By Miriam C. Li
Soon after the outbreak of the COVID-19 global pandemic, Congress authorized several stimulus programs to support American businesses, including the Small Business Administration’s (SBA) Paycheck Protection Program (PPP). The SBA recently extended deadlines for PPP loan applications to May 31, 2021, opening the doors for more borrowers to apply for loans during this round of funding.
Although the SBA program extended critical support to Main Street businesses through forgivable PPP loans, struggling mom-and-pop shops are not the only borrowers that received PPP loans. In addition to supporting the restaurant, hospitality, and entertainment industries, millions of dollars in PPP loans also went to predatory debt collectors.
Although some predatory debt collectors technically qualify for the program, there is little logic in allowing these businesses to access PPP loans. Unlike Main Street businesses that have been struggling to survive during the pandemic, many debt collectors have been raking in profits during the pandemic.
Over the past few decades, debt collection businesses have become increasingly large and lucrative. The industry has an estimated market size (measured by revenue) of $13.4 billion, and makes profits by relentlessly pursuing, and even suing, millions of Americans each year to obtain payments. The businesses rely on rules which allow them to obtain default judgments in most lawsuits, and studies indicate that less than 10% of consumers sued by these businesses have court representation. These lawsuits are most common among Americans who make less than $40,000 a year, and can worsen the already precarious financial situations of individuals struggling to pay off debts.
Unfortunately, the pandemic has exacerbated hardships such as loss of employment and medical emergencies that often cause families to default on loans or get behind on credit card payments. Nevertheless, debt collectors have continued to filing thousands of lawsuits during the crisis.
In the wake of revelations that predatory debt collectors received millions of dollars in PPP loans, Congresswoman Suzanne Bonamici and Congresswoman Marie Newman introduced the Ceasing Undeserved Relief Benefits for Debt Collectors Act (CURB Debt Collectors Act), which would prevent debt collectors who have violated the Fair Debt Collection Practices Act from accessing the program. Public Citizen has endorsed the bill, and strongly supports Congresswoman Bonamici’s efforts to bar predatory debt collectors from accessing taxpayer–backed stimulus funds. PPP loans should serve businesses that support jobs and communities, not debt collectors that use unfair or deceptive tactics to extract money from financially vulnerable Americans.
Notably, this issue is not only one of financial regulation—it also has important implications for racial equity. Although millions of people struggle with unpaid debts each year, communities of color are disproportionately impacted by this burden. Credit data from December 2020 indicates that 39% of communities of color have debt in collection compared to 24% of white communities, facing higher percentages of medical debt and student loan debt despite lower annual incomes. This phenomenon helps reinforce racial wealth disparities in the United States and harms the financial stability of struggling families.
Despite overwhelming evidence that aggressive debt collectors hurt the most vulnerable Americans, politicians have taken steps that serve debt collectors’ interests during the pandemic. As the American Rescue Plan passed through the Senate, a group of Democratic lawmakers attempted to bar debt collectors from garnishing people’s $1,400 stimulus checks for debt payments. Sen. Pat Toomey blocked the amendment, effectively opening the doors for debt collectors to profit from aid meant to support struggling families. Catering to predatory debt collectors during a crisis that has left millions without income and food security is morally repugnant and should have no place in our government’s response to the COVID-19 crisis.
The CURB Debt Collectors Act should therefore be implemented as quickly as possible, and further efforts must be made to bar all predatory debt collectors from participating in government stimulus programs. Lawmakers should be making every effort to protect constituents from predatory debt collection practices, and barring these debt collectors from government COVID relief aid is an important step towards fulfilling this responsibility.