AFSA Testifies on Capitol Hill

AFSA President and CEO Celia Winslow will be testifying on Capitol Hill later this morning, examining legislative proposals to strengthen consumer protection. AFSA’s testimony, which you can read here.

Debt settlement companies advertise themselves as a magic bullet, a way to reduce debt and an alternative to bankruptcy. Consumers enrolling with a debt settlement company are directed to stop making payments and communicating with their creditor, and instead to make monthly payments to a new account, build up funds, and wait for the debt settlement company to negotiate a settlement with the creditor.

These companies are actually misleading consumers into financial jeopardy with false promises. Accounts default, balances swell with interest and late fees, credit scores collapse, collection calls and lawsuits follow. For this, settlement companies charge 15 to 25 percent of the consumers’ debt.

The industry’s own report states that the average settlement takes more than 14 months to complete and roughly one in four enrollees goes three years without settling an account. Consumer complaints reveal that some programs never settle, and it’s not unusual for consumers to end up owing more to the debt settlement company than they did to the creditor.

More troubling still: this industry now recruits people who are not in trouble. TransUnion recently matched lender enrollment records against its national credit database. Fifty-three percent of enrollees were current on their bills the day they signed up. Their card balances had roughly doubled in the two years before enrollment – with no warning signal to lenders. This is not an industry rescuing desperate consumers. It is an industry manufacturing them.

A consumer in Prior Lake, Minnesota suffered a house fire and with it $37,000 in credit card debt. She did everything her settlement company asked. In her words: “They were telling me they were going to be making the payments … but it was not true.” She learned the truth only when a creditor called her directly. A Michigan consumer paid $27,000 into a program, then discovered that just $5,780 had gone to her father’s creditors. A Maryland college student’s credit score dropped 300 points; one creditor sued him. And a Texas servicemember got a second opinion from a nonprofit counselor and learned what his settlement company never told him: the defaults it required could have cost him his security clearance.

The data confirms these are not exceptions. TransUnion tested the industry’s central promise – that settlement is a better path than bankruptcy – and rejected it. Consumers who were current at enrollment saw their median credit scores plunge 96 points. Bankruptcy filers lost 20. The product sold to millions of Americans as the responsible alternative to bankruptcy performs worse than bankruptcy on the very thing it claims to protect.

Why does this keep happening? Consider the regulatory imbalance. AFSA’s members operate under more than 20 federal financial laws and hundreds of state statutes. The debt settlement industry, by its own trade association’s account, answers to exactly one federal regulation: the FTC’s Telemarketing Sales Rule, written in 2010. It is – literally – a telephone rule. Today’s industry recruits through social media, influencers, search engines, and text messages. A regulation written for the call centers of 2010 simply cannot prevent harm that today, for the most part, occurs without a phone.

Enforcement alone cannot close that gap. When the CFPB and seven states sued one “attorney model” enterprise for collecting $100 million in illegal upfront fees, the money was already gone. That is cleanup, not protection.

And note who agrees with us. AFSA and the National Consumer Law Center – lenders and consumer advocates, on the same side – jointly warned that loosening these rules would spread debt resolution services that do “more harm than good.” So what should be done? AFSA suggests:

First, pass the Debt Settlement Consumer Disclosure Act. It does four common-sense things: it covers the full enrollment chain, including lead generators and marketers; it extends protections to every channel where consumers are actually recruited, not just the telephone; it requires a monthly statement for every enrolled debt, so no consumer waits a year to learn her money never reached her creditors; and it bans the deceptive advertising claims that even the industry’s largest player could not substantiate.

Second, pass H.R. 5967, the Strategic Task Force on Scam Prevention Act. The same social media ecosystem that sells “credit hacks” markets debt settlement to consumers who are current on their bills. A coordinated federal, state, and private-sector strategy is the right response to fraud that costs families billions each year.

Third, keep investing in financial literacy. Every consumer harm AFSA noted today begins at a moment when a consumer in distress does not know her options. The AFSA Education Foundation’s MoneySKILL program has taught personal finance to more than one million students – because the most durable consumer protection is a consumer who understands her choices.

Consumers in distress already have real lifelines that do not require default: hardship programs from their lenders, and nonprofit credit counseling. The difference is real money – in one nonprofit’s comparison, settling $40,000 of debt costs $3,704 in fees through its program, versus $12,720 through a typical for-profit settlement company. One consumer who found her way to a nonprofit counselor put it best: “I only wish that more people that are in my situation knew that there are options out there.” Congress can ensure they do – so the next person seeking a lifeline gets one, and not just another loss chalked up as a lesson learned.

July 22nd, 2026

AFSA Testifies on Capitol Hill

AFSA Testifies on Capitol Hill

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