New York City Debt Collection Defense Attorneys

5 Surprising Trends of Covid-19’s Impact on Consumer Credit and Debt Collection

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]

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]

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 concern.


[4] FOIL Officer, Office of Court Administration, 2018 New York City Civil Court Consumer Credit Filings (April 5, 2019). https://www.nycbar.org/member-and-career-services/committees/reports-listing/reports/detail/report-on-the-consumer-credit-fairness-act#_ftn1

Categories: