It’s been quite some time since I wrote a debt relief industry forecast and trend article. These articles have not been all that popular because most of the people are in denial about the reality I see. You can see past articles here.
In the past I used Google search volume as an indicator of general interest in various debt relief topics. The trends in those areas remains as predicted.
While debt relief companies try to sell solutions in their niche, the credit counseling market continues to suffer from lower demand and interest. While some companies might be shining, I would find it hard to believe the industry sector as a whole has much opportunity for growth while consumer debt delinquency remains low.
And speaking of consumer delinquency, new numbers out from TransUnion show consumers are doing a good job of avoid delinquency. In fact, consumers who are 90 days or more delinquent on credit cards, are holding delinquency rates down. Q1 2016 saw a delinquency rate of 1.47% with higher rates in energy states like Oklahoma and North Dakota that were impacted by a steep decline in energy income and opportunity. That should slow as energy prices rebound a bit.
Even auto loans and mortgage loans have remained relatively flat or improving.
People in the debt settlement segment of the debt relief market have expressed less of a demand for services. The interest by consumers in debt settlement, as reflected in Google inquiries, shows a downhill slide as well.
And while the chart shows a relatively flat interest in Chapter 7 bankruptcy, the U.S. Courts actually say bankruptcy filings are way down. “Bankruptcy filings fell 8.5 percent for the 12-month period ending March 31, 2016, compared with the year ending March 31, 2015, according to statistics released by the Administrative Office of the U.S. Courts. The March 2016 annual bankruptcy filings totaled 833,515, compared with 911,086 cases in the year ending March 2015.” – Source
The only area of growth is in demand for student loan default and payment solutions. Unfortunately the debt relief industry at large has done a sub-par job with providing this assistance. The majority of efforts out there are to encourage consumers with federal student loans to enroll in one of the many Department of Education student loan solutions. If you look closely at the services offered, many debt relief companies say they only provide a form filling service.
I admit it is very difficult for consumers to get straight information from servicers about their student loan options but I remain concerned that simply putting people into available free programs without a larger assessment of their overall financial situation, is a recipe for disaster. See Why Income Based Student Loan Payments Can Be a Terrible Trap. And with the advent of the new REPAYE program, it would horrible advice for any debt relief company to enroll anyone in that program if they ever plan to get married.
I also believe that there will be a slower demand for federal student loan assistance as the Consumer Financial Protection Bureau recommendations of providing student loan holders with options, is rolled out. The Payback Playbook information that will be provided to consumers will make it easier for previously confused consumers to identify available free programs that will help them.
Granted, not every consumer reads or takes action on information provided on their student loan statements. But this new initiative will require:
- Personalized payment options: The Payback Playbook would require servicers to provide personalized information tailored to borrowers’ specific circumstances that show what their payments will be under different repayment plans. This information would include the number of payments over the life of the loan, monthly payment amounts, and whether payments will change over time.
- No fine print: The Payback Playbook describes each option using clear, straightforward language that makes it easier for borrowers to understand the different plans, pick one that fits their financial situation, and stay on track.
- Real-time, up-to-date information: The Payback Playbook provides borrowers with updated information when their plans or circumstances change so they can keep on top of their payments. This includes how much longer they need to make payments until their loan is paid off or forgiven.
Here is a sample proposed notice that federal student loan holders will receive with their monthly statement.
I continue to see opportunity for a very select segment of the debt relief marketplace. For companies that can provide a holistic solution and a comprehensive review of the consumer’s overall situation, I think their remains a deep market for professional advice and guidance.
For call centers or organizations that just want to drop consumers into their widget or box, I stand by my previous predictions that the market remains small and declining while borrowing remains low and the economy is at least even keeled.
At this point an economic slowdown would not bring substantial opportunity to debt relief providers because consumers have not had a chance to reload on unsecured credit following the steep shedding of debt during the last economic downturn.
I also continue to stand by my 2008 FTC testimony when I said there was a need for a larger for-profit debt relief marketplace that could be more nimble, creative, and professional. – Source
As the founder of a non-profit credit counseling group and after having served on the board of directors of a Consumer Credit Counseling Service office I have observed the debt settlement and credit counseling industry from the inside.
Wrongly, many in the non-profit credit counseling world make every effort to keep out for-profit groups that want to provide help and assistance to consumers. I am afraid that the primary reason for this is so that the non-profit groups can protect market share and not to improve the service and assistance given to debtors in trouble.
There is not one thing that a non-profit credit counseling group offers that could not be better offered by a for-profit group. For-profit groups should be regulated by a federal statute to provide one set of licensing and regulatory instructions to operate under.
Trying to operate under a patchwork quilt of various state laws only increases the hardship on any group wanting to help consumers and does not provide a single additional tool to allow any third-party to have better solutions to offer consumers to deal with their debt situation.
The economic cost of compliance with so many various regulations is one of the primary reasons why my group decided to stop providing assistance to consumers and to close our non-profit organization.
Not-for-profit credit counseling is severely handcuffed by current funding schemes. They are forced to please the funding sources which are the exact entities that they should be standing up to in representation of their client, the debtor. In other parts of the world, groups that provide help are for-profit and it does not destroy the industry. The minority of help in the UK, for example, is provided by non-profit groups who appear to be even more closely bound to the creditors with former creditor executives even engaged in the management of the credit counseling groups.
It is time that people begin to focus efforts on serving the very person that requires the best representation that we can give, and that is the consumer.
Consumers deserve options. If a consumer wants to go to a non-profit clinic and receive non-profit limited services, that’s fine. But a consumer should not be prevented from seeking professional representation and advanced services from another group, even if it is for-profit.
Ever since I first started helping debtors, in 1994, there has not been one single law passed that gave consumers, who want to repay what they can reasonably afford, an opportunity to do so. But there are solutions that we can pass to level the playing field and to give consumers a fair chance at debt solutions other than bankruptcy.
But consumers have not been properly represented by non-profit groups. Non-profit groups have almost no record of standing up for and defending consumers against banks and creditors. While they may make statements about budgets and finances, you will find little to no outspoken comments about the inequities of the non-profit debt management solutions because the non-profits don’t want to risk their funding and thus do not fairly or properly represent the consumers best interest.
A for-profit debt counseling or debt settlement industry in the U.S. would give consumers the opportunity to have groups who want to move forward with new solutions, to lobby against creditor abuse, to fight for the consumers that are not well or properly served now, and to allow profit to attract the best and most talented staff.
There is legal aid and their are lawyers that charge for services. There is medicaid and their are doctors that charge for services. It’s about choice.
Please give consumers a chance and allow for-profit groups to exist, be creative, to fight for new solutions, to raise excellence through competition. This can be safely done with one federal set of licensing, bonding and regulatory guidelines and your action will for once, give good people with bad debt a real fighting chance at a better life.