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.
A 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.
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