Tom Curry

In response to the COVID-19 pandemic, elected officials and government regulators have been taking steps to address the economic downturn. There has been much attention on small business, but consumer protection is also a key focus, including emergency restrictions in Massachusetts and Boston on credit reporting, residential mortgage foreclosures, and rental evictions. Among these measures is Attorney General Maura Healey’s emergency regulation, Unfair and Deceptive Debt Collection Practices During the State of Emergency Caused by COVID-19, issued under the authority to write rules under Massachusetts’ consumer protection statute, Chapter 93A.  

Healey’s effort has run into a legal roadblock. On May 6, Massachusetts federal district court judge Richard Stearns granted a temporary restraining order halting certain emergency debt collection regulations issued by Healey’s office.  The court determined that the regulation, which restricted third–party debt collectors from making phone calls and restricted third–party debt collectors and creditors from filing lawsuits, likely violated the First Amendment rights to freedom of speech and to petition the government, deciding that the regulations would irreparably harm collection agencies and creditors alike.  

Dan Hartman

Healey’s Emergency Regulation  

The emergency regulation declares it an unfair and deceptive practice for third party debt collectors and creditors to initiate, file or threaten new collection lawsuits, in addition to other legal remedies and interactions with debtors like in-person visits. The regulation also declares it an unfair and deceptive practice for a third party debt collector “to initiate a communication with any debtor via telephone.”   

The emergency regulation was put in place to last for the duration of the Massachusetts’s state of emergency or 90 days, whichever is shorter. The regulation also exempted certain debts (mortgages, tenant debts, and telephone, gas and electric bills) as well as certain classes of collector (including certain nonprofits and federal employees, among others).    

ACA International, the country’s largest debt collection industry group, brought the lawsuit challenging the regulation, asking for a TRO on multiple constitutional and state law bases. As part of their argument, the plaintiff noted that this regulation restricted their First Amendment rights to free speech and government petition, and left them with only one option to collect a debt – sending traditional letters in the mail – and noted that letters are much less effective than phone calls when it comes to collections practices.  

Court Finds Violations 

In his opinion issuing the restraining order, Judge Stearns identified the speech at issue as protected “commercial speech,” which receives constitutional protections in which courts apply “intermediate scrutiny” to laws that infringe on that speech (as opposed to a “strict scrutiny” standard on laws infringing on purely noncommercial speech). Applying the lower level of scrutiny, the judge still found that the government’s interest in shielding consumers from aggressive debt collection practices and promoting domestic tranquility during the pandemic did not satisfy the restrictions being proposed, especially given the attorney general’s decision to exempt mortgage debt collections in which the judge found little basis for the distinction.  

Blake C. Tyler

Perhaps most importantly, the judge noted that Massachusetts law already incorporates the federal Fair Debt Collection Practices Act into state law under Chapter 93A, in addition to its own statute on unfair debt collection practices and debt collection regulations issued by both the Attorney General’s office and the state Division of Banks.  

“While I laud the Attorney General’s desire to protect citizens of Massachusetts during a time of financial and emotional stress created by the COVID-19 pandemic, I do not believe that the Regulation adds anything to their protections that the existing comprehensive scheme of law and regulation already affords to debtors, other than an unconstitutional ban on one form of communication,” Judge Stearns wrote in his opinion. 

A Victory for Creditors 

For similar reasons, the court also determined that restricting debt collectors’ and creditors’ right to file lawsuits to collect on a debt likely violated the right to petition the government under the First Amendment.  

As part of his analysis granting the restraining order, Judge Stearns analyzed the irreparable harm the regulations would have on smaller collections businesses’ ability to function, hospitals’ ability to collect medical debt to maintain solvency and the efficient functioning of the credit market in the commonwealth. 

The court’s decision is a victory for collectors and creditors looking to sustain their business model during the economic downturn. Importantly, however, it is also an indication that the Attorney General’s office is particularly sensitive to these consumer protection issues during the pandemic. Accordingly, regulated entities should continue to maintain compliance with applicable state and federal debt collection rules to avoid additional future litigation and enforcement risk. 

Thomas J. Curry is a partner in Nutter’s corporate and transactions department. Daniel W. Hartman is an associate in Nutter’s litigation department. Kate Henry and Blake C. Tyler are associates in Nutter’s corporate and transactions department. Curry is former U.S. comptroller of the currency and all are members of the firm’s banking and financial services group.