When should a consumer get a hardship programme rather than a standard payment plan?

Two different tools

A standard payment plan spreads what the consumer owes over a schedule on the normal terms, inside the plan rules the agency and its client have set (promise to pay or payment arrangement). A hardship programme changes the terms themselves for a consumer whose circumstances have changed, for example with lower payments or lower interest and fees for a period.

The clearest descriptions come from the regulators of the creditors who run them. The federal banking agencies’ credit card guidance (2003) separates two kinds:

• Temporary hardship programmes help borrowers through temporary financial difficulties. One that runs longer than 12 months, renewals included, is treated as a workout.
• Workouts close the account and put the balance on a fixed repayment schedule under concessionary terms. They are meant for a customer who cannot repay on the original terms but shows the willingness and ability to repay on the modified ones. The guidance says workouts should be designed to reduce the principal as far as possible and should generally aim for repayment within 60 months, which can mean cutting interest and fees substantially.

For credit unions, the NCUA’s loan workout policy statement (Appendix B to Part 741) says a workout can help a member through temporary difficulties such as losing a job, a medical emergency or a change in family circumstances, and must balance the member’s interests and the credit union’s.

The questions that decide it

In our view, these questions, drawn from the guidance above and from collection practice, decide which tool fits:

1. What changed, and for how long? A short, clear setback, such as a gap between jobs, points to a temporary programme. A lasting change points to a longer workout, if the client offers one.
2. Can the consumer pay on the normal terms? If the standard plan’s payments fit their budget, a hardship programme is not needed.
3. Are they willing and able to pay on modified terms? Both the banking guidance and the NCUA policy statement turn on this.
4. Does the client have a programme for this kind of account, and does the account qualify? In a PDCflow recap of an AccountsRecovery.net webinar (2020), one panellist, Beth Conklin, suggested checking whether a consumer whose situation has not improved qualifies for the creditor’s financial assistance programmes. Tax-exempt hospitals are required to have one (angry or overwhelmed consumers covers it).
5. Has the account had help before? The NCUA’s policy statement expects a credit union’s written workout policy to limit how many times one loan may be modified.

Getting there takes the conversation described in handling "I can’t afford it": ask what changed and what the budget looks like now, before any offer. The listening side of that conversation is covered in why empathy matters on a collection call.

What to document

The NCUA’s policy statement expects credit unions to have a written workout policy that defines who is eligible and bases each decision on the borrower’s renewed willingness and ability to repay, with heightened documentation expected where a loan is restructured more than once a year or twice in five years. The same habits suit a collection floor. For each hardship arrangement, record:

• what the consumer said changed, and when;
• the budget figures the decision rested on;
• which programme was applied, and who approved it if the client requires approval;
• the terms, the review date and what happens at the end of the period.

Send the terms in writing. The CFPB tells consumers to get a plan and the collector’s promises in writing before making a payment. Then review it: Conklin suggested checking in on plans after a few months, because circumstances change in both directions.

Whose programme it is

Hardship programmes, their eligibility rules and their terms belong to the agency and its clients. A collector offers what has been approved. Megan Bryant, another panellist on the same webinar, noted that many creditor clients do not let agencies negotiate for them, and suggested taking the consumer’s offer to the client, who may accept it or counter. A collector must not describe relief the client has not agreed to: Regulation F’s rule on false or misleading representations forbids misstating the character, amount or legal status of a debt. Your compliance team and counsel decide how programmes are offered; BestPair does not provide legal or compliance advice.

Sources

• OCC Bulletin 2003-1, Account Management and Loss Allowance Guidance for Credit Card Lending: interagency guidance from the federal banking regulators on workouts, temporary hardship programmes and settlements.
• NCUA loan workout policy statement: Appendix B to Part 741, the NCUA’s policy statement on credit union loan workouts, in the eCFR.
• Payment negotiation tips for past due accounts: PDCflow, a payments vendor, recapping an AccountsRecovery.net webinar with three agency leaders.
• How do I negotiate a settlement with a debt collector?: the CFPB’s advice to consumers on payment plans.
• Regulation F, false, deceptive or misleading representations: the CFPB’s text.