In addition to COVID-19 costing billions in national economic losses, the outbreak has caused breaches to an unprecedented number of contracts and, as a result, collection attorneys are in demand.
“Lenders are concerned that some larger portion of their portfolio will be in default that otherwise wouldn’t be in a normal environment but, with COVID-19, there’s going to be an increase in consumers running into trouble and that’s why companies need attorneys to counsel them on these issues," said attorney Brian Frontino, partner at Stroock & Stroock & Lavan law firm in Los Angeles.
Overall, California is a consumer-friendly state. For example, on March 27, Gov. Gavin Newsom issued Executive Order N-37-20 banning eviction for renters impacted by COVID-19 until May 31, 2020. The order also prevents property owners from enforcing evictions using the police department or courts.
“Stimulus checks are exempt from attachments and levying execution,” Frontino told the Southern California Record. “There’s a prohibition on liens and set-offs on stimulus funds but not on criminal restitution payable to victims and child support payments are excluded as well.”
The Judicial Council went much further than the governor to protect tenants on April 6 by suspending new unlawful detainer cases, according to a California Apartment Association (CAA) press release.
“CAA has urged landlords throughout California to exhibit patience and compassion when dealing with residents unable to pay the rent due to COVID-19 hardships,” said Tom Bannon, chief executive officer for CAA.
As for court collections, there are moratoriums on filing new actions, such as garnishments and levying a property.
“It would be difficult to collect a money judgment now,” Frontino said in an interview. “A lot of litigation is stayed so you can’t collect.”
The CARES Act modifications to the Fair Credit Reporting Act aim to freeze the status of accounts in the credit reporting context for consumers who are granted an accommodation.
“The idea is that consumers won’t be treated as harshly but it affects people who use credit reports to make decisions," Frontino said. “It affects the lender because they are getting less money temporarily depending on how the accommodation is structured. There’s a lot of impact when you are talking about millions of people.”
COVID-19 payment accommodations can include deferring or skipping payments, partial payments, reduced payments, or extending payment due dates to prevent delinquencies.
“The environment is very touchy right now,” said Frontino. “Many people have been laid off or are working reduced hours so there’s a tremendous increase in unemployment claims, which will result in consumers making choices about who to pay and how they set priorities.”
The unemployment rate in California rose to 5.3 percent compared to 4.2 percent at the same time last year, according to the state Employment Development Department.
Because of the huge increase in people unable to pay their obligations, banks, financial institutions and companies that rely on consumers to make payments have to deal with how aggressive they can be,” said Frontino.