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CFPB Evolutions in Debt Symposium Overview

In early March, the CFPB held a convening on The Evolutions in Debt Relief.  The purpose of the event was to explore options for consumers facing unmanageable unsecured debt and limited credit options. The convening was first announced to the public in early February and it was meant to be an event open to the public on a first RSPV first serve basis. Because of the rapid increase of Covid-19 cases in the US, theCFPB closed the event to the public and instead broadcasted it live via YouTube. The entire six-hour discussion is still available for viewing on the CFPB website, but we have taken the initiative to dissect and analyze all six-hours for you in one place to keep you informed without taking too much of your time. 

The event consisted of five panels, each discussing a different relevant topic in the debt relief industry. The overall tone of the convening was that serious changes need to be made by all parties involved in the debt relief space, and it is only by creditors, credit counselors, bankruptcy attorneys, and debt services companies being transparent and working together that changes can be made and consumers can get the debt relief help they need. Unfortunately, quite a few of the panelists found this convening as an opportunity to air grievances solely toward debt settlement companies, without looking internally at their own issues as well. After the summaries of the panels please find our summary and views on what this event means for the debt services industry and your business.

Debt Relief Options Through Creditors

The event opened with a panel on debt relief options through creditors with representatives from the American Bankers Association; the Marketplace Lending Association; and the American Financial Services Association. As representing creditors, all of the panelists were on the same page when it came to a few things. Creditors agreed that they wish to change the communication rules between creditors and debtors. When debtors find themselves in default, they are often submerged with voicemails and physical mail which inevitably pushes them away from creditors to a debt settlement company. Often a debtor begins working with a debt settlement company without advising their creditors of their move, leaving a cease and desist letter being the creditor’s first notice of the move.  The panelists felt that this does not give creditors enough time to provide their debtors (debtors that they view as “their customers”) with all of the options available to them. Additionally, creditors cannot warn debtors of the negative side effects to them leaving their creditors in the dark all together. A panelist added that often the first communication a creditor receives from a debtor which indicates that the debtor is on the verge of defaulting is when they send a change of address to the creditor with their debt settlement company’s address as their new address. This then makes constructive communication between the creditor and debtor impossible. 

The panelists also agreed that there needs to be a change in the lengths currently imposed for short term and long-term assistance – consumers need a longer-term option that would allow debtors to pay less per month but for a longer period of time. Lastly, the creditors agreed that debtors need to be educated more on the options that creditors can provide them when they find themselves in a time of hardship. The novel coronavirus was mentioned as a current time of hardship that many debtors will be facing,  and an emphasis was placed on how the virus will impact many peoples source of income and ability to pay their debts. Creditors wish they could thoroughly explain the options of loan modification, loan cure, and payment deferment to their customers which may be necessary on a case by case basis, especially in times of dire need.

Third-Party Debt Relief Offerings

The panel on third party debt relief offerings was led by representatives from Cambridge Credit Counseling; Financial Counseling Association of America; Century Support Services; Law Offices of John T. Orcutt, P.C./National Association of Consumer Bankruptcy Attorneys; and Legal Services of the Hudson Valley. The tone of this panel centered around the dire need for debtor financial education. Debtors need to be educated more on all of the options availed to them, and more options need to be made available to them by creditors, credit counselors, bankruptcy lawyers, and debt settlement companies. The credit counselor and debt settlement company highlighted the importance of providing their customers with financial education that will help debtors both during the program and after they’ve graduated. All panelists agreed: financial education and trusting the information you are receiving as a debtor is most imperative. Debtors are usually overwhelmed by the amount of information and letters they get from so many different creditors and debt buyers leaving them frozen and unsure where to begin. The panelists, though all part of different sectors within the same industry agreed that the best practice that should be implemented by all industry players is providing thorough financial education and building trust within the community from the very beginning of the relationship, not solely after default. 

Debt Relief Innovation/FinTech Discussion

The panel on debt relief innovation and fintech led by Payzen, Inc.; Creditly; Resolve Innovations, Inc.; and LendStreet, was very focused on the future of the industry and what “disruption” in this industry could look like. Panelists did not have an exact answer for how the tech industry might work to shape the debt relief community, but they did explain the logic behind why they believed a change was needed: debt settlement companies. These tech company panelists were not afraid to point directly to debt settlement companies as the “sole villain” that they were trying to defeat when creating these fintech innovation companies. The panelists believed that their companies could shift the narrative within the industry and move debtors away from an environment that, in their words, does not have the debtors’ best interest at heart.

Many of these fintech companies understood that they were being supported by investors, and often investors do not hold the customers best interest at heart, but they were aligned on the fact that the investors in their companies had to be prepared to be “social impact investors” rather than investors who are focuses solely on returns. Profit will always be a large part of being an investor, but as a self-defined social impact investor you’re ready to look beyond dollars and more toward the community you’re helping to rehabilitate. To these panelists the key to changing this industry in a positive direction would include having a market-based solution, where the NorthStar is the consumer, is key. 

Consumer Journeys Through Debt Relief

The discussion on consumer journeys through debt relief was led by Consumer Education Services, Inc. (CESI); Greenbacks Consulting; Jason Graeber Law Offices/National Association of Consumer Advocates Member; Consumer Bankers Association. The panel focused on marketing and when the conversation should start between debtors and creditors or debtors and debt settlement companies. If you google “debt settlement” you will receive plenty of marketing ads and information from hundreds of companies that are willing to sell you on their product. The ads are often over generalized and due to debtors’ lack of intricate financial literacy most of these programs seem to reap similar “extraordinary” benefits without explaining the downsides as well. The industry here wishes to see the marketing curtailed in this area and forced to follow stricter guidelines on how much they must reveal to the consumers coming to their site; to see what debtors options are and what the process will actually be like. Currently, according to these panelists, the debt settlement process is quite hidden, so with an increase in transparency on what happens before, during, and after this process is over – to the debt you own and your credit score – that is most important information to give people. The panel agreed that there must be more research done on the terms that are marketed to consumers and disclosing what debtors end up actually paying and spending at the end of their program.

Future of Debt Relief: Emerging Opportunities and Challenges

The convening ended off with a panel that was perhaps the most relevant to debt settlement businesses, on the future of debt relief: emerging opportunities and challenges. The last panel was comprised of the entire industry including, debt settlement companies, credit counselors, bankruptcy attorneys, and creditors: Freedom Debt Relief; National Consumer Law Center; National Foundation for Credit Counseling; and Marlette Funding, LLC. Freedom Debt Relief, as the only debt settlement company on the panel took the brunt of the attacks on the sector as a whole. Panelists discussed how disclosures of what will happen during the debt settlement process is critical and people involved actually understanding what goes on instead of assuming what happens during the process is most important to improve efficiency and effectiveness during negotiations. In the entire debt relief industry, there is a lack of standards and consistency which exacerbates the difficulty to “shop while stressed.” Debtors are not sure which player in the industry they should turn to.  The panel did not agree on much, especially in terms of how current debt settlement companies market their product and provide service to their clients, but they did agree that having these conversations and being open and transparent with each other is a good first step in learning how to improve the process as a whole. The only way to move forward as a debt relief services industry is to improve each option available and explain thoroughly the implications and differences behind choosing one over the other. 

Our View 

We applaud the CFPB for hosting the event, especially since Covid-19 will surely impact the debt relief industry as a whole. With the Covid-19 quarantine and social distancing guidelines has come unprecedented unemployment rates and job loss – debtors defaulting on debt obligations will only continue to surge and increase. Consumer bankruptcy will certainly likely increase in the near future. With that in mind both credit counseling and debt settlement companies will also likely see a surge in their services shortly as well. As almost each of the panels highlighted, the entire industry should be working together not against one another. The few snide remarks and quasi attacks on debt settlement companies will not further this collective objective. Consumers and debtors need to hear all of their options and information about all of the options when making such a life changing decision. We look forward to continuing communication with the entire industry and seeing an increase in transparency on all fronts. 

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