>>VANESSA MEGAW: Thank you, everyone, for staying for this long today. We are about to start our last panel of the day talking about opportunities and future of debt relief options. We have Alice Hrdy here as our moderator. She is the principal assistant director of Supervision Policy, and, Alice, take it away.
>>ALICE HRDY: Oh, thank you. Good afternoon, and obviously, we always save the best for last. So we have a terrific panel here to draw on all the excellent conversation that has occurred throughout the day. I'll echo other moderator and panelist thanks to the markets team, John McNamara and Vanessa and the whole team for putting together a great dialogue today. 
So we're going to continue that dialogue, and I'll first introduce our panelists. To my immediate left is Sean Fox, president of Freedom Debt Relief, the largest debt relief company in the U.S. Sean has had executive experience in various businesses for the past 20 years, and he began his career as an attorney at the U.S. Department of Justice.
Next to him is Andrew Pizor, a staff attorney at the National Consumer Law Center's Washington, D.C., office. Andrew works on issues related to consumer debt, and he contributes significantly to NCLC's various treatises, which are widely used and very much respected and appreciated, including on federal deception law and other of those publications. 
Then we have—
>>ANDREW PIZOR: You said the respected part. I didn't write that for—
>>ALICE HRDY: No, no. 
[Laughter.]
>>ALICE HRDY: Yes. That is from personal experience. 
Rebecca Steele is the president and chief executive officer of the National Foundation of Credit Counseling. She has had more than 20 years of experience managing some of the nation's largest and complex residential mortgage banking businesses and spent much of her career both at JPMorgan Chase and Bank of America.
And then to my furthest left is Jason Swift, who is chief operating officer and BSA officer of Marlette Funding, Lieutenant Colonel. His responsibilities include strategic planning and operations for application and loan servicing, loan verification, fraud loan funding, collections, and asset recovery at Marlette, which is a marketplace online lender.
So, with this great lineup, we're going to have a great discussion, and I think I'll just kick it off and ask each of our panelists to say in a few sentences or more what you see as the key risk to consumers in this market that you think need to be addressed. So I'll start with Sean.
>>SEAN FOX: Okay. Thanks, everybody, and thank you to the CFPB for putting this on. I am really hopeful about this conversation because I think it can kick off something that can go beyond today. This industry does have a significant amount of attention that comes on it. Many of the things that have been said today, for example, I could easily raise my hand. As Dan Frazier was saying, he wanted to raise his hand the whole time and say, "Wait, wait. How about my point of view?" and I feel as though there's a dialogue that needs to happen. And this is really just the beginning from my perspective.
In terms of risk for consumers, I mean, I think many of them have been raised already. Consumers need to be educated and need to understand what they are doing when they enter into a program, and I'll just be specific to debt settlement because that's where a lot of the energy has been. Disclosures related to what will happen as part of debt settlement are critical to our business, are critical to the way that we operate as the largest debt settlement company, debt relief company, and so being in a position where that is the standard—and we believe it is—and being able to explain that to the outside world is really critical. I think ultimately, people understanding what goes on in the context of debt settlement as opposed to assuming, I think facts and data are going to be really critical for the conversation going forward to really understand what these risks are, not the outdated assumptions that folks might have.
And the only way to kind of deal with that is for us to have a conversation and folks literally come and see what's going on. So that's one of the things that I've done with all kinds of different parties so they can understand kind of how we operate is to physically come to our operation and see what we do and have that conversation. 
Big point. Disclosure seems to be a theme that's running through and the consumer not understanding what's going on, and I'd love to have the dialogue. I can go through others because, frankly, there were 10 probably brought up as part of this conversation as the day has gone on. Hard to address them all, but that's one to hit front and center. And I'm sure we'll get to others as we go.
>>ALICE HRDY: Thanks, Sean. Andrew?
>>ANDREW PIZOR: I guess I have a bit of a counterpoint to that. I think the biggest risk is complexity, and that that comes out a number of different ways. The flip side maybe is transparency. It's so hard for consumers to evaluate these products to know which one is right, which product is right, which company is right, because there's just so many things to think about. A lot of it is not transparent. There's a lot of advertising. Some of it is false advertising. Some of it is true. There are lots of disclosures, but understanding all of them is—people aren't given a Ph.D. in how to evaluate disclosure. So no matter what product you're getting, it's a loan that's debt relief. It's really hard to know what you're getting and if it's right for you and if the person on the other end of the phone is telling you the truth about their product.
So I think dancing around a few points—complexity, transparency, accuracy of the advertising—I think that's the biggest risk or the biggest problem for consumers.
>>ALICE HRDY: Rebecca?
>>REBECCA STEELE: Yeah. I think there are a ton of risks, and I just would start with—a lot of them have been discussed today, but I think some haven't. I had the fortune and opportunity, actually, to work through the housing crisis the last 10 years and learned a lot from that, and the one question I would say is, Is making things much worse before they get better—is that a requirement? How do we help these high-stressed consumers? And to Andrew's point, a very, very complex enforcement.
A couple things I would say about that is I think it's really difficult to shop when you're stressed. So we said options are important, but shopping is difficult. It really is. Having a trusted source is really important for high-risk consumers. So who is that trusted source, and how do I know that?
One thing on education I'll make a point about is education takes time. The pace has to be a little slower. You have to give consumers time to understand what the options are and work that through. So it can't be on one phone call. We certainly learn that from high-pressure sales tactics in the mortgage business. Enrolling someone in 20 minutes sometimes is good, but most times, it's bad. And these consumers, it's not one product. It's many different creditors. So somebody said earlier that it was like six to eight creditors. Yes, that's true. Sometimes it's 10. Sometimes it's medical debt. Sometimes they have rental issues. Sometimes they have auto debt on top of it. So solving and understanding that problem is complex.
Holistic education is important. So when we talk to creditors, it's very important that we're not talking about one creditor at a time. We have to solve all of them at the same time, and that leads to something else, which is not only lack of knowledge, but standards and consistency and the lack thereof in this sector is leading to a lot of risks and outcomes for our consumers.
One other thing about credit, do we have to make things worse before they get better? It's just been a standard in unsecured debt that you wait to charge off, regardless of whether there is harm done or regardless of whether there is a real hardship.
So I'll say two things, and I'm sure we'll talk more about this on the panel. But one is effective means testing. So for mortgage modification, for instance, you have to go through a very standardized means test that's attested to by the consumer. That ensures somewhat that we're going to really understand what their cash flow is and what their hardship is, and I think it's really important to use some of these principles that have worked in the past.
One other thing on disclosures is disclosures—and again, I'll go back to my housing experience—are very, very, very difficult for consumers to understand. We need to make it easier, simpler, and we might even want to think about putting like a net tangible benefit test in place. That might be an idea, or high-cost loan disclosures, high-cost debt relief options, so we're sure we're putting those risks in front of the consumers properly.
>>ALICE HRDY: Thank you. Jason?	
>>JASON SWIFT: All right. So, first, I do want to take the opportunity again to thank the CFPB, the number of regulators, consumer advocate groups for putting this together. It has been a long time coming. We've had conversations in pockets, one on one, different forums, but to have this opportunity is really beneficial for everybody.
Something I do want to say, I know that debt settlement has been in the limelight today in particular, but I do appreciate the fact that folks like Sean and Teresa and Dan are willing to sit here and have these conservations to actually change the industry. There are folks in the industry that are willing to do this, that are willing to meet with creditors individually that do invite us to their facilities and actually allow us to sit with agents and really learn the process and work with them to improve the process. So I just really appreciate that. It was said before. A couple of years ago, that would have never happened. You rarely saw the creditor and the debt settlement company in the same room having a discussion, and we see it today. So we appreciate that.
The other thing I do want to take back—and it's been said a couple times today—is like the consumer that we're talking about here, these consumers are going through financial hardship for the most part. These are consumers that have gone through situations where they've lost their job. There's a reduction of income, death of a spouse, medical bills, whatever the case may be. The really positive part about that situation is these consumers have some willingness or have a willingness to pay and some ability to pay. These folks want to pay their debt. They want to get back on their feet. They want to be able to support their family. They're just scared to death, and they really don't know how.
This particular group of people represents a much larger group of people that, in one way, has created a complexity in this overall process throughout a number of years, but also is the group of people that can reduce that complexity and create a level of understanding and transparency in this process that we currently don't have today.
So the key risk that really I identified are very similar ones that have been mentioned. So I think disclosures are important. All of us are required to do disclosures. It's really if we truly look, and does a consumer that is going through a financial hardship, a consumer that is stressed and embarrassed to have these conversations, a vulnerable consumer, do they understand what they're being disclosed? So the risk to me are things like the consumer gets the wrong solution because they don't know what payment programs—what payment options are available to them, not only from debt settlement companies, but from organizations that Rebecca represents, from creditors and other third parties.
Consumers may enroll in programs that lack consumer protections. There are a number of programs out there that exist that have consumer protections. There are some that lack consumer protections. 
Consumer enrolling programs that are destructive to their credit, that will eventually prevent credit in the future when these folks should have availability of credit. It may prevent them form getting certain things from a housing perspective. It may prevent them from getting a job. Some of these programs are destructive to their credit, and they need to understand what they're getting into from that perspective.
And the last thing that I want to mention is unknowingly enrolling in programs that are very costly. If they're going to enroll in programs that have higher expenses associated with them, it should be very clear and transparent to that consumer.
>>ALICE HRDY: Thank you. Those are all great comments that help lead into the next question for each of you to consider and answer, and it's this. What do you see as opportunities to improve the quality of options available to consumers and to expand consumer choice? So we've heard folks talk about fee structure, outcome success rates, finality. Sean, I'll turn it to you to kick things off.
>>SEAN FOX: Okay. Well, I think, first, to ensure that folks have access to the information. The interesting conversation about disclosures, just to take like a minute to talk about how we actually ensure the consumers here at multiple times—now, the reality is you don't know if people understand what you tell them literally three times in the process, but we have multiple stages where we will walk through specific disclosures and help them to understand the specifics of impact on your credit. Litigation, threat of litigation. The impact of taxes. There are specific spots in the process where we do this verbatim from a script as part of the consultation, which, by the way, it's not 20 minutes. It's, on average, 2 hours and 15 minutes. That's how much time we spend with someone, and it goes over multiple calls. It's typically two to three to four calls you'll have where you walk through this, and its' a process. It's not one 20-minute conversation, be cause it's a big step for a consumer to take. So as you go through this, you have that initial consultation, and there will be literally a verbatim discussion of disclosures.
Next, you'll go through an agreement where you will see all of that, and you'll be actually, initialing key components of the disclosures as you go through it, basically looking at every page and every key component.
Then, finally, we get to what we call our quality assurance or our welcome call. This is outside of any enrollment team, and it is the operations team. Now, why is that important? The operations team is the team that's responsible of ensuring outcomes for consumers. Why is that important for me as a business? One thing that really hasn't come up today that's been surprising to me is debt settlement was regulated back in 2010 and 2011, and there was something called the "advanced fee ban" put in place. It has been mentioned but not emphasized enough. Our company does not make any revenue until a consumer's debt is settled. That settlement is presented to the consumer, and the consumer approves that settlement. Very few industries out there have that kind of an expectation.
So we're in a situation where our incentives are absolutely aligned with the incentives of the consumer. The last thing that I, as the guy running Freedom Debt Relief, want is a consumer to come into a program, be confused about that program, in 3 months decides that now they don't like what's happening, the collection calls, the thread of litigation, whatever it might be, and then leave the program because I have incurred cost in numerous ways with debt consultants, with the onboarding, with the follow-up calls we dealt with for 3 or 4 months. So it is absolutely critical that folks understand that there's an alignment of interest there in terms of trying to get outcomes.
I can talk to you about how this ripples through the organization and how that affects what we do every day for hours, and I don't want to take everybody's time. I'm speaking too much already, but—
>>ALICE HRDY: Well, Sean, we appreciate that. Maybe you can focus on do you see opportunities to improve options.
>>SEAN FOX: Yeah, okay . So I just had to address what I saw as—
[Laughter.]
>>ALICE HRDY: We talked about it. We knew you were going to do that.
>>SEAN FOX: Access to the information to solution is critical.
Creditor engagement. So we are strongly in favor of the idea that we engage with creditors. In fact, we have them come to our operation. We have conversations with them every day. We've built a team in our company to work with those creditors on a day-to-day basis to improve the efficiency and effectiveness of those interactions that we have around negotiations. That is incredibly important.
Now, what we'd really like to see is that when a consumer comes into the program and they have a verifiable financial hardship—and we can talk about what a verifiable financial hardship is, but if we could get to the point where everybody agreed on what that verifiable financial hardship is, we then would expect the creditors to negotiate in good faith and not pursue strategies that are going to be detrimental to consumers. That would be a better world. That would be a world that I think we could all objectively step back and say that works better, so I think creditor engagement when the hardship exists.
Second is making other options available to the consumer. So one of the things I'm most proud about in the way we've run our business is that consumers who come to us—and they come to us, as most people point out, confused as to exactly what the solutions are. They don't know the difference between credit counseling, debt settlement, sometimes getting a personal loan. So the key is to ensure that folks get educated on those options as best you can, and we have, at this point, put ourselves in position where we're actually sending more consumers to other solutions that come into debt settlement. That's been a key mantra for us. It's been a key objective—is to work with credit counseling partners. 
I mean, Rebecca's folks that are members of her organizations, we send consumers to them all day long because they're not a good fit for debt settlement. They don't have the level of stress that collectively we've confirmed by talking to them for 2 1/2 hours is appropriate for them to go into debt settlement.
So bottom line is we feel as though having other options available—and by the way, we have referrals to bankruptcy, credit counseling. We have a personal lending option. We would absolutely be open to other solutions that folks have. We just launched actually a HELOC solution for certain consumers through our own company, which we think is a great solution for consumers that have significant amount of equity but have a limited amount of consumer card debt compared to that equity, we want to do the responsible thing for consumers as a company. And that, ultimately, I think is going to make this industry and the entire thing much more sustainable and more consumer focused.
>>ALICE HRDY: Thank you, Sean. Andrew?
>>ANDREW PIZOR: Well, I think the best way to get more options is probably first to figure out what works. We live in the area of big data. We analyze everything, and I think we really need to spend more time doing a comprehensive analysis of what's been tried, what's working, what hasn't.
Sean mentions—I mean, I was surprised, frankly, to hear you say that you actually refer people to credit counseling and then bankruptcy because a lot of debt settlement places won't, sadly. In the past, some credit counselors have been reluctant to do that.
But there's some out there that probably don't do that. Maybe some impartial third party could do a deep dive into Sean's data and get the other parties in, and maybe we'll find out that what Freedom does works, and what the others don't—or vice versa or something like that. What we really need to know is get a look at the consumer's big picture. Basically, look at the consumer, their status, before they go into whatever activity—debt settlement, bankruptcy, credit counseling—and then you look at them after they've left it, whether they've quit, been forced out, or completed the program, look at how much everything has cost, including taxes, fees, the service charges, the actual settlement, and trying to figure out what worked best for them. It might not just be a dollar amount. I mean, maybe people say, you know, "I saves money, but I'm so stressed out, I'd wish I had gotten it done quickly." But I think that's the best way is to identify what the best options are, what works by various measures, and then we can pass regulations or guidance that weeds out the bad practices.
Frankly, you probably know I'm probably inclined to say for-profit debt settlement is all a bad practice or on balance bad, but—
>>SEAN FOX: You have said that.
>>ANDREW PIZOR: I have said that. Thank you. I just want to make sure everyone knew I had said it.
[Laughter.]
>>ANDREW PIZOR: I mean, if we get the data, maybe there's a way to figure out what works, and I'm willing to change my mind, but right now, we just don't know.
>>ALICE HRDY: Thank you. Rebecca?
>>REBECCA STEELE: Yeah. I just think a couple things. One is, Sean, I appreciate the comments around the best practices. I think one of the important things around debt settlement is that we do have best practices that do have the consumer at the core of that outcome.
A couple things just before I get into sort of expecting options. One is transparency, and I think somebody said on the fintech panel, it has to go all the way through these key stakeholders.  So it's got to be transparent with creditors, nonprofits, for-profits, tech companies, and we have to come together, including collection companies and debt buyers. I mean, this ecosystem needs help.
There's loose regulations in some cases, and there's tight regulations in other cases. I think really understanding what are best practices, the intent of putting the consumer in the very best position that they possibly can be through education, product, program, and follow-up, I think is what we ought to be thinking about.
The other thing I would say is credit outcomes matter, so forcing chargeoffs, asking consumers not to make payments on multiple cards, really. And I'm not taking it from a credit counseling perspective. I'm just taking it from a basic—consumer outcomes is bad. It's bad. It's a bad outcome, and I think we need to work together to say how do we fix this holistically. Let's not stop paying your credit cards when you can pay something on a monthly basis. Let's make sure we have the right principles of transparency coming through, and with that, I think we can come to some best practices on a waterfall basis where some people just need interest rate reductions. Other people need interest rate and fee reductions, and other people clearly need principal reduction, and then further than that, bankruptcy, so really understanding what's required across this debt relief sector is something we've really not done before holistically, and I think we could have great outcomes, and in any case, whether it's for-profit, nonprofit, et cetera.
One thing that we are very aggressively working on with the creditors, for instance, is expansion of programs. I think Mike Croxson said earlier that we have one DMP, debt management plan, and credit counseling. That's just not enough, and that comes, by the way, with interest. So you think about 25 percent enrolled and 75 percent of the people going away. So how do we solve for the 75 percent who really need help that we can help?
For the last 18 months, we had been working on new programs called debt reduction programs. This is a waterfall that is based on an effective cash flow means test where a consumer is holistically looked at, all of their creditors, all of their unsecured debt, and slotted into programs that are affordable payments. Some of those affordable payments are no interest, and some affordable payments will need to be principal reduction, but where do they sit today on their hardship test, and where can t hey start making payments that effectively allow them to successfully navigate this bad debt situation? And, oh, by the way, I think savings is incredibly important. We have to have a culture of savings as a part of getting out of debt because we know that $400 emergency is going to happen again, so the combination of that and best practices.
It has been a difficult 18 months, but we have effectively worked with many of the large creditors to start to bring some of these forward for charged-off accounts. Now what we're working on is can we extend durations to 72 months, so working with regulators, the CFPB, the OCC, FDIC, to really say is it a viable product at 72 months. Let's test it for a couple years and see what that looks like. Is it effective for consumers? Is it effective for creditors? So it's a win-win situation.
And then just making sure that at the end of the day that we have really, really good, solid, simple programs with good transparency across these products, I think, is one of the most important things that we collectively can do for the future of this.
>>ALICE HRDY: Thanks, Rebecca. Jason?
>>JASON SWIFT: Okay.
>>ALICE HRDY: You're the creditor on the panel.
>>JASON SWIFT: I'm the creditor on the panel, yes.
>>ALICE HRDY: So feel free to speak to the creditor side.
>>JASON SWIFT: I will. Thank you. So I think I'll speak to a couple opportunities that I see that we have to improve the quality to the consumer. One is around choice, and it's been mentioned. And the second will be around transparency, specific to fees.
So when I talk about choice, there's multiple facets to choice, and a number of folks have talked about making sure that consumers have choice and the knowledge of that choice, and even on the last panel, Teresa talked about it a lot, to make sure that the consumers have choice throughout the entire process.
When I think about choice, I think about a comment that was made a bit earlier today that the debt settlement companies have the secret sauce that the creditors don't want you to know about, and the scripts that exist at some debt settlement companies—I'm not saying all, but some debt settlement companies, the initial scripts and communications that say, "Do not contact your debtor, your creditor. Do not answer phone calls. Do not respond to letters. Stop paying your creditor."
When we have that position at some debt settlement companies, it eliminates choice for the consumers. We heard this morning that there are a number of creditors that provide choice throughout the entire process, and there are short-term programs that have overall reduction in payment size, that pay more of the principal. There are long-term programs that do that as well and even suspend all interest. There are programs that allow consumers to skip payments—one, two, up to four payments to have extensions to provide relief to that consumers. There are all the programs that the NFCC and organizations provide through consumer credit counseling and the things that Rebecca just got done talking about. There are offers. There are programs that consumers should be aware of and should be allowed to make choice on those programs to understand what is the best option for them.
I don't want to limit the ability for creditors to provide those options, limit the ability for consumers to make those choices, and when those choices are limited, that unfortunately leads to sort of lack of trust within the industry and leads to things that aren't necessarily good to the consumer from a collections practices. It's been brought up a couple times here that litigation is in place.
When the consumer is told do not talk to your creditor, do not engage in options that might be available for the creditor, there are creditors that then will look to litigate, and that's not the options that we necessarily as an industry want.
I do believe if consumers are allowed to make these choices, what will result holistically is that they'll choose things that are less destructive to the bureau, that potentially will cost less, that protect against less desirable collections practices, and that may provide access to future credit. So I do think choice is really important.
The second thing I want to address if fee transparency, and I know fee is one of the major concerns that we heard about today. As a creditor, we know about the need to disclose fees associated with things like loans. You know the way that we do that today is disclosure through the Schumer Box. The Schumer Box is something that's consistent within the credit industry. It's a box that discloses fees and the full cost of credit. It was created to simplify credit terms and help customers easily understand and compare rates and fees associated with credit offers. So whatever the program may be, whether it's debt settlement or other programs, I really feel like something like a Schumer Box that is very easily understood and presented to a consumer, so they truly understand the full cost of that particular program is something that we need.
If you go through all the fees that exist throughout the life cycle of a debt settlement program, there is a fee that could be 20 to 25 percent of the total debt that they enroll in the program. That's substantial.
We talked today about the fees associated with the 1099-C when folks have to claim that from an income perspective. There are monthly fees like litigation protection fees that are there. A number of debt settlement companies today also offer loans to pay off their settlements. That loan comes with an origination fee. That loan comes with interest income. When you add all those things up and that total cost to settle on a debt, it's very complex for a consumer to understand that total cost at the point in which they're engaging with a debt settlement company, and they are extremely vulnerable. That cost is over, potentially, 4, 5, 6 years. So to truly understand that, to have something in placed like a Schumer Box would definitely provide some level of transparency in the process.
>>ALICE HRDY: Okay. Thanks for those great ideas and options. So now I'm going to ask you to pick one of the options that you've identified as an opportunity to improve the quality of outcomes for consumers and identify whether you see any barriers to that improvement.
Jason, why don't we stick with you, and you just mentioned a very specific option, a Schumer Box. Can you speak to any barriers that you might see?
>>JASON SWIFT: Yeah. I mean, some of those barriers are being broken down today, and really, I want to talk—
>>ALICE HRDY: How is that?
>>JASON SWIFT: Yeah. I want to talk about kind of the communication and engagement. I talked earlier that there's a lot more engagement between the creditors and the debt settlement companies, consumer credit counseling. There's a lot more engagement kind of working together to develop products.
When I think about as the product is being developed and you think about the relationship between a creditor and a debt settlement company today, it's very adversarial, and when there is lack of trust between the creditor and the debt settlement company, the person that suffers is the consumer. So how do we build that trust between the two groups?
The goals to resolve consumer hardships with really minimal customer impact are not aligned between the two groups. The trust that exists today between folks like the NFCC and the FCAA on the programs that they've created, I believe the reason that trusts exist is because they were created with creditors. They were created side by side with regulators. They were created with consumer advocate groups.
We are starting to make change in the debt settlement industry today because we are having these conversations, and we're making adjustments to the program so that the groups can become better aligned. But until they're better aligned, we're not going to have the consumer at the heart of what we do.
Earlier, it was brought up from Jerry that the consumer always has to be the North Star, and I truly believe that. And if we make the consumer the North Star, then we'll solve the things that we're talking about today within the industry.
The second part that I really want to talk about is the transparency to the consumer and to the industry. Anybody who has heard me talk about this particular subject has heard me bring this up, and it was brought up a little bit earlier from Itzik, and it's really around the transparency and knowledge of folks that are on these programs.
So the financial ecosystem that exists today is really blind to the fact of folks that are working in debt settlement. The credit availability in a risk evaluation is blind to consumers on debt settlement programs. Myself as a creditor, folks can be on a debt settlement program today, and I have no knowledge of that from any reporting agency that I can use that's FCRA-compliant.
Creditors may or may not want to loan to folks that are in debt settlement programs, but they should at least have the knowledge and be able to evaluate the risk associated with that particular consumer and give them a loan if they want to or not give them a loan if they want to or extend any types of credit to those consumers. So I truly believe there has to be some consistency from a reporting agency perspective.
Consumers today don't get the benefit on the Bureau for payments that they make to debt settlement companies. If somebody is on a consumer credit counseling program, you know every single month that there's payments being made to that debt. You know that they're on the program, but you also know that there's payments being made to that debt. You see the progress of those payments on the Bureau. You see the progress of those payments then allowing potentially for that consumer to have a workout re-aging and then become current under that particular program. All of those things are very transparent. We'd like to see the same thing from a debt settlement program.
>>ALICE HRDY: Okay.
>>JASON SWIFT: Consumers are making payments to the debt settlement program for 3, 4, 5, 6 months into a dedicated account, and you don't see that on the bureau at that time. And the consumer should get credit for those particular payments.
>>ALICE HRDY: Okay. Thank you. Just to keep things going, Rebecca, what barriers to the ideas you've put forward and that are actually happening?
>>REBECCA STEELE: Yeah. I'm going to focus on just the expansion of programs, the debt reduction programs, which is the waterfall programs from interest-only all the way down to principal reduction.
It's a very difficult space to, A, get transparency in and, B, get consistency and standards in. There has to be standards across the creditor community in order to really effectuate these changes. So I'm not saying they have to be exact, but there has to be a framework of standard program eligibility.
The other one is I think it's in our best interest overall to really understand what hardships are defined by.
>>ALICE HRDY: And what barriers are there to doing the first objective you noted?
>>REBECCA STEELE: The first objective is really—I mean, going one by one to each of the creditors is exhausting and not effective. Going to the top 20 is even difficult because they're all busy and they're all complex. I think putting a framework out there by which the creditors should treat hardship and whether that's regulated or bulletins or whether that's rulemaking or otherwise, I think that is the way to do that. And we're talking about effective hardships.
For instance, in making home affordable, I mean, we have a cash flow test out there. Everything is standardized, and most importantly, the consumer understands what's happening. And if they go to one group versus another group, it will be standardized. So they'll really understand what to expect. I would say that—today, we are going one by one to creditors to do that work.
The other thing is I really think there needs to be some standards around monthly payments for consumers and make sure that that is in their benefit and that it's affordable payment, and that we're not telling, requesting, mandating that consumers not make payments to their creditors.
>>ALICE HRDY: And is there a barrier to that happening?
>>REBECCA STEELE: There's no rules that say you can't force a customer into chargeoff, but I think it's really bad. It's impacting access to credit in the future, and I think that if a customer is willing and able to pay, we should have a mechanism for that to happen.
And I'm not from the debt settlement area, but what I've heard is that was the best way to negotiate with the creditors is to hold those payments back and one by one finish those negotiations, which is a really bad—I mean, talk about putting customers in the worst position. I think that's a bad way to handle this. So I would also look for sort of help, assistance, bulletins, maybe even some rulemaking around monthly payments and the effects on credit.
>>ALICE HRDY: All right. Thanks. So, Andrew, you said figure out what works, a comprehensive analysis by some impartial third party doing a deep dive to find out, using the data, what works. If you could speak to what you would see as any barrier to undertaking that or any other improvement that you've heard to would like to discuss?
>>ANDREW PIZOR: Well, I think the biggest barrier to the data is probably the same with any data project, getting it. The bigger companies are probably better—probably already capturing it in some form or another, and they probably are more likely to cooperate, but to make the project work, you have to get the data from a full range—big companies, small ones, ones that are more successful than others. Right now, there's no—there's only one state that I'm aware of that requires any useful data collection, and that's Maryland. None of the other state regulators require any useful data collection. The CFPB doesn't require it, and I think that's the biggest barrier. I'd like to see states and the Bureau, to the extent—and it has jurisdictional issues, but I'll let them deal with that—require—I mean, first, someone needs to come up with a list of what data needs to be collected, and then mandate that kind of collection and submission to some kind of useful place, so maybe a HMDA model that's already done with mortgages, so we can see what's working, see what the problems are. But until the data is available and collected, obviously you can't do anything with it.
>>ALICE HRDY: Thank you. Sean, I'd love to hear your views on Andrew's proposal.
>>SEAN FOX: Yeah. It's a great place to start a conversation about how we actually build some trust because that word has come up a bunch of times today, and I think data and facts are a key part to changing the dialogue that the whole ecosystem has with each other.
We believe a lot in data in our company. We've run our business based on data for the reasons I described earlier, meaning that if someone isn't successful, then we're not successful. And that requires that discipline.
That said, we also do research work to try to understand this. The Regan Report was mentioned earlier, and someone said, "Well, why isn't that data made available to us, to the broad industry?" We can take that to the AFCC and have that conversation. 
I will tell you one thing we have done in response to that concern is we've gone out to a well-respected economist at Harvard. Will Dobbie is the name of the gentleman. He's a professor at Kennedy School, and he has taken the data with no influence from the original author or from the AFCC. And he has reviewed the results that came from the Regan Report, the latest one. It's not yet published. It will be within the next couple weeks, and he's confirming the results.
We would hope that that will help give some confidence to folks that this isn't just gaming the data, that the data is real. Now, to what extent we have to go further than that and make it all available for you to go through it, we can have that conversation. We're open to it.
>>ANDREW PIZOR: It's asking the right questions too. 
>>SEAN FOX: Yeah. Asking the right questions. That's fair. I mean, I think it's a pretty comprehensive review of debt settlement. I think we're very open to the idea if there other questions that key stakeholders have about how debt settlement is operating, that those get surfaced to us, and we can build that into the next version of that report. That would be one idea. So I think there can be a dialogue around that.
Second thing is we personally—or we at Freedom have done a recent survey around this topic that's come up significantly today, which is the impact on credit score, and we were very interested because we had not done this deep dive on the credit score and understood it in the way that we should. And we've spent literally a year on this study. It was much harder than we expected. It was working with actual credit data, looking at vintages back 5, 6, 7 year ago and looking for an extended period of time and saw the impact. Long story short—and this paper is going to be published this week. It was done by the guy who used to run the FICO product at FICO. His name is Freddie Huynh. He's with our company. The answer is debt settlement clients, graduates will reduce significantly. There's a big drop. Surprise, surprise. Right? Because they are no longer paying on those debts. By the way, I think most consumers that are going into debt settlement would like to be paying on those debts, but they can't. That's the reason that they're coming to this program. It's a significant drop that happens within 6 months. At 6 months, as settlements start to occur, because the average settlement is at 4.4 months at this point for our company, very transparently, it starts to come back. By the time they've graduated, about 45 months, the FICO score is the same on average as what it was when they entered into the program. So that's not destroying somebody's credit score in the same way that you might argue—actually, bankruptcy has an impact that is longer lasting and can live with you longer in a whole bunch of ways—employment, housing, and so on and so forth. So we actually were really encouraged by this.
More encouraging than getting back to where it was when they came in was the fact that if you look at the 2 years that follow when they graduate you've got an increase of another 30 points that goes up.
So this idea of really digging in the data, really understand what's going on, and then building these solutions around that information is something we completely—we want to engage this conversation and do that going forward.
>>ALICE HRDY: So maybe, Sean, when those articles or publications come out, we might have another discussion like this where we could discuss those.
>>SEAN FOX: Absolutely. I think peer review is really important, right? Because people can poke holes and look at it from a different perspective, and that's why the Dobbie investment, that he spent his time and did that and looked at it is really important. Is there someone else that wants to peer review that data as well? Would we be open to that? I mean, I can't speak for the AFCC. I don't represent them. I don't control that data.
>>REBECCA STEELE: I think it's a great idea. Look, we use the Ohio State University, Dr. Stephanie Moulton, to do our external research, and I think it would be really, really interesting if we could collaborate on some of this research and make sure that the way it's done is equal across the sector, both credit counseling and debt settlement. I think that would be really interesting.
>>SEAN FOX: And I think really critical because today there haven't been many comments about outcomes, for example, with credit counseling; for example, success rates.  Let's look at all of the solutions when we do these studies. Let's understand the real rates because I'm very happy to talk about success rates of debt settlement compared to the other solutions.
Here's the reality. These consumers are highly stressed, 8 to 10 credit cards, $30,000 worth of debt. They have credit card utilization rates that are in excess of 70 percent. Forty-five percent of them have a personal loan of those that are enrolled in the debt settlement. They are at the end of a cycle, and that is the reality of the situation.
So we want and are very encouraged by the idea that we could have some sort of engagement around data and then understand which of these solutions make sense for which pockets of consumers because, at the end of the day, there are some consumers—and we recognize that all day long—that are better for credit counseling. There are some consumers that should just go pay it off on their own. There are some consumers that actually should come into debt settlement. I know some people in this room don't want to believe that, but it is true. And some should go bankrupt. If we could all acknowledge that fact, to me, that's one of the main barriers.
>>REBECCA STEELE: Yeah.
>>SEAN FOX: And I'll get to my point, the main barriers.
>>ALICE HRDY: Sean—
>>REBECCA STEELE: If I can just add? 
>>ALICE HRDY: Yes.
>>REBECCA STEELE: Do you mind if I add?
>>ALICE HRDY: No. Go right ahead. Go right ahead.
>>REBECCA STEELE: I think it's a good discussion here. One of the things that we are looking is really developing principles around helping the consumer, and everything that we look at, whether it's cash flow monthly to the creditor, whether it's making sure we have the best program at the lowest cost for the creditor, what type of education and savings plan is needed, I think we can develop some real best practices for this debt relief sector.
I guess the question is we're coming at it from very, very different place today, and what I want to be careful is we don't just try to meet in the middle, which doesn't put the customer maybe in the very best place. But I'm encouraged by the discussion, but I think we're a ways apart on some of the practices.
>>ALICE HRDY: We have a little bit over 10 minutes. I want to do a couple of things. Maybe this is more of a speed round, but asking Sean, Andrew, and Rebecca, if you could speak to Jason's Schumer Box proposal, getting to the theme of all day the need for transparency, the importance of disclosure, the difficulty of achieving successful disclosure. So if you could just give about a minute on what you think are perhaps the pros and cons of further work towards a Schumer Box disclosure for consumers, no matter what the product is being offered.
>>ANDREW PIZOR: I can go first because I think I'll be the briefest. I think it's a good idea, but the problem is at this point, I don't know what to put in it.
>>ALICE HRDY: Okay.
>>ANDREW PIZOR: I mean, what's the best metric? What do people need to know?
>>REBECCA STEELE: I think that's true. I mean, I like the idea because it is more transparent. I think disclosures just for disclosures sake don't work. 
I also think that we ought to think about a test that is a benefit test to assess that we are putting the consumer in the absolute right product for them for success.
>>ALICE HRDY: Rebecca, you referred earlier to the HMDA program. Could you say a little bit more about that and how you see that would be different from a Schumer Box or any other kind of attempt to achieve that kind of clear disclosure so consumers know what the terms are and, therefore, what they should actually be qualified for?
>>REBECCA STEELE: Yeah. I think if we find a simple way to assess, like a net tangible benefit test, that if you put a customer either in a loan or a re-age program or a settlement, that they understand not only the short-term quick fix to their debt, but also what that would mean long term.
The high-cost loan documents are another way to just try to make sure. You have high-cost and low-cost options, and how do you really present those side by side to a consumer? I think we'll have to think through what that really might look like.
>>ALICE HRDY: Okay. Thanks. Sean, on the Schumer Box?
>>SEAN FOX: So I'm not a lending expert. So exactly what the Schumer Box would look like in this case, maybe Jason can help me.
I think that, number one, the fees are disclosed in a very direct and obvious way in our agreements, full stop. How we go about ensuring that people understand exactly how those work over time and the impact on them to me is the key, because it's the totality of the program that seems to be most concerning.
There's a general concern around just fees are high, and there's another concern about do people understand what they're getting into here. 
I think on the fees are a high part of it, if we had a different engagement with the creditor world, those fees could be lower. I'll just state that full out. We spend a lot of energy on dealing with the friction that is created by the lack of trust and the lack of ability to engage in a way that's efficient and allows the consumer to be at the center of the conversation. If we want to deal with fees, let's have that kind of a conversation and try to drive some of the costs out of the system. So that's, I think, a big part of it.
>>ALICE HRDY: Okay. We have about 2 minutes each to close out. So I'd like if each person—and remember your thought, Sean, if you can.
>>SEAN FOX: Okay.
>>ALICE HRDY: Okay. And I'd like us to close out with this. So you've heard about several different initiatives, both on this panel and throughout the day. If you could isolate one question you'd have either for one of your panelists here or anything you've heard today, if you could say what that question is and what you'd like to see as a next step coming out of this workshop—so a question based on something you've heard today in this panel or others and then what you would like to see as a next step by yourself or by a group or any stakeholder. So I'll start with Jason and work our way down.
>>JASON SWIFT: So one of the interesting panels today was some of the disruption that's going to take place or is taking place within the industry today through intelligence, through modeling, through introducing technology into the process. I would guess—I would like to ask Sean. How do you think of that from an industry perspective as it relates to debt settlement overall maybe specific to Freedom, this disruption that is happening within industry? How do you see that kind of change in the overall industry?
>>ALICE HRDY: And then a next step out of this program today.
>>JASON SWIFT: Yeah. So I think from a next-step perspective, what I would like to see is, one, continue to have these conversations. I think the conversations are great, and they have evolved. I think next is like what are the major results that are going to come from the conversation. I think the next step that I'd like to see is just standardization, consistency, and consumer protections across all debt relief-type programs. We should all be playing by the same rule book.
So things that are talked about today, if I go through just a couple examples really quick, we talked about a means test. So bankruptcy has a means test. Any program that the folks associate with the NFCC go through—have a means test associated with that. I'd love to see debt settlement have a means test. 
There's a budget analysis that's done, but the fact that we try to drive everybody to a 50, 40 percent settlement doesn't suggest that people are actually settling at what they need, because that would tell me that somebody would settle at 65 and somebody would settle at 50 versus the sort of industry standard at 40.
I'd like to get away from the cease-and-desist practice. That will help build trust within the industry, and I know what Sean would say back is, okay, then we need some relief on the litigation tactics and more engagement from the—
>>SEAN FOX: Can I address that one real quick?
>>ALICE HRDY: But hold that thought. Sorry. Because we're going to go right down the line.
>>SEAN FOX: All right. Am I going to have to answer all these?
>>ALICE HRDY: No, no. No rebuttal.
>>SEAN FOX: I'll have seven questions at the end.
>>ALICE HRDY: I'm sure people will ask other people questions. You don't have to respond. 
>>JASON SWIFT: Just two or three more to finish up on standardization.
>>ALICE HRDY: Maybe one. Pick one more. Pick one more.
>>JASON SWIFT: I'll just go back to the reporting, and if I use credit bureaus, for example, just consistent reporting to a bureau, just like we do with any other program that exists, whether it's bankruptcy, consumer credit counseling, internal programs. That level so standardization and consistency across all the debt relief would put us on a playing field that we're all willing to play on.
>>ALICE HRDY: Thank you. Rebecca?
>>REBECCA STEELE: Well, I'm going to start with my two things that I'd like to see as next steps. One is a real focus on credit education, financial education, as a backstop to everything that we're talking about in this space, standards around education, counseling, understanding access to credit and disclosures, all very important backstops to standardize and strengthen.
The next piece really is to make sure that we have a continuum of options based on hardship that are not specifically bucketed in chargeoff and pre-chargeoff. If a customer has a hardship, they have a hardship now, and forcing them to go worse into credit means do worse things to them now to get better later. So those are my two pieces.
And my question really is again to Sean. I hate to, you know, pile on.
>>ALICE HRDY: Poor Sean.
>>REBECCA STEELE: It's really, really important. I mean, you're speaking about Freedom Debt and the practices that you specifically do and expect. What about debt settlement as a whole around their public relations campaign, around the marketing tactics, around the aggressive sales nature at the point of sale? I have real concerns about that, given the consumers' stressful position there.
>>ALICE HRDY: Thank you. Andrew? And ask a question to someone besides Sean.
>>ANDREW PIZOR: If that's possible.
[Laughter.]
>>ANDREW PIZOR: Well, I had already said not to pile on you because you probably know the stuff I'd ask anyway.
But I think maybe the one biggest question I'd have, maybe a more optimistic one, is I'm really excited about these new programs that NFCC is working on. What can we do to make those go ahead to get those in place? Because I think that's really—I think that will really be a game changer for a lot of people. 
I think the next step will be to what we were just talking about doing, and also I'd like to see maybe just more people in the industry talk about data collection, first decide what needs to be collected, and then talk about how we can work on collecting it and analyzing it.
>>ALICE HRDY: Terrific. Okay. Sean, you get the last word.
>>SEAN FOX: All right, all right. Okay. I'll try to hit the questions.
>>ALICE HRDY: You get about 2 1/2 minutes.
>>SEAN FOX: I'll try to keep it there.
On the innovation point, it's a really interesting one because you listen to the panel, and there's a lot of change. There's a lot of good thinking. I love Alex—it's a great discussion and debate with Alex around his business and just what they're trying to get done.
We have to innovate as a company. That's the bottom line.  Not only does our company, but the industry has to change. And our company is completely committed to that. One of the things that you'll see as our company evolves over the next couple years is a real focus on the consumer being at the center, as you said, financial wellness being kind of that focus in terms of what that consumer ultimately needs to be striving for, helping those people that are struggling and striving and put them in the right program.
So we want to have a whole multitude of solutions. We want to use data to get them into the right solution, and then, ultimately, we want to support them in that process and be their partner all along, because they don't do it on their own. You look at folks that file bankruptcy on their own. They don't make it out, and so they need support and help as you go through that, so innovation from within. It's hard. We're investing a lot of money, frankly, in doing it right now, and hopefully, we'll be successful. I am hoping some of them are successful as well because the market will be more robust as a result.
Cease-and-desist came up. We stopped the practice of a cease-and-desist in 2017. So another kind of point that I think people get surprised when they hear some of the things we're talking about, transfer. We're talking about cease-and-desist not existing anymore. We're talking about POAs as an issue that was very problematic for creditors. We changed that. We're responsive, more responsive then we're given credit for, I would say, based on what I've heard today, and we will be going forward.
What other? Debt settlement. Oh, the aggressive marketing practices. I think it's a totally fair point to say, "Hey, you're speaking for Freedom. You know Freedom." There's lots of other companies out there. We have to have specific standards, and we have to hold companies accountable for that. The AFCC does have an audit process that it puts its members through, and there are folks that aren't members, and there are folks that are members. Changing what's in that audit process and what the standards are would be a very obvious way to do it.
Of course, others could argue regulation could be a way to do it, but one step that we're making in the AFCC and industry in terms of self-regulation is to define what those are and then hold folks accountable for it.
>>ALICE HRDY: Sean, do you have a question?
>>SEAN FOX: I got one question. 
>>ALICE HRDY: Good, good.
>>SEAN FOX: So my question is to all three of them. See, I get three on one, so I've got to catch up here. 
>>ALICE HRDY: They don't have to answer it.
>>SEAN FOX: They don't have to answer it, but they're going to have to answer at some point.
>>ALICE HRDY: Yes.
>>SEAN FOX: The question is, Would you each invest a day of your time to come and visit Freedom Debt Relief and see what actually goes on? Would that be something you'd be willing to do? That's my question to them.
>>ALICE HRDY: Great question.
>>REBECCA STEELE: Should I answer the question that Andrew had for me?
>>ALICE HRDY: Sure. Yes, yes.
>>REBECCA STEELE: I will do it very quickly.
>>ALICE HRDY: Yes.
>>REBECCA STEELE: The debt reduction credit counseling programs are moving forward. We're in Phase 1 implementation today, which is for charged-off-only accounts. Eight of the top creditors are participating with two others, hopefully, on their way. So we believe that plus the 72-month duration test, which will also start in 2020, will start to really take hold this year.
At the end of this year, we're hoping to expand that to pre-chargeoff, and we're working to get that sort of by the fourth quarter of this year with creditors.
>>ALICE HRDY: Thank you. So, with this, we are now at the end of our time, and I have to say I think this has been hopefully as advertised, an incredibly fulsome, meaty panel with lots of follow-up. Tom Pahl, John McNamara, Vanessa Megaw, you've got a lot to do, as do others, and please join me in thanking this panel for a terrific discussion. Thank you so much.
[Applause.]
>>VANESSA MEGAW: Thank you so much, Alice. I'd like to invite Tom Pahl up for closing remarks.
>>TOM PAHL: All right. Well, thank you, everyone, for your time and attention today. I want to thank all of the moderators and panelists who participated in the events. I also want to thank the Bureau staff who were both moderators and other Bureau staff who really made this event possible, including Isabel Bailey, Gandhi, Jim Savage, Brenda Muniz, Nhu-Han Duong, Raynell Lazier, Crystal Dully, and Cheryl Parker Rose. 
But I would be remiss if I did not highlight the critical role of Vanessa Megaw in this convening. Without her persistence, focus, and organization, this event never really would have occurred. So please join me in a round of applause.
[Applause.]
>>TOM PAHL: We've been incredibly fortunate to have and have learned a great deal from the stakeholders today. I won't even try to summarize everything that we have heard and all of the valuable insights that have been shared because I don't think I could do justice to what we've heard today. But I do want to underscore that this convening is done, but this is not the end. The Bureau will continue to use its tools to protect consumers in the debt relief space, and our rich conversation today will help us do that now and in the future, so thank you all very much.
[Applause.]
>>VANESSA MEGAW: So that concludes today's convening. I just want to thank everyone who are watching on live stream and remind everyone that a video will be available on our website.
[Applause.]