Senators Sherrod Brown (D-Ohio) and Elizabeth Warren (D-Mass.) last week released a proposal for new consumer protection measures that they claim are critical to helping Americans weather the coronavirus (“COVID-19”) pandemic. Noting that the stimulus payments provided by the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) may not be enough to cover basic expenses for even a month, these senators are now calling for “the next coronavirus aid package” to include broad restrictions on debt collection and even debt forgiveness. Such relief is critical, the senators say, so that consumers can aid the economic recovery by spending on goods and services, rather than debt service.
The proposal contains six essential provisions. First, in a move that many states already have made, they propose federal action to prevent “predatory debt collectors” from garnishing or attaching federal aid payments. Second, they call for all consumers to be allowed to “pause” all debt payments, without penalty, and be given extra time to catch up on their payments when the crisis is over. As a part of this “pause,” they propose that all garnishments, evictions, repossessions, and utility disconnections should be halted, along with all other “proceedings against debtors.” Third, they propose a ban on negative credit reporting during the pandemic. No consumer, the plan says, should take an “unfair hit to their credit” because they cannot make payments during the crisis.
The fourth element of the plan is a call for wide-ranging student debt relief. Unhappy with the fact that the CARES Act provides relief only to students with federally-backed student loans, these senators call for the expansion of that relief to all student borrowers, as well as asserting that the federal government should “broadly cancel student loan debt.” Fifth, the plan calls for the Consumer Financial Protection Bureau to be more aggressive in its regulatory enforcement actions and to expand its definitions of unfair and abusive debt collection practices to include things such as garnishing stimulus payments. Lastly, the plan calls for changes in the consumer bankruptcy process including protecting “homes, tax refunds, and … stimulus payments” from creditors. Significantly, the proposal calls for student loans to be dischargeable through bankruptcy.
Brown and Warren are calling for these proposals to be part of “the next coronavirus aid package.” Only time will tell if their ideas actually become law. Many of the policy suggestions would have significant impact on the financial services industry, from debt collection to credit reporting and bankruptcy, as well as all manners of regulatory enforcement. As with the CARES Act, any of these measures enacted will undoubtedly give rise to waves of litigation during and after the pandemic. For regular updates about the latest COVID-19 and CARES Act impacts on the financial services sector, be sure to visit the Pepper Hamilton/Troutman Sanders COVID-19 Resource Center.