>>VANESSA MEGAW: Good morning to everyone in the room and to those watching via livestream at consumerfinance.gov. My name is Vanessa Megaw. I am an analyst in the Office of Consumer Credit, Payments, and Deposits, CCPD for short, and I manage the monitoring of debt relief markets at the Bureau. Welcome to the Consumer Financial Protection Bureau's evolutions in debt relief convening, which is being held here at the Bureau headquarters in Washington, D.C. 

First, I'd like to extend a special thank-you to all of the panelists and many other who helped shape today's agenda. There's been a lot of enthusiasm for this event, and we really appreciate all the support and thoughtful feedback that we've received as part of the process.

I'd also like to thank everyone who is watching via livestream. In response to the public health concern surrounding the coronavirus, CFPB-hosted events this week are virtual-only for attendees. We appreciate your cooperation and hope that you reach out to us after the event with your thoughts in order to continue this conversation.

We'd also like to note that you can check out opportunities to live-stream other events this week, such as our advisory board committees. Please go to the website for more information about how to do that.

In a moment, I will have the honor of introducing Policy Associate Director Tom Pahl, who will provide opening remarks. Before I do so, let me tell you a little bit about what you can expect for today's convening. Following Tom Pahl's remarks, we will hear two sets of panels about debt relief options offered to consumers from the perspectives of creditors, consumer advocates, bankruptcy experts, as well as providers of credit counseling and debt settlement programs. These will be moderated by Emma Haas, an analyst from CCPD, and LaShaun Warren, deputy assistant director in the Office of Consumer Engagement. After these panels, we will have a short break where you can find your box lunches. At 11:15, John McNamara, assistant director for the Office of Consumer Credit, Payments, and Deposits will moderate a lunchtime discussion with fintech representatives who will share their observations about trying to innovate within the debt relief markets. We will then hear about what marketplace participants observe regarding the consumer's experience in the current array of debt relief options in a panel moderated by Daniel Dodd-Ramirez, assistant director of the Office of Community Affairs, and then a discussion about potential upcoming changes in the market, moderated by Alice Hardy, principal assistant director for the Office of Supervision Policy. Between each of the afternoon's panel discussions, there will be a 10-minute break. 

The convening will conclude at 3 p.m. For those unable to watch via live stream today, a recording will be made available on the Bureau's website. If you need to leave the building for whatever reason, you will need to go through security again and be escorted back into this room by Bureau staff.

Please note that we have a lot to cover and will not be taking questions from the audience today; however, I will again encourage folks to reach out to me or other CFPB staff following the convening with any of your thoughts.

Finally, as a friendly reminder, the views of our panelists today are their views. We are greatly appreciative, and these views are very welcome, yet they do not necessarily represent the views of the Bureau and do not represent any endorsement by the Bureau. Further, the discussions that occur today do not necessarily express the entirety of that discussion nor the relative emphasis of topics therein.

It is now my honor to introduce Tom Pahl. Tom Pahl is the Policy Associate Director of the Consumer Financial Protection Bureau. His division is Research, Markets, and Regulations, responsible for monitoring consumer financial markets, conducting research, and writing rules. In his role, Tom serves as a liaison to the Director's office and leads the strategic direction for the division. Prior to his current position, Tom was acting director for the Bureau of Consumer Protection at the Federal Trade Commission, and he worked for more than two decades at the FTC. During his tenure at the FTC, he worked on enforcement, rulemaking, and policy matters relating to debt relief. 

Tom, the floor is yours.

[Applause.]

>>TOM PAHL: Great. Thank you, Vanessa. Good morning, and thank you to everyone for coming here today. The Director regrets that she is not able to join us to talk about this important topic, but she's testifying today before the Senate Banking Committee, and so she had other commitments. On her behalf, though, I am delighted to kick off the Bureau's convening on our important and timely topic: evolutions in debt relief.

This convening is aimed at stimulating a robust, proactive, and transparent dialogue with experts and practitioners. We hope this dialogue will not only inform the Bureau's current use of its tools to protect consumers from harm but also to inform our future policy decisions about debt relief.

Natural questions one may ask are "Why is the Bureau holding this debt relief convening, and why is the Bureau doing it now?" To answer these questions, let's start with a brief overview of the history of debt relief and then focus on some recent developments that explain our current interest in the topic.

During the financial crisis, the for-profit debt settlement industry grew rapidly as consumers struggled with paying their debts. Many companies promised to help consumers get out of debt quickly while reducing their monthly payments. Some companies claimed they offer government-sponsored programs to bail out consumers. Many consumers asserted that debt settlement companies misrepresented average debt reduction amounts, speed of settlements, and overall success rates. When debt settlement companies didn't deliver on the results they promised, some consumers sank even further into debt.

In response to such conduct in the first decade of this century, the FTC filed numerous lawsuits against debt settlement companies. These lawsuits alleged that debt settlement companies engaged in unfair, deceptive acts and practices. These allegations included making misrepresentations about or failing to adequately disclose the amount or timing of substantial advanced fees. State law enforcers likewise filed numerous lawsuits against debt settlement companies alleging they engaged in the same or similar conduct. Moreover, some states passed legislation to ban or extensively regulate debt settlement. 

The Federal Government's response to the practices of debt settlement companies was not limited to law enforcement. In 2010, the FTC amended the Telemarketing Sales Rule to include specific provisions addressing for-profit debt relief service providers. The rule bans up-front fees, requires specific disclosures, and prohibits specific misrepresentations for debt relief programs. The rule also imposes requirements on the dedicated bank accounts that debt settlement companies use to hold funds from consumers. The FTC, the Bureau, and states' attorneys general have the authority to enforce the TSR's debt relief amendments.
In addition to the imposition of regulatory standards on for-profit debt relief firms, in the early 2000s, policymakers were also concerned about the lack of financial education and counseling that nonprofit debt relief organizations provided to consumers. In response, Congress enacted the Pension Protection Act of 2006. This act established additional standards that nonprofit credit counseling programs have to meet to retain their nonprofit status. These standards were intended to ensure that in connection with offering and providing their programs, credit counseling organizations, take steps to improve debtors' understanding of an ability to address their financial problems.  Many states also passed additional laws regulating credit counseling services and entities that provide consumers with debt management plans.
Finally, in the early 2000s, we saw a major overhaul of bankruptcy laws. In 2005, Congress enacted the Bankruptcy Abuse Prevention and Consumer Protection Act. This act changed the eligibility requirements for bankruptcy, raised bankruptcy court filing fees, and made procedural changes that otherwise increased the cost of filing for bankruptcy. The act also restricted access to bankruptcy by establishing a means test that determined who is eligible to file Chapter 7 versus Chapter 13 bankruptcy.
This synopsis of debt relief clearly reveals that during the first decade of the century, federal and state governments were very active in terms of legislation, regulation, and enforcement to address debt relief. Since then, the government has focused primarily on continuing its law enforcement efforts against those in the debt relief industry who violate the TSR or other federal and state laws. At the same time, the debt relief industry has evolved in response to changes in markets, technologies, and other factors. Development seemed to be particularly noteworthy and make this an especially appropriate time for the Bureau and stakeholders to reassess policies and approaches to debt relief.
First, the amount of unsecured debt among consumers is increasing. Unsecured consumer debt such as credit card debt is one of the fastest-growing types of consumer debt, with options for unsecured consumer credit expanding through purchase order loans, marketplace loans, credit card conversion of line to loans, et cetera. Consumers currently are managing their unsecured debt because of high rates of employment and modest wage growth. However, the high amounts of unsecured consumer debt could drive increased demand for debt relief services if the economy were to substantially weaken.
Second, the approach of credit card issuers to debt relief appears to have changed, as reflected in the findings of the Bureau's 2019 CARD Act report. Credit card issuers use various loss mitigation programs, with these programs generally structured to be consistent with FFIEC and federal banking agency guidance. Under these programs in considering a request from a consumer that they settle a debt, credit card issuers typically consider the size of the debt, the length of delinquency on the debt, and the financial situation of the consumer. Overall, the share of debts the consumers themselves settled with credit card issuers remain generally unchanged during 2017 and 2018. The report, however, found that there are significant differences among credit card issuers when it comes to their current policies for working with for-profit debt settlement firms. Some credit card issuers report that they refuse to negotiate at all with debt settlement companies. Other credit card issuers say they do work with debt settlement companies and explain, though, that they generally seek to align what they agreed to with debt settlement companies to be the same as with consumers would obtain under their loss mitigation policies.
The Bureau's report also made other additional interesting findings about the debt relief market when it comes to credit card debt. The report found that the amount of credit card balances that credit card issuers settled through nonprofit debt settlement companies grew over 100 percent between the beginning of 2017 and the end of 2018, a rate of increase that vastly exceeded the growth from accounts receivable and fresh charge-offs, which remained in the low teens. In addition, the report showed 117 percent increase in pre-charge-off debts that credit card issuers agreed to settle, suggesting that consumers who are in early delinquency are increasingly retaining debt settlement companies to try to settle their debts.
Third, there are also new products available to consumers in the debt relief marketplace. This includes consolidation loans designed to support third-party debt settlement programs and other fintech endeavors. Nonprofit credit counselors also are working to expand their programs to consumers who traditionally wouldn't qualify for a debt management plan such as expanding the repayment terms or offering programs of principal reduction.
Debt relief has changed over the last decade and will continue to evolve. Government agencies must use all of their tools to make sure that consumers are protected in the debt relief market. Government agencies must work closely, collaboratively, and constructively to make sure consumer protection is efficient and effective. For that reason, we are particularly encouraged that our partners at the FTC, prudential regulators, states, and others have supported this convening, and many are watching today. We hope this convening will provide an opportunity for market participants, consumer advocates, bankruptcy experts, and policymakers to discuss the potential risks or challenges consumers may face in connection with debt relief. Among the myriad of issues, the panels will explore the information available to consumers, consumer risks and outcomes, market constraints, transparency, and the future of the debt relief market.
I look forward to what I'm certain will be a robust discussion on the current and future state of the debt relief industry. Once again, thank you very much for joining us here today.

[Applause.]

>>VANESSA MEGAW: At this time, I'd like to welcome our first panel moderated by Emma Haas to discuss debt relief options available directly through creditors. Emma, take it away.

>>EMMA HAAS: Thank you so much, Vanessa, and thank you so much for starting us off today, Tom Pahl.
I have the pleasure of opening today with the first panel. Today we're going to be discussing debt relief options that are available through creditors. We have an incredible group of panelists here today. To start off with, Diana Banks, senior counsel with American Bankers Association. Diana Banks is senior counsel at ABA. Her portfolio includes a broad array of bank policy issues including compliance, supervisory technology, minority depository institutions and diversity, UDAAP, debt collection and recovery. Before joining ABA, Diana served as the Deputy Assistant Secretary for Force Education and Training in the United States Department of Defense. In that role, she oversaw training and education for the entire United States military force, including consumer financial education and readiness for uniform servicemembers.
Diana, I am incredibly excited to hear what options your members have available to consumers who are facing unmanageable debt. Please take it away.

>>DIANA C. BANKS: Okay . Well, thanks. Thank you very much for the introduction, and I'm going to do my best here to speak to exactly what you said, which are the options that my members use to work with consumers who need help and to discuss some of the challenges that they have in doing so.
ABA is the voice of the entire 18 trillion—with a "t"—dollar banking industry, and we represent small, midsize, regional, and large banks. We're a policy resource too and advocate for our banks on issues like debt collection, and I'm going to try to speak generally as to what my members offer in terms of options. But I just want to caveat that the specifics of debt settlement options are not a usual part of my policy portfolio, but I've done my homework here. And I'm going to do my best to sort of summarize what I see as the landscape.
So let me start by noting that banks do want to work with consumers who are experiencing financial distress. I think that it only benefits both the consumer and the bank. Obviously, when banks make loans, we hope to repaid, and it's also best for consumers if they can manage their credit appropriately.  So banks do offer a number of direct options to work with consumers who are experiencing issues. This varies considerably bank to bank, but for the most part, it seems that options kind of fall into two buckets. And not every bank offers an option in both buckets.
So the first bucket is kind of these short-term programs. These are usually around 90 days, give or take a few days, and then the second are long-term options. These vary quite a bit, but most are around 36 to 60 months. The reason for this split is because the FFIEC, which is the interagency council that defines guidelines for examinations of financial institutions had some pretty strict guidelines on recognizing and writing off losses. So losses, depending on their type, have to be recognized within a relatively short time frame, 120 to 180 days, depending on the type of debt. There's also some specific guidance about credit card debt and workout time frames for those, and so, therefore, the kind of universe of options that are short term are designed to fit within those regulatory constraints.
Given that, the bank has a fairly limited amount of time to recognize and write off those losses. So from the consumer's perspective, that's just not a lot of time. When you're talking about a 90-day term, that's 3 months, three payments, and for most consumers, if you're in trouble, you're probably not going to be able to settle your debt for an amount that you can afford over a 3-month term. If you had that kind of cash flow, you probably wouldn't be in financial distress. So from a consumer perspective, these very short-term options are kind of tough and not necessarily extremely attractive, especially for those who are facing a lot of trouble.
Consumers, I think, really need kind of longer-term options, but those are not readily available pre-chargeoff. For a lot of reasons, creditors don't really want to write down debts until they absolutely have to. So that makes it really hard to kind of offer a solution that has a monthly payment that's low enough to be attractive, and then back to the long-term options, those are mostly available post-chargeoff. For a lot of reasons, it's kind of counterintuitive, but once the institution has written off the loss, they actually have more flexibility to structure a payment plan with the consumer. And the creditor can then spread those payments out over a much longer term and also provide help on things like late fees and interest.
But the problem is that once you're in the post-chargeoff world, that's pretty late from the consumer's perspective. They've already suffered the hit to their credit, a very significant hit because a chargeoff really hurts your credit score because it indicates to future lenders that you have not previously repaid as contractually agreed, and subsequent lenders obviously are not going to want to extend credit on favorable terms to those who have been lent money before and not paid back as agreed. 
Also, too, I think that consumers don't necessarily realize that they can work with their creditors directly after chargeoff, or they just may not want to. I think especially for consumers who are experiencing financial distress related to major life issues like losing a job or going through major medical hardships, they may just have too many creditors. It's just too much to manage. So we are seeing the trend, as Tom said, to go to these debt settlement companies.
But there are options available through creditors for consumers post-chargeoff, and most creditors or most banks in our membership work through nonprofit financial counselors to offer those longer-term repayment programs, and the benefit of those is that they also offer a financial education and counseling component which I want to kind of return to later.
But in an ideal world, I think, banks would be able to better offer options pre-chargeoff. That would allow consumers to work out a payment plan before they take that enormous hit to their credit. There obviously would probably be some impact to their credit but not the same negative impact as a chargeoff, and then these options could be more competitive with what the debt settlement companies offer because they'd be on longer terms. And that would allow for a payment that would better work for probably most consumers' cash flow situations, and this would also be a win for creditors because, as I said before, they really don't want to take these chargeoffs unless they're at the point where they actually absolutely have to. Again, it's better for the consumers because they just don't suffer that major hit to their credit, and they can get some help. 
Again, that help would come with an element of financial education and counseling, which would help keep consumers out of trouble, help them—assuming it's not a sort of temporary hiccup but help them budget, live within their means, and hopefully their means are enough to cover life's necessity. But that's a conversation for another day. But I think that having these better pre-chargeoff options would be probably an idea situation, but that's not quite something that exists today because of that regulatory guidance.
Also, too, I want to note that I'm speaking primarily about the options for unsecured debt. Obviously, there is secured debt—mortgage, auto. My members make those loans, but when you're dealing with secured debt, there's oftentimes a lot of state laws that come into play. It becomes much more complicated, and it's also a harder situation for the consumer. Obviously, losing a home or losing a car can tend to have spiral effects. If you've lost your job, if you get another job that maybe doesn't pay as well, you can probably still try to manage your debt load, but then if you lose your car on top of that, that's probably going to lead to losing your job. And that is a situation that's going to get a lot worse before it gets better. So when consumers do have a mix of secured and unsecured debt, they really need an overall strategy that's going to prioritize things appropriately and help that consumer get back on their fear.
Another point that I just wanted to make quickly is that when consumers do get behind on their bills and they start getting the collection calls, many will send a cease-and-desist to all their creditors because they want calls to stop. Under the FDCPA, there's pretty limited things that you can say in response to cease-and-desist. So it's very tough for my members to get these letters from consumers, consumers that they know are in trouble. Why do they know? Because they're not paying their bills, and the bank cannot even respond to say, "Hey, look. We'll stop calling you, but please call us if you want to work something out, and then also, here's some other resources that we can offer," steering people towards the credit counseling agencies that offer that financial education and counseling component, steering people to those when consumers are experiencing that kind of distress, because if you do veer outside of the two or three things that the FDCPA says that you can say in response to a cease-and-desist, you can pretty much count on a lawsuit from a plaintiff's attorney. So that ends up not being a great place where banks are really positioned to be able to help.
I saw that 30-minute. Okay. So I'll pause there.

>>EMMA HAAS: Thank you so much, Diana. That was an incredible overview of what options these regional and large banking institutions have available to consumers. If we have more time, I would love to circle back to you—

>>DIANA C. BANKS: Absolutely.

>>EMMA HAAS: —and have you speak more about the financial education component that you wanted to touch on.

>>DIANA C. BANKS: Sure.

>>EMMA HAAS: Our next panelist is going to be Nat Hoopes, executive director of the Marketplace Lending Association. So Nathaniel Hoopes is executive director of the Marketplace Lending Association. He has grown the MLA membership from three initial founding members to 36 leading companies in the digital lending and investing ecosystem. He came to MLA after serving as vice president and then executive director at the Financial Services Forum in Washington, D.C., where he worked on public policy issues affecting the nation's largest financial firms. He spent a dozen years working at the intersection of financial services and public policy, including 5 years on Capitol Hill where he served as legislative director for Senator Scott Brown, helping lead bipartisan negotiations of major amendments to the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act. 
Thank you so much for joining us today, Nat. Please take it away.

>>NAT HOOPES: Thank you, Emma, and thank you to the CFPB for convening this very important dialogue today on an issue that's critically important, especially as we face the coronavirus and the potential for disrupted consumers who may be losing jobs or being furloughed for periods of time. It could not be more timely.
I want to quickly give an overview of what marketplace lending is as we define it. We actually use the Bureau's definition for the cutoff for high-rate installment lending, proposed a few years ago, to sort of define ourselves as a lending market that's below the 36 percent APR threshold laid out by the CFPB, and that sort of helps guide our work.
We often become a solution for consumers that feel that they have too many different forms of debt. So debt consolidation loans are a very popular use of marketplace lending platforms, so think someone that has three or four credit cards that are potentially at APRs up near 30 percent. The person has a job, but they feel overwhelmed by the different card payments that they have, and they will roll those different products into one installment loan and pay off all the cards and have one fixed payment that they know they can manage and is at an interest rate that is typically far below the rates on their cards. So that product has been incredibly profitable and incredibly productive for the membership and has been one that I think really serves the consumer well because of the lower APR, the ability to actually reduce the amount of debt outstanding every month in an installment term and again provide them an option that they could use, and that includes an option that is now known as sort of balance transfer loans, where rather than the consumer getting an additional loan on top of the credit card loans and leaving it to the consumer to say I'm going to manage my payments and maybe I use some of the proceeds from that loan to pay off some of the cards or I make some minimum payments and I leave other—we say, "We're going to offer you this loan, and it's going to pay off all of the cards." Then you really truly have eliminated your debt, consolidated your debt, and you haven't, unfortunately, damaged your credit, which is the case when you use some of the for-profit debt settlement options.
So I just kind of use that as an example to show that there are solutions in the marketplace that don't damage people's credit that help people manage situations where they feel overwhelmed, where the interest rates are fair, often in the low to mid-teens. Our average APR as an association is around 15 percent on all consumer loan products.
While we're not in the trillions, as Diana's institutions are, overall in terms of assets, we have arranged more than $100 billion since inception in unsecured consumer debt. Starting in 2007, that's quite significant growth, and I think speaks to people out there voting with their fingers for products that lower their APRs and offer fixed payments that they know fit into their budget.
So that's a little bit of an overview of marketplace lending in that context of helping people with debt relief. Moving into how we help borrowers who are facing trouble, I think that really depends. Many of the limitations that Diana referenced from FFIEC guidelines also apply to us. We operate as partners to supervised financial institutions, both state and federal, and so that means that OCC rules, which may differ at times from FDIC guidelines, can apply to us, and that can limit the ability to work with borrowers pre-chargeoff, as Diana referenced. However, we tend to offer the same type of options, short term and long term. So there are examples there members just don't charge late fees at all, no late fee products. They will charge the loan off after 120 days. They will not sell the loans to collectors or debt buyers. So that's sort of one type of effort, just zero late fee as a policy. There are others that will allow people to skip a payment. There are suppressions of any late or NSF fees, and then there are the typical periods where it's principal only for a time of maybe 6 to 12 months as these things get into later-stage delinquency.
All of those options, also, they aren't sort of even contemplating the sort of more general forbearance for people, for instance, that were affected by the government shutdown. I remember when I got the letter from Chairwoman Waters and said, "What are you guys doing to help people who are affected by the shutdown?" So, luckily, when I polled our members, it turned out that we were offering the same kind of forbearance that all financial institutions who are regulated and who are supervised by the FDIC and the OCC had been offering, and so I was able to inform the chair of that. But I think that that sort of speaks to the situations that we face now. With coronavirus, there are going to be these emerging situations where consumers truly are, through no fault of their own, in a very tough spot potentially when it comes to paying bills, and we do need to come up with solutions and plans to allow them to manage through that sort of short-term crisis.
I think one of the things, obviously one of the goals of this whole convening, is the issues of for-profit debt settlement, and here is where I think we see some very problematic practices in the market when people come to us for debt relief through that avenue. Number one, there's no way that we often know that the person is in any trouble because the first contact we get is that the person has changed the address to the debt settlement company, that there's been a complete lack of any documentation or harm or, you know, requests for any of the options that we do offer, these options that I just referenced, the sort of skip-a-payment options or some of the ways that we help people manage through principal-only options or others. 
So we run into a situation where we find borrowers who have simply enrolled with these companies, been potentially given very bad tax advice, told that there will be no tax implications of having these—defaulting on a portion of the debt, which obviously we know they will face future tax implications in almost all circumstances. We find that they aren't aware necessarily of what will happen to their credit, that they're actually defaulting on their loans. So, overall, the experience is that there's not the sort of transparency out there in the marketplace for the consumer about what the lenders themselves will offer people. 
Finally, I think that there's this sort of perverse situation, as Diana referenced, where the lender that has been working with the borrower offer the borrower a product, underwrote the borrower, and feels like the borrower is their customer can't offer the things that the debt settlement company is offering to the consumer, which feels backwards. So I think overall, there's a lot of room for improvement in this area on issues related to disclosure, transparency, and ultimately, some of the options that lenders can offer and work with people who are performing but facing some sort of short-term potential hardship, and also just educating them on the implications, both the tax implications and just the credit implications of the course that they're pursuing with the debt settlement firm.

>>EMMA HAAS: Thank you so much, Nat. We're actually going to be having a panel later in the day discussing the future of debt relief options as well as innovations within the debt relief space, so that will be a great time to discuss where we see the industry moving and how we can make improvements within it.
Finally, our last panelist of the first panel is going to be Ms. Danielle Fagre Arlowe, who serves as senior vice president for the American Financial Services Association. Danielle is in charge of the American Financial Services Association's State Government Affairs Department, which manages state, legislative, and regulatory issues for members across a broad spectrum of the consumer credit industry, including payment cards, vehicle finance, traditional installment loans, and mortgage lending and servicing. State Government Affairs is in a constant development of talking points, briefing materials, white papers, a multitude of 50 state surveys, municipal tracking, and other issues, management materials. The department also provides Activist Watch, a monthly snapshot of financial services-related activities of prominent activist groups. AFSA engages in direct advocacy at the state level as directed by its membership, and it provides its members with regular ongoing reporting on new and moving legislation through direct intelligence and AFSA Track, the association's legislative tracking system. 
Before joining AFSA, in 2003, Danielle was director of Government Affairs and Legislative Counsel for credit card issuer Metris, where she headed up all political affairs for the company, quadrupled PAC participation, and created the company's new law compliance program. Before joining Metris, she was an associate with two Washington, D.C., firms—Venable LLP and O'Connor & Hannan LLP, where she represented banks and major U.S. financial institutions, lobbying on their behalf in Congress on consumer privacy, credit reporting, bankruptcy, telemarketing, antitrust, and the Gramm-Leach-Bliley Act. 
Danielle, we're so fortunate to have you here today. Please take it away.

>>DANIELLE FAGRE ARLOWE: Thanks so much, and I want to thank the Consumer Financial Protection Bureau for convening this important discussion and particularly to CFPB staff for being so thoughtful and organized and efficient in planning this.
As you mentioned, AFSA represents the consumer credit industry. That includes members who offer many kinds of credit like traditional installment loans, payment cards, vehicle financing, and mortgage lending and servicing. We're over a hundred years old. We don't represent the payday lending industry or the title lending industry.
I conducted a survey of a cross-section of our members, an informal survey of a cross-section of our members in the credit card, vehicle finance, traditional installment loan, and mortgage lending and servicing space to ask them for specific background information for this panel. It was a cross-section of corporate structures. These are public companies. These are nonpublic companies. These are privately held, small companies and very, very large companies, a cross-section of size, including companies operate in only two states or companies that are large multinational institutions.
Every member I surveyed had an array of solutions they deploy for distressed borrowers, depending on their circumstances. Creditors such as the members of AFSA have a vested interest in working directly with their customers, especially those in distress, to find solutions that are mutually beneficial.
All remedies that creditors provide rely on good two-way communication with our customers. The members I surveyed stated that their employees are trained to handle collections with empathy and respect. They said that they try to understand the problem. When there's someone who's in distress, they try to understand if it's job loss, spousal job loss, medical issues, loss of a family member. They try to understand if the financial difficulty is temporary or permanent.
So to kind of combine what they told me, many AFSA members offer relief in a total of three areas: payment deferment, loan modifications, and in rare situations, loan cures.  Payment deferments are short-term assistance when a customer experiences hardship because of unexpected circumstances which temporarily affect the borrower's ability to make payments but can be resumed going forward. Loan modifications offer short-term and long-term assistance for customers with change or unexpected circumstances which affect the lender's original assessment of their ability to repay. This usually involved modifying payments to a percentage of the borrower's gross income that's at an affordable level through reduced interest rates and longer loan terms. Loan cures, in which some of the amount owed is written off prior to the resumption of payments going forward, is typically an option for customers who have a prior record of diligent payments. 
So what gets in the way? Several practices of debt settlement companies get in the way of a positive solution for us and for our customers, because these companies have a financial interest in consumer default. Some of the most troubling practices we see with debt settlement companies are cutting off consumer communication, inserting themselves between us and our customers. The hallmark of this industry is telling customers and consumers to stop paying their bills, and that advice increasingly comes to borrowers who are current on their accounts.
This significantly harms a consumer because now the consumer has a credit report with missed payments that they may not have had before or more missed payments than they had before, higher balances, and late fees. And we don't know what's going on because we can't talk to our customers and see what's going on.
Costs in addition to the fees charges by the debt settlement companies increases their overall burden, and they often leave customers not only not better off but sometimes much, much worse off. Many times, debt settlement companies collect their fees but fail to forward payments to the creditors, as reported by our members.
Another relatively recent and troubling practice of this industry is debt settlement companies that themselves make loans. Debt settlement companies have an inherent and obvious conflict of interest in a situation. Debt settlement companies should be prohibited from receiving any remuneration for loans that are part of a settlement process, and we know of some states that have prohibited this relationship outright. And we think that others should further limit the ability to have any kind of financial remuneration or any kind of financial interest in the settlement of a distressed consumer's debt.
Our members report a success rate of up to 80 percent when they're able to engage and enroll a stressed customer in one of their qualifying programs, and our members report that at least 90 percent of the time, when debt settlement companies get involved in their borrowers' accounts, the borrowers end up in a worse financial condition than they were prior to the involvement of the debt settlement company. So that is kind of our assessment of where we are, what we can do, and what gest in the way, and thanks so much for letting us participate in this panel.

>>EMMA HAAS: Thank you so much, Danielle. Circling back, I think we have a few more moments. I'd love to touch on Diana's point on financial education and educating consumers on the different routes available to them through the creditor options as well as just educating them in general.

>>DIANA C. BANKS: Sure. So I think one of the key things is that, as my co-panelists have touched on, consumers don't necessarily understand what the universe of options are when they do get into financial trouble and they're looking for ways to manage that trouble. I think we all know that if you get online and you google "debt settlement," you'll get a lot of advertisements, and I think that's been curtailed somewhat now. But you do get advertisements mostly for the for-profit companies, and as others have noted, those companies don't necessarily do a great job of disclosing all the implications that come along with signing up for their services.
Also to the point that other panelists have made, a lot of times, whether consumers sign up or not or if they pursue bankruptcy or other options, oftentimes that comes with curtailing communication. ABA has always stressed that communication between creditors, first-party creditors, and borrowers is very, very important. It allows us to educate borrowers as to what their options are and to work with them to avoid bad outcomes, and that's just made very, very difficult when we're put in a position where we cannot communicate with our borrowers effectively. And we don't reach out with the intention of harassing or engaging in abusive conduct, but we're reaching out with the intention of saying, "Hey, we notice that you're late. There are consequences to what's happening here, and we need to talk about it and help you get back on track." And so that's just a very important component, I think, that's missing right now in the debt settlement market, a component of being able to communicate with consumers, educate them about what their options are, and then also just provide broader financial education, information, like I said, about budgeting and managing money, how to save for a rainy day or put away funds to manage crises, because those—you know, job changes and health problems and other—roof springs a leak, all those kinds of things. Those things do happen, and people have to be prepared for them, so offering components that would give consumers better information there would certainly help.

>>NAT HOOPES: Yeah. I would love to emphasize the difference between nonprofit credit counseling—

>>DIANA C. BANKS: Yes.

>>NAT HOOPES: —and for-profit debt settlement for that reason. I think the adverse sort of incentives in the for-profit debt settlement to drive people towards an option that can be incredibly damaging toward them is a real incentive that's out there that should be addressed, and I think that the alternative, which is a nonprofit credit counseling, where people are getting that kind of financial education and are getting the sort of bigger picture than simply someone marketing them, that they can dramatically cut their debt, which again when you add up the fees they paid the debt settlement company, the amount of the settlement, and the tax implications, just tend to not be real. The savings aren't there.
So our view is that the more that the Bureau can do to support the work of the nonprofit credit counseling services and helping people get the education about how to manage situations where they feel overwhelmed or when they are facing job loss or they are facing a true emergency situation, that could be incredibly helpful in addition to some of the potential flexibility if the prudential and consumer protection regulators are in agreement with the FFIEC guidelines around working and contacting and trying to get everybody together before it kind of spirals into a crisis.
The final point I would make is that there's a bit of a selection bias. It feels to us that a significant number of the percentage of the people that are ending up in delinquency and default are working with these companies, for-profit debt settlement companies, relative to the overall numbers. So that would suggest that rather than—there's a significant number of percentage of people that are going to run into hardship, and then some of them find their way to debt settlement, and some of them find their way to nonprofit credit counseling. Instead, you see this real mushrooming growth in the for-profit debt settlement segment, which is really driving the overall numbers, and there isn't a lot of documentation, again, because we can't contact the borrower. The borrower changes their address to the debt settlement company. That the person is actually facing real hardship.
So then you get this situation where the people that may end up getting the settlements and their debts reduced may not be the people that are the ones that need it. They're just the people that are most adept at working with debt settlement companies. So that isn't necessarily what's pro consumer or pro financial, you know, pro safety and soundness either.
So for all those reasons, I think this is an incredibly important dialogue, and I know we'll hear from people that have much more expertise than I do, but I applaud the CFPB for convening the event.

>>EMMA HAAS: Okay. Well, thank you so much to all three of our first panelists. Diana, Nat, Danielle, thank you so much. You are absolutely incredible. I will now turn the mic over to Vanessa who will introduce our second group of panelists.

[Applause.]
 
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>>VANESSA MEGAW:  I'd like to invite LaShaun Warren up to the panel as well as the other panelists, so we can talk about debt relief options available through third parties.

>>LaSHAUN WARREN: Good morning, and thank you all for joining us. As Vanessa mentioned, my name is LaShaun Warren, and I would like to welcome you to the second panel, which is focusing on the third-party debt relief offering. We have an amazing group of people who are here to share their subject-matter expertise. In this panel, each of the panelists will give you an overview about what support they offer to consumers who are having trouble managing their debts as well as discuss some of the typical challenges and risk consumers face from their perspective. Our panel includes a variety of experts focusing on credit counseling, debt settlement, bankruptcy, and legal aid.
Chris Viale is our first panelist. Christopher is the president and chief executive officer of Cambridge Credit Counseling Corporation. He is responsible for all aspects of the day-to-day operations of the organization, including oversight of all human resources, activities, educational initiative, financial counseling, and counselor training. He also serves as the co-chairman of the board of directors for the Financial Counseling Association of America. 
Christopher, we'll turn it over to you.

>>CHRISTOPHER VIALE: Thank you. Good morning, everyone. I want to start off by thanking the CFPB and especially Vanessa Megaw for all the work that you did to put this together. 
I've been given 6 minutes to provide a high-level view of the work that 501(c)(3) nonprofit credit counseling agencies do to help and support financially distressed consumers, so basically, 6 minutes to summarize my life's work. I'm going to stick to my prepared comments. Otherwise, I would take 20 minutes.
Our industry's nonprofit agencies provide a wide range of financial education and counseling services to consumers. The focus of my time this morning is on our budget counseling sessions and the mechanics of a traditional debt management plan, or DMP.
Consumers most often reach out to us because they're struggling to make payments or pay down their unsecured debt. They are typical hardworking Americans who have had a financial setback or mismanaged their finances and are looking for a way to safely and responsibly pay back what they owe. Their average income is roughly 40- to $50,000 with unsecured debts of $15,000 at an average interest rate of 23 percent. Their average FICO score is 620. Thirty-five percent are homeowners, and 70 to 75 percent are considered low- to moderate-income individuals, LMIs.
The most important step in the process for us is our budget counseling session. Our independently certified credit counselors will do a deep dive into the consumer's financial life. The session is free and can take anywhere from 30 minutes to over an hour, based on the complexity of the household situation. We're required to capture every possible expense, including the kind of one-offs typically experienced by families with children or who are caring for their elders. Advice and guidance on ways to cut or eliminate some expenses will be part of this counseling session. This will help develop the actual expense picture going forward.
All forms of income and financial support will be gathered and a soft inquiry of their credit report to download their creditor information into our systems. Through this process, the counselor will have an accurate picture of the consumer's situation, so we can provide appropriate and specific advice as what they should do going forward to address their debt.
So in many cases, the budget counseling session helps identify potential reductions so that the consumer can pay down their debt on their own. Some consumers are in a position where they should consider to get advice from a bankruptcy attorney—they just don't have enough income to handle the debts—while others have assets they can consider to liquidate to repay their debt to be able to move away from it, and then roughly 50 percent of the consumers we counsel are in a position where our debt management plan is a good option for them. Of that 50 percent, roughly half will move forward with a DMP. Some consumers decline enrollment because of the possible negative impact on their credit, since enrolled accounts will be closed. Some consumers aren't ready to give up their credit cards, or they just wanted a lower payment.
The newest and biggest trend is confusion of why they don't join. They have heard and seen adds on TV and on the radio that tell them they don't have to pay what they owe. So when we're telling them that a debt management plan is the full repayment of principal, they get confused, and unfortunately, sometimes we don't hear back from them.
So how does a traditional debt management plan work? It's a full repayment of the consumer's unsecured debt within 60 months, usually accomplished with the help of generous concessions from t he client's creditors. After a consumer enrolls with us, notifications are sent to each of their creditors. The creditor then closes the account and grants concessions, typically including a significant reduction in the interest rate, lower monthly payments, elimination of late and over-the-limit fees going forward. Then the client will make payments to the credit counseling agency, and the agency will remit payments to their creditors on a monthly basis. After the third or fourth payment, the account, if eligible, will be re-aged or marked current on the consumer's credit report starting the rehabilitation of their credit score.
There are no negotiations, as all major creditors have established preset guidelines based on the consumer's level of hardship. this makes communicating all aspects of our plans prior to enrollment very easy. There's no guesswork. It's a very safe and sound way for consumers to repay their debt. The biggest limitation of our current DMP model is our ability to meet the consumer's need for lower payments. Debt management plans have been limited to 60 months or less by an OCC bulletin issued to the banks back in January of 2003. We've been in discussions with the OCC and the CFPB and have been advised that we can move forward with a pilot, which would be a 72-month DMP to extend time frames to lower payments to help more consumers. We're in the planning phases as we speak. 
So client success. Once a client is on a DMP, agencies employ a variety of support systems to help them become better managers of their own money. We offer ongoing financial education and budget counseling, customer care specialists, money coaches, online access to their information, apps designed to help consumers live within their budget, and we also budget a small amount of savings and urge our clients to find ways to save more. They have to have money set aside for those unexpected expenses and emergencies that will happen during their course of repaying their debt. Behavioral changes don't come easy, so we pull out as much as we can to try and help our clients.
And my last points are the typical results of a DMP. So our average client will experience a reduction of interest rates from—on average, they're being charged 23 percent, which drops down to 7, 8 percent. Their monthly payment is lowered roughly by 30 percent. The average protected term of a DMP on the onset is 50 months, but clients who pay in full do so on average in just 45 months. The average fee that we charge for enrollment is $40. The average monthly fee charged to handle the account in process is $30 a month. Both of those fees are set by state law and are reduced according to client's ability to pay. The client's credit score generally drops 40 points after enrollment and takes up to 12 months to recover. For graduating clients, the average score increases 80 points or 40 points higher than where they were when they started the program.
Finally, 60 to 70 percent of clients who enter a DMP fully repay their debt. Thank you.

>>LaSHAUN WARREN: Thank you so much, Chris. That was a great overview of what is currently happening.

>>CHRISTOPHER VIALE: Thanks.

>>LaSHAUN WARREN: Now we'll turn it over to Dan Frazier. Dan Frazier has been the chief executive officer of Century Support Services since 2017, where he is responsible for the overall performance of the organization. He has over 26 years of executive leadership experience with financial services and technology companies in both the public and private sector across banking, mortgage payments, and education industries. 
Dan, we'll turn it over to you.

>>DAN FRAZIER: Thank you, LaShaun. I appreciate it. I would like to say thank you to the CFPB and Vanessa and her team for putting this together and bringing these panelists together today.
So I too have 6 minutes to kind of go over a little bit about debt settlement, how the process works, talk a little bit about the quality points, checkpoints along the way, and also some of the typical results that our clients see as part of the debt settlement program.
So let's start off with what debt settlement is. At a very high level, it's also called debt negotiations or debt arbitration. It's a process of where the creditor and the debtor are working on a negotiated reduction in payment for their outstanding balance, and when that reduced balance is paid, it's considered paid in full by the creditor.
So let's talk a little bit about the debt settlement process. You know, debt settlement isn't for everyone. It's merely one option for the consumers who are enduring a financial hardship to be able to continue—and can't sustain their outstanding obligations. So it's one of those options that are available to them to look at.
As we heard here earlier today, it could be one of those situations where there's some type of medical event. There's a job lost. There's a loss of income or even something that's happening in the household where it's a need of replacement of a roof. We've heard even replacement of water heaters or furnaces that is causing this event to happen, which is requiring them to seek out debt relief options.
Typically, these consumers, what we hear as they're coming into the program, we hear that they've already tried to self-manage. They've done something along the way, whether they're working with their creditors, they're working with some type of balance transfer option, or they're going to look at a home equity lone or they're working with one of the marketplace lenders for a debt consolidation loan when those options aren't a solution for them, as typically when they're looking over into the debt settlement industry as an opportunity for them to get some type of debt relief.
When we engage those consumers up front, we're looking to understand their total picture and understand all of their debts as well as their unique situation, as I'm sure a lot of the people that our panelists know. Every consumer has a unique situation. They're not all kind of typical and cookie-cutter. So we're trying to determine if debt settlement is right for them. We're first validating their hardship to confirm they actually have a hardship. Then we're gathering all their information of their outstanding obligations in order to ensure that we're focusing on the unsecured debts because we do not work on the secured debts. 
We're also identifying the consumer's ability to pay as well as their willingness to pay, and what I mean by that from an ability to pay is we're working to create a budget that identifies all the inflows of cash for the month for that individual consumer and all the outflows of cash for that month to see do they have even enough money that can actually—they can support making a payment into their third-party payment process or special purpose account. I'll get into the third-party payment processor in a second here. But we're also identifying their willingness to pay. So in order to be successful in this program, you have to be willing and able to pay this monthly program payment on a monthly basis for several years to come.
So those consumers that don't either qualify for the program or choose not to go down to a debt settlement path, a lot of the debt settlement providers out there today, they'll work with those consumers to provide them other options that they can explore on their own. They're not facilitating them, just kind of directing them to other debt relief options.
So let's talk a little bit about the enrollment process. During the enrollment process, we're reviewing with the consumer, reviewing and also providing them the program agreement, which outlines exactly how the program will work. We're also talking to them about the necessary disclosures, and we're also introducing the third-party payment processor to them. That third-party payment processor, as I mentioned, is there to set up a special purpose account for them, in which they will draft on a monthly basis that program payment into, and we will work with that payment processor to identify how the monies are going to be sent to the creditor as well as where we collect our fees, when a negotiated settlement is had.
The consumer is at all times—the client is at all times in control of their third-party special payment purchase account. We get authorization from them, and we instruct the payment processors to distribute the monies as we have negotiated with the creditors.
Post enrollment, after we get through the enrollment process and we kind of talk to the consumers about the options for debt settlement and how that works, what it looks like, what their expectations will be with us, what their expectations out of them will be throughout the program, we move them over into our post-enrollment team. The post-enrollment team does a welcome call and welcomes them into and onboards them into the program. We do another verification check at that point in time of making sure that they understood all of the program details, what their program payment is going to be. Typically, that program payment is set up within 20 days of enrollment on average. It could be biweekly or a monthly program payment, and it kind of coincides with their payroll cycles at work.
At the same time, our negotiation team is kind of getting a strategy together on how they're going to work with the accounts on that client, and they start to work towards their first settlement with that client, working towards a negotiated settlement.
Once that settlement is agreed to with a creditor, we receive something called a settlement letter. That settlement letter is sent over to our client and reviewed with them in order to obtain their agreement they want to pursue this settlement. If they so choose to pursue it, we get a settlement authorization letter from the client, and we pass those payment instructions over to that third-party payment processor for them to be able to disburse those funds to the creditor. That information also contains our fee. So, as you know, per the TSR, we are on a contingency basis, and we're paid on a contingency basis. At the time that we have a negotiated settlement with the creditor, the client also agrees to that settlement, and those funds have been transferred to the creditor. That's when we earn our fee.
I got a little bit of time left here, but I just want to talk about some of the quality checkpoints along the way. As we go through the process, we have compliance reviews on all of our marketing information that goes out. We have compliance reviews on our onboarding process, the enrollment process as well as the onboarding process. We do surveys throughout the entire debt settlement program to the consumers to identify at the point of enrollment, at the point of onboarding, have they been explained everything as part of the debt settlement program. Do they have any open questions? As you can imagine, a consumer going through a debt, a distress release scenario, there is a lot of uncertainty, and they want to understand as much a part of the process as they can. So we hand-hold them through that entire process. Any positive or negative feedback, we're following up on as quick as possible.
I'll talk a little bit about real quick results. I'm running out of time here. The average client sees their first settlement in as few as 3 to 4 months from enrollment, and after making their first draft and their special purpose account, the average client is seeing a savings of approximately 35 percent of their enrolled debt, inclusive of our fees. The typical client completes their debt settlement program in approximately 4 years. The graduation rate that we identify—and this was done through an independent study across the industry, the debt settlement provider industry which we were a participant of, is 60 percent. There's also another 40 percent that we are calling strategic breakers, where they may have had some level of their account settled, and some portion, they decide to either take off the program and settle on their own directly with the creditors or they have come up with enough monies to be able to pay those accounts off.
Last thing I just wanted to address is I heard earlier the folks talk about the credit score and the impact of the credit score. The impact of the credit score is something that is explained to the consumers. Typically, we're seeing consumers that enter the program, most of them are entering around 630 or 620 and below in the program. There are occasions where we see clients that are coming in at around 670, and not all of them actually transfer into the program or enroll and engage in the program. 
Thank you.

>>LaSHAUN WARREN: Thank you so much, Dan, for that comprehensive overview of debt settlement. 
We will now focus on Edward Boltz. Edward is a managing partner at the Law Offices of John T. Orcutt, where he represented clients in not only Chapter 7 and 13, but also in related consumer rights litigation, including fighting abusive mortgage practices and developing solutions for student loans. Mr. Boltz served as the president of the National Association of Consumer Bankruptcy Attorneys, NACBA, from 2013 through 2016, and remains on its board of directors as co-chair of the Legislative Committee. Mr. Boltz was a commissioner of the American Bankruptcy Institute's Consumer Bankruptcy Commission from 2017 through 2019. He also serves on the Bankruptcy Council for the North Carolina Bar Association. 
We'll now turn it over to you.

>>EDWARD BOLTZ: Thank you. So I'm here to talk about bankruptcy, and I want to first thank everyone at the CFPB for having us here and particularly Vanessa Megaw for putting this together through what is a more complicated time than anybody anticipated, so thank you for that. And I also want to thank the CFPB for having a very long-lasting recognition that bankruptcy is a part of consumer protections that is often shunted to the side and has really worked very hard over its existence to make sure that it remains a central part of consumer protection. Even though it is regulated both by the bankruptcy courts and the United States trustee system, it has been very welcoming and thorough in gaining its understanding of how bankruptcy, which is one of the more esoteric areas of the law. So thank you for that also.
Bankruptcy is generally the last choice of a consumer but is also probably the most comprehensive solution for debt situations that they have. The fact that it is often the last choice is one of the problems that we often see, that the fears of bankruptcy are preyed upon by the other players in the system to divert people from bankruptcy when that may be the right choice for them.
Bankruptcy is designed, as the Supreme Court says repeatedly, for the honest but unfortunate debtor, and its key facets are a fresh start upon the completion of the case, where the debtor is relieved of most, if not all, of their debt obligations, put back on track, but it requires a complete disclosure of all assets and income and a radical degree of honesty in order to receive that benefit. 
One of the largest advantages of bankruptcy of whatever chapter—and I'll mention the main consumer ones in a bit, but is that it stops all collection activity. That includes not just the phone calls, which can often be stopped through the FDCPA cease-and-desist letters, but also garnishments, repossessions, foreclosures, lawsuits of nearly any sort other than a few such as child support, which is a completely separate thing. But it also handles all creditors of the same type on an equal basis, so that one credit card company is not treated better than the other nor is it treated better than a medical bill or something like that.
Bankruptcy also handles tax debts and with some serious limitations can also help borrowers with their student loan debts by wrapping everything all up into one payment.
Additionally, as has been mentioned in regard to other debt settlement options, bankruptcy does not have tax consequences where the borrower upon the discharge of the debts does not face a 1098 for their taxes. 
The two main kinds of bankruptcies that are available to consumers are Chapter 7 and Chapter 13. The other kinds that exist, there's Chapter 12, which is for farmers, which is there have been very many of those in the last several years, but that's generally not a consumer bankruptcy. Consumers can file Chapter 11 which is a larger reorganization, but that is largely for individual cases, for the formerly very wealthy, and so that's beyond the scope of what I can cover in 6 minutes because everything I have to say is beyond the scope of 6 minutes, really.
So in terms of the two kinds of bankruptcies that exist, there's Chapter 7, which has often been called a "straight liquidation." In a Chapter 7, as mentioned by Mr. Pahl at the beginning, the debtor is subject to a means test where their income is evaluated on some basis, on averages nationally and locally, and other expenses are based on their actual expenses for medical expenses, their secured debt payments and such.
Upon a showing that the debtor's income is below either the median or that they have no excess disposable income, they would be eligible for a discharge in a Chapter 7. That discharge usually comes in about 5 to 6 months after the filing of the case, and it covers most debts, with the biggest exception being most tax debts and almost all student loan debts are not wiped out by a Chapter 7 bankruptcy.
In a Chapter 7 bankruptcy, one of the biggest myths that many of my clients who I see faces, they believe that they'll lose all of their assets, but that's generally not true. In Chapter 7, depending on the state—and it varies state by state—you're allowed to keep exempt assets, and that's looking at what the equity in your assets are because if you're current on your car payment that is already under water, nobody wants your car other than you or the car company who really just wants the car payments. And the same goes for your house and other assets like that. If you have nonexempt assets, those would be liquidated and sold for your creditors and distributed equally, which is one of the hallmarks of the bankruptcy system, as I mentioned previously.
The other option for consumers is a Chapter 13, which is a reorganization. This in addition to handling unsecure debt provides a more comprehensive solution for secured debt, such as car and mortgage debt, and it also allows the repayment of taxes without usually interest or further penalties. In general, a Chapter 13 does not pay any more to unsecured creditors than would be paid in a Chapter 7, which means that in 95 percent of the cases that we file, they pay nothing to unsecured creditors. This is one of the complaints that we often have about the advertising we see for debt settlement, where they describe Chapter 13, as they describe it as a repayment plan where you will repay your creditors, which the unsophisticated consumer assumes to mean that they will be repaying all of their creditors in full, which is usually not the case.
In addition, a Chapter 13 plan lasts between 3 and 5 years, and at the end, again, the borrower is free of most debts, with, again, the exception being student loans. They pay their taxes. They would be current on mortgage payments that they cured, and their car liens would be satisfied and they'd get the titles.
Among the things I would mention that relate in the broader sense to the debt settlement world is that under the Bankruptcy Code, there are often ignored sections that I believe apply to almost everyone who is probably listening to this. These are the debt relief agency requirements and also the ability of the bankruptcy court to look at payments made to anyone regarding debt relief within the preceding 1 year to the filing of the bankruptcy to determine if those amounts were reasonable. 
The debt relief agency requirements include advertising requirements—that you disclose on everything that you are a debt relief agent—that you have to provide contracts and other disclosures to borrowers at the same time. These apply to any assisted person who is someone with less than, I believe, $150,000 of nonexempt assets, including people who are seeking to avoid bankruptcy. The Supreme Court has said in regards to bankruptcy, "You are in contemplation of that which you seek to avoid," and so that's where this section of the Bankruptcy Code is often overlooked or ignored by people in this field who aren't doing directly bankruptcy work.
The additional fact that I would mention is that as attorneys representing borrowers in this situation, we have clear ethical obligations regarding our clients and have to disclose those. Those are not always as clearly made by debt settlement agencies, whether they're for-profit or nonprofit, and that's a change that I think should be made, whether increasing those obligations or at least requiring disclosure of who the company serves. Thank you.

>>LaSHAUN WARREN: Thank you so much, Ed, for giving us so much information about the misconceptions in bankruptcy. 
Now we will turn it over to our last panelist. We have Marcie Kobak. Marcie is the Director of Litigation in Legal Services of the Hudson Valley. In addition to developing impact cases and overseeing litigation, she handles multifamily housing cases out of Legal Service's Yonkers office. Marcie also assists consumers facing creditor lawsuits primarily through the Westchester CLARO program. 
Marcie, we'll turn it over to you.

>>MARCIE KOBAK: Thank you so much, and thank you to the CFPB for putting this program together. Legal Services represents low-income New Yorkers in situations where basic human needs are at stake. Our clients are typically having overlapping legal problems. The person who is struggling to afford safe housing often has credit debt as well. Sometimes these are intertwined. A person who has experienced domestic violence often has the impact of economic abuse, which creates debt issues. 
So like LaShaun mentioned, most of the consumer work that we do is through our CLARO program, and that's where we have this wonderful crew of volunteer attorneys and law students to work with the LSHV staff to maximize our impact. So we see everybody from prelitigation, with just dunning letters all the way through post judgment. We see, certainly, a significant number of people with auto loan deficiency judgments, student loans, medical debt, but really the vast majority of people do have credit card debt.
A third of the people we assisted in the past year were seniors. Seventy percent were people of color, and half had incomes of under $1,800 a month. Forty percent of the people that we saw had income that is exempt from enforcement by a private creditor, which is a key point that I'm going to come back to.
Dan mentioned willingness to pay. The willingness is there; the wherewithal is not. People come to us feeling a sense of desperation that they need to do something about this. They feel guilty. They feel ashamed, but like I said, these are low-income people who simply don't have the money. 
When people who come to us are enrolled in debt settlement, usually what prompts them to come to us is a lawsuit commenced, and that's almost always by one of the creditors that's enrolled in the program. 
People rarely understand the monthly account maintenance fees, and I know it might sound small, that $10 or so a month, but that's something they're not aware of. And that can add up. I don't typically see people really being cognizant of the tax consequences, the possibility of receiving a 1099-C. So not that many report that they've really made many efforts to settle the debts on their own. A lot say that they're too intimidated to even make the phone call or they have one phone call that didn't go so well, and they kind of stopped. Not a lot of people have done any nonprofit credit counseling. A lot of people coming in saying, "I need to file bankruptcy." It is cost prohibitive, and it also doesn't really make sense. The people who we work with the most, they rent, and they take the bus.
So people express bewilderment. They are receiving piles of letters from the original creditor, from the debt collection agency for the original creditor, for the debt buyer that now has purchased the debt, for the debt collection agency representing the debt buyer that has now purchased the debt, and from collection law firms. And it's often really difficult for people to understand which debt these letters all tie into.
A lot of people have defenses to these alleged debts. It's a whole range of things under state law. Now, what we've seen in court papers is that often the collection law firm attorneys consider the enrollment of the debt in a debt settlement program to be an admission, and they argue to the court that the person essentially waived their defenses when they say, "I enroll this debt in a debt settlement program." 
A lot of what we see are people enrolled in an attorney model of debt settlement, whereby the interaction that they have and the notices that they get are on attorney letterhead, and these are people who are admitted to practice in New York State. We often see that they've signed a power of attorney, and it might be a power of attorney that's specific to a given lawsuit that's been commenced while the person has been enrolled in the program.
What I have never seen is any meaningful legal work, having been done by these attorneys that people interface with. I've never seen an answer filed. When an attorney is trying to work something out, what you do is you file something with the court saying, "My deadline to answer this lawsuit, my client's deadline to answer this lawsuit, is being extended on consent while we keep talking," and I've never seen that happen. I've never seen a piece of paper filed in court. So that leaves the people we assist vulnerable to a default judgment.
However, most of the people would not actually see any loss of income due to a default judgment because, like I aid, their income is exempt from private collection environment. So people who come to us, so many of them, Social Security all the way down even to public benefits is the source of income that the person has. As a matter of public policy, these are government benefits where there's been a decision made that we need to have a safety net for people whose circumstances qualify and that that should not be disturbed or interrupted by a private creditor.
A landlord essentially is a private creditor who these exemptions do not apply to. People need to pay their rent. They need to pay the auto loan if they have one that's not in delinquency. So when people with these low exempt incomes, with Social Security, with even SSI, if they're putting any money into one of these programs, it's money that they might not have to pay, might not have available to pay the rent, or even if they can barely eke out the rent, choose essentials for their families.
So I'll just mention really briefly kind of two illustrative examples. One person who was on SSI came in, and she had received—she knew about the program because she had received a letter saying, "Congratulations. You are one of 1,000 people in New York who qualifies for this program." She received repeated letters like that. Another person came in convinced that a private bank was garnishing her Social Security, and when we dug into it, she had actually been enrolled in one of these programs, clearly not at all understanding what she had done.
So I'll stop there.

>>LaSHAUN WARREN: Thank you so much, Marcie. Do we have more time to ask questions?

>>VANESSA MEGAW: Yes. You have about 6 minutes.

>>LaSHAUN WARREN: Okay. Six must be the magic number today, Vanessa. [laughter]
So I want to ask you a few questions. I know for each of the panelists, whenever you are interacting with consumers, they're always coming to you at a time where they're, I think, as Marcie mentioned, feeling a sense of desperation. They're wanting to fix their situation. They are in desperate need, and many are open to change. I know that Christopher spoke about it a little bit, and you can expand on it. But if the other panelists could talk about what educational or financial wellness offerings you all incorporate in your programs, if any.
DAN FRAZIER: So I can explain that a little bit. Most of the debt settlement providers have teams that are supporting the customer throughout their journey, and what we're looking to do is to help them to manage while they're in the program but also be prepared to manage once they are graduated from the program. So that can range from ongoing client newsletters that talk about specific times of the year, whether it be getting ready for vacation, how to do that on a budget, how to do that when you're constrained on cash. It could be the same thing about Christmas. It could be talking about your taxes, getting ready, preparing for taxes, or even just future planning. 
There are dedicated client portals that also have videos and financial education and training literature, and some of these debt settlement providers have that posted on their site, as well as ongoing education for our customer service teams to be able to have those conversations with the consumer as they call in and want to share all of their stories and kind of what they're faced with and what they're challenged with. We educate our teams today to be able to have those conservations with those consumers. So that's an ongoing thing. Again, I can't speak for all the debt settlement providers, but I know a lot of the larger ones, us included, have those resources available to the consumer.

>>EDWARD BOLTZ: So under the Bankruptcy Code, in order to file a consumer bankruptcy, any individual debtor has to take a credit counseling course prior to the filing of the case, within 6 months of filing the case, and then prior to getting their discharge—again, in a Chapter 7, that's fairly quickly, and in a Chapter 13, it's within 5 years—they have to take a debtor education course. The general findings have been that the credit counseling course that people take going in is of limited utility, particularly because by the time they've come to us, they're fairly desperate for bankruptcy. It was originally intended as some sort of diversion to make sure that they weren't being mislead about what their other options are, and so that they were made aware of the debt settlement and the nonprofits and other options that generally doesn't get taken up.
The debtor education courses, however, are of varying quality between the providers. Some of those are for-profit, some of them are nonprofit, and some of them are provided by court officials, the Chapter 13 trustees in particular across the country. And those are of varying quality. Some are excellent, and some are an hour of somebody's time t hat they've spent.

>>MARCIE KOBAK: Our consultations with people typically involve a fair amount of time describing and discussing the protections that are existing under federal and state law.

>>LaSHAUN WARREN: Thank you. I have time for one more question. I know there's always this tension between debt and savings, and I know we are at the Bureau. And I happen to be leading the Director's savings initiative on emergency savings. Christopher, since I didn't get a chance to ask you a question, my question for you is basically, with this tension between debt and savings, and I heard you say that you all encourage people to save for the unexpected because people don't have expenses. But I know a lot of times, people are just trying to pay that debt off, and many don't have the resources to be able to put money away for when the unexpected occurs. I guess I'm curious what your success rate is and how you all are able to do this when you're interacting with consumers.

>>CHRISTOPHER VIALE: So part of our counseling at the budget process includes a portion for savings, and it's basically based on the amount of money they have coming in. It's a small percent, but it's built into the budget that we create to determine of a debt management plan is appropriate for them. And then we urge them to cut expenses in other ways to be able to build on that savings because they will have unexpected expenses while they're on the plan.
But I will say also, there's a lot of evolution in the nonprofit industry right now, and we are working with fintech providers, machine learning, different ways to be able to have indicators of consumers' sort of profiles of when they might need additional touchpoints and additional assistance. So there's a lot of evolution on the nonprofit side to really help support consumers, because really it's all about them managing how they're spending their money. That's really what has got them into the problem, or the unexpected expenses, the loss of incomes, but going forward, if a debt management plan is appropriate for them, that means they can afford that plan. But it's going to be very tight for them. So we have to work with them to build additional support systems to get them through the process.

>>LaSHAUN WARREN: Thank you, and thanks to all of you on the panel. We really enjoyed the conversation with you about third-party debt relief. Now I'll turn it back over to Vanessa to complete us today. Thank you.

[Applause.]

>>VANESSA MEGAW: Thank you. Thank you so much to all the morning panelists. It's not an easy feat to summarize your entire work in a short period of time, and I think everyone did a very great job in creating the landscape about what debt relief options are available to consumers.
This afternoon we're going to switch from a more presentation format to a discussion format, and right now, we're going to take a 30-minute break to have what is really a brunch. At 11:15, please return to your seats. We'll be having a discussion about innovations and fintech in debt relief then. Thank you. See you in a bit.

[Applause.]