The Debt Collection Pandemic

To curb the rapid spread of the coronavirus set to overwhelm the United States\u27 healthcare system, in mid-March 2020, the federal government declared a national emergency. Many states followed suit by implementing shelter-at-home orders and people began social distancing across America. As of this writing, the United States\u27 reaction to the unique and alarming threat of COVID 19 has partially succeeded in slowing the virus\u27s spread. Saving people\u27s lives, however, has come at a severe economic cost. Economic activity plummeted. Unemployment numbers soured to figures not seen since the Great Depression and countless other people saw their income disappear. Americans\u27 economic anxiety has understandably spiked. With no end in sight to the crisis, people have feared they would be unable to meet their basic expenses, such as buying food and paying for utilities. Those who have lost their jobs also now have had to find money to pay for health insurance. And car, house, and rent payments would be coming due soon and then again every month, regardless of whether people still had income. These worries were more acute among minority communities and lower-income households, who already faced concerns about their financial stability before the crisis. People\u27s anxieties about money have necessarily included what might happen if they could not cover already outstanding debts. In addition to auto loans and mortgages, debts like credit cards, medical bills, student loans, and past-due taxes are high on the minds of many households. If people defaulted on any of these debts, creditors and debt collectors could garnish their bank accounts and wages, repossess their cars, and foreclose on their homes and other property. The nearly 70 million Americans with debts already in collection are facing heightened anxiety about their inability to pay. As with people\u27s worries about money generally, these fears continue to be more acute for communities of color. Black and Latinx Americans are sued by creditors and debt collectors more often than others, and lawsuits against them are more likely to end with default judgments that lead to garnishments. They also are subject to heightened policing that saddles them with parking tickets, court fees, and other government debts that force them into modem-day debtors\u27 prison. The coronavirus pandemic is set to metastasize into a debt collection pandemic. The federal government can and should do something to put a halt to debt collection until people can get back to work and earn money to pay their debts. Yet it has done nothing to help people deal with their debts. Instead, states have tried to solve issues with debt collection in a myriad of patchwork and inconsistent ways. These efforts help some people and are worthwhile. But more efficient and comprehensive solutions exist. Because American families\u27 finances are unlikely to recover as soon as the crisis ends, debt collection brought by the COVID-19 crisis also will not dissipate anytime soon. Even after the crisis ends, the need to implement comprehensive, longer-lasting solutions will remain. As we detail below, these solutions largely fall on the shoulders of the federal government, though state attorney generals have the necessary power to help people effectively. If the government continues on its present course, a debt collection pandemic will follow the coronavirus pandemic

Cares Act Gimmicks: How Not to Give People Money During a Pandemic and What to Do Instead

The coronavirus pandemic upturned Americans\u27 lives. Within the first few weeks, millions of Americans reported being laid off from their jobs. Other people were working reduced hours or were working remotely from home. Children\u27s daycares and schools closed, and parents were thrown into new roles as educators and full-time babysitters, while, in some instances, also continuing to work full-time jobs. The profound financial effects caused by even a few weeks of the coronavirus\u27 upheaval spurred Congress to pass the CARES Act, which purported to provide economic relief to individuals and businesses. For individuals, the CARES Act includes five provisions that were effectively designed to provide people money: a direct payment in the form of a tax rebate, enhanced employment benefits, additional paid sick leave, a limited mortgage foreclosure and eviction moratorium, and temporary suspension of some student loan payments. Of these provisions, the direct payment and enhanced employment benefits were the two touted as centerpieces of the CARES Act and the two most likely to aid the majority of American households. Ultimately, this financial support will prove to be shockingly minimal. The direct payments represent a fraction of the average American households\u27 monthly budget. It also quickly became apparent that the payments were unlikely to reach most people within any sort of useful timeframe, and that once they did, they could be garnished immediately by debt collectors and even banks themselves. The unemployment benefits, while providing people with more money over several months, required that people be laid off and similarly were unlikely to reach people quickly enough to be effective. These corner pieces of the CARES Act are best understood as gimmicks. Through them, the federal government told people that it would take care of them in ways that were immediately salient to them as the coronavirus crisis began. People\u27s wages decreased at the exact time they were spending more money to stock up on supplies. The CARES Act promised to send people small checks and augment unemployment benefits. Americans very soon began to discover that these promises would do little to help them survive the coming months of financial and social upheaval. It also became quickly apparent to at least some lawmakers that Congress would need to pass at least one additional stimulus package. And with projections that the pandemic could last for twelve to eighteen months,it seems that Congress may have several more opportunities to craft legislation that actually will help American families survive the pandemic. This legislation must provide people with true funding to stay current with their minimum necessary expenses as these expenses are incurred. In this Essay, we discuss the gimmicks of the CARES Act\u27s individual provisions and what Congress should do for people in future bills to address this pandemic. If done right, helping individuals will cost the government more than $2 trillion next time, and the time after that, and possibly the time after that. And, if done right, it will be worth every penny

The Folly of Credit as Pandemic Relief

Within weeks of the coronavirus pandemic appearing in the United States, the American economy came to a grinding halt. The unprecedented modern health crisis and the collapsing economy forced Congress to make a critical choice about how to help families survive financially. Congress had two basic options. It could enact policies that provided direct and meaningful financial support to people, without the necessity of later repayment. Or it could pursue policies that temporarily relieved people from their financial obligations but required that they eventually pay amounts subject to payment moratoria later. In passing the CARES Act, Congress primarily chose the second option. This option reflects a belief that offering people credit can bring them meaningful relief because it assumes that people will have the ability to pay back the loan as it becomes due. The assumption that people will be able to repay credit masquerading as “relief” in the wake of the pandemic is a serious error that will have enduring negative consequences. In short, Congress got the balance between providing true money versus what amount to credit products to people fundamentally backwards. But given that, unfortunately, the effects of the pandemic likely will continue for months, if not years, it is not too late for Congress to adopt a family financial well-being approach to relief that provides meaningful, widespread, and expanded direct payments to households in distress

The Folly of Credit as Pandemic Relief

Within weeks of the coronavirus pandemic appearing in the United States, the American economy came to a grinding halt. The unprecedented modern health crisis and the collapsing economy forced Congress to make a critical choice about how to help families survive financially. Congress had two basic options. It could enact policies that provided direct and meaningful financial support to people, without the necessity of later repayment. Or it could pursue policies that temporarily relieved people from their financial obligations but required that they eventually pay amounts subject to payment moratoria later. In passing the CARES Act, Congress primarily chose the second option. This option reflects a belief that offering people credit can bring them meaningful relief because it assumes that people will have the ability to pay back the loan as it becomes due. The assumption that people will be able to repay credit masquerading as “relief” in the wake of the pandemic is a serious error that will have enduring negative consequences. In short, Congress got the balance between providing true money versus what amount to credit products to people fundamentally backwards. But given that, unfortunately, the effects of the pandemic likely will continue for months, if not years, it is not too late for Congress to adopt a family financial well-being approach to relief that provides meaningful, widespread, and expanded direct payments to households in distress

Self-Help, Reimagined

We will never have enough lawyers to serve the civil legal needs of all low- and moderate-income (LMI) individuals who must navigate civil legal problems. A significant part of the access-to-justice toolkit must include self-help materials. That much is not new; indeed, the legal aid community has been actively developing pro se guides and forms for decades. But the community has hamstrung its creations in two major ways: first, by focusing these materials almost exclusively on educating LMI individuals about formal law, and second, by considering the task complete once the materials have been made available to self-represented individuals. In particular, modern self-help materials fail to address many psychological and cognitive barriers that prevent LMI individuals from successfully deploying the substance of the materials. In this Article we make two contributions. First, we develop a theory of the obstacles LMI individuals face when attempting to deploy professional legal knowledge. Second, we apply learning from fields as varied as psychology, public health, education, artificial intelligence, and marketing to develop a framework for how courts, legal aid organizations, law school clinics, and others might reconceptualize the design and delivery of civil legal materials for unrepresented individuals. We illustrate our framework with examples of reimagined civil legal materials

A No-Contest Discharge for Uncollectible Student Loans

Over forty-four million Americans owe more than $1.6 trillion in student loan debt. This debt is nearly impossible to discharge in bankruptcy. Attempting to do so may require costly and contentious litigation with the Department of Education. And because the Department typically fights every case, even initial success can be followed by years of appeals. As a result, few student loan borrowers attempt to discharge their student loan debt in bankruptcy. In this Article, we call on the Department of Education to develop a set of ten easily ascertainable and verifiable circumstances in which it will not contest a debtor’s attempt to discharge their student loan debt. Nearly every category of no-contest discharge we recommend represents a circumstance where the debtor would clearly suffer an undue hard-ship if forced to continue to attempt repayment. In those circumstances, the Department of Education should conserve taxpayer dollars by consenting to discharge