eNews April 16

In the News

April 16, 2020


COVID-19 Legislative Update


Summary and Current Outlook

Social distancing necessitated by COVID-19 has shut down more than 60% of the U.S. economy, creating a unique, temporary recession combined with the largest spike in unemployment in U.S. history. Congress has addressed this in a series of three legislative packages, to provide emergency funding for existing programs, as well as to help stabilize businesses that have had to shut their doors during the crisis.

The largest of the three packages by far was the Coronavirus Aid, Relief, and Economic Security (CARES) Act, which was signed into law on March 27, 2020. The legislation included several new programs to support businesses that maintain their payroll, along with other liquidity programs to keep larger business afloat during social distancing. A summary of the minor collections provisions is included below.

Members of Congress have since left Washington to be in their home districts during social distancing and aren’t expected to return until May 4 at the earliest. While initially Speaker Pelosi wanted to move onto the next COVID-19 stimulus package with a focus on infrastructure, talks have shifted to another bipartisan round of economic stability measures and funding, similar to the CARES Act.

Collections Provisions Included in the Final CARES Act

The CARES Act included one section dealing with bankruptcy, which is summarized below. All of the provisions will sunset after one year, returning back to current law.

  • Temporarily increases the eligibility threshold to file under Subchapter V of Chapter 11 of the U.S. Bankruptcy Code to businesses with less than $7,500,000 of debt. The increase sunsets after one year and the eligibility threshold returns to $2,725,625.
  • Amends the definition of income in the Bankruptcy Code for Chapters 7 and 13 to exclude coronavirus-related payments from the federal government from being treated as “income” for purposes of filing bankruptcy.
  • Clarifies that the calculation of disposable income for purposes of confirming a Chapter 13 plan shall not include coronavirus-related payments.
  • Explicitly permits individuals and families currently in Chapter 13 to seek payment plan modifications if they are experiencing a material financial hardship due to the coronavirus pandemic, including extending their payments for up to seven years after their initial plan payment was due.

Concerning Collections Provisions Introduced in the House and Senate

Two bills were introduced in the House and Senate that, while they are very unlikely to advance, are concerning. We recommend members reach out to their House Member and their two Senators in opposition to S. 3565 and provisions that harm American manufacturers’ ability to recoup losses in the event of bankruptcy. The Capitol Switchboard can be reached at 202-224-3121, or send an email by visiting your Congressperson’s website.

H.R. 6379, the Take Responsibility for Workers and Families Act (Lowey, D-NY)

Negotiations leading up to the passage of the CARES Act involved lawmakers introducing many new legislative ideas, with an expectation that many would not be included in the final package. At one point, negotiations broke down for nearly a week, and House Democrats introduced their own version of the CARES Act, H.R. 6379, that was effectively their “wish list.” H.R. 6379 was largely ignored as the two sides came together eventually to pass the much more bipartisan CARES Act. As soon as progress started again on the CARES Act, H.R. 6379 was discarded, and it hasn't seen any movement. We do not expect it to advance.

Summary of H.R. 6379 Collections Provisions

H.R. 6379 contained language that would significantly impact debt collection throughout the duration of the emergency declaration. The prohibitions and limitations would go into effect on the date the bill is signed into law and would expire upon the termination of the national emergency declaration from the Federal Emergency Management Agency (FEMA). There are some actions which could not be commenced or continued until the 120-day period following the end of the COVID-19 emergency, which are noted below.

While debt collection which began before the date of enactment could continue, there would be serious curtailment of mechanisms to recoup payment. A debt collector—which would, by definition in the bill, include all NACM members—would not be able to do the following during the duration of the emergency:

  1. Capitalize unpaid interest;
  2. Apply a higher interest rate triggered by nonpayment;
  3. Charge a fee triggered by nonpayment;
  4. Sue or threaten to sue for nonpayment;
  5. Continue litigation to collect a debt that was initiated before the emergency;
  6. Submit or cause to be submitted a confession of judgment to any court;
  7. Enforce a security interest through repossession or foreclosure;
  8. Take or threaten to take any action to enforce collection of debt or for nonappearance at any hearing relating to a debt;
  9. Commence or continue any action to collect a debt through garnishment of wages or Federal benefits, until after the 120-day period following the end of the emergency;
  10. Cause or seek to cause the collection of a debt by levying funds from a bank account or by seizing any other assets of a consumer, until after the 120-day period following the end of the emergency;
  11. Evictions; or
  12. Disconnect or terminate utility services.

Collectors also would not be able to add any interest or fees to the debt collection once these restrictions have been removed, following the termination of the emergency declaration. The bill also would mandate that collectors communicate with consumers in writing only during the COVID-19 emergency and that the communication must indicate that it is for informational purposes only and not an attempt to collect a debt.

S. 3565, Small Business and Consumer Debt Collection Emergency Relief Act of 2020 (Brown, D-OH)

S. 3565 has similarly seen little attention. Originally introduced on March 22, the bill has not gained any additional cosponsors, indicating that Sen. Brown is not aggressively pushing the bill or asking other Senators to support it. We have not heard anything about the bill from Financial Services Committee staff. At this point, it remains just a messaging bill for the Senator.

Policy-wise, S. 3565 is substantively almost identical to the debt collection language proposed in the House appropriations bill, H.R. 6379. The primary difference is that the time period begins the day after the president declared a major disaster and/or the day after the date of enactment of the Act and ends 120 days after the end of COVID-19 emergency.

This means that some provisions could be back-dated to March 11, 2020, the date of the federal emergency declaration, and that all prohibitions/restrictions would terminate 120 days following the end of the emergency declaration, as opposed to only a few provisions in the House bill that include this extended timeframe. The bill would go into effective whenever the president declares a national emergency (but would not apply in the event of a regional emergency, such as a hurricane).

S. 3565 includes the same restrictions and prohibitions on collecting a debt as H.R. 6379, including prohibiting the addition of fees or interest on past due balances following the end of the incident period, and also mandates communication in writing only and for the sole purpose of providing information.


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The Benefits of Volunteering for NACM and How to Get More Involved

—Christie Citranglo, editorial associate

Volunteering for local NACM Affiliate Boards has a variety of benefits—learning about other industries, feeling more confident around the sales team in the office, getting out of daily ruts and more—and connecting with local Affiliates has never been more important during times of uncertainty. With April 19-25 being National Volunteer Week, the time to get more involved with local Affiliates has become even more important.

“I think I’m a much more complete credit manager than I would have been otherwise,” said Gregory Foster, CBA, who serves as the chairperson for NACM Southeast. “It’s the exposure to all the different industries and the folks who work in those industries and the challenges that they encounter. Sharing that information helps shape your decision-making process and just gives you a much better base of knowledge on which to draw.”

With that knowledge, credit managers can expand their horizons by connecting more with their colleagues. Being caught up in one corner of the office each day can sometimes get credit managers stuck in a loop of one-way thought processes—especially if the credit manager has been in credit for several years.

“It’s so easy, as a credit manager, to do the same things over and over again and not realize what’s happening around you,” said Lori Marino, CBA, who serves as the chairperson for NACM Tampa. “[Volunteering] keeps you involved so you’re able to grow and continue to grow, even if you’ve been doing this for a long time, instead of becoming stagnant.”

As a volunteer on a local board, a credit professional has the opportunity to learn from various industries. Approaching decisioning from different perspectives can lead to more nuanced credit decisions. And if a credit professional is in a generally under-represented industry, volunteering gives the credit professional a way to educate others on industry-specific issues that any credit manager can grow from.

“Feeling good about doing something for other members,” said Arturo Tigera, who serves as first vice chairman for NACM South Atlantic. “When I go to my local food credit group meetings, I tell them it helps us gain a platform to be heard and to be able to push forward in more ways. That’s been very valuable.”

The benefits of volunteering manifest for each credit professional differently, and on the surface, the idea of volunteering can seem intimidating. Dedicating more time to an already-demanding profession may seem daunting, but even giving a small amount of time to volunteering can make a crucial difference for the association and for the credit professional.

“Volunteers are, in my opinion, very important to the association … It is a worthwhile investment of your time,” said Erica White, CCE, chairperson for NACM Connect. “There are ways to get involved using a minimal amount of time, and it’s a very good way to help the association continue to grow and thrive.”

Getting more involved can be as simple as attending more local trade group meetings or trying out more educational meetings. Taking the first step to be a volunteer can be the most daunting, but experienced credit professionals are there to help each new volunteer out along the way.

“[My service to NACM] has evolved into more of a business camaraderie with other credit professionals that has allowed me to bounce ideas off of them and share credit policy thoughts,” said Brooks Odom, who serves as the second vice chairman for NACM South Central. “This has been a huge help. I would encourage other credit managers to explore these types of possibilities in their industries and regions.”



SMBs Struggle to Access Loans, Doubt Survival After Pandemic

—Andrew Michaels, editorial associate

Small- to medium-sized businesses (SMBs) across the country are in need of a lifeline. Many have temporarily closed their doors, while others are hanging on by a thread to stay open and maintain some form of operation during COVID-19. The latter may soon face a new round of challenges, however, as the Small Business Association (SBA) and banks struggle to keep up with the demand for loan assistance.

According to Fortune, $349 billion in forgivable loans, known as the Paycheck Protection Program (PPP), was granted to small businesses in their time of need as part of the $2.2 trillion coronavirus stimulus bill passed last month—a program which is now out of money. While there are more than 30 million small businesses in the U.S., the magazine reported, 880,000 applications were approved—a total of $217 billion—since the launch of PPP on April 3.

“SBA will forgive loans if all employees are kept on the payroll for eight weeks and the money is used for payroll, rent, mortgage interest or utilities,” the SBA website states. “[Applicants] can apply through any existing SBA 7(a) lender or through any federally insured depository institution, federally insured credit union, and Farm Credit System institution that is participating. Other regulated lenders will be available to make these loans once they are approved and enrolled in the program.”

SMBs with up to 500 employees qualified, the website states. This month, PYMNTs released a survey, “Main Street on Lockdown: How SMBs are Coping with the Economic Fallout of COVID-19,” that found SMBs will grapple with business long after the pandemic ends. Based on results from more than 200 responding SMBs, one out of four said they “doubt they will weather the pandemic.” Furthermore, 32.4% said they do not have excess cash or ready-to-access cash.

“Stable SMBs are the most likely to have ready access, but even firms with cash on hand worry they may not survive the pandemic,” the survey states. “Our research shows that 62.9% of unstable and 62.9% of unsure SMB owners say they have cash reserves available. That so many SMBs are uncertain about whether they can survive—despite having access to emergency reserves—speaks to how dire the pandemic has been for Main Street businesses.”

From the credit side, Pace Analytical Corporate Credit and Collections Manager Claudia Kuniholm, CCE, said her company anticipates a rise in bankruptcies among their clients in the coming months.

“I had already noticed an uptick in the number of accounts this year in our small- to medium-sized clients,” Kuniholm said. “I think this fallout will continue for a period of time after the pandemic concludes.”

It's going to be a challenging time for credit managers across the board, she added.


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Is Your Legal Information and Knowledge Up-to-Date?

Stay current with essential legal updates to the Manual of Credit and Commercial Laws. All 2020 editions are available now!

Volume I: General Business Law, Related Statutes and Collection
Volume II: Commercial and Consumer Credit Topics
Volume III: Construction Issues
Volume IV: Bankruptcy and Insolvency Issues

Order your volumes today from NACM’s online bookstore.

Order your volumes today from NACM’s online bookstore.



Credit Departments Fight Back Against Coronavirus Impact

—Michael Miller, managing editor


Impacts of the coronavirus outbreak are reaching far and wide. Businesses and individuals have been hit extremely hard during this uncertain and difficult time—fighting for personal safety, the economic success and future of the company, etc. Credit departments are no different, also fighting back against the impacts of the pandemic. While health requirements and recommendations are handed down from government agencies, credit departments are setting up their own guidelines to protect the health and well-being of employees and their companies.

“I’m running credit reports 10 days out—not 30 days to try to catch things earlier,” said Kathy Fischer, credit manager with Valor Oil Company. Trying to figure out the risk of a new or current customer without a global pandemic is tough enough on its own. Throwing in the outbreak only makes credit decisioning and the process of onboarding new customers more difficult.

Martha Hirsch, CCE, CICP, chief financial officer for Alloy Machine Works, is doing her best to evaluate customers during this time. “I’m trying to do a fast evaluation—run reports, check references—and I make a decision,” she said. “I’m probably making some riskier decisions; unless they’re really, really bad, I’m giving them normal payment terms. I have really loosened up on the credit evaluation side.”

The coronavirus has impacted how businesses and employees are working, if they are lucky enough to not be let go during the outbreak. But it’s not easy for credit departments. “We’re working longer hours … 12-hour days,” said Jon Hanson, CCE, CCRA, vice president-director of corporate credit with OVOL USA. “It’s the bad kind of extra hours where you are putting out fires—it’s a fire drill.”

Businesses looking for ways to stay afloat are having to make hard decisions. They are looking to keep revenues at or near current levels to avoid having to make staffing cuts and trying other ways to reduce expenses. In NACM’s “Coronavirus Credit Impacts March 2020” survey, nearly a quarter of respondents said their company had an employee reduction due to the outbreak. Over 57% reported a loss of revenue.

While OVOL is mainly a supplier of paper and paper products, “JanSan is doing fairly well,” said Hanson, referring to janitorial and sanitation supplies. “We sell everything from urinal cakes to chemicals used for cleaning. There’s a very big demand, but it’s not the biggest portion of our business.” The bulk of the revenue is coming from commercial printing, but luckily all the eggs aren’t in one basket.

“Racing fuel has almost come to a dead stop,” said Fischer. Races have been canceled, so there’s nothing going on in that industry, leaving Valor Oil sitting on a lot of fuel. Sales, especially inside sales at their convenience stores, have also slowed. But there hasn’t been a slowing on the commercial/construction side. Fischer has actually seen new customers, mostly farmers she said, due to the low cost of fuel.



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