CFPB Stands up for Servicemembers by Stopping Financial Company Abuses

Over the last few months, the CFPB announced enforcement actions against two companies that repeatedly targeted servicemembers with abusive products. The first company, Fort Knox National, and its subsidiary, Military Assistance Company, charged servicemembers recurring hidden fees by abusing a payment system many servicemembers use send money home or pay creditors while deployed.  This process, known as the military allotment system, deducts payments directly from earnings. In this case, it also allowed the company to charge repeated, undisclosed fees to servicemembers’ accounts. The company also made it extraordinarily difficult to learn of these fees: online account information did not include fee charges, and monthly statements were not distributed.  As a result, tens of thousands of servicemember accounts were drained of millions of dollars in fees. The CFPB is now requiring the company to pay $3.1 million in relief to the people they harmed, as well as to stop its deceptive practices.

The CFPB also brought an enforcement action against Security National Automotive Acceptance Company, an auto lender, for illegally threatening current and former servicemembers in order to collect debts. The CFPB is charging the company exaggerated the potential disciplinary action that servicemembers could face after failing to pay their loans; contacted and threatened to contact commanding officers to encourage repayments, threatened to garnish wages, and threatened borrowers with legal action. The Bureau’s lawsuit charges that the company violated the Dodd-Frank Act prohibitions on unfair, deceptive and abusive practices and it is seeking financial penalties, an injunction from further abuses and compensation for victims.

Because servicemembers and their families receive steady paychecks and have unique financial challenges such as lengthy deployments and frequent moves, they are all too often the target of predatory lenders and other financial fraudsters that congregate outside military bases.

With these two actions, the CFPB has now brought six enforcement cases against companies that have violated servicemembers rights.  Those and other enforcement actions can be seen here. To date, more than 100,000 servicemembers have been helped by the Bureau’s work to protect servicemembers from financial abuse and the companies responsible have been hit with fines and restitution charges of over $100 million total.

For more on the CFPB’s work to help servicemembers, see this fact sheet.

— Rebecca Thiess

CFPB Takes on Payment Processors for Facilitating Fraud

The CFPB recently brought legal action against a number of companies, including Universal Debt & Payment Solutions, for defrauding consumers by using threats, deception, and harassment to collect “phantom debts” that the consumers did not owe to the collectors or, in most instances, to anyone else.   In this instance, consumers collectively paid millions of dollars to the debt collectors after being subject to illegal threats and false statements, including threats of arrest or wage garnishment.  In some cases, the phony collectors took money out of consumers’ accounts without any authorization at all.

In a noteworthy move, the  CFPB’s complaint named not only the debt collectors, but also the various companies alleged to have been “service providers” to the debt collectors—those serving as payment processors, without whom the scammers could not have collected the consumer’s debit and credit card payments. With this enforcement, the CFPB is insisting that payment processors—and not just the companies directly dealing with consumers—are also subject to its enforcement authority under the Consumer Financial Protection Act (CFPA).

The Bureau’s complaint charges that while the debt collectors in this case were guilty of threatening and intimidating consumers over debts that were falsely claimed to be owed, the payment processors were also in the wrong for their role in facilitating the debt collectors’ actions in this scheme—ignoring clear signs that the collectors were committing fraud.

In one example that the complaint highlights, two payment processors, Global Payments and Pathfinder, ignored extremely high chargeback rates.  (‘Chargebacks’ occur after a consumer successfully disputes a charge as unauthorized or otherwise improper and the payment is reversed.)  Chargebacks are rare in legitimate card transactions, and every chargeback requires an inquiry.  The major debt collection company in this suit as well as an affiliate had chargeback rates of close to 30% in some months, rates that should have prompted termination of the processing agreement.  Another payment processor, EMS, ignored complaints from consumers who reported unauthorized payments taken out of their accounts and fraud detection reports that flagged the collectors because there was “[n]othing found to confirm the existence of the business.”

The CFPB’s actions in this case are in some ways similar to steps the Department of Justice has taken though Operation Choke Point, where the DOJ is holding banks responsible for processing payments despite evidence of fraud or other illegal activity.  All three DOJ cases filed as part of Operation Choke Point are instances – like this one – in which the banks or payment processors in question knowingly facilitated illegal activity that did serious harm to consumers.  See this new fact sheet from NCLC outlining the three cases brought by the Department of Justice, against CommerceWest Bank, Plaza Bank, and Four Oaks Bank & Trust.  Banks and payment processors that comply with their responsibilities to know their customers and look out for signs of fraud, as most do, play important roles in safeguarding consumers.  Actions by the CFPB and DOJ against banks and payment processors who enable fraud are critical to cut off fraudsters from access to the payment system.

— Rebecca Thiess

Hill Threats Escalate as CFPB Protects Consumers, Servicemembers (Ed Mierzwinski)

Today, the House Appropriations Committee, at the behest of both Wall Street and predatory lenders seeking to run amok, will vote to eliminate the CFPB’s independence from the politicized appropriations process. The bill will also further hamstring the SEC, a federal financial agency that struggles to protect small investors since its funding is already subject to the committee’s whims. You can watch the debacle here at 11am ET. Wall Streeters and payday lenders will be lighting their cigars with $100 bills– chump change compared to the $1.9 million dollars/day ($1.4 billion total in this election cycle) they’ve been spending to roll back Wall Street reform.

You can read the opposition letter from Americans for Financial Reform, PIRG, Consumer Federation of America, the NAACP and other leading groups here (excerpt):

“Changing the CFPB’s independent funding would leave the CFPB more vulnerable than the Federal Reserve, the OCC, and the FDIC to industry influence, once again treating consumer financial protection as a less important matter. It would give Wall Street and the worst elements of the financial services industry endless lobbying opportunities to deny the CFPB the funding to do its job if and when the regulator took action that a sector of the industry did not like.”

Meanwhile, over at the CFPB, important work to protect consumers, including servicemembers, from unfair and predatory financial practices continues. Some recent highlights include:

Of course, the CFPB continues to work on other major projects that have drawn the ire of powerful special interests. WIthin a few days, expect new detailed consumer narratives (stories) to appear in the highly successful Public Consumer Complaint Database. Expect further action this year on the CFPB’s effort to rein in payday and other high-cost lenders. Expect further action on its research finding that pre-dispute mandatory arbitration clauses in financial contracts harm consumers.

But, expect further attacks on the CFPB in both the Senate and the House. Recently, freshman Senator David Perdue (GA) escalated his own over-the-top attack, alleging that the bureau was “a rogue agency that dishes out malicious financial policy” and filing a bill similarly eliminating the CFPB’s independence. (By the way, the so-called US Consumer Coalition” listed in the Perdue release is a front group for some financial industry that won’t disclose its backing.)

The American public supports the CFPB, overwhelmingly and on a bi-partisan basis. After all, the idea of the CFPB needs no defense, only more defenders. Congress needs to start listening to consumers, instead of special interests. Why should they be allowed to run amok, even as our economy struggles to recover from the recession caused by the 2008 financial collapse triggered by “rogue” financial practices?

— Ed Mierzwinski

Originally published on U.S. PIRG

 

Big-bank Threat Backfires

During the 2014 election cycle, banks and financial companies were associated with almost half a billion dollars in campaign contributions to candidates for national office. (See AFR’s latest “Wall Street Money in Washington” report, drawing on data compiled by the Center for Responsive Politics.) That figure was more than twice the spending level of the next biggest business sector.

What do these institutions expect in return? Benefactors and beneficiaries alike almost always insist there’s no quid pro quo. But several weeks ago, insiders at Citigroup, JPMorgan Chase and BankofAmerica broke with that tradition, quietly acknowledging an effort to use their political spending for a very clear purpose: to get Senate Democrats to back away from calls by one of their leaders, Senator Elizabeth Warren (D-Mass.), for a breakup of the biggest banks.

In a December speech, Warren cited Citi as a bank that had grown dangerously large. “Instead of passing laws that create new bailout opportunities for Too-Big-To-Fail banks, let’s pass… something – anything – that would help break up these giant banks,” she said.

That statement, coupled with Warren’s growing influence among Senate Democrats, caused alarm on Wall Street and led to a discussions in which, Reuters reported, “representatives from Citigroup, JPMorgan, Goldman Sachs and Bank of America [debated] ways to urge Democrats, including Warren and Ohio Senator Sherrod Brown, to soften their party’s tone…”

Citi in particular, according to the Reuters article (citing “sources inside the bank”), “decided to withhold donations… to the Senate Democratic Campaign Committee over concerns that Senate Democrats could give Warren and lawmakers who share her views more power.” JPMorgan, the article added, has given Senate Democrats only a third of its usual amount this year, while its “representatives have met Democratic Party officials to emphasize the connection between its annual contribution and the need for a friendlier attitude toward the banks.”

All this led Ari Rabin-Havt of the American Prospect to ask: “Did one of the largest banks in the United States accidentally acknowledge an attempt to bribe members of Congress?” And: “Will JP Morgan face any investigation, let alone penalty, for their attempted bribe?”

“It would be naïve to think so,” Havt wrote, answering his own question. “Yet the only defense for this sort of corruption seems to be that it happens all the time.”

In the short run, at least, Wall Street’s efforts don’t seem to have had the intended effect. Warren, according to USA Today, “immediately seized on the report, using it in a defiant fundraising appeal for her network of supporters nationwide to make up the amount in contributions to the Senate campaign fund.”

“The big banks have thrown around money for years,” she wrote in an e-mail posted on her blog. “But they are moving out of the shadows. They have reached a new level of brazenness, demanding that Senate Democrats grovel before them.”

Another prominent Democrat responded by vowing not to accept any campaign donations from the megabanks. “Wall Street won’t be happy until Democrats stop listening to progressives like me and Elizabeth Warren – and instead carry out orders from the biggest banks in the world,” said Maryland Representative (and Senate candidate) Donna Edwards . And the chairman of Democracy for America, a group founded by former Democratic National Committee Chairman Howard Dean, urged candidates across the country to follow Edwards’ example if they “want to prove that they’re not owned by Wall Street bullies.”

 — Jim Lardner

Prepaid Cards Should Truly be Prepaid

The prepaid card market is relatively new, and growing quickly — the number of prepaid transactions increased from 1.3 billion in 2009 to 3.3 billion in 2013. AFR has urged the CFPB to establish rules that will ensure consumers are protected in this growing market. And the CFPB has proposed to do just that.

Last month, AFR and 44 members of our coalition submitted a comment letter spelling out a number of ways in which prepaid cards need to be made safer and fairer. Now we have delivered a petition in which more than 8,500 people urge the CFPB to move ahead with rules to keep prepaid cards from being loaded up with tricks or traps.

Prepaid cards are essentially debit cards that are not tied to an individual bank account (although it is becoming more common for banks to offer them). Prepaid cards can be used by employers in lieu of paychecks, or by colleges as a way to get financial aid to students. They are also often used by individuals who have been shut out of bank accounts or hit with too many bank overdraft fees. Prepaid cards can be very useful for some consumers, but they can also come with significant disadvantages—and lack basic consumer protections that apply to debit and credit cards.  Some are linked to payday-like loan features, or to fees that consumers don’t see coming. Sometimes colleges or employers steer students or employees into accepting funds on prepaid cards instead of a personal bank account – a practice that can create problems, such as a shortage or absence of free ATMS, the inability to write checks, and a lack of paper statements.

The CFPB proposal takes a number of important steps to offer greater protections for consumers and to advance a priority of ours – keeping prepaid cards actually prepaid, so that users can only spend dollars loaded onto the cards, and cannot overdraft, triggering high fees as a result.  The proposed rule very substantially limits, but does not totally prohibit, overdraft fees.

The petition asks the Bureau to make sure that prepaid cards have “no overdraft fees or credit features that cause people to spend more money than they have put on the card, and charge them extra for the ‘privilege….’ As you move forward in the rule-writing process, we strongly support the separation of prepaid from credit products, the elimination of overdraft fees, increased protections for those at risk of being steered to higher-cost payroll cards by their employers or schools, and the adoption of basic consumer protections that already apply to ordinary credit cards and bank accounts.”

The public comment period on the Bureau’s proposal ended in late March. A final rule is expected later this year or early next year.

 — Rebecca Thiess

Off the Deep End

Wall Street bonuses are back in the spotlight. The 2014 figures are out, and so is a new study by the Institute for Policy Studies: “Off the Deep End: The Wall Street Bonus Pool and Low-Wage Workers.” Last year, it shows, the nation’s bankers got bonuses adding up to more than double the combined earnings of the nation’s full-time minimum-wage workers.

Since the first group is far smaller than the second (167,800 bankers versus a minimum-wage workforce of just over a million), this works out to an even more astonishing per-person gap: while the average minimum wage earner made $13,903, the average banker got a bonus of $169,845 – and, of course, that’s extra money, above and beyond the banker’s base pay.

Numbers like these raise profound questions of economic justice. They also remind us of the role that reckless Wall Street pay practices played in the 2008 financial meltdown, and of reforms enacted by Congress that were intended to do something about that problem.

The Dodd-Frank Act included two pay-related provisions. Section 956 prohibits compensation practices that incentivize dangerous behavior on the part of Wall Street traders and executives. And Section 953 requires all publicly traded companies to disclose the gap between the pay of their CEO, on the one hand, and their median employee, on the other. The idea was to help shareholders guard their pocketbooks against self-seeking executives and better evaluate the long-term soundness of companies in light of evidence that runaway pay at the top inhibits teamwork and reduces employee morale and productivity.

Neither of these provisions has been implemented, however. Last fall, SEC chair Mary Jo White said she expected her agency to complete action on Section 953 by the end of 2014. But since she said that, her agency has been silent, while Wall Street lobbyists have continued to fight the idea – and to make absurd claims about the supposedly burdensome costs of compiling the information.

When it comes to Section 956, the situation is more promising. Federal regulators came out with a woefully inadequate proposal, calling for a modest delay between the awarding and payout of bonuses for a limited number of senior executives, in 2011; and let the matter slide for the next three years. In recent months, however, the Administration has highlighted the importance of this provision, with President Obama  urging regulators to act and Treasury Secretary Jacob Lew identifying pay reform as a high-priority task. And now the responsible regulators are working on a whole new draft proposal which we hope and expect will be stronger.

Meanwhile, European Union officials have come out with guidelines limiting executive pay at financial firms to 100% of base salary, or 200% with shareholder approval. Perhaps the forthright attitude of EU regulators on this issue is beginning to catch on in the U.S.

— Nickolai Sukharev

CFPB Goes to Richmond, President to Alabama to Discuss Payday Lending

On Thursday, March 26th the CFPB went to Richmond, VA, to hold a field hearing and release a first look at its potential plans to regulate payday, installment and car title loans. The draft proposal is broad in scope and holds at its core the importance of an “ability to repay” standard. Count up two big wins for the advocacy community!  But the proposal also contemplates dangerous exceptions to the meaningful application of the ability to repay principle.  We’ll be working hard to push the CFPB to close the loopholes as this process moves forward.  Groups from around the country both applauded the progress the CFPB is taking on the issue and highlighted the importance of strengthening the rule.

At the hearing, CFPB Director Richard Cordray, Virginia Attorney General Mark Herring, and panelists from Virginia Poverty Law Center, Center for Responsible Lending, The Leadership Conference on Civil and Human Rights and California Reinvestment Coalition all stressed the need for a strong rule that will #stopthedebttrap. “CFPB can have tremendous impact in protecting borrowers from dangerous loans,” said Mike Calhoun of Center for Responsible Lending.  He continued, “So it’s critical that CFPB’s rule address payday installment loans, and also that states remain vigilant in applying state usury limits to these loans.”

Beforehand, more than 80 advocates and allies gathered at the Richmond Convention Center for a press conference and community meeting, and during the hearing more than 30 people – borrowers, faith leaders, state and national advocates, consumer lawyers, and others – testified in favor of a strong payday rule.

Thanks to all who attended, spoke, tweeted, retweeted, selfied, and thunderclapped to get our #stopthedebttrap message out!  Click here to see the Storify from the event, which features tweets posted on the day of the hearing.

Thursday was a big day for predatory lending reform as President Obama also took up the issue during his visit to Birmingham Alabama. He spoke about the dangers of predatory lending, “You borrow money to pay for the money you already borrowed,” the President said, aptly describing the way most payday loans play out. “… If you take out a $500 loan, it’s easy to wind up paying more than $1,000 in interest and fees.”  The President also participated in a roundtable meeting on the subject of payday loan reform with community leaders.  Click here to view video of the President’s remarks on the need to protect consumers from predatory lending practices.

Click here to check out the full range of national and local press from the Richmond & Alabama events.

— Gynnie Robnett

Department of Education Severs Ties With Five Debt Collection Companies

The Department of Education took a step in the right direction February 27th when it wound down contracts it had with five debt collection companies that, since 1997, have been hired to do the work of collecting on federal student loan repayments. The contracts were ended because the Department found that the companies—Coast Professional, Enterprise Recovery Systems, National Recoveries, Pioneer Credit Recovery (Navient’s debt collection arm), and West Asset Management—were providing inaccurate information to borrowers at unacceptable rates.

Since borrower counseling is not the specialty or mission of these loan collection companies, this is unfortunately not all that surprising. [See National Consumer Law Center’s report on the government’s relationship with debt collection agencies in the student loan arena, which discusses this inherent conflict in responsibilities.] In this instance, the Department terminated the contracts after concluding that borrowers had been misled regarding the loan rehabilitation program, which is an option that can help defaulted borrowers who agree to make a certain number of on-time payments. Borrowers were specifically misled regarding how such a program could benefit their credit rating and also about the waiving of certain collection fees. Along with terminating the contracts, the Department announced that it would be issuing enhanced guidance for the remaining collection agencies, increasing training, and expanding monitoring for these types of issues.

Navient, whose subsidiary Pioneer Credit Recovery was one of the groups terminated, has a record of misleading student loan borrowers. In 2006, the Department of Justice and the FDIC found that Sallie Mae/Navient was overcharging 60,000 active-duty servicemembers on their student loans, and handling their payments in a manner that maximized late fees. And In November of last year the CFPB issued a Civil Investigative Demand to Pioneer Credit Recovery, as part of an investigation regarding the company’s work collecting defaulted student loan debt.

Much more change is needed in this area: student loan debt collectors that make a practice of misleading or hurting consumers should be held accountable, and companies that work to collect loan debts on behalf of the federal government should be required to respect borrowers’ rights and to provide them with accurate information.

— Rebecca Thiess

Nation’s Largest Labor Coalition Reaffirms Support For Financial Reform

The eight million job losses during the Great Recession triggered by the 2008 financial crisis had a devastating impact on working families and underlined the need for effective regulation of Wall Street. Recent studies point out that the growing power of finance drives inequality and the shrinking portion of wealth that goes to wages. With this in mind, the Executive Committee of the AFL-CIO – the nation’s largest labor coalition –  reaffirmed its commitment to reforming the financial system, including protecting the progress won  in the Dodd-Frank Act.

The statement also calls for further changes that go beyond the Dodd-Frank Act – including shrinking the excessive size of the megabanks, establishing a Wall Street speculation tax, and reinstating Glass-Stegall separations between commercial and investment banking – in order to do more to end the excessive risks that the financial sector poses to the rest of the economy. The AFL-CIO’s commitment to Wall Street reform has been a crucial factor in the gains that reformers have made so far and its engagement will be a crucial factor in future progress.

— Marcus Stanley

As House Holds Oversight Hearing, 340 Groups Call For Defense of CFPB (Ed Mierzwinski, US PIRG)

Last week, I captured a photo of the President, with CFPB architect and now U.S. Senator Elizabeth Warren (MA) directly behind him, as he gave a well-deserved shoutout to the CFPB and its director Rich Cordray (far right) at an event launching a new initative to protect retirement savings against Wall Street tricks.obamashoutouttocfpb23Feb15

Today, Consumer Financial Protection Bureau Director Richard Cordray will present the CFPB’s sixth Semi-Annual Report to Congress at a hearing of the full House Financial Services Committee (2:30 PM ET), whose majority members have often been harsh critics of the successful consumer agency… [P]owerful special interests, including the banks and credit unions and their many trade associations, as well as payday and high cost lenders, financial services lawyers and lobbyists, debt collectors and credit bureaus, mortgage companies, for-profit trade schools and auto finance companies, joined by generally coin-operated “free market” think tanks and other special interests, continue to try to rev up Congressional opposition to the CFPB.

 

Originally posted on US PIRG.