Consumers Should Work Directly with Credit Card Companies Rather Than Debt Settlement Companies, Says CFPB

In a blog post published on April 3, 2019, the Consumer Financial Protection Bureau (Bureau) encouraged consumers to work directly with credit card companies rather than with debt settlement companies.

The benefit of working directly with credit card companies is that it saves consumers money, according to the Bureau. Credit card companies usually give the same discounts to consumers as they do to debt settlement companies; the difference is that debt settlement companies will charge consumers for their service. If consumers contact credit card companies directly, they can get the same result without having to pay an intermediary.

In addition paying a debt settlement service fee, the Bureau notes other pitfalls of working with debt settlement companies. For example:

Typically, the debt settlement company will ask you to stop any payment and will ask you to stop communicating directly with your credit card company. Stopping payments might have a negative impact on your creditworthiness that you could avoid by working directly with the credit card company. Stopping payments could also result in a lawsuit being filed against you by the credit card company or a debt collector.

The Bureau encourages contacting a credit counseling agency, which is usually a nonprofit organizations, if consumers need assistance planning out their debt repayment.

insideARM Perspective

While the Bureau’s blog post focuses on communicating directly with their credit card companies, this same encouragement should apply to communicating directly with debt collectors. There are many benefits to such direct communication, including:

• Consumers can enter into payment plans that fit their financial situation.
• Hardships can be noted and responded to appropriately. Depending on the severity of the hardship and the creditor’s policies, this can pause the collection process until the consumer is back on his or her feet or stop collections altogether.

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In a world of robocalls, scams, and strict communication restrictions, there is a communication gap between legitimate debt collectors and consumers. This gap is somewhat bridged in a very specific situation: if the consumer contacts the credit card company directly on an account that has been placed with a debt collection agency, the credit card company will usually direct the consumer to contact the debt collector. However, a divide still exists where there is no handoff, or “handshake”, communication that notifies the consumer of this placement.

The Consumer Relations Consortium proposed a comprehensive solution to the above issue, whichwould give consumers confidence that they are speaking to a real, legitimate company about their actual account rather than a fraudster. In turn, this would facilitate the type of communicationthat allows consumers to reap some of the benefits described above.

There is another cottage industry that is brewing up issues for both consumers and industry alike: credit repair organizations. Let's hope the Bureau turns its eyes towards these companies too.