Colorado SB 20-211: How Will It Affect Your Bottom Line?

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​The Impact of this Statewide Bill on the Collections Industry and Our Clients

​While Colorado faces a rising number of COVID cases, many Coloradans also face lost or reduced wages, mounting bills, and possible eviction. Last June, the Colorado State Senate passed Senate Bill 20-211 to provide relief to consumers affected by the pandemic.

​Initially set to expire on November 1, 2020, the measure will now run through February 1, 2021.

What has been the impact of this bill on the collections industry, and how will it ultimately affect your bottom line?

​​What Is It?
​SB 20-211 is a deferment on "extraordinary collections activity."

Specifically, the bill suspends any collections activity that involves wage garnishment, bank or property levies, and enforcement of judgments on past-due debts.  Here's how it works:

Before a creditor or collector can initiate any of the activities mentioned above, they must notify the consumer that collection action can be suspended if they face COVID-related financial hardship. To take advantage of this suspension, the consumer must inform the creditor or collector that they are experiencing financial difficulty. The consumer does not have to provide any documentation.
 
While the bill has provided welcome relief to families across Colorado, it has also reduced the amount of money recovered by debt collectors for their clients. Let's look at the impact SB 20-211 has had on consumers and the collection industry, as well as some unintended repercussions.
 
What It Means for Your Consumers
SB 20-211 protects consumers from levies and garnishments. Through February 1, 2021, a debt collector may not garnish the first $4,000 in a consumer's bank account, and, in Credit Service Company's case, all property lines have stopped entirely at the request of specific clients. Also, collection agencies may not garnish a consumer's wages if they inform them that they are facing a COVID-related financial hardship.
 
All of this provides consumers and their families with significant relief from past-due debt in uncertain times, if only temporarily. If COVID cases continue on their current trajectory through the winter, another similar bill may be expected sometime in 2021.  

What It Means for Us and You
Lawsuits have long been a staple of the collections industry because they enable collection from consumers who, for one reason or another, do not resolve their overdue debt. 
 
SB 20-211 has effectively limited the scope of this collection tool. For instance, 40 percent of what CSC typically collects for the clients who authorize us to pursue legal action comes from these lawsuits. But SB 20-211 has reduced post-judgement remedies by almost 50 percent of pre-COVID levels.

For a collection agency or creditor, such a decline could lead to layoffs, furloughs, or a reduction of hours for employees — ironically adding to the very problem this bill intended to alleviate. Thankfully, this has not been the case for CSC as it has for other collection agencies.
 
The side-effects of this bill could also impact medical facilities. If agencies like CSC are unable to collect these past-due accounts, healthcare providers could face staff reductions. Recovery from the pandemic could be delayed, with less staff available or overworked employees.

Other Potential Consequences
Another unintended but organic side effect of SB 20-211 is the possible creation of additional fees for the consumer. Whenever a collection agency seeks judgment against a consumer, the consumer, not the client, is responsible for paying the agency's costs. When consumers elect to defer garnishment, they may ultimately incur higher balances because of accrued interest during the deferment. 
 
Suppose the consumer neglects to inform the collection agency of any COVID-related financial hardships. In that case, the agency could move forward with so-called extraordinary collections activity, resulting in higher interest to the consumer.
 
The consumer would then be responsible for paying the original debt with accrued interest, plus legal fees and post-judgment interest. On top of that, the debt would remain on the consumer's credit report for a more extended period.
 
So while Senate Bill 20-211 does provide some relief to Colorado families, it has also reduced remittance balances for both the collections industry and its clients. Again, this bill's unintentional consequences could adversely impact collection agencies, their clients, and the very segment of the population that the legislation intended to accommodate — the consumer.
  
The Silver Lining? 
Tax season is right around the corner, and that is the time of year when consumers are most likely to pay debts, especially those showing up on their credit report. Our clients' best option to ameliorate the effects of SB 20-211 is to continue to list past-due accounts. Those listed in December will begin reporting on a consumer's credit report by February- just in time for tax refunds.

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