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FTC-CFPB Debt Collection Roundtable Suggestions Could Kick Credit Counseling and Debt Settlement in the Nuts

This past week the FTC and CFPB held a joint roundtable meeting where they brought together debt collection industry participants to talk about reforms in the debt collection space. A most interesting fact came out of the meeting, that the non-appearence rate among consumers being sued for debt is about 90%. That doesn’t surprise me.

What does surprise me is the debt collection representatives are bummed more people don’t show so they can come to an agreement to settle the debt.

FTC CFPB Debt Collection Roundtable Suggestions Could Kick Credit Counseling and Debt Settlement in the NutsA stronger desire to settle delinquent debt is a blow to the current structure of credit counseling where Chase Bank, Bank of America, and others don’t want credit counselors to even talk about settling debt or lose their fairshare income.

If collectors want to talk settlement more proactively then it appears to hurt more full service debt settlement operations and create more of an opportunity for debt settlement coaches, instead of providers.

One of the judicial representatives who attended suggested what is needed is a program developed like the Residential Mortgage Foreclosure Diversion Program some courts have adopted. In this program the lender and consumer are required to communicate and be more likely to work out a mutually agreeable solution without the need for any third party or the courts.

The emphasis in the mortgage program conducted by the courts is communication and intervention as early as possible between the lender, including even door-knocking to meet face-to-face with the debtors as early as possible. Consumers are also encouraged to call a managed hotline number to get free assistance to resolving their issues with the debt holder.

According to CFPB monitor, “Industry, consumer advocates, and courts should jointly work to proactively engage debtors, including by personal outreach, to educate debtors and bring them into the process so they can understand and assert their rights.” – Source

This type of effort would most likely impact credit counseling and debt settlement providers since lenders would be reaching out early and proactively in multiple ways to negotiate a solution directly with the consumer. The more debt owners and creditors do this, the less need there will be for debt relief help outside of bankruptcy.

Bankruptcy will continue to remain the perfect solution when lenders can’t create solutions that meet the financial needs of the consumers. In that case, discharging the debt will be the more logical option.

FTC CFPB Debt Collection Roundtable Suggestions Could Kick Credit Counseling and Debt Settlement in the Nuts
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About Steve Rhode

Steve Rhode
Steve Rhode is the Get Out of Debt Guy and has been helping good people with bad debt problems since 1994. You can learn more about Steve, here.
  • http://GetOutOfDebt.org Steve Rhode

    Another interesting statement about a small step where the courts do get involved in providing some assistance in debt buyer suits.

    “[W]e observed significant differences in outcomes between lawsuits filed against New York City residents and those filed against New Yorkers outside New York City. New York City courts had a lower default judgment and higher answer rate than non- NYC courts. This difference is likely attributable to two key factors: First, people sued in New York City are more likely to receive notice due to an additional notice requirement that the New York City Civil Court adopted in 2008. Second, New York City residents benefit from a range of free programs — some offered by the court itself and some by the private bar or legal services offices — designed to assist unrepresented litigants sued by debt collectors. Unfortunately, few similar programs exist outside New York City.”

    The NYC court intervention is:

    “In 2008, in response to widespread evidence of improper service in debt collection cases, the New York City Civil Court adopted an additional notice requirement. Court clerks mail the additional notice to the person sued at the address listed on the summons. Many people who do not receive the summons and complaint appear in response to the additional notice, and court clerks do not enter default judgments in cases in which the additional notice is returned as undeliverable. No similar requirement exists outside of New York City, though improper service is a statewide problem.

    From http://www.nedap.org/resources/documents/DebtCollectionRacketNY.pdf

  • Fitz

    What drives me nuts is this quote: According to CFPB monitor, “Industry, consumer advocates, and courts should jointly work to proactively engage debtors, including by personal outreach, to educate debtors and bring them into the process so they can understand and assert their rights.” This quote shows a real lack of understanding of what the consumer experiences and how the court process works.
    Oddly enough, it sounds like everyone is bemoaning the fact more consumers don’t respond to court filings. I couldn’t agree more. That being said, let’s get real here. The debt collection industry is not at all interested in educating debtors about the process and how to assert their rights. What they want is money. They want money more than judgments and they figure (correctly) that if more people showed up in court, they would get more money. If they truly want to educate consumers about consumer rights, explain consumer rights every time you reach a consumer on the phone or send nice brochures correctly explaining everything the consumers can do to “assert their rights”. Get real.
    As to courts, what dog do they have in this fight? They are a decision maker, not an arbiter. They rule on facts and law. They do not “educate” litigants. Plus, how are they going to “outreach” to those who don’t show up? They apparently have 10% showing up. Courts can’t (and shouldn’t) be advising one side over the other. They can make litigants prove up cases correctly however. Do this rather than rubber stamping the flood of collection cases and maybe the other 90% will begin to believe they have a chance in court and will show up! Asking courts to “bring them into the process” is really code for get them to show up so we can get them to pay. Get Real.
    As to consumer advocates, presumably we they are only talking about attorneys as none other can assist in the litigation. Consumer attorneys must get better at educating their clients AND THE COURTS as to the rights of consumers. The biggest impediment is actually the ability to hire an attorney. If the FTC and CFPB are serious about assisting consumers and increasing “response to litigation” rates, then give them and their attorney better resources and weapons to fight abuse. Educate the courts to insist on proper proof rather than defaults to resolve cases. Work against rampant sewer service problems as every single day courts rely on bogus and therefore uncontested proofs of service. There are lots of things that can be done. Asking courts and collectors to educate consumers is not one of them. Let’s get real.

    • http://www.zipdebt.com/ Charles Phelan

      Good comment, Fitz. I agree with all of your key points here. It’s a joke to think the collection industry is interested in “educating” consumers about their options. I’ve always heard the statistic that about 80% of lawsuit judgments never actually get collected on, but I’m nut sure if that is remotely accurate. If it’s anything close to that though, then of course they want more people to show up at court. Voluntary settlement by the debtor will trump attempts to enforce judgments against consumers, many of whom are, for all practical purposes, judgment proof (i.e., no W2 to garnish, no property to lien, and no ready bank accounts to levy).

      That said, this part of Steve’s post was music to my ears: “If collectors want to talk settlement more proactively then it appears to hurt more full service debt settlement operations and create more of an opportunity for debt settlement coaches, instead of providers.” I’ve been making this point since I set up ZipDebt in 2004 to teach people the DIY method of settlement. The banks offer settlements directly to consumers, when they will not permit CCC agencies to do so. How many hundreds of billions of CC debt got cleared out by the banks and collectors dealing directly with the consumer, outside of bankruptcy, settlement, or DMPs? If the largest settlement firm has settled more than $1 billion in debt, there must be many billions that were directly resolved by consumers.

      • http://GetOutOfDebt.org Steve Rhode

        Who knows what will actually happen but it is quite possible more collection agencies and debt buyers will begin to offer more proactive settlements. If that’s the message to come from this then consumers should be certain to open their mail. I’ve certainly heard of more settlement offers from private student loan holders and that’s a big change from just a year ago.

      • http://www.zipdebt.com/ Charles Phelan

        I’ve seen multiple reports recently of settlements on Sallie Mae student loans. Are you seeing this as well?

      • http://GetOutOfDebt.org Steve Rhode

        Yes. The only common denominator I’ve observed is when the consumer tries to settle they seem to get nowhere but the Sallie Mae process has something built in where they are generating settlement letters as low as 20%. I’ve had some reader questions about them lately.

    • http://GetOutOfDebt.org Steve Rhode

      I don’t think the debt collection industry is really interested in anything except maximizing returns while minimizing the cost to create contact and solutions.

      But for me the most interesting part of this is if the collection industry and debt buyers work harder to offer settlement offers directly to consumers. That reality is most likely going to continue to grow.

      I can’t see how courts would have the resources to do this. Hell, even the federal courts are now admin sharing in some places to cut costs.

      And as it stands now, it is not clear enough for consumers to know which legal representatives they can turn to for reasonable help at a reasonable price.

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