the law and to protect the honorable debt collectors who follow the law?

Suing the bad ones.

The law even says directly that:

It is the purpose of this subchapter to eliminate abusive debt collection practices by debt collectors, to insure that those debt collectors who refrain from using abusive debt collection practices are not competitively disadvantaged….

You see, if the honorable debt collectors who follow the law are watching the bad guys break the law and make all the money, the good ones will be tempted to join the dark side and break the law.  But when the good ones see the bad ones get sued, it keeps the good ones acting right.

And the bad ones that break the law will feel the financial hit of being sued over and over and over.

Money damages — actual damages and even punitive damages under state law.

So what do you do right now knowing that there will be an explosion of debt collection in the near future?

Be aware of what will happen.

If you know you have some debts that have gone bad, expect to get the aggressive debt collection. 

Know your rights so that you can take the right action when the greedy collectors break the law.

Sue for money damages.

If you have this plan, then you won’t be surprised.  You won’t be caught off guard.  Instead, you can say, “Well, its annoying it is happening but I’m ready and I’ll sue these guys for money damages.”

Prepare for the coming storm and you will be in great shape.

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Thanks and have a great day!

John Watts