Below you will find a copy of my public testimony to the CFPB as part of their request for comments regarding determining who they should regulate. If you read my previous article, “CFPB is Looking for Public Comments on Debt Relief Industry” you can learn more about their request.
My Public CFPB Testimony
Consumer Financial Protection Bureau
1801 L Street, NW
Washington, DC 20036
Re: Defining Larger Participants in Certain Consumer Financial Products and Service Markets. Docket No: CFPB-HQ-2011-2
Dear Office of the Nondepository Supervision:
I am writing to you today as an expert that covers and writes about the field of consumer debt relief. My experience in debt relief began in 1994 when I founded a nonprofit 501(c)3 credit counseling organization and now as a journalist that covers the debt relief field.
I’ve also been very interested in the history of debt relief and my research and studies in this area have shown that as far back as the 1940s, consumers with money troubles have always been a target for opportunists and scammers to take advantage of.
The 1950s brought about the beginnings of a more formal approach of budget counselors, debt lumpers and nonprofit credit counselors started by merchants and credit bureaus. See this 1955 article, Those Schemes to Help Pay Your Bills, as an example.
Throughout the 1960s and 1970s, States passed laws to hopefully regulate debt relief providers from taking advantage of consumers in trouble. See Consumer Debt Relief False Promises Not a New Problem. Let’s Look Way Back as an example of North Carolina warnings with their legislation.
The late 1990s saw an explosion of opportunist nonprofit agencies forming and in the 2000s the IRS took action to revoke the tax exempt status of some nonprofit organizations in an effort to protect the public.
In fact it appears that those actions the IRS began as part of their Credit Counseling Compliance Project appear to be still ongoing. Of the 275 organizations identified by the IRS for examination, to date the IRS has completed the review 160 nonprofit 501(c)3 organizations and proposed revocation of 51, revoked the tax status of 42, and have 44 examinations ongoing at the moment. They claim to have spent 87,188 hours on this effort so far.
Issues surrounding the delivery of debt relief services are not unique to nonprofit providers alone. For-profit entities have exhibited substantial opportunistic efforts to extract money from consumers with false promises and deceptive marketing.
Debt relief has also been permeated on both the nonprofit and for-profit sides by organized crime and otherwise dirty money to sell consumers false hopes and miracle cures for large advanced fees only to never deliver. Selling false promises and false hope to desperate consumers for tens of thousands of dollars is more profitable and more legal for criminals than petty corner crimes.
All of this should not give you the impression there are not good nonprofit and for-profit companies that want to help consumers. There are. But the good companies are struggling to survive and play by the rules and regulations while other less reputable companies, of all sizes, purposely take advantage of consumers in financial trouble.
Just recently I investigated and covered a debt relief provider that claimed to lend money to people no matter how bad their credit. Consumers paid thousands in advanced fees for help only to not receive any help. Money paid by consumers was sent to foreign countries never to be seen again while the companies appeared to be legitimate on the phone and web. Your average desperate consumer was hampered to discover the truth before losing their last dollars.
Money troubles permeate all facets of life. They lead to increased stress, medical problems, relationship issues, loss of work, suicide, hopelessness, despair, and depression.
Being a debt relief provider is much the same as being a health care provider. Except debt relief providers treat the financially sick and injured.
In the medical field, even nonprofit hospitals and medical facilities are licensed and regulated for the public good. The medical doctors working in them are licensed and regulated to protect the public as well.
As a society we don’t give people a free pass to play doctor if they work in medical practices that only serve a certain amount of patients or only have a few doctors. We’d find that to be ridiculous and not logical.
Companies regardless of tax status that provide services and intervene between the creditor and consumer for a fee, contribution, gift, or grant should be licensed and regulated by the CFPB, regardless of size, in order to provide basic accountability and protection to consumers.
Because of the potential of significant harm to consumers through disreputable debt relief service providers I feel it is imperative the CFPB require registration of all debt relief providers, regardless of size, annual revenue, or some other artificial criteria that would only serve to create a loophole that could be exploited by the nefarious characters in disreputable debt relief companies.
I therefore request the CFPB create an online registration process where all debt relief companies, regardless of tax status, are required to register. The CFPB should assign registered providers with a unique registration number they must display on their websites and contracts and a public search tool consumers can use to verify the company is registered with the CFPB.
Following registration, consumers would then be able to positively identify debt relief providers by a simple required registration number, akin to a social security number for individuals. A process we embrace.
Currently there is no single national way for a consumer to check on the status of a debt relief provider. Complaints that would alert consumers to bad actors in debt relief are left scattered in the court, web, BBB, Attorney General offices, and elsewhere. It is almost nearly impossible for a consumer to do research to judge even the basic legitimacy of any debt relief provider when some even use false names or intentionally change their name to hide their true identity.
A mandatory CFPB registration requirement would resolve the basic problem that a company has at least stood up and registered as a debt relief provider to give consumers one national place to check if the company is even basically registered before engaging them.
Registration of all debt relief providers is a necessary first step and the only way we will ever get any idea who in America is delivering services to consumers that intervene between a creditor and consumer in exchange for compensation.
Moving forward this would allow consumers to then file complaints with the CFPB, linked to a specific registration number, so patterns of abuse can be more easily spotted and take less CFPB hours to identify problem companies.
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