CARES Act Consumer Protection (Covid 19 Crisis)
The National Consumer Law Center has prepared this summary of consumer rights
This article, which will be updated as developments warrant, seeks to list the actions Congress, governors, federal and state agencies, and businesses are taking to protect consumers in light of the COVID-19 epidemic. These actions include suspensions on foreclosures, evictions, and terminations on telecommunications and utility service, elimination of interest and forbearance on student loan payments, and more. The article will also consider the impact of government-ordered closure or restrictions on court hearings and on non-essential businesses has on debt collection, repossessions, and court actions against consumer debtors.
Because of the rapidly changing reactions to the current epidemic, this list cannot be complete, but every effort has been made to be as up to date as possible. Readers are encouraged to email [email protected] with additional protections that have been enacted in their state, county, or municipality.
NCLC during this emergency is making available to the public for free the digital version of NCLC’s most popular publication, Surviving Debt (2020).
Just click here. Surviving Debt is geared for consumers, counselors, paralegals, and attorneys new to consumer law. The 288-page book explains steps that families in financial distress can take concerning foreclosures, repossessions, utility terminations, landlord evictions, debt collection, medical debt, student loans, credit reporting, credit cards, criminal justice debt, and a number of other topics of special current interest.
NCLC is also providing deep discounts on our consumer law treatises, which are all available in print and digital formats. The first chapter of each treatise’s digital version is available free to the public. For more details, go here.
Federal Suspension of Foreclosures
Importance of Knowing the Mortgage Loan’s Investor: There is no uniform federal policy concerning COVID-19 and suspension of mortgage loan foreclosures. The response varies by loan investor. Many outstanding mortgage loans are subject to rules imposed by these five major investors: Fannie Mae, Freddie Mac, Federal Housing Administration (FHA), Veterans Affairs (VA), and the U.S. Department of Agriculture’s Rural Home Service (RHS). The following are tools to quickly determine which investor’s foreclosure suspension rules apply to a particular homeowner’s mortgage loan:
- • Fannie Mae and Freddie Mac have easy loan look-up websites to determine if they own a mortgage. See https://ww3.freddiemac.com/loanlookup/ and https://www.knowyouroptions.com/loanlookup#.
- • To determine if a loan is FHA-insured, look for an FHA case number on the mortgage document, specific language in the mortgage and note forms, or through the payment of an FHA premium on the mortgage statement. In some cases, unfortunately, loans may have been stripped of their FHA-insured status; call HUD’s National Servicing Center at 877-622-8525 if there are questions.
- • A VA-guaranteed loan also has specific language in the note and mortgage identifying it as a VA loan, and there are fees paid to the VA noted in closing documents.
- • While a borrower with a mortgage directly extended by the RHS will be very familiar with the agency, homeowners with privately serviced RHS-guaranteed loans often do not know the loan’s status. If an RHS-guaranteed loan is suspected, directly ask the servicer to review the homeowners’ closing documents.
Links to Foreclosure Moratoriums and Suspensions by the Major Mortgage Investors:
- • FHA — https://www.hud.gov/sites/dfiles/OCHCO/documents/20-04hsgml.pdf
- • VA — https://www.benefits.va.gov/HOMELOANS/documents/circulars/26_20_8.pdf
- • USDA Direct (bottom of page 1) — https://www.rd.usda.gov/sites/default/files/USDA_SA_COVID19_SFHContinuity03202020.pdf
- • USDA Guaranteed — https://www.rd.usda.gov/sites/default/files/USDA_RD_SA_Foreclosure_and_Eviction_Relief_COVID19_NationalEmergency.pdf
- • Fannie Mae — https://singlefamily.fanniemae.com/media/22261/display
- • Freddie Mac — https://guide.freddiemac.com/app/guide/bulletin/2020-4
Federal Banking Agency Guidance on Mortgage Servicing and Loan Modifications
Federal Reserve, FDIC, NCUA, OCC, CFPB, and the Conference of State Bank Supervisors have issued an Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus (March 22, 2020) .
California Actions Limiting Foreclosures and Evictions
California (nonjudicial foreclosure), Executive Order N-28-20 from Governor (March 16, 2020, effective to March 31, 2020): Suspends state preemption of local government regulation of evictions, including post-foreclosure evictions. Localities may restrict evictions in cases where nonpayment was caused by income reduction or increased household expenses.
Student Loans, Other Debts Owed to the Government
Temporary Relief for Federal Student Loan Borrowers: CARES Act § 3513 provides relief for student loan borrowers with Direct Loans and also for FFEL loans, but only those FFEL loans currently owned by the U.S. Department of Education. Critically, not protected by the CARES Act are borrowers with Perkins Loans and borrowers whose FFEL loans are still held by banks or guaranty agencies. One estimate is that this is upwards of 9 million student loan borrowers not covered by the Act.
Direct Loan and covered FFEL borrowers will have their payments suspended through September 30, 2020. See CARES Act § 3513(a). While student loan payments are suspended, the loans shall not accrue any interest, the month of a suspended loan payment will be treated as if a loan had been made for purposes of loan forgiveness and loan rehabilitation. See § 3513(b), (c). In addition, the suspension period will result in no negative credit reporting and involuntary collection of the loan will be suspended—no wage garnishments, tax intercepts, offset of federal benefits, or any other collection activity. See § 3513(d), (e). Borrowers will be provided notices of all of these rights within fifteen days of the CARES Act’s enactment. See § 3513(g). For more detail, go here.
Department of Education Press Release (March 20, 2020): All borrowers with federally held student loans will automatically have their interest rates set to 0% for a period of at least 60 days. In addition, each of these borrowers will have the option to suspend their payments for at least two months to allow them greater flexibility during the national emergency. This will allow borrowers to temporarily stop their payments without worrying about accruing interest. For more detail about the suspension of interest charges and payment forbearance, see this article from NCLC’s Student Loan Borrower Assistance site.
Department of Education, Coronavirus and Forbearance Info for Students, Borrowers, and Parents: includes more detail on the suspension of interest accrual and loan payments, with additional Q & A on other topics relevant to students in school, student loan borrowers, and their parents.
Treasury Offset Program Technical Bulletin # F2020-7 (March 26, 2020): Effective immediately, the U.S. Department of the Treasury has exempted the Social Security Administration’s (SSA) benefit payments from offset. This exemption will remain in effect through September 21, 2020. During this time, SSA benefit payments will not be offset to satisfy delinquent non-tax debts in the Treasury Offset Program. This is largely duplicative of CARES Act student loan provisions for Direct Loan and certain FFEL student borrowers, but has implications for millions of other student loan borrowers and others owing government debts, such those owing mortgage deficiency judgments arising from FHA loans. For more on federal government collection of debts, See NCLC’s Collection Actions Chapter 10.
Protection of CARES Act Payments to Individuals: The CARES Act provides for $1200 payments to many Americans with an additional $500 for each child. These amounts are generally protected from seizure by the United States for debts owed to the United States. See CARES Act § 2201(d).
State Actions Regarding Utility Service and Telecommunications
Suspension of Telecomm Terminations: The FCC has obtained promises from over 1000 telecommunication companies to comply with the following guidelines for at least the next 60 days: not terminate service if the termination is based on an inability to pay caused by the COVID-19 epidemic; waive any late fees where late payment was caused by the epidemic; and open its Wi-Fi hotspots to the public. A list of the companies is found here.
State Utility Commission Suspension of Utility Disconnections: Almost half the states have imposed a moratorium on utility terminations. The list is growing, but as of now government bodies have ordered disconnection suspensions statewide in:
- • Arizona;
- • California;
- • Connecticut;
- • District of Columbia;
- • Illinois;
- • Indiana;
- • Iowa;
- • Kansas;
- • Kentucky;
- • Louisiana;
- • Maine;
- • Maryland;
- • Massachusetts;
- • Mississippi;
- • New Hampshire;
- • New Jersey;
- • New York;
- • North Carolina;
- • Ohio;
- • Pennsylvania;
- • South Carolina;
- • Vermont;
- • Virginia;
- • West Virginia (regulators are “urging” utilities to suspend disconnections); and
- • Wisconsin.
In addition, click here to see statements from every state utility commission as to its policy re COVID-19 and disconnections. This state tracker is being updated frequently. Additional updated information can be found here.
Important Note re Municipal Utilities and Rural Electric Cooperatives: Whether the above utility termination suspension orders apply to municipal utilities and rural electric cooperatives depends on the state, who issued the order, that state’s emergency laws, and the wording of the proclamation order. In a few states, the state’s billing and termination rules apply to municipals. In most states, however, municipal utilities are not covered by a PUC order. They would be covered if the order is issued by a governor, and that state’s laws give the governor broad enough power to cover not just the regulated companies but virtually any business, and the wording of the order/proclamation makes it clear that it applies to ALL utility providers. In addition, municipal utilities may abide by a state suspension order even if it is not legal binding on them, or may on their own decide to suspend terminations. For example, Anchorage Alaska Water and Wastewater Utility and Municipal Light & Power have declared a moratorium on all shutoffs.
Voluntary Company Suspension of Utility Terminations: Even when not required by the state commission, a number of utilities are suspending terminations, including but not limited to: Ameren, American Electric Power, Dominion Energy, Duke Energy, Evergy, FirstEnergy, Georgia Power, NV Energy, PECO, PG&E, Southern California Edison, and Xcel Energy. The trade association for many utility companies, Edison Electric Institute, announced that its members are suspending electricity disconnections for nonpayment nationwide. A list of EEI members is available here and a map of their service territories is available here.
More About Utility Suspensions: Some of the above mandated and voluntary suspensions of service apply to late fees as well, but others do not. Some utilities are voluntarily reconnecting customers and Wisconsin, for one, is requiring it for previously disconnected customers as long as utility companies can do so in a safe manner. Some of the mandated suspensions of disconnections are short-lived, such as only through the end of March, while others are open-ended. Some state moratoriums also apply to telecommunication services and some states have issued moratoriums specifically preventing termination of telecommunication or cable services. See, e.g., Kansas and Maryland.
Door-to-Door Sales by Competitive Suppliers:
Collection Lawsuits, Debt Collection, Repossessions (Private Creditors)
The provision applicable to creditors and collectors provides that it is unfair or deceptive for any creditor or debt collector to threaten or act upon: a new collection lawsuit; garnishment, seizure, or attachment of the debtor’s wages or property; a motor vehicle repossession; a capias warrant; a visit to the consumer’s household or place of employment; or communicate in person with the consumer. Exceptions are made for mortgage loans, rent, and utilities.
The provision applicable to debt collector phone calls declares it unfair and deceptive for a debt collector to initiate a telephone communication, either live or recorded, to the debtor’s residence, cellular telephone, or other telephone number provided by the debtor. Exceptions are made for communications initiated by the debtor, for informing the debtor of a rescheduled court hearing, or for debts involving mortgage loans or rent payments.
The impact of court closures on judicial foreclosures, collection actions, and the like. Closure of courts to in-person hearings and limits on telephone/video hearings to essential matters may place a hold on judicial foreclosures, manufactured home replevin actions, collection lawsuits, and requests for post-judgment remedies. However, depending on their specific terms, these court closure orders and stays may not automatically stop the running of certain important deadlines, such as post-foreclosure redemption periods.
Is a debt collector a non-essential business? When a state closes non-essential businesses, does this relate to debt collectors? This may depend on the specific wording of a governor’s order. Nevada explicitly defines collectors as a non-essential business, but West Virginia’s order provides that they are an essential business.
Another issue is that debt collectors may be calling from out-of-state, and thus whether they should be closed may depend on a closure order in their state of residence and not the state where the consumer resides. On the other hand, a state’s closure order may apply to out-of-state debt collectors who are licensed in the state that issued the closure order. Another question is whether debt collectors can communicate from their homes even if they cannot communicate from their usual location that may involve multiple personnel present. On the other hand, existing state law may limit locations from which collectors can initiate communications.
What about repossessions? Unclear is whether a vehicle repossession is in violation of a cease business order, and also whether the seizure in these conditions should be considered a breach of the peace, particularly if the repossession occurs while the debtor or others are present.
To see other state restrictions on price gouging in an emergency, see NCLC’s Unfair and Deceptive Acts and Practices §§ 4.3.11 and 220.127.116.11.
A state-by-state tracker for COVID-19 fines and fees suspensions is found at the Fines & Fees Justice Center, by scrolling down past their policy recommendations.
Banking and Bank-Extended Consumer Credit
The federal regulators that oversee federal banks are encouraging banks to work with their customers to help them meet their financial needs, including waiving certain fees, increasing credit limits for some borrowers, and offering payment accommodations including modifying terms on current loans due to temporary financial hardship due to COVID-19. For more information, see materials by the Office of the Comptroller and the Federal Deposit Insurance Corporation.
CARES Act § 1113(b) excludes stimulus checks and other payments from being considered as income for purposes of the chapter 7 means test and for determining in chapter 13 cases the amount to pay unsecured creditors. These payments are excluded from “currently monthly income” under Bankruptcy Code § 101(10A) and “disposable income” under § 1325(b)(2). This permits debtors in bankruptcy cases to keep stimulus payments and not have them used to pay creditors or deny bankruptcy relief. This provision applies to any case filed before or after enactment of the CARES Act.
CARES Act § 1113(b) also prevents current chapter 13 cases from failing by permitting debtors to extend the term of their plans in order to have additional time to pay critical debts. Many debtors will lose income and not be able to stay current with plan payments. While courts will likely suspend payments during the crisis in any event, existing law would not have permitted debtors to extend their plans beyond a term of five years. If plans could not be extended, many debtors would not be able to cure mortgage defaults, pay car loans and other secured debt, or pay priority claims such as tax obligations and child support. CARES Act § 1113(b) permits a debtor who has experienced a material financial hardship due, directly or indirectly, to the COVID-19 pandemic to seek a modification of the plan that will extend the period of time for payments on claims for up to seven years after the date the first payment was due after plan confirmation. This provision applies to any chapter 13 case in which the plan was confirmed before enactment of the CARES Act.
The provisions described above will sunset one year after enactment.
U.S. Trustee Program Notice on Continuance of Section 341 Meetings (March 16, 2020): “Effective immediately, all in-person chapter 7, 12, and 13 section 341 meetings scheduled through April 10, 2020, are hereby continued until a later date to be determined. Absent special circumstances, section 341 meetings may not proceed during this period except through telephonic or other alternative means not requiring personal appearance by debtors. Appropriate notice will be provided to parties in accordance with bankruptcy law and rules. Meetings already noticed as telephonic meetings may proceed as scheduled.”
U.S. Trustees Office re Audits: Effective immediately, the USTP is suspending its designation of new individual chapter 7 and chapter 13 cases subject to audit for an indefinite period.
The Commonwealth Fund is keeping track of state actions related to private insurers’ coverage of COVID-19 critical services.