Emergency Guidance on Prohibited Debt Collection Practices

On April 13, 2020, the Wisconsin Department of Financial Institutions (DFI), at the direction of Governor Tony Evers, issued “Emergency Guidance on Prohibited Debt Collection Practices”. The Guide reminds debt collectors of the prohibitions on debt collection under the Wisconsin Consumer Act. And it goes further to warn that what were considered permissible debt collection practices may not be permissible during the State’s lockdown.

As a result of the lockdowns currently endured by “more than 100 countries and billions of people”, “affected families are rationing financial resources until this crisis abates, reserving them for food, medicine, and other essentials. They’re going to miss payments on consumer credit transactions, through no fault of their own, because that is the rational thing for them to do.” [Emphasis added.]

The Guide goes on to point out that repeated telephone calls from a debt collector will not cause a consumer to “behave irrationally” and pay the past due debt instead of essential expenses.

The Guide warns, “Debt collectors who routinely rely on telephone calls as a debt-collection tactic should be forewarned: whether conduct ‘can reasonably be expected to threaten or harass a consumer’ depends on the context, and the worldwide context just shifted dramatically.”

Finally, the Guide reminds us that, “Juries can impose severe consequences against those engaged in prohibited practices under the Wisconsin Consumer Act, including punitive damages and damages for mental anguish and emotional distress.”

The prohibited debt collection practices are found in the Wisconsin Consumer Act at sec. 427.104 and include:

• Initiate or threaten to initiate communication with the customer’s employer unless it is only to verify employment status or earnings;
• Disclose or threaten to disclose to a person other than the customer or customer’s spouse information affecting the customer’s reputation; and
• Communicate with the customer or person related to the customer “with such frequency or at such unusual hours or in such a manner as can reasonably be expected to threaten or harass the customer.”

Those engaged in debt collection should examine their practices in the context of the COVID 19 crisis and the financial stresses it has imposed on consumers. The DFI has given fair warning that, “Debt collectors who fail to respect those hardships should expect to be judged harshly.”

While the Guide issues a stern warning, it should not be taken as a prohibition against legitimate debt collection efforts. A creditor may still reach out to a debtor to discuss a past due debt as long as the prohibited practices are not violated. However, the frequency and urgency of the calls may need to be tempered during the COVID crisis.