Debt Management Insights for Distressed Borrowers

Households’ ability to rebound from past periods of distress affects not only their own future financial health, but the nation’s longstanding racial wealth gaps and recovery from broader economic downturns. Yet while mortgage and student loan workouts have been a major research and policy focus in the past decade, options for families struggling with credit card and other general unsecured credit have not received much public attention.

As stakeholders ponder strategies to help consumers recover more quickly from personal and broader economic crises such as COVID-19, FinRegLab has launched an empirical study with researchers from The Ohio State University and Charles River Associates using data from innovation pilots organized by the National Foundation for Credit Counseling and other sources. The project will focus on the potential for new repayment plan structures and data and technology applications to facilitate better outcomes at scale.

Initial research questions include:

• What can we learn from short-term assistance programs developed in response to the pandemic and other financial shocks?
• What are consumer and lender outcomes from different repayment plan structures, including plans that are structured to repay all principal versus those that reduce principal to promote quicker recovery and cash returns to creditors?
• How can digital platforms and cash-flow data be used to facilitate consumer communications, intake, and analyses?

The first phase of the project will focus on results during the first 12 months of enrollment in repayment plans, when drop-out risk is highest. The second phase is expected to track outcomes through completion of the repayment plans and may include other topics, such as working with plan participants to build savings as their finances improve.

In addition to the empirical assessments, other project reports will explore the potential evolution of policy, regulation, and market practices based on extensive stakeholder outreach and FinRegLab policy and legal analyses. The goal of the project is to take a broad-based look at potential innovations to support more rapid and inclusive recovery processes going forward.