Gerard Scimeca – Chairman, CASE
March 20, 2020
For the past few years, the American economy has experienced historically low unemployment, steadily rising wages, and increased labor force participation. While this economic expansion has provided a boon to countless families across the country, too many Americans are still facing nearly insurmountable headwinds because of their personal debt obligations, particularly unsecured debt. Credit card, student loan, medical, and other unsecured debt are at historically high levels with no sign of abating.
The ever-rising increase in unsecured debt can be boiled down to a simple truth: there are many more options for Americans to get themselves into debt than there are available for them to get out of it. Many consumers believe that the only option available to them to address an unmanageable debt burden is bankruptcy, which is difficult to qualify for and can have significant repercussions on their future. Fortunately, for some consumers in financial hardship, there is a federally-regulated alternative available: debt settlement.
The debt settlement industry works to empower customers to overcome their unsecured debt burdens, not take away their options to make a quick buck. Moreover, debt settlement helps give people independence and peace of mind by being a full partner on their path to financial stability.
The debt settlement process is uniquely simple – settlement companies work on behalf of their clients, all of which are in the midst of a certifiable financial hardship, to negotiate less-than-full repayment to their creditors. For Americans who have experienced a loss of income, a medical issue, or some other life event, debt settlement can provide an alternative to bankruptcy with a personalized plan in hand to resolve their obligations.
However, debt settlement is not for everyone.These companies only enroll a small number of applicants who both have a certifiable financial hardship and have a realistic path to financial independence through debt settlement.These financially distressed consumers typically have unsecured debts with an average of seven creditors for a total of about $30,000. Debt settlement companies, which have spent years working with creditors across the financial services ecosystem, are experts at negotiation and working alongside customers to provide them with a holistic solution.
Debt settlement’s results speak for themselves. On average, this process saves consumers $2.64 for every $1 in fees paid, while clients typically see initial account settlements within six months after starting their personalized program.
In total, the industry saved indebted Americans a whopping $1.6 billion in 2018.
Although they provide an invaluable service, debt settlement companies are often confused with other unsavory schemes like consolidation loans, or payday and short-term lending. Nothing could be further from the truth. Under federal regulations, debt settlement companies are only compensated when they actually deliver their service to their customers. Under strict Federal Trade Commission rules issued a decade ago, debt settlement companies cannot charge their customers any fee until their client has received, approved, and made a payment towards a settlement. Additionally, under the regulations, customers can discontinue their engagement at any time, for any reason, with no penalty. The client is 100 percent in control throughout the process.
Due to the prevalence of bad actors attempting to take advantage of indebted Americans, consumer advocates, as well as state and federal agencies, are right to be on guard to protect Americans in financial hardship. At the same time, it is critical that these entities are properly educated on important options available to consumers so that Americans in financial hardship can maintain access to avenues that are proven to help wipe out their debts and put them back on the path to financial wellness.
