The COVID-19 pandemic sparked huge disruption in almost every part of the economy – and the debt collection sector was no different. Last year, the International Monetary Fund calculated that the pandemic added approximately $19.5 trillion of global debt.
The economic impact of the pandemic was felt almost immediately; many consumers and businesses quickly began experiencing insolvency, creating unprecedented issues for debt collectors who needed to keep their own operations afloat. As a result, legislation has been introduced aiming to protect consumers from pandemic-related insolvency, which has in turn permanently changed the debt collection industry.
The economic stress of the pandemic has been widespread and led to millions of people running up significant amounts of debt. Because of this, governmental bodies have adapted and strengthened existing legislation to protect consumers and businesses living with debt.
In the US, the FDCPA implemented an Interim Final Rule (IFR) that amended Regulation F to protect consumers from being falsely informed that they are ineligible for temporary protection from eviction as a result of insolvency. An IFR is a ruling that is adopted and effective within a maximum of 30 days. This ruling demonstrates the FDCPA’s commitment to protecting consumers during a difficult economic period.
In the UK, the government enacted the corporate insolvency and governance act in 2020. This act consists of permanent and temporary measures to update the insolvency regime and protect businesses from the economic effects of the pandemic. Courts can sanction “fair and equitable” restructuring plans for businesses that are struggling with debt. During this period, a debt collector cannot contact the business without the court’s approval, allowing them “breathing space” to recover. The act includes various other temporary and permanent safeguards that have reshaped the debt collection process.
One result of the various restrictions that have arisen from pandemic-related debt legislation is a greater emphasis on communication between consumers and debt collectors. In order to distinguish whether the debt collector is legally able to pursue a debt, they are required to have all the relevant information from the consumer to make an informed decision. In practice, this has meant collectors have had to overhaul their communication strategies to prioritize building stronger, more open relationships with customers. Moreover, it’s beneficial for consumers and businesses to have an open stream of communication with debt collectors to understand and communicate their situation.
Both the UK and the US have stronger protections in place for consumers who have been negatively impacted by the pandemic. On the other hand, debt collectors are well within their rights to pursue consumers that have not been negatively affected by the pandemic. In order to distinguish between the two, a better understanding of insolvency is required from debt collectors.
Establishing which consumers must not be contacted for collections is paramount for debt collectors to act in line with legislation. Debt collectors must collect the relevant information that includes factors such as reasons for insolvency, industrial sector and economic circumstance to make the correct decisions. A better understanding of the consumer can lead to a stronger relationship and beneficial outcomes where both parties are understood.
It is clear the debt collection industry has seen some irreversible changes since the beginning of the pandemic. Most of these changes have made things better for both collectors and consumers, allowing for more cooperative relationships between both parties. At C&R Software, we put the customer and debt collector relationship at the top of our priorities, with our market-leading software and tools helping to strengthen these relationships.
The Debt Manager solution is designed to make the collection process simpler, more effective and more responsive to consumer needs. Our optimized system results in a more streamlined process for agents and consumers alike, and provides all the relevant information to ensure compliance.
Contact us today to learn how we can help you build a more tailored experience for your customers’ individual needs, keeping you fully compliant with all legislation.