American Financial Services Association Opposes Debt Relief. Follow the Money.

If someone giving you financial advice stands to make money from the choice they’re recommending, that doesn’t necessarily mean the advice is wrong. But it’s something you probably want to know before taking it.

That common sense should apply to the debate over how Americans get out of debt.

The American Financial Services Association (AFSA), which represents banks, finance companies, and other high-interest lenders, has been attacking debt relief, an option designed to help people reduce what they owe.

Maybe AFSA believes consumers would be better off paying their full debt with high interest. But there’s an obvious question that deserves more attention: What’s in it for the lenders?

Debt relief is a mechanism for consumers to resolve unsecured debt, whether it’s credit card balances, medical bills, or personal loans. For many debt relief customers, relief begins as soon as they settle their first account, and the savings continue with each subsequent settlement. The results can be meaningful: consumers reduce enrolled debt by an average of nearly 32 percent while saving $2.64 for every $1.00 spent on fees.

For lenders, however, there’s a catch. They profit by lending money and collecting payments on that debt. The longer their customers stay in debt, the more profit lenders make. Debt relief is designed to help people reduce what they owe and ultimately get out of debt.

This is because (gasp) the free market works: the more choices people have, the better prices and services they generally get. Debt relief gives consumers another choice when other options aren’t working.

And that’s the choice AFSA is trying to restrict. Take AFSA’s latest argument in American Banker. It cites research showing that some consumers see their credit scores decline after entering debt relief. That sounds alarming, but it omits important context: many people turn to debt relief precisely because their finances are already in serious trouble. Their debt is mounting, they’re struggling to keep up with payments, and their financial situation may already be deteriorating.

Debt relief didn’t create that financial distress. It’s one option consumers turn to for that reason.

And a credit score isn’t the only measure of whether someone is getting back on their feet. For a consumer buried under debt they can no longer afford, the more important question is whether there is a realistic path to reducing that debt and regaining financial stability.

So what does AFSA offer instead? Its preferred alternatives often mean continuing to make full payments on the debt, refinancing existing debt or taking out another loan to consolidate it. Those may be viable options for some people. But for someone who simply cannot afford the debt they already have, more time to pay (or more borrowing) doesn’t solve the underlying problem.

In practice, AFSA’s answer to debt is often more debt.

AFSA is entitled to make its argument. But it isn’t a neutral voice in this debate. Its members are banks, finance companies, and other creditors, companies that profit through high-interest rates, refinancing, and long repayment timelines.

And the record of some of those companies deserves scrutiny.

Mariner Finance, an AFSA member, reached an $11.1 million settlement with the Tennessee attorney general to resolve allegations involving hidden add-on products, aggressive sales tactics, and deceptive lending practices.

Another AFSA member, OneMain Financial, was ordered by the Consumer Financial Protection Bureau (CFPB) to pay $20 million in restitution and penalties related to its practices involving add-on products and refunds. On top of that, just earlier this year, a bipartisan group of 13 state attorneys general sued OneMain alleging that it deceived borrowers through expensive add-on products and bogus fees.

Then there’s another contradiction that’s hard to miss.

While AFSA criticizes debt relief as a way for consumers to reduce what they owe, it has supported debt forgiveness when its own industry stood to benefit. AFSA joined its member companies in supporting forgiveness of Paycheck Protection Program loans and listed “loan forgiveness from COVID loans” as a federal lobbying priority.

Apparently, AFSA’s concerns about reducing debt depend on whose debt is being reduced.

Americans who are already struggling financially shouldn’t have legitimate options taken off the table because some lenders don’t like them. Someone dealing with a medical emergency, job loss, or simply more debt than they can afford isn’t worried about preserving a lender’s business model.

Credit counseling — AFSA’s recommended alternative to debt relief — works for consumers who are looking to reduce interest rates, but don’t mind repaying 100 percent of the principal balance owed, plus fees. Similarly, there are some consumers for whom consolidation or creditor hardship programs are good fits. But for consumers looking to reduce the balance they owe without resorting to bankruptcy, debt relief can be a critical lifeline.

The point is that consumers should get to choose.

After all, consumers deserve to know when an argument is driven by principle and when it is driven by profit. In the debate over debt relief, AFSA’s position makes a lot more sense when you follow the money.

Jared Whitley is a longtime D.C. politico, having worked in the US Senate, White House, and defense industry. He has an MBA from Hult business school in Dubai. He was recently honored as one of the best columnists in his state by the Society of Professional Journalists.

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