A record amount of $11.4 billion in debt settlements 10 years ago during the Great Recession may provide a road map of what’s to come in 2020 as the financial impact of the coronavirus crisis becomes more apparent, a report issued Friday by the federal consumer financial protection bureau indicates.
In its Recent trends in debt settlement and credit counseling, the Consumer Financial Protection Bureau (CFPB) reports that more than half of debt settlements (an agreement that the consumer will resolve the debt by paying less than the full balance owed and can occur before or after the creditor charges-off the debt) during the height of the recession 10 years ago occurred within a year of the account first becoming delinquent. “Debt settlement and credit counseling became less common after that recession, but recently settlements have been on the rise following changes in delinquencies and credit tightness,” the bureau said.
Ominously, the bureau acknowledged that “these trends may repeat in future economic downturns.”
The report admitted that recessions differ in their underlying causes and in their effects on different households. Nevertheless, it noted, what occurred during the Great Recession may recur as consumers and lenders face increased pressures, such as increases in debt settlements and less time in severe delinquency or charge-off before settlement occurs.
CFPB Releases Report on Debt Settlements and Credit Counseling