CFPB’s First Report on Debt Relief Services: Debt Settlement and Credit Advice
The Consumer Financial Protection Bureau (CFPB) released a very first.
The big picture: The CFPB report shows:
- Almost one in thirteen consumers with a credit history had at least one account declared by the creditor as settled or with payments handled by a credit counseling agency (CCA) from 2007 to 2019.
- Debt settlements increased dramatically during the Great Recession to a high of $ 11.4 billion. More than half of these settlements occurred within one year of the account’s first failure.
- Debt settlement and credit counseling have become less common after this recession, but recently settlements have increased as a result of the evolution of defaults and the credit crunch.
- Since 2017, there has been an increase in reported settlement activity and settled balances alongside an increase in defaults, but no corresponding increase in credit counseling. The report says the changes may reflect evolving policies for managing accounts of creditors, CCAs, and debt settlement companies (DSCs), as well as apparent increases in the presence of DSCs in the market.
- CCA activities may not see corresponding increases if current trends continue and the menu of consumer debt relief options does not change.
The report uses data from the CFPB Consumer Credit Panel, a nationally representative sample of approximately five million anonymized credit records maintained by one of three national consumer reporting agencies. The CFPB notes: that the analysis only includes payments provided by the creditor and not the accounts provided by a debtor; the reporting practices of debt buyers varied over the period analyzed; and also, not all accounts managed by a CCA are necessarily declared as such by the supplier, so the number of accounts is underreported in this data. This report is one of a series of quarterly reports on consumer credit trends.
To monitor : The CFPB says the report builds on recent foundational work undertaken by the Bureau to promote market discussions highlighting evolving options for consumers no longer able to manage their unsecured debt. In particular, the CFPB held “Developments in the Debt Relief Summons“, March 10, 2020.
The backdrop: Debt relief services have long been one of the most regulated industries in the United States, due to the role providers play in helping financially troubled consumers. Debt relief services are also provided in the context of consumers’ contractual obligations to their creditors to repay amounts owed, and laws and regulations that govern creditors and their collection activities. Direct regulation of debt relief services occurs at both the federal and state levels, including potentially under state laws that require licensing and open the company to supervisory review by the ‘State. The Telemarketing Selling (TSR) rule was amended in 2010 to meet the Debt Relief Service Telemarketing. The changes to TSR instituted various disclosure requirements and other consumer protections, including the prohibition of upfront fees in the third-party debt settlement industry. The Federal Trade Commission and CFPB share the power to enforce consumer protection laws with respect to non-bank financial institutions, including the TSR with respect to debt relief services.
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