It is no secret that millions of Americans are struggling under financial pressures from inflation. Most Americans look at gas and grocery prices as a proxy for overall inflation. Add in higher interest rates and higher costs for healthcare, and a rational person would conclude that any effort to restrict access to debt relief programs seems like terrible policy. Responsible debt relief is a legitimate, regulated option that helps many with unsecured debt regain financial stability.
Many families don’t have the same access to debt relief options as the wealthy or large corporations. Alternatives to declaring bankruptcy or being delinquent on payments on existing debt give Americans a safe, practical way to right a family’s financial ship. Unfortunately, opportunistic groups are espousing policies that will hurt Americans and put more roadblocks between consumers and debt relief opportunities.
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There is a common problem in Washington in which federal policy is marketed as helping middle- and low-income Americans, yet it does the opposite. Sometimes this happens when one sector of the economy gains political favor over another. Often, consumers are harmed when powerful special interests prevail over sound policy. Consumers should be trusted to make their own financial decisions without the federal government placing obstacles between them and a service or product they desire, such as debt relief programs.
Sadly, the American Financial Services Association has emerged as a strident voice opposing greater consumer choice in debt relief. AFSA was established to “promote safe, ethical lending to responsible, informed borrowers and to improve and protect consumers’ access to credit.” That sounds like a noble cause. Yet AFSA represents banks, finance companies, and other creditors whose financial interests are directly affected when consumers pursue debt relief. When consumers successfully reduce or resolve debt, creditors often recover less than the full amount owed. It should come as no surprise that AFSA advocates lender interests over expanding consumer access to debt relief options.
The problem with AFSA’s position against access to debt relief is that it is not a neutral player in the financial services marketplace. It represents lender interests, not consumers struggling under mounting debt. For vulnerable populations, including survivors of domestic violence, servicemembers, and their families, responsible debt relief can be an essential tool for overcoming financial hardship. An example of the group’s activities is a letter the AFSA sent in 2022 to Congress relating to a provision in the fiscal 2022 National Defense Authorization Act opposing a dedicated credit-reporting ombudsman to aid veterans and current service members in dealing with errors in credit reporting.
American consumers are struggling under a mountain of debt today, and these debt consolidation programs can help. The National Black Caucus of State Legislators cited studies that concluded, “Debt settlement clients receive as much as $2.64 of debt reduction for every $1.00 of fees paid for settlements.” The NBCSL also cited a debt relief study written by Greg J. Regan, which found in 2018 that “debt settlement companies settled more than $5 billion of unsecured debt for consumers, saving more than $1.6 billion for the nation’s most financially challenged consumers.” These debt consolidation programs give struggling consumers a powerful advocate to help them dig out of a mountain of debt, because debt consolidation companies and entities have more negotiating power than an individual consumer.
A debt relief program could take the form of a single new loan or the consolidation of loans that cover existing debt. Some give the cash to consumers or to creditors. This allows multiple forms of debt to be consolidated into one payment plan. This makes sense for many who await an economic upturn that will provide them with more opportunities to earn more money without falling into a spiraling debt canyon.
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These are not unregulated options. The debt relief financial services sector of the economy is regulated by the Federal Trade Commission and the Consumer Financial Protection Bureau. The FTC has imposed regulations prohibiting upfront fees and requiring greater disclosure by these entities. The CFPB also regulates the industry, in addition to individualized state requirements. Any argument that more regulation is needed would only add more obstacles between financially distressed consumers and legitimate debt relief options.
Today, debt relief programs are under attack by powerful interests at a time when they are most needed. Federal and state politicians should take into account the current state of the economy before limiting options for Americans in need of relief.
Brian Darling is former counsel for Sen. Rand Paul (R-KY).
