States must stop denying consumers access to debt resolution services

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In the nation's capital, it is the dog days of summer. Congress is out of session, the humidity is high and staffers and lobbyists can be found not on Capitol Hill, but on vacation.

In the districts and states lawmakers represent, meanwhile, millions of families are staying put. Rising interest rates and persistent inflation have hit their daily budgets and there is no room left for a summer sojourn. According to the Federal Reserve, credit card debt, which now totals nearly $1 trillion, is at a record high at a time when the average interest rate is 21%. Overall consumer debt has blown past $17 trillion for the first time.

When the situation becomes dire, families need options. Bankruptcy is a way out for some, but it does have drawbacks, including the expense of hiring a lawyer. Likewise, hopping from one credit card to another, each of which comes with its own set of fine print, is often only a band-aid.

In the vast majority of U.S. states, debt resolution provides a vital relief option. For some, debt resolution can be another route to financial recovery that also saves Americans more than $1 billion each year. The debt resolution industry is regulated by the Federal Trade Commission, and companies that are certified by the American Association for Debt Resolution (AADR) never charge a fee until after a consumer's debt is negotiated, the consumer chooses to accept the settlement and a payment has been made toward that balance.

Recognizing these benefits, in June the New Jersey Senate approved legislation that would make debt resolution available in that state. (Neighboring New Yorkers have been able to seek debt resolution for years.) New Jersey State Sen. Nellie Pou, a Democrat, fought repeatedly to bring this option to her constituents and her work is a bipartisan success story. Thirty of Sen. Pou's colleagues voted for her bill, making debt resolution one step closer to consumers in New Jersey.

There are still 18 states where struggling consumers cannot access debt resolution options, or where their options are limited. Lawmakers in these states must change their policies.

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Changing laws will not only help struggling constituents, but reform will also provide a boost to the U.S. economy.

The debt resolution industry already contributes to the U.S. economy in a variety of ways, accounting for a total economic impact of $6.8 billion in 2019. This impact is realized across business and personal interests. For example, Americans struggling with unsecured debt (credit card or medical debt) saved $1.65 billion in 2019 as a result of these programs. Creditors participating in debt resolution programs in the same year received more than $650 million in revenue that might otherwise have been delayed or not received at all.

If consumers in the states where debt resolution is now not widely available could take advantage of these services, the resulting economic impact would total an extra $758 million annually. There would be an additional 4,120 jobs, $387 million more in savings for consumers, $59 million more in taxes sent to the federal government and $32 million more in state and local coffers.

We know that Americans can find themselves in a financially fragile place through no fault of their own, whether due to the uncertain economic climate, unexpected medical bills or another reason. Unfortunately, when consumers are most vulnerable, scammers come out to play. Debt resolution companies are not credit repair companies or businesses that issue short-term loans. Companies that are certified by the AADR negotiate directly with a consumer's creditors to reduce the amount they owe, allowing clients to get back to living more financially secure lives.

Debt resolution is a safe option and can provide concrete results. People who enroll in debt resolution generally see initial account settlements within four to six months of starting a program. And, upon completion of the process, the average consumer sees savings of 30 percent on the original debt, including fees.

Once the dog days are over, it's time for policymakers across the country to consider how they can bring this important financial service to more consumers.