Bridging the Gap Between Debt Settlement and Debt Collections

Adam Parks (00:00)

Hello everybody, Adam Parks here with a collaboration webinar between Receivables Info and IAPDA. We've got a lot to cover today and a lot of great speakers. So those of you that are joining us, I know you're here to talk about the connection and bridging that gap between the debt collections world and the debt relief, debt settlement world. So before we jump into all of that, I want to make sure that you understand the perspectives of today's speakers. Renauld, starting with you, could you tell everyone a little about yourself?

Renauld Smith (00:33)

I'm Renauld Smith. the executive director slash owner of IAPDA, the certification company for the debt settlement industry and credit and collections industry. We also do accreditation amongst other things, financial education. And this bridging the gap thing is something that I feel is important. And so I'm trying to be the head of this in trying to get the collaboration between debt settlement and credit and collections together.

Adam Parks (01:03)

Well, fantastic. Appreciate your perspective. I'm just going to kind go in the order it is on my screen. So Felix, could you tell everyone a little about yourself?

Felix Shipkevich (01:11)

Thanks Adam. Thanks for having me. Thanks for now. My name is Felix. I am a regulatory attorney. that focuses on representing fintechs, consumer finance firms, lenders before investigations. We do licensing and as well as my practice has various areas of law, including litigation. I'm based in New York. Thank you.

Adam Parks (01:30)

Fantastic. Mr. McNamara, John, can you tell everyone a little bit about yourself?

John McNamara (01:34)

Sure, John McNamara. Currently, I'm the Chief Growth Officer at Software Startup Obtol. But just prior to that for 11 years, I was the Principal Assistant Director of Markets at the Consumer Financial Protection Bureau, where I initiated coverage of the debt settlement debt relief space in terms of market monitoring as well as research. real quickly, a plug, please read the Card Act Report that my old team just put out because it's got a good amount of stuff on debt settlement.

Adam Parks (02:01)

Fantastic. And Brooke, could you tell everyone a little about yourself?

Brooke Teal (02:06)

Hi, I'm Brooke Teal. I am Chief Compliance Officer and Deputy Chief Legal Officer at PCA Global Ventures. We are a parent company to Phillips & Cohen Associates, which is a global collection agency. We have been bridging this gap for quite some time, so I'm excited to talk about it today. Thanks, Adam.

Adam Parks (02:23)

Absolutely and Teresa moving on to you

Teresa Dodson (02:26)

Yes, Teresa Dodson. I've been in the debt settlement industry one way or the other for about 25 years. And I have a consulting firm, Greenbacks Consulting, where I consult on both sides of the industry and have done so for the last eight to 10 years. Also have a nonprofit called Women of Debt Relief that represents women in the financial services industry. I think that's it.

Adam Parks (02:49)

I mean, that seems like condensing a lot of information to a short period of time, Bill, how about you? Can you tell everyone a little about yourself?

William R. Mitchell (02:55)

Bill, how about you? you tell everyone a little about yourself? I come from mostly the debt settlement world. been a business lawyer, represented debt settlement companies for about 20 years. I also have what they call in the debt settlement business a legal model, so I've run a couple of those. And then I also contract out my services to assist debt settlement companies whose clients have been sued by creditors. which apparently does happen from time to time.

Adam Parks (03:24)

Occasionally, from what I hear, there may be an occasional lawsuit. So for those of you that are watching us live today, I am monitoring the chat. So if you have questions that you want to ask our panelists, you can drop those in the chat. I will work them into the conversation as we go here. And I know that we've had a lot of conversations in the past about, so there's a disconnect between these two worlds and what's happening. But Renauld, you wanted to have this discussion today and we were talking about how the how historically these two worlds have clashed versus working together. So what has historically been how these two worlds view each other and what's our current state of the union? Where do we stand today in that?

Renauld Smith (04:06)

Yeah, in my opinion, because we set a lot of roundtables, a lot of us that are in this conversation right now go to the same roundtables over and over again. And it seems like there is slowly an understanding, but there's still a majority of the credit and collection industry that still aren't on the same page as the debt settlement industry as far as what it is that the debt settlement industry actually does and how they help the consumer and how we actually enroll. how they actually enroll a consumer into the program and the guidelines behind that. So this is, you those round tables, we have the discussions and try and build a relationship, but that now is the time that we need to figure out, okay, let's set something up so that we're all on the same page to make this a smoother process between the debt settlement company and the credit and collection, as you see, to make this a smoother process for the consumer.

Adam Parks (04:58)

So that leads me to an interesting question, because John, you've sat on the regulatory side of all of this. From your perspective, did these two, like from your former seat, did these two worlds fall into the same bucket, or do you have a different vision of your expectations of the debt relief or debt settlement versus debt collection?

John McNamara (05:18)

yeah, totally different. And my view. Okay, so if I were building a bridge, I wouldn't build it to the debt buyers or the debt collectors. And it needs to be built to the issuers of non secure debt. And it needs to be built within that group to probably the Chief Risk Officers and those folks. And It's funny, I was at an event that had the whole ecosystem of debt settlement. They had debt buyers, had debt collectors, they had credit creditors and including within creditors risk officers, as well as the debt settlement players. And it was like, when the discussions got heated, the collectors and the debt buyers were kind of like looking at their shoes a little bit because they're be Listen, they absolutely generally I think like like debt settlement companies help them earn money. Right. And there was a time where they got really good at buying charged off accounts that were likely to be involved with the debt settlement because they could realize a good gain. You can make collectors jobs easier, but the risk managers and the creditors were literally livid. And this poor group in the middle of debt buyers and collectors are they like generally like the revenue they make with debt settlement companies.

But they're absolutely beholding to the credit card issuers that either sell or place business. So to me, working with those guys and again, I'm not going to make this a whole commercial for the Card Act Report that Wei Zhang and Dan Martinez did at the Bureau. But one of the bullet points there was it talked about the fact that the credit, it seemed like consumers that went to debt settlement companies were under significantly higher financial distress and If you build a bridge to where I think it needs to go, which are the creditors, that building, it needs to be made out of something transparent. And it's absolutely fluid, transparent data flow. So the creditors realized that, hey, this account may have looked like a pre-charge off attempt at that settlement, but my gosh, this consumer is so upside down. They were destined to charge off.

Adam Parks (07:20)

Is that part of the limitation and the visibility from the debt collectors perspective or even from the creditors perspective, right? We don't have the same visibility to the entire financial picture and we have to look at things through a much smaller lens, right? Like we're looking down the toilet paper tube and we've got tunnel vision because of what is available to us.

John McNamara (07:33)

Yeah, no, that's exactly that's exactly right. like the I don't know about y'all, but I use Rocket Money. I mean, I lay eyes on every single transaction. I can I can produce a balance sheet quicker than a hog can eat a cabbage. We have technology now to collect more information. And so DSCs could be more transparent with creditors. I don't see a lot of movement like I wish the nonprofit consumer credit counselors would do that. But you guys all know this.

The creditors don't fully trust those guys either because they feel like they're giving their money away. And they certainly have a generally they have a deeper distrust for for-profit debt settlement because they think that you're convincing their very best customers to default. And we all know that no super prime consumer is going to succumb to a debt settlement offer to save that money and destroy their FICO score.

Adam Parks (08:26)

I'm, fair enough.

William R. Mitchell (08:27)

Can I just jump on this briefly? I want to give Johnny Mack credit because he's really saying that the problem isn't the debt buyers or the collections, it's the issuers. And to your point, debt settlement companies do not create financial vulnerability in the credit system and they do not create delinquencies. They may inspire charge-offs and defaults, but they do not create delinquencies.

John McNamara (08:53)

Hey, Bill, I don't disagree. I don't disagree one bit. But I think that's where the bridge needs to be built. I think the only way to build that is through offers a more transparency because I think a lot of and this report just said that the number of pre default enrollments in DSCs, like it surged and actually tripled. So that's good for debt settlement companies.but also probably has taken the temperature up of issuers. And I think issuers need to realize, and the state, the data set for servicing is so rich and deep. Apply that, use AI tools for that. Some services would realize, wait a minute, okay, we're kind of mad at this DSC for encouraging the consumer to settle, default and settle. But I mean, my gosh, we would have been wasting money trying to cure an account that was destined to charge off and cost us even more money to service. Throw good money after bad.

Adam Parks (09:46)

So Brooke, your organization's been intimately involved in this process since pretty much the beginning of debt collectors talking to debt settlement companies. How, from your perspective, has that evolved and have you seen any change in the way in which the creditors you represent are viewing the debt settlement?

Brooke Teal (10:05)

Yeah, you know, our philosophy, have, you know, kind of a two-part philosophy. The first is to remove operational barriers, right? People aren't going to do things that they're difficult. It's just not going to happen. If you have overly complex approval chains, manual processes, you know, if you're making it difficult, those creditors aren't going to work with you. So that was kind of our first take was to remove the operational barriers. Then, you know, there's the reputational issue, right? And how do you build trust? You'll be shocked to hear me say this, but my belief is that trust is operationalized through compliance, having strong compliance frameworks, building creditor confidence. If you're a licensed debt settlement company and you're transparent, you have well-documented policies, you're gonna be easier to work with and that creditor is going to work with you. So I think that was really what we did. We worked on bridging the operational gap, reinforced it with compliance, and that's why the system works.

Renauld Smith (10:56)

When you did.

Teresa Dodson (10:56)

Well, and Adam, I can kind of jump in here just between like what Brooke's saying and John, in my experience, and I was at some of those round tables, obviously, we kind of helped facilitate some of them. I walked away from one of them going, my God, nothing is going to change with the creditors direct. Because I agree with you, John. That's where we need to make inroads. But you do. You see the collection agencies and the debt buyers in the room just kind of looking down at their feet going,

Adam Parks (10:57)

Please.

Teresa Dodson (11:21)

Well, really, I don't know if I want you to do that because I really like working with you. We've worked out a system on how to work together and it's profitable and it works for us. But I still got that pushback from the direct issuers that they just didn't want to hear it. Now, it doesn't mean that I need to stop talking, but it's like, okay, who are the right people to get in front of to get them to understand? But I think the bigger question that was in my mind is do they even want to hear it?

John McNamara (11:29)

Yeah. And definitely not, not middle managers. And by the way, this just occurred to me, Brooke, like Phillips and Cohen in the nature of your business is that the folks that do the kind of business Phillips and Cohen's based itself on have got generally the supreme trust of the creditors. Cause I have to just because of the nature of that. so it's puts, it seems like it puts you in a wonderful position to be able to help, help build that bridge. of a trusted relationship. And I don't know, it probably can't be a middle manager in the, I mean, the people that underwrote the loan that went to debt settlement, they're kind of tender and sensitive anyway, right? Because they feel like they made a mistake. It may be at a higher level that looks at the pure economics.

Teresa Dodson (12:27)

Yeah, and I also am starting to see, because of the fact that there's been an increase of consumers that are enrolling in debt settlement, and you had mentioned we're seeing that spike. What's kind of surprising to me that I'm starting to see, especially over the last six months, is I am seeing direct issuers take a position of litigation much stronger than they did before. And I have no idea why they make those decisions, because it typically is not to anybody's benefit. but I am seeing an increase in that.

John McNamara (12:56)

Exactly. And that's, that's why the business, as I see it, again, I'm an outsider, or more like an in-betweener. There's always this threat that if you upset a middle manager at a significant credit card issuer, they make that decision.

And I can tell you, I was a collector for a lot of years and I loved it when someone was going through debt settlement. And then I'd say, OK, what what card issuer was that? And then it was one that I knew demanded litigation or recalled the account immediately. Because, you know, a 50 percent collection on a fairly large balance is a wonderful thing for a debt collector. It makes their day. That, although I built to kind of back up Adam a little bit. I love this stat, but it was issued by Portfolio Recovery when North Carolina shortened its statute of limitations from I think five years to three. They actually in their public filing said they were going to sue about something like 1500 more North Carolinians per quarter. And as a regulator that wants to be data driven, you love it when you sort of see like specific data about how a state will react to a change in statute.

Renauld Smith (14:02)

But how do we prevent, how do we actually prevent the actual summons from going out? I mean, wouldn't it make more sense as soon as a credit and collection agency or third party receives a power of attorney, then all other actions ceases because they know money's coming?

Adam Parks (14:03)

The first one, like, okay.

Renauld Smith (14:19)

mean, for me, that would be a fit.

John McNamara (14:20)

That's what you said. What you said was 100 % rational. But we all know the world's not always, world's not always rational, Renauld. I wish it were, but. ⁓

Renauld Smith (14:31)

Okay. But those are that's so insane. So the word we were supposed to be talking about what are the fixes? This is a fix that could that could if it's agreed upon among other things because we talked about having a golden standard or golden standard rule between that settlement and credit and collections that could be one of the gold standard rules is that hey, you know what you guys know you guys are going to get your money. This is part of the rules. This is part of the agreements as soon as you know that somebody's in that settlement just like as soon as you know somebody's in bankruptcy, then all of their action stops. If the consumer defaults in their debt settlement program, then you can continue back into your collection process even if it's all the way up to summits. Just one of my faces, that's it.

Adam Parks (15:13)

There may be some sort of an option there, but I don't know that the collector retains all of the same capabilities into that future. they could sit and process that, but I think that there's some level of risk that comes with the consumer falling out of program.

John McNamara (15:31)

Yeah, and considering, I mean, I've sued a lot of consumers, one of the few consumer financial protection regulators who has sued a lot of consumers, you know, at the end of the result of that, you wind up with lots of dead judgments. So were I litigating, I would way much prefer having something in debt settlement than a potential dead judgment or something where using the post judgment remedies, I'd get a small amount of money each month.

Adam Parks (15:32)

Okay. Yeah, yeah, nothing. Makes sense. So where do you think the current perceptions between the two worlds are still split? Because we've started to see these conversations clearly. A lot of us were in the room for some of these roundtables. Where do you think there's still a disconnect between the two worlds?

Teresa Dodson (16:11)

I mean, could say, I think there's several disconnects. I mean, I think one of the big disconnects is on the debt settlement side, not everybody on the debt settlement side really understands how the collection process works. And time and time again, I'll go in and talk to debt settlement companies that, I mean, they're wanting to settle debt and they're settling debt, but they don't really have a strategy around it. So they don't understand. It's with an agency that's being dictated by the bank on what their collection rules are. That's, I think, still somewhat of a disconnect. I think there's definitely a disconnect on the collection side of the industry with the understanding of how debt settlement works. Because what happened is, those of us that have been around for 100 years, like myself, we educated all these guys in the past on how debt settlement works. And guess what? Now we have these great relationships. Well, a lot of those people are retiring. So now we're having to re-educate a whole new group of people coming in that are running these collection agencies, debt buyers, or even creditors and having to teach them again the value of a debt settlement account and kind of how that works and explain what the benefits are to that.

So those are two disconnects that I see. It's a lack of understanding of operationally how it works on both sides. And I think if we continue to have these round tables, we continue to have these types of conversations, we can help bridge that gap by doing that. That could be one thing that we can resolve on both sides. At least we both understand, hey, this is how you operate, this is how I operate, this is what we can and can't do. That would be one good step forward and we just have to continue having these conversations to get there.

Felix Shipkevich (17:44)

you

John McNamara (17:44)

It seems like fintech could lead the way to because again, the fintechs generally are unencumbered by, you know, 100 years of procedures and policies. Their structures a little bit different. I mean, let's face it. I've got somebody that worked for me that was trying to do something very consumer friendly at one of the big credit card issuers and the OCC just smacked the heck out of him. And it's kind of like, okay, giving a break to a consumer who's struggling. is not going to threaten the safety and soundness of a bank. But OCC examiners, you know, they're very single minded in watching for that. That's one way. but again, research or case studies with fintechs could lead the way because, again, I think they're less likely to be resistant. before if I could just ignorance is bliss and I'm about to show you all why. But I don't know the industry as deeply as you certainly do. But one thing that always has bothered me about this is We used to look at it at the CFPB from the fact there really wasn't much price competition. Everything was around 20 to 25 percent of the enrolled balance. But, Renauld, I think you made this point in New Orleans and it was a good one. I think it's naive to think when the rule changed on revenue recognition, that was not an attempt to just end the industry almost in an operation choke point like manner. But the result of it didn't kill the industry. It consolidated it quite a bit. But it also led to a structure where you all have to charge a lot more because it is such a capital intensive business that you cannot recognize revenue until you've actually, you know, settled that first step. And that's not nothing to pursue that, especially in this day and age where, you know, debanking and sort of the ghosts of Operation Chokepoint are front and center for a lot of industries.

Adam Parks (19:27)

That's an interesting perspective, John.

William R. Mitchell (19:30)

John, really, you captured that beautifully. They did try to kill the industry and what it did is it led just to consolidation. blew a lot of the, as Teresa will tell you, a of the small time players couldn't compete because it didn't have the capital to fund the marketing. So there was consolidation. So you have less larger players and there is no intentional price fixing, but it has increased the price and there isn't much price competition.

John McNamara (19:56)

In my whole world of the CFPB with my markets team was looking for sort of unintended consequences, typically that hurt consumers. So it is more expensive for consumers because it is capital intensive and it's capital intensive because of what may have been a failed attempt just to completely clear cut the industry.

Teresa Dodson (20:15)

And you know what I can then to pile onto that because it is, know, the price point is anywhere actually between 20 % to 30, depending on what model you're enrolling in, right? The attorney models are a little bit higher because they have to be just to cover the costs. Who loses is a lot of consumers that need help don't get help now. because they can't even afford to be in a debt settlement program because with the money that they have to put away based with the financial strain they're under and to be able to cover the fee for us to service them, there's so many people that don't qualify. So it's made it, it's, know, so even though you have more consumers in debt than ever, you see a spike of enrollments of consumers in debt. What you're seeing is there is a huge, a huge amount of consumers that just don't qualify because they can't afford it. You also see more consumers that are falling out. because of that financial stress.

Felix Shipkevich (21:06)

If I could quickly chime in and maybe something positive, I think that the gap is maybe not as large as we think, at least amongst a specific group in the debt settlement field. And those are debt settlement attorneys. Because I quite often when we're discussing the debt settlement industry, we're focusing on the DSCs. But more and more, and I don't know the statistic, but I would probably say that at least one every five trend consumers is represented by debt settlement attorney. And because they're represented by debt settlement attorney, not to say that I think very highly of people in my profession generally and being cynical about that, but I do think that attorneys who defend debtors in any type of litigation or pre-litigation brought by creditors or collection agencies, I think that they understand the other side a lot better than generally DSCs.

John McNamara (21:40)

you

Felix Shipkevich (21:54)

I think the problem, the disconnect that has been happening is you, and which is basically what the last few panelists have indicated is that you've had a pretty big consolidation in the space. And then some of the larger participants have gotten bigger. And that actually may not be such a very good thing from a, if you look at, you know, 30,000 foot level for consumers, because you have less choices, the bigger companies get bigger and therefore the fees increase, right? Which is what I think John was alluding to. You have a higher acquisition cost.

And then, hey, they can just charge more. Right. And if your question is why wouldn't you go to a smaller company? Well, I think it's just kind of the same mentality that you apply across the board when you shop at Walmart or Target or Amazon, right? You kind of say, I'd rather buy at Walmart or Target because they're known brands versus then going to a local mom pop store. So we're kind of seeing that. But again, just going back to my first point, I think that the disconnect may not be as great if you look at the debt settlement attorney world.

John McNamara (22:50)

By the way, Felix, that also brings up that was another unintended consequence of that change in revenue recognition. It led to some players in the space, both on credit repair, which has a similar revenue recognition model and debt settlement, where you had some players that were, you know, edge or even bad actors kind of creating sort of this sham attorney relationship in order to recognize revenue faster. And I think even though the industry is consolidated, I mean, I think the big guys if the cost, if it were less capital intensive, they could afford to offer the consumers a better break. I mean, we spent a lot of time sort of struggling with why are things the way they are? Like the Bureau had no power to set prices, but we did have a lot of research power to sort of think about why is a price this thing and why is this thing so narrow, this range so narrow? And then it just, occurred to me, And again, Courtney helped that that insight happen with with a comment. It's just so capital intensive. And again, classic unintended consequence of somebody thinking they were doing good actually hurting consumers.

Adam Parks (23:48)

So we had a question that came across on the chat that I think is kind of a good framework for the next layer of our discussion. And it was, how do organizations effectively integrate the credit risk assessment, fraud detection, and debtor tracing into one end-to-end decision framework instead of treating collections as a reactive and standalone function? So is there a smoother understanding between these two worlds, or what is that? of information look like throughout the credit life cycle.

Renauld Smith (24:19)

think it's a smoother, it's a smooth transaction between the third parties collection agencies when it comes to doing scrub list and things like that or understanding of parameters. A smooth process with some of the major creditors but not as many as there needs to be.

John McNamara (24:34)

I think it's on a continuum of, I've always thought that there is no, there's never been two things. It's always been the same thing. It's just one's older than the other. That collections is just extended servicing. know, there's late stage servicing and then there's even later stage servicing. And I think as creditors think about the lifetime value of the customer and the value of data, I think they embrace that more and more.

Adam Parks (24:58)

Interesting. it sounds from a what does an optimal relationship look like between these two different worlds? Right. So if we're talking about a debt settlement organization and a debt buyer or a creditor, what what does optimal really look like there so that you can find balance for both sides?

Teresa Dodson (25:18)

Personally, for me, think it's really, again, putting together one process, the scrub process that works really well. Either they have an internal system that you are able to use or you do a secure FTP. The more that you can make everything like the systems the same. and the process the same. And we understand from the other side, these are their parameters. This is what we'll do on one pay, three pay, six pay, 12 pay. We know all of this stuff up front. Then guess what happens? It's a streamlined process. Nobody has to negotiate. We already know what the parameters are. And we can just make that a lot more efficient working together.

That works really well. That process does exist today. It works extremely well with Phillips and Cohen. It works extremely well with even Zwicker, with credit control, second round. I mean, we have all of those processes in place right now. And if we can just get more people to adapt those types of processes, it would streamline everything and make everything, this is how it works. Instead of, I have to work with you this way. I have to work with you that way. That's what causes a lag time and settlements getting done and the consumers getting out of debt.

Renauld Smith (26:28)

Yeah, I agree with that. That's what I was trying to say earlier is that if you have that type of process like the scrub process or parameters, just certain guidelines that we have, that's what I'm talking about when we have to have the gold standard. These are the things that it's going to take for us to work cohesively and make it an easier, smoother process. So it's not taking three, four months to do a settlement. Some creditors you could settle with within two months, some creditors you can't settle for six months. Why is that? Why can we not just settle, know, start settlement immediately as soon as the client gets in the program? Right? It's like a game that we're playing back and forth. The end result is always going to be the same. We're going to get a settlement. A settlement is going to get done. You're going to get paid. So as long as we're following these, these goal lines that we have or these standards that we have, you know, making sure that everybody has, you know, certifications on both sides, making sure that everybody has gone through a training course on both sides on the understanding of each side. Like I took a, I worked for a credit collections department, I took a test knowing that I understand how debt settlement works and vice versa, right? I worked on the debt settlement side. I took a course knowing how credit and collection works, right? So that everybody is under the same understanding and we all know what's going on. it an easier process. The main thing is to get the consumer out of debt. The main thing is to make sure that the consumer is taken care of. The debt settlement industry is doing their part. Credit and collections in the long run, the banks are going to end up retaining these consumers somewhere down the line again. So it's a win-win for everybody. We just need to make the process a lot smoother.

Teresa Dodson (28:05)

You know what else would make the process smoother? And I've seen how it works really effectively is having a point person or a point team on both sides that specifically handle debt settlement accounts. Because I can't tell you how much time I spend chasing down, and this typically happens with collection law firms, chasing down somebody to even get on the phone with me because we don't have the right point person or we do and nobody picks up the phone or nobody responds to an email. The sense of urgency is not there. And so things don't get done because you don't have assigned people on both sides that are held accountable and responsible for those functions. So where it's worked really effectively is when you're working with like, you know, the Phillips and Cohen, the credit controls, the people that have that process and place the communication process that makes a world of difference as well.

Adam Parks (28:58)

So without the, and I hate to talk about the pro of the back and forth, but do we lose that negotiation capability, right? If everything is treated the same, know, are the collectors doing their job, right? If you just know that every settlement is coming through. And Brooke, I'm curious to hear your thoughts kind of representing the other side.

Brooke Teal (29:20)

I I think even when you don't have an automated process, right? You have guidelines from your clients and you work around those guidelines. Obviously, there are hardships. Obviously, there are things that go outside of the process. I don't think having an automated process loses any kind of human touch or empathy or care for the consumer, right? You're still following that automated process in 80 % of the cases, but then you've got that other 20%. that go off process that the human deals with and that we talk about and that we try to find the best way for the consumer. So I don't think we're, I think it's still in the best interest of the consumer. I think it's better for the consumer because things are working efficiently and quickly. I don't think we lose that kind of human empathy or anything like that with an automated process.

Adam Parks (30:04)

Or are you gaining visibility into the consumer situation, which is just giving you a better representation of the creditor? Because now, regardless of what your settlement parameters are from the creditor, you're still trying to do the best for that particular creditor on that account, right? And so does that transparency increase your ability to be comfortable with the point of settlement that you choose for any individual account?

Brooke Teal (30:30)

I think it gives greater visibility and I think that's beneficial for all parties.

Adam Parks (30:34)

Just curious on the perspective, I think somebody in the chat had mentioned that the bulk of this process, when you're going through these bulk processes, the creditors are getting more visibility into that consumer and are able to make potentially a better decision, both for themselves and for the consumer, because that transparency can increase it. Now I can see how the transparency could also be potentially a problem if misused, but being used in good intentions, it feels like that could provide some balance.

John McNamara (31:01)

100%. Absolutely 100%. And I think a creditor that gets more information and then bounces that off their own servicing data, and maybe even post charge off servicing data, if it's with somebody like Phillips and Cohen or an agency, sometimes it may say, the more they look at these and go, these are no brainers. And the more they look at these and go, wait a minute, you guys did not convince John McNamara to default on his Amex platinum card. Like that's just crazy talk. that these are consumers that were under significant distress anyway. Sometimes you may be doing them a favor, but you are never, almost never, going to get credit for that.

Renauld Smith (31:37)

I think that we're definitely doing them a favor because we're getting them. I keep saying we, not, I don't work for a debt settlement company. Yeah, yeah. Because, yeah, exactly. and Theresa and I have talked about this before, debt settlement is just a longer arm of collections. They're getting the funds that you could not get.

Adam Parks (31:45)

The Royal Wee.

John McNamara (31:47)

Okay, take the hat off.

Renauld Smith (31:58)

The funds that you have put so much labor into and spending money using third party industries or third party collection companies and issuing summonses for, the debt settlement industry is getting that money for you way faster than what you would have ever gotten.

John McNamara (32:13)

And just in the spirit of building bridges, if I may, after 11 years at the CFPB, the worst things I saw happen, which were typically not done by bad actors, they were they were really done by companies with bad communication, a middle manager somewhere engaging in their own risk minimizing profit maximizing behaviors made a decision to maybe cut off debt settlement or do this or that. And it was disconnected from the mission of the company.

And my favorite example of that is over the years, the fair share given to nonprofit consumer credit counselors has been sliced and sliced and sliced again, typically by middle managers that run collections, which is wildly out of tone with sometimes the rhetoric of, a Jamie Dimon who wants to help all these consumers with consumer education and do this and do that. To the degree you can get to the financial implications and the financial benefits of debt settlement to someone higher than those middle manager types, I think that serves your industry well too.

Adam Parks (33:13)

What is the role of education and financial literacy in this process?

William R. Mitchell (33:17)

Adam, I talk to consumers every day, almost every day. My team talks to anywhere from 65 to 120 consumers a week. and there is not financial literacy and if you looked and compared the number of commercials that the credit card companies put out there with celebrities encouraging access and use and you compare it to the amount of financial education that's encouraged you would think that financial education is illegal in this country

Renauld Smith (33:48)

Yeah, it's funny.

Adam Parks (33:49)

believe it's only required in two states for high school graduation at this point. I know it's in Florida and I feel like there's one other state that has it as a requirement.

Renauld Smith (33:57)

It's funny that you bring that up to because we were just talking about this. I had a meeting with the Attorney General's of Tennessee yesterday and I brought up the issue of financial education and what do you guys enforce financial education and how important it is. for financial education to be given from both the credit and collection side and the debt settlement side. They should both be supplying. financial education to the consumer as soon as they find out somebody's having some type of financial hardship. It should be provided on both sides. And there's companies out there that do it. We do it as IAPDA We have financial education for the debt settlement industry that the debt settlement companies can give to the consumers. know dealing with debt, they have their financial education platform. So it's out there. People just aren't taking advantage of it.

Adam Parks (34:45)

I know from a collections perspective, it's always part of the conversation, but never really at the forefront. The trade associations and others do create that kind of content. I know there's a lot of other places, but I don't know if you guys see it as much in the debt settlement side of the world, but I could tell you going onto social media as a debt collector and watching some of the videos and the advice that's being given to these consumers that they're hearing repeatedly. Brooke, I could see you laughing because I know that you've done this too.

And seeing these stories in posts that, know, never pay a debt buyer because they bought the debt. Now they owe it. Well, come on now. It's the dumbest thing that I've ever heard in my life. And they're going to put a statute on there and they're going to try and dress it up. But I think some of this is starting to cause some of the confusion for the consumers because of where they're accessing it. They're not going to IAPDA to get the information where they can get good financial literacy content and understanding. They're getting it from TikTok and what they're seeing is not real.

John McNamara (35:40)

And I'm hoping that ChatGPT and Gemini and others, like kill the thin influencers who are generally, you know, full of manure. And generally playing around with it myself just from a policy perspective, generally pretty good information. And it's it's definitely not. It's actually generally it's got the right cautions. It doesn't say you don't have to pay the debt buyers as a debt buyer will sue you. and might even be more likely to sue you than the creditor. So I'm kind of hoping for that. And I think just in time, financially, And that's where Chet, GTP, Gemini, the others come in handy is people don't go looking for financial education when they don't think they need it. They go when they're getting called by a debt collector. And at the CFPB, I think the most downloaded question was what to do when a debt collector calls or can I settle with a debt collector? So that gives me hope that they're using that and the more we can drive them to that, because it's it's not perfect information. It hallucinates a lot less than it ever did before. And I think it's better information.

Teresa Dodson (36:42)

Well, in my experience, yeah.

Adam Parks (36:42)

It's all about how are you going to feed it, right? It's our responsibility to feed it good content, which is why we created receivables info and just revamped our whole site to be able to specifically feed the LLM models with good content because there's not a ton of it out there that's not sitting behind some sort of a paywall.

Teresa Dodson (37:01)

And there is a lot of great content out there for financial education, but let's face it, it's not, know, for the average consumer, you can present all of this really good content for financial education, but there's probably more, our society, there's more things in the media promoting to spend money and to blow money on stupid stuff, and that's really sexy. Financial education is not sexy. Okay, and the only reason why a consumer is probably going to really stick to really reading up on it, educating themselves is only if it's a requirement to be a part of a program. That's where I can see where we can make a lot of headway if we do that because an average consumer, unless I have to, I'm not going to do it. It's just not sexy.

Renauld Smith (37:38)

Yeah. And that should be part of the gold standard. That should be part of the list that we are talking about of things that you have to be doing in order for us to bridge that gap. There has to be financial education on both sides. It should be a requirement.

Teresa Dodson (38:04)

If we're talking about bridging the gap, and that's what this particular conversation is about, if, let's say for instance, the debt settlement industry has like this requirement for financial education, this whole program, and they have to go through it while they're going through debt settlement, on the creditor side, do they care? Is that going to make a difference to them on working with a debt settlement company or not? Is that really going to matter?

John McNamara (38:26)

No, and you're creating friction. The more friction you create, the more likely to fall out. It's almost like punishment for the consumer.

Renauld Smith (38:26)

it.

John McNamara (38:32)

And shaming. A little bit of shaming.

Adam Parks (38:34)

which is the opposite of what you're trying to accomplish with it, Are you trying to, but whoever thought you'd hear a group of debt settlement and debt collectors getting together and talking about how we all just want to educate the consumer so at least they can understand what it is that their problem is and how they can kind of course correct their own lives. just thought it was an interesting thing to point out with this group of panelists.

Renauld Smith (38:54)

I would think that the creditor would love it because they're going to retain this person again anyway. So now the person's been financially educated to not fall back in the debt again when they get that new card.

Adam Parks (39:06)

The creditor wants to lend again and depending on the creditor, they may really want to lend again depending on their risk tolerance in terms of their outbound loans. I mean, you've even seen quite a few different collections organizations that have become banks.

John McNamara (39:06)

Yeah, I think. Yeah, and don't think it doesn't scale very well. the only time I've seen it done well is with smaller credit unions and community banks where there's sort of a deep personal relationship. And when they see somebody struggling or they have to give an emergency loan, actually, they work with them and they help them that way. But on a large basis, I don't think I've ever seen it work well.

And again, I think the old model was somebody asked a friend, right? You you said a debt collector just called me, Teresa, what the heck do I do? And I think ask a friend has been largely or to a significant degree replaced by ask in a chat GDP.

William R. Mitchell (39:55)

I think part of the problem is the banks have a delicate balance. They've created a system where they want consumers to carry a balance. That's how they make money.

Adam Parks (39:55)

I think you're right.

William R. Mitchell (40:06)

so they don't want to be astute because they wouldn't carry as large a balances but they don't want them to be stupid did they get themselves so over the skis that they fall off and end up in in in in in over their heads

John McNamara (40:22)

Yep, and the latest Cardactive Report again talks about the rise of the number of revolvers, know, fewer trans actors, more revolvers.

Adam Parks (40:29)

It's an interesting one. I just had a comment come through that says, nonprofit credit counseling does an excellent job of educating consumers. How does that sector kind of fit into this discussion?

John McNamara (40:39)

I think that's true. They've thought about it for a long time.

Felix Shipkevich (40:39)

a lot. By the way, not not for profit credit counseling is a requirement before consumer files for bankruptcy, right? It's required by law and one can't even follow up a bankruptcy unless they first, you know, do that not for profit credit counseling course. The only difference is that's mandated by law on the federal level. There's really nothing that requires anyone to require an education and the federal state level, except for. You know, just obviously those two states and that's more for a high school graduation diploma. So, um, it's just a kind of a difference. With the bankruptcy world.

John McNamara (41:17)

Right. they strike me as so similar to debt settlement in some ways because they're not trusted by the issuers because I think there's some degree of information that because the information flows imperfect, and the issuers may see them as giving away their their hard earned money. And they're not generally trusted by the advocate consumer advocates because technically they work for the issuers. So they're in tight spot. And then at the same time, the OCC typically locks them down and that I know many nonprofit consumer credit counselors that would like to do things that were more drastic, better interventions for the consumers. But you know, you've got a safety and soundness examiner that says no way.

Adam Parks (41:54)

That's interesting. So with this group here and coming into our last 10 minutes here, I'm really curious about what next steps, what's the next step action plan towards these organizations bridging this gap or these two worlds bridging the gap. So anybody's thoughts on how, what does the next step look like in order to achieve the objective that we've all shared throughout this discussion seems to be the common objective between the two worlds.

Renauld Smith (42:21)

to, for when we have these type of meetings or having round tables instead of, we already know what the issues are, is to coming up, is for coming up with a plan or making a list on, you know, how we can make these things work out. How we could, hey, what steps do you guys wanna see from us? And these are the steps that we wanna see from you and slowly check marking which ones we can both do together as a team to make everything run smoother. getting a better understanding of the topic.

Adam Parks (42:49)

So is that the next conversation, Renauld? Is that like, you're going to start organizing this list of the gold standard so that we can, know, where does that come from? Usually it's a trade association, right? Some sort of group of organizations.

Renauld Smith (42:55)

Hey, I think that's, I mean, if that if that needs to come from me, then then I have no problems with doing that, because I think this is so important for the consumer and making sure that people get through these programs. I mean, again, I say this every single time. We're dealing with people's livelihoods. We're dealing with people that are in debt. And in the meantime, we're bickering back and forth, not understanding each other's industries and somebody is out there suffering. So we need to get together and bridge this gap so that we can make it an easier process. If I need to go through and say, hey, what is it that you guys want and what is it that you guys want, I think we start with courses, right? And I'm not...

Brooke Teal (43:31)

Thank

Renauld Smith (43:34)

even though I have all this IAPDA stuff on, I'm not trying to pump up IAPDA, but we provide that course. We have a credit and collections course. We have a course where IAPDA are where debt settlement learns about credit and collections and the steps that they have to go through, the collection steps. So we have all that stuff. The first step is taking the course, or making sure that your teams are taking the course, just so that we know the basic understandings of both sides. I mean, that would be the start. if you...

Adam Parks (44:06)

So earlier, Teresa mentioned a couple of companies that are really working out well, right? A couple of different creditor side organizations in which debt settlement has had a really established process between those. Is that the place to start? What does that process look like? And to try and build that out and make it available to others. Because when we were at the round tables in New Orleans, I heard that same kind of an idea of like, needs to be like, what's that next stage look like? I'm dying for someone to put that in there. I don't have a deep enough understanding of it.

I'd be sitting here with ChatGPT tonight trying to figure it out, but you guys are kind of those experts. would that be the realistic next step towards starting to bridge this gap? I'm just trying to look, you know, at the end of every meeting, I like to ask everybody, what's that action plan? And although this isn't a meeting, this is more of a discussion. I figured I'd pose the same kind of question to this group because can we in that next step or in the next three or four steps actually start to close that gap before 2030?

John McNamara (45:00)

I would I was gonna say is a somewhat as an in-betweener, I won't say outsider, I'd say engage higher and bring your data. So if you're talking to a VP at a creditor, go for an SVP. If it's an SVP, go for an EVP. Get beyond the manager that might be have personal animus over losing what they think is a valued customer. And it's almost like whenever a pre non defaulted account goes into debt settlement, like

Teresa Dodson (45:01)

I I'll go ahead, John.

John McNamara (45:29)

If you could start showing them data, as much data as possible, to realize that you're not poaching or trying to poach their best customers. You know, I think that's one way, because I see a key vulnerability to this industry in that it only takes one or two middle managers to just say, I've had it. I'm going to be dug in and not settle. And it basically creates a bad situation for you. And it makes a terrible situation for the consumer.

Teresa Dodson (45:55)

bullet.

John McNamara (45:55)

And you guys pointed out irrational decisions where they sue somebody that was trying to pay him 50 cents on the dollar.

Teresa Dodson (46:02)

Yeah. And I think, I mean, I agree with all of that. And I think, you know, one of the big things that we need to really look at to kind of bridge that gap is, look, we have data and we have basically case studies. And, Renauld, you know this, after all the years we've been doing this, right, we know what's an effective business relationship for both sides, meaning the debt settlement company, well, actually three sides, the debt settlement company, the consumer, and the collection agency. We have enough case studies in these people that I mentioned, Adam, before that we work really well with. like the Phillips and Cohen's of the world and you know, and credit control and second round and all of that. And we can actually bottle that up and present this as this is an effective tool. This is a tool that works for everybody. We have that data. So yeah, I think that is something that we can put together. That's one. Two, continuing with these discussions, but I wanna change them a little bit.

I want them to be more solution oriented because yes, in the round tables that we did this year, we had a lot of this is what I don't like, this is what I don't like, why don't you do this? Why don't you do that? And it created that understanding on both sides of what isn't working and what is, but on the stuff that isn't working, which was still kind of a lot.

Okay, what are the solutions around that? So that everybody that comes to that round table is coming with a solution for that problem. Because I felt like, I remember walking out of one of them going, my God, we haven't gotten any further ahead than 10 years ago. And I walked out of another one going, nothing changed from last year. Okay, this is ridiculous. We need to change that conversation to be more solution oriented.

Brooke Teal (47:39)

to add one point, know, we've talked about bringing data into these conversations, removing roadblocks. Consumer choice and consumer preference are foundational principles within federal and state regulatory requirements. When a consumer chooses to engage with a license and compliant debt settlement company, that choice should be respected and it should not be circumvented. This is a message I've heard to state regulators and it's a message that we can't give up and we can't keep pushing to the issuers.

Adam Parks (47:40)

Agreed. Please. I like that. I like that. That makes a lot of sense. I saw a little hand plapper pop up there.

Teresa Dodson (48:09)

I'm doing the applause emoji. Yes.

Brooke Teal (48:11)

Thank you. We can't forget the message and we can't forget the focus on the consumer here and what the consumer is choosing.

Adam Parks (48:20)

I think that's a really great point.

William R. Mitchell (48:21)

I think that's a really great point. To tie into that, Brooke, there has to be a mentality that it's in the best interest of the credit card issuers to rehabilitate a consumer, not punish them.

Adam Parks (48:35)

And I think with the, you know, as we talked about, I felt the same way when we were walking out of the round tables. was in the same, I feel like I'm having deja vu. I've had this discussion before. There was some new players in the room, some new faces, you know, a little bit of a twist to it, but it definitely felt a little bit more repetitive. And I keep hearing that same common theme of like, we need some sort of standardization to this process, but until someone drops a standard. and says, this is what we proposed and let everybody beat it up and go back and forth. Eventually you may come to a standard. But I think these conversations are great because they continue to push us more towards action. And I'd be happy to co-host these with Reynald all year long, if we can start working our way towards an actual resolution to bring these worlds closer together and to service the consumer in a better

Renauld Smith (49:22)

That's the master plan.

Adam Parks (49:23)

So in our final two minutes, any final words from any of our panelists today?

Renauld Smith (49:27)

Get certified.

John McNamara (49:28)

I piggyback off what Brooks said and even maybe think through and run some numbers on if the price revenue recognition wasn't so draconian tough, what would the price point be? What would it save consumers? And that actually would free up more money to go back to the creditor as well. So that could be a win on all sides.

Teresa Dodson (49:48)

I think if I... It does.

Adam Parks (49:48)

Sounds like a podcast topic, John.

John McNamara (49:50)

It does. It does, doesn't it? And again, unintended consequences. think it's a, it's a like, you know, lot of choke point stuff went away, but, a few little pieces of it sort of are alive and well. Don't get me started on the MasterCard Visa network codes that are used to screen out businesses that they don't like.

Adam Parks (50:06)

Yeah, not familiar with that at all. That sounds like something new.

Renauld Smith (50:09)

Can you do that in one minute,

John McNamara (50:12)

it.

Adam Parks (50:13)

I can get some of these folks back at least one more time to help us continue to create great content for great industries. So thank you everybody for joining us today. We really do appreciate all of the people that have been watching us live for this entire conversation. And for those that are going to watch the replay, if you have a creditor that you want to share this with, the replay will be live on LinkedIn here. We'll be reposting this replay to YouTube as well early next or mid next week. So thank you everybody for joining us today. Really appreciate everybody's time and attention for our panelists. If you could just hang out for one minute when we stop the feed here, make sure I get all the video and we'll see y'all again soon. Bye.