The Consumer Financial Protection Bureau (CFPB) has published this request for information regarding the Credit Card Accountability Responsibility and Disclosure Act of 2009 (CARD Act or Act). Additionally, they are looking for feedback regarding debt settlement programs as well, the appropriate section of the request says, “How are the practices of for-profit debt settlement companies changing and what trends are occurring in the debt settlement industry? How are creditors and non-profit credit counseling agencies responding to these changes and trends?”
The public is able to comment on the record here.
My Submitted Comment to the CFPB
In the interest of public disclosure, my submitted comment to the CFPB is below.
“While the feedback requested by this request appears to be more procedural regarding the presentation of data for consumer credit transactions. The display of that information has been ineffective in allowing consumers to make informed choices. Not every consumer is data driven and the way people deal with financial information is dependent more on underlying issues of psychology rather than math. If credit decision information is presented visually and numerically it would be able to be used by the largest block of consumers.
Data about credit card cost can be in a large bold format but the individual consumer who is attempting to evaluate the offer at the moment may visualize the information but fail to understand where the offer falls in the marketplace. For example, given a credit score range, where does the cost for this credit offer fall in the range of similar extensions for credit. The CFPB could develop an online tool to assist consumers to understand the offer in the market.
Credit offers lack such as the Monroney window sticker required for new vehicle sales. These window stickers present specific information about the vehicle performance in context. The independent and required vehicle information allows consumers to have facts about the item before making a decision to purchase. Similar comprehensive information is not available in the credit or debt relief marketplace.
The beliefs that navigate consumers towards good or bad solutions or companies for help with problem debt is fundamentally flawed. The CFPB and other agencies I respect have given a general preference for debt relief providers by tax status rather than the appropriateness of advice. A perception exists that non-profit assistance is somehow better than for-profit assistance but that is the wrong characteristic to use to evaluate performance and quality.
All debt relief solutions need a window sticker to allow buyers to evaluate the pros, cons, overall costs, and most importantly, success rates of clients achieving the goal of eliminating their debt. In general, both for-profit and non-profit debt relief providers are secretive about presenting actual performance data to consumers. If non-profit debt credit counseling services have a 25 percent completion rate and debt settlement program has a 15 percent success rate, both solutions are not effective for most.
Additionally, longer repayment plans in non-profit programs can have a more substantial impact on the loss of available returns of future retirement saving value. Quicker solutions like consumer bankruptcy can return a consumer back to saving for retirement faster. Bankruptcy is a for-profit solution.
I have made an attempt to give consumers a comparative look at the broad range of solutions and impact with this online calculator. https://getoutofdebt.org/get-out-of-debt-calculator and https://getoutofdebt.org/51244/debt-repayment-calculator-retirement
It is a fundamental mistake to make any choices about the appropriateness of any debt relief solution until we know some basic data. This would generally include success rate, the impact to future retirement savings, credit report/score impact, protection from legal action, and cost of the solution. Those factors should be weighed against the financial goals the consumer is attempting to achieve, their current situation, and appropriateness of the solution.
Generally, consumers have limited niche choices in debt relief assistance and providers typically have one primary one solution they sell and try to make fit. Dealing with debt is not a one-size-fits-all proposition. Consumer situations are unique and more complex. What is missing in the debt relief space are financial professionals who can create the most appropriate hybrid solutions using a combination of different tools like debt management, settlement, bankruptcy, etc. given the situation and goals the consumer wants to achieve. Consumers need transparent performance data from which to make informed choices and about the personalized plan created by financial professionals, not guidance from only a commissioned salesperson. Debt relief providers have no fiduciary duty to provide competent advice.
Until such information is made available, debt relief providers will continue to encourage the sale of their solution that the consumer has no way to evaluate during their time of debt related psychological stress which leaves them disadvantaged to make a clear-headed and detached choice.
The debt relief issue that concerns me the most at the moment is the mailers for alleged debt consolidation loans that appear to be used as a bait-and-switch marketing tool to funnel the majority of respondents into some debt settlement or debt resolution program instead.
Consumer Debt Expert