The Bear Hug That Is Crushing Debt-Burdened Americans: Why Overzealous Regulation of the Debt-Settlement Industry Ultimately Harms the Consumers It Means to Protect

I. INTRODUCTION By strangling the free market and substituting their own judgment for those of the American people, regulators and lawmakers are threatening one of the most important right-now solutions to America's consumer financial crisis. For-profit debtsettlement companies are the only entities that can provide consumers who cannot repay their credit card debts with a viable alternative outside of bankruptcy and the expensive, unhelpful debt-management plans offered by credit card banks and their nonprofit credit counselor allies. Even the opponents of the debt-settlement industry agree that struggling Americans need a way, short of consumer bankruptcy, to cut into the insurmountable debt created by credit card banks' aggressive and unscrupulous lending practices. Because the credit card banks and nonprofit credit counselors cannot provide such an option, America needs the services offered by debt-settlement companies. It may be tempting for lawmakers and regulators to succumb to the relentless campaign against the debt-settlement industry, but this is a campaign supported mostly by anecdotal evidence based on the conduct of a handful of bad actors and fueled by television advertisements that do not adequately represent the industry as a whole. Instead, lawmakers and regulators should recognize the importance of debt-settlement services and focus their attention on preventing misrepresentation and deceptive advertising within the industry, while allowing the market to set the fair price and method of payment for debt-settlement services. If they do not, then debt settlement will soon be unavailable, and debt laden consumers will ultimately suffer. II. AMERICA IS BEING CRUSHED BY CREDIT CARD DEBT Through unscrupulous lending practices and in the midst of a failing economy, credit card banks have burdened American consumers with an unprecedented amount of Despite some signs that the nation's financial state of affairs may be improving, there is no question that the average American is still suffering through increased joblessness, sinking home values, and a slumping economy. Unemployment continues to hover at about 10%, and as of February 2010, the number of persons unemployed due to job loss had increased by 378,000 to 9.3 million. In January of 2010, the housing market continued to struggle, and existing home sales were at a seven-month low. During 2009, Americans were less happy and more stressed, and their stress was linked both to the failing economy and their own financial uncertainty.' Were that not bad enough, American consumers now carry more unsecured credit card debt than ever before. As of late 2008, consumer debt was at an all-time high. ' It is only slightly lowered as of the writing of this Article, holding steady at about $2.5 trillion.' The problem is ubiquitous - almost 80% of all households that have credit cards owe more than $10,000 in unsecured credit card debt. The poor economy, however, has merely exacerbated an extant problem. Rather, it is the longtime use of aggressive and unscrupulous lending practices by powerful credit card banks that has put Americans further into the hole than they have ever been before.' Between 2001 and 2008, unsecured credit card debt rose by 30%. At the time, the credit card industry promised Americans that bankruptcy reform would make credit cheaper and more affordable for everyone.' Despite this promise, however, bankruptcy reform profited credit card companies at consumers' expense. Credit has become more expensive, not less, and lenders' actions have caused greater financial stress on their borrowers. In May of 2009, the White House stated, [F] or too long credit card contracts and practices have been unfairly and deceptively complicated, often leading consumers to pay more than they reasonably expect. Every year, Americans pay around $15 billion in fees.12 The consumer credit card banks' egregious and aggressive lending practices led Congress to pass the Credit CARD Act of 2009, which purportedly protects consumers from contracts that package high interest rates with a low introductory APR to lure consumers into signing agreements that they cannot realistically afford. …