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Chicago debt collection attorneysAccording to the August report from the U.S. Federal Reserve, the amount of unpaid credit card debt in the U.S. has been dropping since the start of the COVID-19 pandemic. Outstanding consumer credit card debt in July was reported as $994.7 billion, which is down from $996.8 billion in May and $1.078 trillion in Quarter 1 of 2020. Declining credit card debt is a predictable response to a downturn in the economy. In fact, both consumers and credit card companies have changed their behavior because of the pandemic

Consumers’ Approach to Debt Has Changed

Millions of Americans lost their jobs, were put on leave, or had their hours reduced in response to the COVID-19 outbreak. When consumers are uncertain about their job income, many will become more risk-averse about taking on credit that they may not be able to repay. The pandemic affected the activities of cardholders in several ways:

  • Many stores where consumers might use their cards were closed for weeks or months because of state mandates.
  • Consumers are staying at home more often, which means they spend less on travel and dining.
  • Most consumers received stimulus payments from the federal government, which some used to pay down their credit card balance.

How Credit Card Companies Have Adjusted

Credit card companies have also responded to the economic effects of the pandemic to protect themselves and help their clients. Many companies are working with existing customers who are facing an unexpected economic hardship that makes it harder for them to make monthly payments. Companies can provide relief by modifying the debt agreement to reduce monthly payments and interest rates or to waive late fees.

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b2ap3_thumbnail_Creditors-Rights-Debt-Collection.jpgOne of the first steps creditors take when owed money by a debtor is to try to collect the debt themselves without going to court. The creditor may contact the debtor directly or hire a debt collection agency. While debt collection agencies can be effective, there are federal laws in place to protect debtors against what are seen as unfair practices by collection agencies.

The Fair Debt Collection Practices Act outlines how debt collection agencies may contact and interact with debtors. If a court finds an agency in violation of the act, the agency may owe damages to the debtor. The Act does not apply to the creditor, but the result of a collection agency violating the Act may be the failure to retrieve the money the creditor is owed.

Creditors should understand what debt collection agencies can and cannot do. Choosing an agency that violates the law will delay and complicate the collection process, likely requiring further legal action.

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Illinois Creditors Bar Association Chicago Bar Association Illinois State Bar Association
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