If AFSA Is the Target, Ask Who’s Aiming

A recent Washington Examiner op-ed calls AFSA “a strident voice opposing greater consumer choice in debt relief” and suggests our motives are suspect because our members are lenders. We’ll take the compliment on “strident.” The rest deserves a response.

Start with what the op-ed gets right, almost by accident: responsible debt relief can be an essential tool for families in financial hardship. We agree. A number of consumer credit companies offer hardship programs to their own customers, but consumers should also reach out to to nonprofit credit counselors, who settle debts, negotiate payment plans, charge a fraction of what for-profit companies do, and help consumers repay $40,000 in debt for roughly $3,700 in fees instead of $12,700.

But that’s not what the op-ed’s author and the lobbyists for for-profit debt settlement are defending. They’re defending a business model that charges consumers 15 to 25 percent of their enrolled debt and starts by instructing them to stop paying their bills, making it the only industry in America whose first step is manufactured default.

The results of this strategy are documented: the average settlement takes more than 14 months, one in four enrollees goes three years without settling a single account, and TransUnion found that consumers who were current when they enrolled in debt relief programs saw their median credit scores plunge 96 points – nearly five times the drop experienced by bankruptcy filers.

In short, for-profit debt settlement, marketed as the responsible alternative to bankruptcy, performs worse than bankruptcy. Invoking servicemembers to defend it takes real nerve, given that one Texas servicemember learned from a nonprofit counselor that the defaults his settlement company required could have cost him his security clearance.

The op-ed answers all this with a statistic: consumers, it claims, receive “$2.64 of debt reduction for every $1.00 of fees paid.” The source of that figure? Research commissioned by the debt settlement industry’s own trade association. When your best evidence is a number your client paid to produce, you’re not making an independent argument, you’re forwarding a press release.

As for our supposed conflict of interest? Sorry, that another empty argument. Simply put, lenders succeed when their customers are successful. An industry that profits from default cannot say the same.

Here is what the op-ed conspicuously fails to mention, because like so many of the facts aligned against his industry, why would the author bother?  It isn’t just the consumer credit industry pressing for greater oversight of unethical for-profit debt settlement companies. It’s the consumer advocates who actually represent these vulnerable consumers. AFSA and the National Consumer Law Center  have endorsed strengthening consumer protections against predatory debt settlement companies. Also joining us: the nonprofit credit counselors who sit across the table from struggling families every day.

Anyone who has spent a day in Washington knows how rarely lenders, consumer groups, and nonprofit counselors agree on anything. Getting all three on the same side of an issue is nearly impossible. Yet the for-profit debt settlement industry and its defenders have managed to do just that. Such unity should tell policymakers and consumers everything they need to know.

So yes, AFSA is happy to be a target of the debt relief industry. We’d simply note who’s standing next to us — and who’s standing with the debt relief industry.

– Written by Ed McFadden

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