President Trump campaigned on a promise to help the forgotten men and women of America, the millions of Americans who have lost good jobs, have seen their wages stagnate, and who are drowning in debt. His proposals for tax reform and tax cuts, infrastructure investments, and regulatory relief will help restore economic growth in the long run. But the best short-term solution is to help people get out of debt and back on their feet.
Americans now owe $1 trillion in credit card debt, more than at any time since the Great Recession. Half of American families are living paycheck to paycheck, with little set aside for financial emergencies. Millions of Americans are mired in debt, besieged by abusive debt collectors.
Congress could take one small step to relieve the financial distress of millions of Americans and help them become active participants again in our economy. This one step would free people from the clutches of predatory debt collectors, and help millions of Americans struggling with debt achieve financial stability.
This proposal would provide a tax credit to encourage banks to stop selling their delinquent debt to debt collectors, and instead to donate the debt to qualified non-profit organizations set up to work with consumers to resolve their debt. Under current law, major banks sell their delinquent debt to debt-buying companies, who abuse, harass, and sue consumers and never help them resolve their debt and get back on their feet. This is bad for banks, and bad for consumers.
This one small step would change the way consumer debt is collected, and help relieve the financial distress of millions of Americans. It would help stop debt collection abuses, reduce foreclosures and bankruptcies, and help consumers improve FICO scores. By improving access to consumer credit, it would reduce predatory lending, payday loans, and pawn companies. And by easing financial distress, it would reduce family discord, substance abuse, and other social problems.
Seventy-seven million Americans have at least one delinquent debt on their credit report. An incredible $668 billion of consumer debt is delinquent, and $471 billion is seriously delinquent (at least 90 days late). Nearly half of American families say their biggest financial problems are too much debt, healthcare costs, and low wages, in that order. According to one national survey, six in 10 Americans say they lose sleep at night worrying about money matters, including how to get out of debt.
A major cause of consumer financial distress is the daily abuse millions of Americans face from debt collectors. The CFPB reports that the number one source of consumer complaints they receive is abusive debt collectors. The agency estimates that one in three Americans has been contacted by a creditor or debt collector in the past year. Ten million lawsuits for the collection of debt are filed each year against consumers by debt collectors.
This tax credit proposal would encourage the establishment of non-profit organizations specifically designed to help consumers resolve their debts, honorably without bankruptcies or lawsuits. These non-profits would be required to offer free services to help consumers restructure and resolve their debts, including negotiating with creditors for repayment plans and settlements. They would provide assistance in finding new or better jobs, help identify private and public social services agencies, and provide educational resources and money management tools to help consumers improve their financial futures.
The problem of abusive debt collection is chilling consumer spending and economic growth. It has shut millions of Americans out of our economy. Most of the consumer debt comes from spending on daily necessities, such as food, clothing, housing, and prescriptions, and not from luxury items. Helping people get out of debt will enable them to get back on their feet, and help get our economy moving again.
Bruce Thompson is a former assistant secretary of the Treasury Department during the Reagan administration and a member of the board of the Center for Consumer Recovery.
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