COVID-19 Debt & Your Credit: Long-Term Impact on Jobs, Housing & Credit

Long after the COVID-19 health emergency ends, many Americans will still suffer from the long tail of the pandemic’s economic devastation. For people on the country’s economic fringes, the proliferation of data analytics tools to monitor consumer life – driven by companies that profit from gathering personal data – will magnify today’s financial hardship.

These companies scrape data from your public records, social media interactions, purchase history and smartphone location tracking. Using powerful technologies, they fuse your data into digital profiles that landlords, employers, lenders and other gatekeepers to life’s necessities use to sort and screen people.

As a clinical law professor who represents low-income people in consumer cases, I’m concerned that the pandemic’s economic fallout will be permanently embedded in these profiles, making it harder for people to regain their economic footing.

Eviction moratoriums

Over 41 million people have lost their jobs in the wake of the pandemic. Amid rising unemployment, many states and cities have placed temporary moratoriums on evictions.

New York Gov. Andrew Cuomo, for example, has halted evictions until Aug. 20. After June 20, however, tenants seeking relief will have to prove that they qualify for unemployment insurance or are suffering financial hardship. And with passage of the CARES Act, Congress paused evictions in federally subsidized housing until Aug. 23.

But when these eviction moratoriums expire, the accumulated bills will come due. One in 4 renters were already spending more than half of their income on rent before the pandemic. In its aftermath, these numbers will only rise because millions of people may remain out of work or be forced to take lower paying jobs.

Grassroots advocates have called for a cancellation of rent during the pandemic, along with financial protections for property owners. But without further legislative action, we can expect a tsunami of housing displacement. This will result in further difficulties, such as increased homelessness and relocations to less safe neighborhoods, for years to come.

Digitally coded hardship

The effects of an eviction can last long after a housing situation is resolved. Companies capture evictions in people’s credit scores and digital profiles. This impacts people’s ability to secure new housing because landlords often rely on digitally assembled tenant screening reports or computerized court records to select tenants.

People are also accruing debt in a scramble to pay for food, cover utility bills and maintain internet access for work and school. Before COVID-19, medical debt was the primary driver of two-thirds of personal bankruptcies. With the cost of inpatient COVID-19 care ranging between US$20,000 and $70,000, the pandemic will likely add to these debt burdens.

These exploding debts will lower people’s credit scores and appear in other digital profiles. Consequently, many people will be denied loans or pay higher rates for them. They may also find it impossible to pay for a car, hook up utilities or even find employment because many employers use automated systems that analyze personal data in order to target and select potential employees.

For consumers able to negotiate with credit card companies and stick to a payment plan – two big uncertainties – the CARES Act stipulates that credit accounts must reflect that they are up-to-date in payments. Still, this provision provides no bulwark against the largely unregulated industry of data brokers.

The debt spiral

Predatory financial companies also use profiling tools to entice struggling consumers with payday loans. In general, these products are short-term, high-interest loans. In the 31 states without laws limiting such high-cost loans, interest rates average nearly 400% but can be as high as 661%. A vast majority of people cannot repay these loans, forcing them to rollover into new loans, creating a debt spiral trap.

COVID-19 has spurred the aggressive marketing of these high-interest loans to economically vulnerable Americans.

These payday loans and other debts eventually fall into the hands of debt collectors. One in 3 Americans has a debt in collection. These cases dominate civil dockets across the country, and 70% of them result in default judgments, meaning there was no trial.

But that doesn’t mean there are no consequences. People with judgments entered against them can find their wages and bank accounts garnished. Some people land in jail. Courts have issued arrest warrants for unpaid debts as small as $28.

In a majority of states, private debt collectors can seize individual stimulus payments made under the CARES Act. Recently, a 79-year-old recovering from brain surgery had his stimulus check taken from his bank account to satisfy a five-year-old judgment. Debt collection lawsuits are yet another data point merged into digital profiling that a future landlord or employer may review in assessing applicants.

Experts agree on steps that would counter the harms of digital profiling. Lawmakers can extend eviction and foreclosure moratoriums, provide tenants with rental assistance and extend unemployment insurance. They can halt debt collection, prevent predatory lending and protect stimulus checks. And funding for civil legal services can help more people understand their housing and consumer rights amid a shifting landscape.

Additionally, Congress can authorize comprehensive privacy legislation to give people control over their data and oblige companies profiting from personal data to obey consumer wishes.

Amid the current health and economic crisis, political leaders would do well to ensure that people are not trapped forever by the digital footprints they are unwittingly leaving today.

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