The federal government’s response to Covid-19 has allowed millions of Americans to defer payments on their mortgages, rent, student loans, and utility bills.
But as more people are vaccinated and the country sees a return to normal life on the horizon, payments of billions of dollars of these debts could resume soon, even if debtors remain unemployed or in distress. financial due to the economic crisis caused by the epidemic. .
Consumer finance and regulatory experts, along with Democratic lawmakers, warn that the coming debt crisis will be catastrophic for many people and could be a huge boon to predatory financial institutions such as agents. collections and payday lenders – industries regulated by Consumer Financial Protection. Office, or CFPB, that President Joe Biden is trying to rebuild after being hollowed out under former President Donald Trump.
“As the pandemic ends, there is a lot of debt distress: deferred rent, deferred mortgages, deferred student loans. We basically live in suspended animation until the pandemic is over, ”Harvard Law School professor Howell Jackson said, an expert. on financial regulation and consumer protection who was a guest researcher at the CFPB from 2013 to 2015.
“And at some point there will be an extraordinary number of people who are very vulnerable to debt, and we are going to have major debt collection problems,” he said. “We have already seen problems during the pandemic with payday lenders. “
Last month, Biden extended both the moratorium on foreclosures for homeowners and a program that allows homeowners to withhold mortgage payments until the end of June. Previously, during one of his first moves as president, Biden extended the ability for borrowers to suspend their federal student loan payments until the end of September, affecting around 40 million borrowers.
Many utility companies have also voluntarily allowed consumers to suspend payments on their electricity and gas bills during the economic crisis.
Consumer advocates have praised these measures, as well as measures taken as part of the US bailout that provide direct financial assistance to these people. But for many, the relief and postponements aren’t enough, and even if Biden extends the windows further to not make payments, those will eventually close as well. And when they do, Jackson and others have warned that the total amount going into the collection could be staggering.
“These abstention periods will eventually end. And when they do, millions of families may be unable to resume paying mortgages, car payments, credit cards, student loans, which could risk losing their homes, cars, salaries, and bank accounts. seized, who will struggle to put food on the table and take care of their families, ”said David Silberman, associate director of research, markets and regulation at CFPB from its inception until February 2020 .
In fact, at the end of February, almost a year after the start of the pandemic, 1 in 5 renters were behind on payments, and more than 10 million homeowners were behind on mortgage payments.
In addition, an “avalanche” of student loan borrowers could soon default on their loans after the deferral period for those payments closes, lawmakers warned during his confirmation hearing this month, Rohit Chopra, Biden’s candidate for the head of the CFPB.
Across industries, people of color face greater economic distress and will bear the brunt of the wave of defaults to come.
According to the latest Census Household Pulse survey, 18% of Hispanic borrowers, 17% of black borrowers, 18% of Asian borrowers and 7.3% of white borrowers were out of date on their mortgage payments. According to the data, 33% of black renters were behind on their rent payments, along with 20% of Hispanic renters, 16% of Asian renters, and 13% of white renters.
Student borrowers of color, on the other hand, are more likely to have taken on larger loans and face a salary cap when they finally enter the workforce – what Chopra called a “double whammy.” During his confirmation hearing.
As payments fall due later this year, cash-strapped employed people will likely have to rely on payday lenders, experts have warned, while unemployed and underpaid people could face the challenge. anger of aggressive debt collectors.
Experts and Democratic lawmakers, including Senator Elizabeth Warren, D-Mass., Who helped set up the agency under the Obama administration, have repeatedly said that the CFPB is uniquely equipped to help struggling borrowers deal with these results. But that’s only if Biden is able to rebuild the agency to give him teeth.
“All of this explains why we need to make sure this agency is operational as it was. [under Obama] as quickly as possible, ”Senate Banking Committee Chairman Sherrod Brown, D-Ohio, said in an interview.
The agency could help tighten regulations in the payday lending industry – many of which were overturned during Trump’s time – and it could resume strict enforcement of aggressive debt collection practices, which were infrequent. applied under Trump.
While the agency cannot prevent debt collection or payday loans, it can significantly reduce the degree of predation of practices by ensuring that existing rules are enforced forcefully and fairly and by drafting new rules. Existing rules govern what kind of contact debt collectors can make with consumers (and how often) and the pressure they can use – by requiring debt collectors to be honest about the debts they seek – as well as how debt collectors report non-payments to credit bureaus.
Jackson of Harvard said that many debts also have statutes of limitations and become invalid after a certain period of time.
“It is essential to make sure that consumers know they have rights in this area,” he said. “There are a lot of substantive protections in the debt collection space. “
Silberman, who worked at the agency for nearly a decade, said: “At the very least, the CFPB can ensure that these consumers are treated fairly by their creditors and by debt collectors.
“That doesn’t necessarily mean they won’t suffer negative consequences. Ultimately, the federal government will have to decide if and how it can provide more aid and relief, ”he said. “But the agency, if strong, can ensure fair treatment under the law for some of our most financially vulnerable consumers. “