>>VANESSA MEGAW: All right. Everyone is in their seats. Thank you. I'd like to announce the next panel. It's a discussion on innovations and fintech in debt relief, moderated by John McNamara, assistant director in Consumer Credit, Payments, and Deposits. John, take it away.

>>JOHN McNAMARA: Thank you, Vanessa. And I am on? Yeah, it sounds like I am. Great. I have to tell you I'm well pleased to be moderating this panel today on innovation in the debt settlement debt relief space, and through the Bureau's market monitoring and outreach program, we have become aware of a number of players in this space. So it's been my pleasure to meet these gentlemen. 
I'll basically just briefly introduce them, and I'll let each of them talk a little bit about their background when it comes to innovation. And then we'll go through a structured discussion to talk about what brought them to this space and what they're offering in terms of providing consumers with more options when they're faced with staggering levels of debt.
So to my immediate left is Itzik Cohen, CEO of Payzen; Ed Harycki, founder and CEO of Creditly; Alex Mooradian, CEO of Resolve Innovations; and on the far end is Jerry Nemorin who is founder and CEO of LendStreet. So I think what we have here are actually four CEOs and four founders of businesses in this space. So we'll basically start with you, Itzik, if you could talk a little bit about your background, relevant background.
>>ITZIK COHEN: Sure. Yeah, because basketball is not relevant here.
>>JOHN McNAMARA: Although you're free to share that if you like.
>>ITZIK COHEN: Itzik Cohen. I'm CEO of Payzen, which is not operating in the debt settlement space, but for 2 years, from 2016 to '18, I ran Beyond Finance. It's a debt settlement company, for-profit. Prior to that, I was chief business officer of Prosper Marketplace. So I've been creditor, lender, and tried to innovate in the debt settlement space, which gave me a lot of insight into the problems, the friction, and potential solutions to help improve the outcomes for consumers.
Also, I have an interest in Creditly's success because I am very much friends and advisor to Ed. So I disclose that.
>>JOHN McNAMARA: Thank you. Ed?
>>ED HARYCKI: I am Ed Harycki, founder and CEO of Creditly. Creditly is—I would describe it as a data and technology platform that we are building to really partner with lenders and credit counselors to sort of bring more effective, I guess, simpler and more cost-effective debt relief solutions to the market. 
I don't come from the debt relief industry. I've actually been on the lending side for several decades. I've worked at some of the large credit card companies, and prior to Creditly, I have actually started two other fintechs. One was a consumer credit card company in the UK that was acquired by a bank there, and then most recently, I built another fintech, which was a small business lending platform. And that was recently acquired by PayPal. 
As I was in retirement, I stumbled on debt relief. I was helping some friends of the family, trying to get some people out of debt and went through all the process, and I saw how challenging it was. And I just felt there was opportunities to use current data and technology to come up with some better and more cost-effective solutions to help consumers.
>>JOHN McNAMARA: Thanks. Alex?
>>ALEX MOORADIAN: My name is Alex Mooradian. I'm the CEO of Resolve. Resolve is an online platform designed specifically for consumers who are experiencing financial distress. What we do is we try to act as their guide out of debt. We help them evaluate different debt relief options. We give them a free credit score. We have budgeting tools, tools to help cut their expenses as well. So we're really trying to take a holistic view for the consumer.
My background is actually in finance. I was a private equity investor for the first 10 years of my career and then have started a few different companies as a technology entrepreneur. Similar to everybody on the panel up here, a couple years ago, I didn't know what debt relief was. It wasn't until meeting a couple bankruptcy attorneys and learning about the challenges of distress that we started to peel back the onion and learn a little bit about what's the difference between debt relief, debt settlement, DMPs, like all these different acronyms that are out there that are really confusing consumers. So I'm looking forward to an engaging panel today.
>>JOHN McNAMARA: Thanks, Alex. Jerry?
>>JERRY NEMORIN: Hi. Jerry Nemorin, founder and CEO of LendStreet. Similarly, I discovered the debt relief space back in 2008 while working on Wall Street and helping major companies restructure their debt and reading every day in the paper how consumers who are experiencing financial distress didn't have a comprehensive solution to really reengage, rebuild their credit, and find a product that was comprehensive and help them relieve their debt.
At LendStreet, we help consumers restructure their debt. We work with debt relief companies, and we provide a loan that helps accelerate the settlements. So rather than a 48-month program where they remain delinquent, we accelerate the funding. We provide the funding to accelerate the settlements with the creditors as well as pay the fees to those settlement agencies and help them rebuild and reengage the system much quicker.
>>JOHN McNAMARA: Great. The next question, most of you touched on this a little bit, but the next question is—I'd like you to pull on that thread a little bit more. What drew you into this space? Or maybe phrased another way, if this was how your thinking evolved, what market inefficiencies led you to jump into this space? I think this time, we'll start Jerry and work back towards me.
>>JERRY NEMORIN: Sure. So back in 2008, I was working on Wall Street. A lot of the work we were doing then was helping major companies negotiate or buy back their debt at a significant discount during the crisis to help maintain their solvency and then restructure, right-size their debt to what their capacity was.
So thinking through what we were doing and banking for major companies and thinking how do we provide the same set of comprehensive solutions to consumers and reading in the paper every day how consumers who are financially distressed were being taken advantage of by various companies that were in the space that were promising relief but couldn't provide it. 
One of the things that I read was the lack of—and the reason most of these consumers were falling into this trap was because they didn't have access to capital to enable them to settle and pay off their debt with their creditors. At the time, I had been an investor on Prosper, lending my own capital, and decided, well, there needs to be a solution that actually acknowledges that the consumer at the moment of distress still has the willingness to pay, just may not have the capacity, and so why not create a product that actually becomes a workout loan rather than keeping this consumer in a program that's 48 months, keeping them delinquent and not resolving, providing the true solution for helping them get out of debt and also helping the creditors recover as much capital as possible, as quickly as possible, rather than an elongated process or selling their bad debt to debt buyers.
So for me personally, it was something that I witnessed growing up from families and friends and thought there had to be a better solution. Really what we aimed to do was bridge the capacity and the intent. The consumer certainly had the intent. The capacity wasn't there. So let's right-size the debt to what their capacity is and provide the creditors a path out of the original debt and give the consumer a path to rebuild their credit score and get back into the system.
>>JOHN McNAMARA: Great. Thank you.
>>ALEX MOORADIAN: As an entrepreneur, what we're all looking for are big problems to solve. So I got into this space when I learned that tens of millions of Americans are struggling. There's like 70 million people in the U.S. today who have a debt that's in the collections process. So that's a really big number, and when you look at those consumers that are experiencing distress and you think about the financial tools and services that are out there for those folks, there really is no place that a consumer who has mountains and mountains of debt can go to get unbiased financial advice. There's no Charles Schwab designed for distress. 
So not only that, when you think about a consumer who's in distress and is going online looking for help, there's a whole host of predatory companies out there that are looking to take advantage of those consumers, and it spans credit repair companies. The topic of debt relief obviously is one of the things that we're focused a little bit on here today.
But when we started, before we even started the business, we talked to consumers about their path forward and how are they going to make that decision. What we hear over and over is "There's all these things out there. I don't know which of these is designed for me," which is the right thing to do. They don't know what any of these terms mean.
On top of that, they've been extended credit well beyond what they should have been. They don't know what APR means. They don't know how compounding interest works, and so there really is a very difficult financial situation.
On top of that, one of the things that you look for as an entrepreneur as well is you kind of look for a villain. Who are we going up against? Who are we disrupting? To the topic of today's conversation, we looked at a lot of the things that were happening specifically in debt settlement and said, "We think there is an opportunity as part of this larger platform that we're building to address one of these needs." 
I know we're going to dive in a little bit more today, but on the surface, the product of debt settlement is an amazing product. When you think about the experience of a consumer, it's a pre-chargeoff option. It's a single payment. All of their debts are included. These companies have done billions of dollars of settlements with creditors, and so that consumer goes into this and says, "This is like the magical solution that they're looking for." What the consumer doesn't understand, they don't really understand the fees. They don't understand how the program works. They don't know that a lot of people get sued during the course of this process. So as you peel back the onion and think about what is actually happening, this as an entrepreneur is like the best thing, tons and tons of people, millions of people. We can transform their lives by helping, giving them the proper advice and guidance through technology, and there's a big industry that if we don't like what they're doing, that we can be disruptive in the meantime.
>>JOHN McNAMARA: Thanks. Ed?
>>ED HARYCKI: So I'd say that the way I approached the market is I spent a good 6 to 9 months speaking to everybody I could about the industry to really—you know, to learn it, and so spoke with a lot of large credit card lenders, spoke with credit counseling, attended conferences and forums. John was at some of those. I wanted to just sort of really figure out all the key pain points because I didn't feel any solution in the market solved them all. It solved one, maybe two, but there's a lot of things to solve, and the key pain points that we were looking at was just a very slow debt resolution process. When customers get into trouble, they want an answer, and they want it quick. And they want to get it solved. They don't want to wait a few weeks to get it solved, and they clearly don't want to wait years to know that these things are all going to get solved. The cost was deemed excessive by a lot of parties, and from a lender's standpoint, they really wanted to work with borrowers. But they're getting forced to accept proposals without a lot of validation of the data below it. So they'd really want some verification of the information.
So we decided to try to come up with a new business model that approached it a little bit differently, and I guess the closest, what I would liken it to is we're all very familiar with instant credit approval models that the large credit card lenders and unsecured lenders use. We just said why can't we build a model that provides for an instant assessment, both cash flow and credit, so we can instantly evaluate the capacity of a borrower to pay their debts when they come due, and provided there is a verified needs assessment, that we can provide an instant debt resolution outcome for a customer, so it's settled immediately. So that was really the foundation of sort of what we built, and we decided that trying to build these types of tools and partnering with lenders and credit counseling is probably the best way to offer them because they're already engaging with these consumers every single day.
>>JOHN McNAMARA: Thanks. Itzik?
>>ITZIK COHEN: I think when I kind of analyzed the market, I think there were three things that kind of come to mind. First of all, there's just too much friction in the market between the for-profit debt settlement companies and the banks or creditors, and it's fueled by lack of trust and I think some bad experiences.
I think the other thing that is a problem is misaligned compensation that essentially—if you're getting a percentage, a fee of the debt you enroll into the program, your motivation is to enroll more debt rather than just particularly address each customer's problem individually. So that's another problem. I think it enhances the lack of trust in the marketplace.
The third thing, this is a typical problem where if you're a hammer, everything looks like a nail. Debt forgiveness is a wonderful tool to some people, but it's not the only solution. I think that the situation here where consumers are looking for a solution, if they go to a typical company with a product, that company will convince you that that product is the best thing for you.
I think there is less of a modeling involved—we're in the 21st century with a lot of modeling and predictive analytics that can probably guide you towards what is the ultimate solution that you should probably deploy in this particular problem rather than having a sales person convince someone that this is the right thing for them to do, considering their compensation is tied to that.
So I think that in order to resolve those problems that eventually lead to a very poor customer experience where they're getting harassed by creditors, their credit is falling, they can get sued, and it's an expensive process. The fees can vary between 20 and 25 percent.
I think that there are clear ways that both creditors and debt settlement companies or the whole debt relief industry as a whole can adopt, and some of it can come because of regulations. Some of it can come because just it's better business, but I think that until now, you didn't see a lot of technology-based VCs invest in this space, and what makes me feel really happy about what's going on here is that venture capitalists who invest in technology and innovation, who expect their entrepreneurs like Alex and Ed to swing through the fences and kind of disrupt the industry rather than go for cash flow and kind of accept the status quo, it's happening. So I think that's another angle that will probably drive more innovation in this space and more disruption or innovation.
>>JOHN McNAMARA: Actually, that anticipated my next question, so great segue. The next two questions are about important stakeholders for you. As fintech founders, obviously investors are incredibly important to you. I'm sure you spend more than a minute thinking about them—
>>ITZIK COHEN: Yep.
>>JOHN McNAMARA: —on an hourly basis. Are investors interested in this space? If so, what brings them in? I know you're interested in solving problems in this space, but can you get investment money to build out, develop, grow your businesses?
>>ITZIK COHEN: So let me just start because it's kind of continuing my thought here, if you don't mind.
>>JOHN McNAMARA: Sure.
>>ITZIK COHEN: Beyond Finance company, I started in 2016, we went for the more traditional private equity type of investor who expects certain cash flow. They don't take chances regarding the business model. The business model is set. It's more about can you funnel more dollars and get more profits at the end of the day, which is fine, but it doesn't drive innovation. So I chose the wrong investors in my case, if you want to innovate and disrupt. 
I think I'm going to let Ed and Alex talk about it because these are their companies, but I think that there, a set of investors are expecting different outcomes and are investing in different type of mode of operations.
>>ED HARYCKI: Yeah. So I'd say that clearly there's lots of private equity investors that will invest in lots of things that make lots of money. In terms of the type of investors I wanted to speak to, they're very focused on changing the market in a way that's really better for consumers, providing a much better product. If we would have gone to the market and said, "Well, we're offering a product that looks a little like everything that's out there, but the price is just a little bit less and it's just a little bit faster, there's no way I would have raised the money from the types of investors I did.
When we talked about what we were doing, we were discussing the opportunity to build a model that was not incentivized on how large in debt that you'd enroll where you're making a commission on it. It was really more of a SAS type of a model where it's sort of a flat rate, like a debt and technology model, so you could service everybody. And that would eliminate a lot of these sort of perverse incentives to be trying to enrolling lots of consumers who have sort of a lot more debt.
So provided, I think, that you're building a model that you're really sort of changing the game, applying data and technology in sort of new and interesting ways, trying to make it sort of fair and equitable for all parties and sort of really doing the right thing, I think you can raise money. But I will say that a lot of the top-tier investors. They care about their reputation equally as they do sort of their returns, and so it's hard to attract the attention of a lot of the top-tier folks just because when you're in an industry where there has been a lot of practices that are maybe not completely above board, you sort of have to really prove that you're doing something new and different and that you're going to sort of be on the right side of history.
>>JOHN McNAMARA: Thanks. Alex?
>>ALEX MOORADIAN: Yeah. I think our experience is very similar to Ed's in terms of raising money and the right types of investors. We really think of—when we're out fundraising, there's really two different groups. We've got one group, which are typical venture investors who are looking for mass disruption, changing the industry, heavily focused on returns, and the reality is that all of these guys, these investors, are looking to make money. You need to build a big business.
At the same time, there's a growing number of social impact venture investors that are out there that still—to be honest, they still want to make money as well, but they are looking beyond just the dollars that you're making and want to make sure that you're doing it in a socially conscious way.
When we did our first raise, I probably spent more time getting to know our investors personally than in any other business I've ever run before. A lot of the reputation of the company, they wanted to just make sure that Alex is a good guy. Alex is not all of a sudden going to change the business model and start acting like a traditional debt settlement company. I can't tell you how many times I had that question where investors would challenge and say, "Well, if you can't make the business model working in this new and innovative way that you're trying to, what's going to stop you from charging 20 to 25 percent of enrolled debt for somebody who goes down that path, and in the end, we're out raising money before we built anything quite often. It just comes down you just have to trust me. You're going to have to get to know me as a person and decide whether or not you think that is part of my DNA, the team's DNA.
We've spent a lot of time thinking about what is the brand of Resolve or what's called a "public benefit corporation." We try to align ourselves with others who are mission-driven and socially conscious, and we think about that brand in everything that we do, everything in terms of the product that we build, the marketing that we do, and I think that translates to the venture investment community. We've got a lot of folks that when we went out to raise the first time that said, "We don't think it's going to work, and you're not going to make a lot of money doing it." That's a little bit of a self-selection process for us. That's great. Let's go find somebody who believes in the vision and who also wants to change the world because that's what we feel like we're doing.
>>JOHN McNAMARA: Great. Jerry? fund	
>>JERRY NEMORIN: Innovation is hard. It requires real capital. I think—and to Ed's point—VCs in general are looking for transformative type of technology, and so, in this space, there's clearly a need for transformative products and solutions. I would say I don't think money is what's going to solve this, so maybe I'll take the conversation a different route. We can throw a shit ton of money against this problem. Until we get everybody at the table to recognize it's a real problem, we're not going to solve this. That's just my view, and ultimately, the guys like us who may believe and strongly are fighting every day to try and solve this real problem that we have in this country will get swallowed because the people who aren't doing it the right way will have significantly more access to capital and will be able to the acquisitions of those customers in a different way with the language—they'll just push into the airwaves. They'll just suck out all the air in the room because they'll have the capital to do so. 
So if this is a capital game, in all honesty, I think we're going to lose, but if this is a "let's solve a significant problem" because we believe it's the right thing to do and we're going to bring the right solutions to the market and we're going to make sure that our North Star is always the consumer, then we have a path forward to solve a real significant problem for this country. But it's not a capital issue.
>>JOHN McNAMARA: Thanks, Jerry. 
>>ALEX MOORADIAN: John, can I just follow?
>>JOHN McNAMARA: Absolutely. 
>>ALEX MOORADIAN: So I think it's really important to recognize the difficulty of the things that we're trying to do here. In general, we are all using technology. We are finding ourselves in between, quite often, 30 different institutions while we're trying to solve a situation for a consumer. So we've got a whole host of regulatory bodies that have rules and regulations that we're trying to weave our way in between. Quite often, a consumer has 15 or 20 different accounts. 
So just like let's take a minute here. The average consumer on our platform has $50,000 worth of debt across 20 or 25 different accounts, and so when you think of what that consumer's life—somebody on a previous panel talked about the number of calls and letters coming in. It's not like the person wakes up and is like, "Oh, I have a problem today, and I want to go solve it." They're like, "Oh, no. My mailbox is full of letters. I'm getting 50 phone calls a day, and I'm just going to put my head in the sand because I can't deal with those situations." 
So what we're constantly trying to do is take the regulatory framework, 15 or 20 different creditors that all do different things, and then a consumer who just is like scared, they're embarrassed, they don't know how to solve their problems, and they're getting bombarded with all of these different deceptive solutions. So I completely agree that it's not a capital problem. Money does help, though, Jerry, right?
[Laughter.]
>>ALEX MOORADIAN: So having some money allows you to take a bunch of swings to make things at the solutions. The right people are in this room to solve the problem, and it is not going to be a money solution. There is a fundamental systemic problem here that needs to be addressed.
>>JERRY NEMORIN: Yes.
>>JOHN McNAMARA: Great. Thank you. Actually, Jerry, you started touching on another really important stakeholder, and that would be the consumer. So as you approach this market, what are the consumers' needs in this space? As you deploy product or build product, what do you feel you need to do to mitigate any risks that might be presented to those consumers? Again, I'd like to pull on that thread a little bit more of specific consumer needs in the space.
>>JERRY NEMORIN: I'll take it since I started the thread. I think Ed's point is spot on, right? In this day and age, with data, with the infrastructure we have, technology infrastructure we have, it's almost criminal to not have the ability to engage creditors and create solutions for consumers instantaneously because we shouldn’t have these sort of barriers. I mean, certainly, countries don't have those barriers. When a country is running out of money—Argentina does it every 15, 20 years, right? A company doesn't have those barriers. They hire a lawyer. They engage with the banks, and they negotiate their debt down and right-size it to what their capacity is, and we call it Chapter—whatever you want to call it in the Bankruptcy Code, and now they've emerged because there was a creditor there that decided to provide that workout loan and do so.
We have made it so hard for consumers because we believe they have malintent. We actually lend to these consumers who are in financial distress, and I can tell you that they're coming in with 70-plus DTIs on a net basis. And for you to sit there and say these are consumers who are trying to game the system is not acknowledging the fact that we are over a trillion dollars in credit card debt, over a trillion-six in student debt. Income has stagnated for so long, and so we have to just acknowledge the reality of the fact that we are in a situation where we've significantly over-leveraged American households. And the only solution forward is for us to get around the table together and say, "How do we create systems and processes that are not extractive?" because we don't believe in an extractive product, but that are instantaneous, that is transparent, and it's a win-win-win value proposition. The consumer has to win. The companies that are providing these services have to win, and the creditors need to also have a win. And then that's our view, and that's the approach we've taken. But to get to that win-win-win value proposition, everybody has to be at the table and saying, "What's my position?"
>>ITZIK COHEN: Maybe to answer a question, John, more specifically, I don't think consumers know what they need. Consumers are confused. They have debt. I mean, unsecured debt is pretty high right now, and it's manageable because loss rates are not that high. But the total debt is high. They hear a lot of marketing that suggests they don't have to pay what they owe in full and that their creditors are tricking them to think that they have to pay in full, and it's not a trick.
So they call, thinking they missed something, and, of course, a lot of them are unsophisticated consumers and are being enrolled into this program. I think that this is from a marketing debt settlement practice, but if I look at it from a creditor perspective, look, when I was speeding a few years ago and I got three speeding tickets in 4 months, I got a letter from the DMV saying that they are unhappy with my driving record and they're concerned. I think that your creditor should do the same thing. They have access to your credit. Every month, they pull your credit from the various bureaus. They see your other accounts, not just their account, and if your spending habits show concern in their mind—and there's a lot of predictable models now that can predict the problem—it's almost like Minority Report.  You can know there's going to be a problem eventually with that consumer. Then something needs to happen from the creditor themselves to either using a third party or themselves to start working with the customer to eliminate the problem or prevent the problem. You can't help everybody, but I think that they gave you credit, they should also be responsible for your responsible use of your credit and how you manage your total accounts, not just theirs.
So I think this is the idea that a lot of the tech innovation that I see in the future will be able to solve that problem and reduce that friction because it's going to focus on the people who really need the help based on data, not on marketing.
>>ED HARYCKI: So I'd agree they may not always know what they want, but I think they know what they don't want. I think they don't want processes when they're in trouble. They don't want processes that take weeks, months, and years to get certainty. I don't think they want to be paying 20 to 25 percent fees on top of a bad problem that sometimes happens to good people who are trying to do the right thing. I don't think they want to see their credit reports destroyed during the process, and I think they want to really know what they're in for when they sort of sign up for something, so a lot more transparency.
>>ALEX MOORADIAN: I think it's important to recognize that in the average consumer's life who's having this problem, paying their credit card companies is like probably number seven on the list. They're generally in this situation because they've had a medical issue, they've had a job issue, they've been through a divorce. There's generally some life event that has put them into this particular situation.
You probably know the stats. Like 60 percent of Americans can't afford a $600 life expense, emergency.
>>ITZIK COHEN: I think it's 40 can't afford.
>>ED HARYCKI: Right. Small shocks. Small shocks can cause big problems.
>>ALEX MOORADIAN: These folks are like walking along the cliff already. It just takes a light breeze to kind of push them into this world. They're worried about their kids. They're worried about taking care of a loved one, and I think everybody in here probably has a strong educational background. We know what a budget is. You might even know what a profit and loss statement is, but when you talk to the average consumer and take them through a budgeting exercise, they don't have any idea where they're spending their money. The idea of saying to them, "Oh. Well, you're paying $1,000 a month in interest charges, and we're going to reduce that to $800," the person basically says, "That sounds good." Is that going to get them out of the problem? They really have no idea.
You're going to hear kind of a common theme from me today where in a world where a consumer is in that experience, they're looking for the easy button. Press that button. Make it all go away, and that is what traditional debt settlement companies have created on the surface. So it is the perfect product that that consumer wants and needs and makes the consumer feel like everything is going to go away.
Now, what the consumer doesn't understand is how much in terms of fees they're going to pay. The consumer doesn't understand that for every dollar enrolled in the program, 25 cents of that is going to go to the debt settlement company. Let's be realistic. Big debt settlement companies are not negotiating. These are Excel files that are going back and coming back from creditors. Like there is no negotiation process.
So we just have to keep reminding ourselves who the person is that is being impacted. They don't know what they're signing up for, and frankly, if you're a creditor and you're trying to combat the traditional debt settlement industry, suing that consumer for just not really understanding is also not the right approach. So we need to find a solution that looks at the problem and meets the consumer where they're at. If you think about exactly if you were in that situation, what are the characteristics of a solution that you would want, and I got to tell you, it's not going to be like taking a course online and gaining financial literacy. It's like just take my problem and help me make it go away.
>>JERRY NEMORIN: Yeah. I would say this is analogous to prohibition. What happened when we had prohibition? People still drank booze, right? It's just the price of booze was higher. So if we really want to make this process transparent and low cost to the consumer, we just got to create a better set of rules, regulations, and transparency across the board, and everybody has to be at the table.
In a situation where—and it's not—I'm a creditor as well, right? You know, I'm in the same shoes, but in a situation where creditors are saying we're going to make it difficult because we believe that it is moral hazard, what you actually create is more, moral hazard, because to your point, now you're giving rise to these sets of organizations that are going to flood the airwaves with these types of advertising. And that then ultimately will take advantage of the fact that you, by virtue of not being willing to engage the consumer, have created a scenario where they filled the need to have a white knight. And you've created a void that somebody else can fill. Unfortunately, look, we live in a capitalistic society. When there is a need, there's a service. It's, again, no different than prohibition when people are providing booze, no different than tobacco and cigarettes. There's a demand. There's a need. Somebody has to fill that void. You're giving the perverse incentive for others to step into that void and fill it.
So I want to say the consumers are the victim of this sort of battle between—or this concept of moral hazard, and we're only making it worse for them. We're not putting the consumer first when we think we don't want a debt—we don't want to settle. Okay. You don't want to settle. So what are you going to do? You're going to charge it off, and you're going to sell it off for 10, 15 cents, or you're going to hold it on your book. Come on. Let's be honest about that. Let's create a solution that absolutely meets the consumer where they are, because you know what? They wouldn't be in this situation if everyone wasn't pitching this level of access. We've over-levered the consumer. So now let's figure out how to get them to the right place.
>>ALEX MOORADIAN: I just wanted to follow up with one thing for those who don't really understand the world of distress. If you are a consumer who is current on your account, there is no less-than-full-balance option out there available. You can go to a credit counseling agency and pay anywhere from 6 to 7 percent APR. With fees, that's really up to like 10 to 11 percent. There is no less-than-full-balance option there. So if you're struggling and you can't afford to pay 100 percent of your debt, the only thing available to you is to go to a traditional debt settlement company. There is no option. If you call your creditors—or bankruptcy, yes. But you can't call your creditors and have this conversation with them. They're going to basically give you a hardship plan that's 2 or 3 percent, or they're going to say, "Tough luck. Maybe you'll chargeoff and some point, and then you can call me. And we'll negotiate at that point." But the consumer doesn't—by the way, I just used the word "chargeoff." A consumer doesn't even know what "chargeoff" means.
>>JOHN McNAMARA: Itzik, you had something to say?
>>ITZIK COHEN: It's not because creditors don't want to, because they're not allowed to in most cases by regulation to do a principal forgiveness before delinquency or chargeoff. It's not just a willingness of creditors and banks to work this—
>>ALEX MOORADIAN: That's not entirely true.
>>ED HARYCKI: No, that's not true.
>>ITZIK COHEN: It was discussed earlier today. You have the Marketplace Lending Association and banks here. I mean, there are rules that prohibit them to give you forgiveness before a chargeoff. 
>>ALEX MOORADIAN: That's not entirely true.
>>ITZIK COHEN: Anyways, that's what I know. I'm just saying there's a willingness of creditors to work with you. There are some things they can do, things they cannot do before a chargeoff. I think that regulation change in this space will be helpful because that would actually open the door to work directly with creditors in a much more efficient way.
>>JOHN McNAMARA: And it was important earlier to hear that some lenders have prudentials that have safety and soundness constraints around their loss mitigation options. We heard a little bit about that today. Some lenders don't, though. Some lenders don't have that same safety and soundness regulator in place, and again, that's why we were really delighted to have a variety of lenders on the panel earlier.
Hey, Jerry, your product is somewhat different, and I wanted to ask a pointed question to you or targeted question.
>>ALEX MOORADIAN: Can we go back to just that one issue? Because I think it's important to recognize with regulators in the room here.
>>JOHN McNAMARA: Sure.
>>ALEX MOORADIAN: I think there are regulatory challenges with settling pre-chargeoff debt, but that's not to say that there aren't other solutions available that creditors can do to help consumers who are in distress. And I just wanted to clarify that. There is flexibility in the world to do something else, and that's part of the conversation that we should be having, which is what's going to fill the gap other than traditional debt settlement.
>>JOHN McNAMARA: Sure. Jerry, your product is somewhat different in that you actually find consumers or you find a way to lend to consumers who have a high willingness to pay but maybe a lower capacity, and that loans to quicken debt settlements shorten the time frame, give the consumer less rise and risk. You're playing in that space. What are your observations about this dynamic, and what do you see as the potential benefits and risks for what you're doing?
>>JERRY NEMORIN: So first observation is the consumer profile is truly middle America, what was once considered middle class, the consumers we're effectively serving. I call them the "recovering prime." These are consumers, again, coming in—and we look at debt to income on a net basis because we're pulling their bank accounts and getting that basis. And you're talking about 70 percent on a net basis. Some come in with 75-plus percent on a net income basis, which means that 70-plus percent of their monthly income is going to pay off debt obligations That's not sustainable. There's no way you can make that argument—you know, debt obligations plus rent. We do add rent or mortgage. That's just not sustainable. So observation one was we see a much older population than we anticipated. We see much more—we actually see a smarter consumer than people would like to believe. The idea that consumers don't know what they're spending, where they're spending, and how they're spending, I think that's a red herring, and we have to be very mindful of that.
Lastly, I think what we've seen is by right-sizing the consumer's debt to their capacity, to what they can actually afford, they perform. So, yes, with data, we are able to shift through the consumers that we believe are the appropriate consumers to lend to based on their history and based on their current stage and what they have. 
We go back to the regulation side of things. You cannot solve systemic issues without regulation that actually allows for innovation. There's a reason they're systemic. So we do need the regulators to be at the table. We do need the creditors to be at the table, and we do need all the stakeholders to be at the table to be able to create better solutions.
I left investment banking particularly to figure out how do we create a workout loan solution for consumers who are going through financial distress, and we've proven that if you right-size the debt, you can lend to the consumers effectively. And we seek credit score improvement of 80 points within 12 months and over 100 points within 18 months. So they're getting right back to where they were before and being able to get back into the system. Fifty-five percent of our customers are homeowners. Again, these aren't subprime or low low-income customers.  These are actual middle-class Americans.
>>JOHN McNAMARA: Thank you. I want to switch gears just a little bit and go back to your journeys in innovation and ask you. I'm sure you went in with a paradigm or a view of how a market operator or what the consumer need was or what your investor needs were. Talk a little bit about what you learned a long the journey. I assume one or more of you had at least one pivot or partial pivot as you approached the market. I think the audience would benefit from hearing about that, with whomever is—
>>ED HARYCKI: So we spent a lot of time figuring out, I guess, the business model, the technology. What I didn't say is we're actually building a model that's free for the consumer. So I'll put a plug in there.
However, as we thought about the model, while the consumer is actually sort of the customer we're trying to serve, lenders are a key stakeholder. I think we probably built the technology faster than we thought we could, but in terms of having discussions with the lenders, working with large regulated institutions that have a lot of things on their plate and there are a lot of things to be concerned about, that's just a longer process. And as long as you think it is, it's always longer than that.
So along the way, we had discussions with NFCC and nonprofit credit counseling. As we had more and more discussions, we felt that a partnership with them made a lot of sense. When we looked at our strategic objectives, they were very similar in terms of what we were trying to achieve for the consumer, but it's just their positioning in the market, their long-term history, their great reputations with lenders and regulators and consumers. So as we looked at how to get this to the market quicker and to serve more customers, we felt that they were much better positioned to help us, I guess, coordinate bringing this to market. So that was a little bit of a pivot. We originally thought we may market directly to consumers, which we could do, but we'd rather spend our time developing the technology and working with other organizations to get it to consumers in a more, I guess, efficient manner.
>>JOHN McNAMARA: Great. Thanks. Itzik?
>>ITZIK COHEN: Yeah. I mean, I was—not necessarily pivots, but I was very surprised. As I entered debt settlement, I knew the process. I knew what it takes. I knew a lot of the research I've done, but I was shocked by how poor the customer experience is. As somebody who came from technology, I mean, 25 years in tech, you pride yourself on the product you provide and want to make it the best experience possible. It's just not a very good experience for consumers, and that's what led me to kind of start thinking about how do I remove that friction to the consumer, and what's causing all this nightmare experience?
Look, I mean, even debt settlement companies who are doing really well, the leading ones have a 60 percent retention, meaning 60 percent of their customers actually graduate successfully. That's not very good. I mean, any business, if these were my numbers, that would not be something that the product person would be proud of. 
So how do we get those numbers higher? Well, when you start thinking about what consumers are going through once they enroll, it's not pretty. I mean, they're getting calls and harassed by creditors. This lack of communication between debt settlement and the creditors by design, by the way, is something that enhances that type of collection calls and confusion and lack of understanding from the creditor what's going on. The lack of sharing data between the parties involved, they don't know that you're in debt settlement. Somebody can sign a debt settlement together and tomorrow get another loan, and nobody would know about it because you're under the radar. This whole system is really broken because of this lack of trust, and this lack of trust creates friction that I think is unsustainable when it comes to the overall outcomes for consumers as just not good enough and they're too expensive.
So these are the things that kind of—this is the mindset that I went into this business with. I admit my investors didn't want to support my grandiose vision, but regardless, I think that it's the right thing to do.
>>JOHN McNAMARA: Great. Thank you. Alex?
>>ALEX MOORADIAN: A little different than Ed's approach to the market, we are a direct-to-consumer platform. We're trying to build a magical experience for a consumer, who's in distress. It's certainly not a pivot, but it is something we struggle with every single day around how do you create a simple, clear online process that allows the consumer to move through those steps and have a moment of delight, or in our cases, it's really a moment of just like an exhale, like my problems have been started to be addressed. I would say our biggest challenge is the internal conflict between my product and designers to simplify and remove information from the site with fighting with my debt experts who are saying, "Well, no, the consumer needs to understand that, and the consumer needs to see this risk. And they need to check this box, and they need to watch this video." We have this constant push-and-pull of an educated and empowered consumer who really understands what they're doing, regardless of whatever the path is, that really in many cases is not delightful. 
We run a ton of AB tests where we're saying, "Can we pull that piece of information off the page? Do they really need to know that right now, or can we tell them that later?" In the end, we spend marketing dollars to drive consumers to the platform to try to help them, and so we're constantly in that push and pull between getting them to convert, getting them to understand, and in some cases, just saying like we know better than they know the situation themselves. So we're going to even push them in that direction because we think that is the right direction for them. A lot of behavioral psychology goes into it. It comes down to how do you present information on a page, in what order, font sizes, colors, all those different things. It's really hard and it's stressful because we're truly impacting people's lives, and it makes—when the designer and the debt expert don't agree, sometimes you got to—I've got to come in and be like I'm going to break the tie in this particular scenario.
>>JOHN McNAMARA: Great. Thank you. Jerry, you've been at this for a while.
>>JERRY NEMORIN: Yeah. I don't have hair anymore.
[Laughter.]
>>JERRY NEMORIN: You know, I came into this space with the idea that there had to be a better solution for consumers, and it needs to start with creditors. So we built this product, particularly with the belief that we could get creditors to engage and create a solution that would make sense for the consumer. That did not happen. So for us, at the end of the day, what we're trying to do is help consumers. So our pivot was to go and work with the debt settlement companies because I do believe debt settlement as a product needs to exist. I do think it's a better solution for consumers than bankruptcy. I'm sorry. And I do think we have to create market-based solutions that actually help consumers when they are in a time of distress. 
For me, the number one concern is the financial health of the consumer. So our pivot was, all right, if these consumers are going through this process and it is not the most delightful or the most succinct or the most beneficial product out there, how can we engage to find a way to help them and get them out of this as quickly as possible. That was the solution that—that was our pivot was let's work with debt settlement companies to have clients who have already demonstrated that they can make these payments, and it's a bridge because they've proven based on their capacity, what they can afford to pay. We'll step in, and we'll accelerate the settlement for them and give them a path to rebuild their credit. They can refinance us out, and we don't charge—and we charge 14.95 to 18.95 as an interest rate. So we're not charging the 26 to 30 percent that whatever their credit score said they should be charged, because our belief is that these are recovering prime consumers, and we're going to price them at a prime rate. So that's really our big, big pivot, but at the end of the day, it's all about what benefits the consumer.
>>JOHN McNAMARA: Thank you. Interestingly, we have 6 minutes left.
[Laughter.]
>>JOHN McNAMARA: Innovator's choice. I've got two questions. You can choose whichever one you'd like to. The first question is, What do you think is the most interesting thing happening in this space right now? And the second one, a number of you talked on this about this earlier, but what are the biggest challenges to broad adoption of more consumer-friendly debt relief options?
>>ITZIK COHEN: I'll start. I'd answer your second question. I think that there's just a lot of economics in current products. It's hard to complete with the marketing. So I think that that's the biggest challenge is awareness of the existence of these products, and that's true for nonprofit credit counseling and of the new innovators in this space because if you're going to direct-to-consumer acquiring customers, it's expensive in this space.
>>ED HARYCKI: So I guess I'd say because our model is a partnership-driven model that it's going to be really essential for us to get adoption that we can create some standards across lenders in terms of debt resolution outcomes. We need to sort of create a democratic process with lenders on the same page so that if a customer needs a 20 percent debt reduction that there's a process where all the lenders on a platform say, "Yes. Information is verified. It makes a lot of sense," because without those standards, it's going to be very difficult to automate a lot. So we won't be able to sort of scale it as much. But I think if we can create those, then we can dramatically simplify the process and speed it up and make this kind of technology available to a lot of parties.
>>ALEX MOORADIAN: So I'll answer the first. I think there's three exciting things happening right now in the debt relief space, and the first is this day. I know this day has been a long time coming, and to have this conversation in an open forum is absolutely the right step.
I think the second thing that's happening is the settlement industry is really becoming a victim of their own success in that it is becoming such a problem for our creditors that conversations that have not been happening in the past are now happening, where it's been a problem, but not it is a real problem for many creditors.
Then the third is I think there's some really interesting things happening within the credit counseling space with their DRP program and the EMS program where there is finally some creativity happening.
>>JOHN McNAMARA: Alex, for the benefit of the audience, can you go back and just describe what a DRP and an EMS are?
>>ALEX MOORADIAN: Those are different programs that are being created within the credit counseling space with Cambridge Credit Counseling, the NFCC. Like there's a bunch of folks that are in the room today that are less than full-balance programs, depending on a consumer's situation. Rebecca, who is going to sit on a panel later, can probably highlight some more of the specifics, but they are really the first step into some version of a structured, less-than-full-balance program outside of the traditional debt settlement world.
>>JOHN McNAMARA: Great. Thank you. Jerry, you're going to close us out.
>>JERRY NEMORIN: Pressure, pressure. I'll take the one. I think it's exciting to see people like Ed and Alex come in this space and create innovative solutions to focus on the consumer. I think this is a space that has sorely lacked innovation and definitely is necessary.
I think we're about to get into a recession, and so that's going to be an interesting conversation to be had amongst creditors. We'll see how that accelerates or maybe delays some of the adoption of these products. I'd like to believe it should accelerate it, but we shall see.
And I do think there seems to be a bit more openness from creditors and regulators alike to rethink debt relief broadly and what that means, what that looks like, and how we should deploy it.
Lastly, I think we are starting to see a lot more—even of the existing debt settlement companies—trying to think of ways to improve the consumer experience. Now, I'm not saying they're going to improve the fee, but you're starting to see a bit more of those guys thinking about how do we change the landscape for the consumer, the experience itself, not—economics-wise, I think is another conversation.
But I'm hopeful. I'm hopeful that with the innovation that's happening in this space that we'll be able to create better solutions, automatic solutions for consumers, and get them back to financial health.
>>JOHN McNAMARA: Great. Thank you. Listen, Itzik, Ed, Alex, Jerry, thank you so much for giving generously your time. I'd also like to thank all of our panelists for giving so generously of their time today.
[Applause.]
>>VANESSA MEGAW: Thanks again, John and panelists. Thank you. We are scheduled for a 15-minute break. Please be back to your seats by 12:30. Thank you.