For-profit settlement is the wrong answer for troubled borrowers

This industry analysis highlights the growing risks associated with for-profit debt settlement companies. These services often instruct consumers to stop making payments on their loans to force a settlement. For retailers and service providers, this is a major red flag. When your customers engage with these services, it leads to immediate defaults on your active financing contracts. This destroys their credit scores and increases your rate of non-payment. The debt settlement model is fundamentally different from nonprofit credit counseling. For-profit settlers collect high fees and often fail to reach agreements with creditors. This leaves the consumer in a worse financial position than when they started. Merchants should be aware that these services are currently facing increased scrutiny from federal regulators like the CFPB. If you offer in-house financing or work with third-party lenders, you need to understand that these settlement companies are aggressive. They actively market to borrowers who are struggling with monthly payments. As a business owner, your best defense is proactive communication. Encouraging customers to talk to you or your lender directly about hardship programs can prevent them from turning to these damaging third-party services.

Source: American Banker — Top News

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