Relief programs created during the COVID-19 pandemic provided many Americans with pauses on their largest debts, particularly mortgages and student loans. Other people came to agreements with auto loan and credit card lenders about payment. This relief helped many people survive, freeing up money to pay for necessities. But forbearance does not equal forgiveness, according to a commentary in The Hill written by Profs. Pamela Foohey of the Benjamin N. Cardozo School of Law, Dalié Jiménez of the University of California, Irvine School of Law and Christopher K. Odinet of the University of Iowa College of Law. People will have to face the debt obligations that come with mortgages, auto loans, credit cards and student loans. Yet in the interim, people have faced persistent unemployment and depleted what little savings they may have had. Many will likely be unable to resume all of their regular debt payments. And people who did not need forbearance during the pandemic may find themselves in danger of defaulting on their debts, according to the commentary. The pandemic disproportionately harmed communities of color, particularly Black women. Given these households’ pre-existing wealth disparities, Black Americans and other minorities are likely to bear the brunt of the economic fallout of the pandemic, according to the commentary. Part of this fallout will be a need to ask their lenders for loan modifications. The professors are calling on the Consumer Financial Protection Bureau (CFPB) to use its authority to prevent what we term modification failures. This is when a borrower’s ability to repay is intentionally, negligently, or merely inattentively not taken into account during loan modification discussions. The CFPB has the authority to identify abusive acts or practices by a wide-range of financial institutions, including issuers and servicers of certain auto loans, credit cards and other installment or revolving loans. It can issue a compliance and enforcement bulletin directing loan servicers to make a reasonable determination that a borrower has the ability to make all required, scheduled payments in connection with any modification. Read more.
*The views expressed in this commentary are from the author/publication cited, are meant for informative purposes only, and are not an official position of ABI.
