Pre-Pandemic

1) Before the pandemic, debt-collection-industry revenue has trended downward.

Debt-collection-industry revenue has declined in recent years, decreasing from an estimated $13.5 billion in 2013 to $11.5 billion in 2018.[1] The number of debt collection firms has also continued to decline as the result of industry consolidation.[2]

2) Since 2006, collection lawsuits in New York City have dropped significantly.

In 2006 alone, approximately 320,000 consumer-debt lawsuits were filed in the five boroughs; this number is comparable to the total number of civil and criminal cases filed in the federal trial courts nationwide that year.[3] In 2018,100,186 consumer-debt lawsuits were filed in the New York City Civil Courts.[4] But widening the data points from 1993 to 2013 nationwide, the number of debt collection suits more than doubled, from less than 1.7 million to about 4 million.

Post-Pandemic

3) Panicked consumers used less credit, which boosted credit scores.

In the early months of the COVID-19 pandemic, panicky consumer behavior led to lower borrowing. High unemployment, lockdowns, strict social distancing, and general uncertainty lowered credit utilization (total credit used).[5] Using less credit is generally referred to as credit card deleveraging.

Lower credit utilization bumped up credit scores by 6 points on average for people with mortgages, and 11 points for those without mortgages.[6]

"The abrupt swings in economic uncertainty and the large U.S. government transfers were probably the main differences between the 2020 downturn and the Great Recession."[7]

4) Stimulus money helped consumers save and pay down debt despite 10 million fewer jobs; Consumer-credit delinquencies are below pre-pandemic levels.

According to Moody’s Analytics, the economy is down about 10 million jobs, yet consumers have used stimulus money to save and pay down debt. Stimulus money has put more cash in people’s pockets. But this “spike” of “after-tax” income will soon end with no more stimulus money and unemployment benefits having been cut. “It’s surprising given the magnitude of the pandemic,” says Scott Hoyt, Senior Director of Moody’s Analytics. Consumers have had the good sense to shed high-interest debt using stimulus money. Also curbing delinquencies were “high levels of accommodation” (forbearance and other breathing room given by student-loan lenders, banks, mortgagees, and credit-card companies).

5) Still, some debt collectors have made a fortune in this “unpredictable economy.”

Thanks to the CARES Act, the bill “delivered hundreds of billions worth of stimulus checks and bulked-up unemployment benefits to Americans, while easing pressures on them by halting foreclosures, evictions and student-loan payments.”[8]

Encore Capital, this country’s largest debt buyer, blew past $200 million in profit in 2020 and rewarded stockholders with 40% earnings growth compared to last year.[9] Despite the temporary closing of courts, debt buyers are back at it filing thousands of cases per week.[10]

“The flood of government aid, along with the sudden contraction in spending due to COVID-19, has led to an ‘unpredictable economy,’ one where unemployment has shot up without the usual tide of delinquencies, bankruptcies and foreclosures. But now, banks are predicting that tide to finally arrive in the coming months.”[11]

6) New York Extensions of Time During Covid-19

The COVID-19 pandemic disrupted many sectors, including the New York court system. Recognizing this, Governor Cuomo initiated a series of executive orders to aid creditors who might miss filing actions within the statute of limitations due to court closures.

During the pandemic's early days, Executive Order 202.8 halted the statute of limitations clock for civil cases, notably debt collection, up to May 15, 2020. This aimed to help creditors who couldn't file due to the court's shutdown from March 25 to May 15, 2020. Following this, Executive Order 202.67 extended this halt until December 1, 2020.

Delving into the Executive Orders

A hot topic in NY litigation post-pandemic centered on whether the stay only applied to cases expiring within the 251-day window (March 25-December 1, 2020) or if all claims accrued before or during the stay received an added 251 days to lodge a case.

There was initial ambiguity: was the stay a “suspension” or a “toll”? In NY legal terms, a suspension merely postpones the expiration to the suspension's end date. However, a toll pauses the statute of limitations for a set time, excluding this time from the statute’s duration.

The debate was settled when numerous lawsuits prompted the courts to review the executive orders. Their consensus was that the stay was a toll, deduced from the language of Executive Orders 202.8 and 202.67.

Implications for Debtors and Creditors

For instance, if you're a creditor and your client breached their contract within the 251-day tolling duration, you'd receive an extra 251 days from the original statute of limitations deadline to initiate action. But this is only available if the statute of limitations was set to expire after March 25, 2020.

For better understanding: Imagine you secured a loan on July 5, 2016, but defaulted on September 1, 2016. Typically, in NY, the statute of limitations for such claims lasts 2190 days, which would end on August 31, 2022. Counting from September 1, 2016, to March 25, 2020, 1308 days passed. This means the lender had 882 days left when the toll started. When the toll ceased on December 1, 2020, the 882 days resumed, positioning the statute of limitations to end on July 10, 2023, or 251 days after August 31, 2022.

Notably, this tolling is exclusive to limitation periods set by NY state procedural laws. It doesn't affect limitation durations in private agreements. For instance, if a June 2020 contract set a 1-year limitation period, these executive orders wouldn't alter it.

Creditors relying on the additional 251 days should ensure their complaints refer to the statute of limitations toll per the executive orders.

7) Consumer Spending is Roaring in Some Areas

According to McKinsey & Company, consumer spending has increased in Quarter 2 of 2021 thanks to increasing vaccination rates. Spending is actually on a higher growth trajectory (4.7%) than it was pre-pandemic.[12]

28% of consumers are spending significant sums improving their workspaces at home.[13]

70% of consumers expect to continue working remotely. E-commerce showed an astounding 40% growth over the preceding 12 months.[14]

8) Major Consumer Protections Announced in Response to COVID-19

This helpful article, Major Consumer Protections Announced in Response to COVID-19 outlines the various federal and state protections for financially distressed consumers. Most debt types are covered under The Coronavirus Aid, Relief, and Economic Security Act or the ‘‘CARES Act.’’

Two other relevant blogs:

1. Prioritizing Consumer Debt Based on Risk. A Comprehensive Legal Guide
2. 15 FAQ’s about Statute of Limitations, Debt Collection, and Credit Reporting

As always, do not hesitate to call 888-271-7109 or contact us with any debt concerns.