Faith Leaders and Consumer Advocates Mobilize Against Debt-Trap Lending

For many years, payday lenders have taken advantage of citizens and the legislative process, charging triple-digit interest, engineering loans to draw people into unmanageable long-term debt, and carving out special exemptions in state laws to make that possible.  Many citizens and communities of faith, and many AFR members, have responded by insisting that ultra-high-cost consumer loans are unjust and immoral.

The coming year presents us with an important opportunity in the struggle to uphold economic dignity in our communities – by calling on the Consumer Financial Protection Bureau (CFPB) to enact strong rules against payday and other debt-trap loans.

On November 17 – 19, representatives from over 20 states will come to Washington D.C. for Faith & Credit Advocacy Days. This gathering is a launch-pad for a broad collective effort by faith and financial reform and consumer protection groups to support strong action by the CFPB. Faith advocates and leaders will come away armed with knowledge of what they will need to do in their states and communities to promote and protect the cause of ethical lending. Monday and Tuesday will be spent better understanding the problem of predatory lending and what faith advocates and leaders can bring to the effort to put a stop to it.

Throughout Faith & Credit Advocacy Days, faith advocates and leaders will use the hashtag #StopTheDebtTrap to reach out to people and organizations interested in Payday Lending Reform. Using #StopTheDebtTrap, they hope to engage event attendees and the public. Their collective narrative will help spread a message about why strong rules are needed and what citizens are doing and can do to convey their concern to their representatives in Washington D.C.

On the final day, faith advocates and leaders will meet with lawmakers and deliver that message directly. They will ask their communities to participate in the conversation by using the hashtag #StopTheDebtTrap. Everyone is encouraged to join the conversation.

— Marvin Silver

Consumer Advocates Praise CFPB Proposals on Prepaid Cards

The National Consumer Law Center released the following statement:

Consumer advocates today praised the Consumer Financial Protection Bureau (CFPB) for protecting consumers who use prepaid and payroll cards. “The proposal offers strong protections for prepaid and payroll cards that will help ensure that funds are safe, costs are transparent, and prepaid cards are free from abusive overdraft fee practices,” said Lauren Saunders, associate director of the National Consumer Law Center. “The rules will increase consumer and employee confidence when they use prepaid and payroll cards,” Saunders added. Consumers need to know that they are covered when they are using cards such as this so they do not feel like they are on uneven ground. In some cases, it may necessary to utilize the services of a consumer law attorney to see how this can be fought in court if it reaches that level.

The CFPB proposal restricts, but does not completely ban, overdraft features offered on a few prepaid cards, especially those sold by payday loan stores. “Some prepaid cards push overdraft ‘protection’ that makes it harder for families to make ends meet, draining scarce wages with fees and leaving a hole in the next paycheck.” Saunders said. “The proposed rule requires companies to be honest when they are offering credit and not disguise it as overdraft ‘protection’ that can balloon into hundreds of dollars of fees a year,” she explained. The CFPB proposal requires prepaid cards that function as credit cards to comply with credit card rules including ability to repay, sufficient time to repay, limits on fees in the first year, and a wall between the credit account and the prepaid card funds. “While these rules are a big improvement,” Saunders noted that “overdrafts should be prohibited entirely on prepaid cards. Consumers should be able to rely on a prepaid card being truly ‘prepaid’ and as a safe way to control spending.”

The rule would also protect consumers in case of errors, theft, or unauthorized charges and provide clearer information about fees. “Prepaid cards will be safer and more transparent with better fee disclosures and the same protections that bank account debit cards get in the case of identity theft,” Saunders emphasized, while noting that “all fees should be on the outside of the card’s package so you can easily see the full price before you buy.”

The prepaid card market is growing rapidly. “While banks must do more to make traditional bank accounts safe and affordable for all consumers and should not limit lower income consumers to prepaid cards, the cards can be a safer, cheaper, and more convenient way to manage money than paying bank account overdraft fees, relying on cash, or paying check cashing fees,” Saunders explained.

The public has 90 days to comment on the proposed rule, which will be available on the CFPB’s website under the regulations area.

See statement by Consumers Union and remarks by CFPB Director Richard Cordray.


How the CFPB Helps Military Families and All of Us (Ed Mierzwinski, US PIRG)

Columnist George Will recently (and not for the first time) urged Congress to “abolish the Consumer Financial Protection Bureau.” His reasons may seem to come from his conservative philosophy, but merely pander to the powerful Wall Street interests that left our economy in ruins just a few years ago. As a counterbalance, let’s discuss some recent speeches and statements by CFPB Director Richard Cordray on his vision for the bureau and some of its current work, including – on this Veteran’s Day – its efforts to protect military families from financial predators.

As I sit here taking the usual election year phone calls from reporters (but not George Will) asking me what threats face the CFPB in the next Congress, I’ve been looking at all the work that the young agency (it just turned three) has accomplished to make financial markets work better. Rather than focusing on numbers, such as “recovered over $4.6 billion in refunds to consumers from unfair financial practices,” I quickly realized I needed to look no further than two recent major speeches given this October by its director, Richard Cordray. Each talk deserves much more discussion and consideration in the media and review by editorial writers. Perhaps they have not been reported on because they were given in Michigan; it’s an important state but Ann Arbor is not New York City, nor is East Lansing Washington, DC. After discussing those important speeches, I will comment on the CFPB’s defense of military families.

On October 10, Director Cordray gave a speech at the Michigan State University explaining in thoughtful detail why the 40th anniversary of the Equal Credit Opportunity Act should be added to the university’s “60/50” celebration of the 60th anniversary of the Supreme Court’s landmark decision in Brown v. Board of Education and the 50th anniversary of the Civil Rights Act. As Cordray points out, of course, Dr. King’s campaigns for civil rights always included a call for economic justice. In East Lansing, Cordray goes on to explain the role of the ECOA in fighting discrimination:

“For the principle of “fair lending” that underlies this statute is crucial to upholding and enforcing the kinds of economic rights that ensure freedom and equality to the people who constitute our society. One of those rights is the right to access credit on fair and equal terms – to borrow money now for repayment at a future date, so as to have the use of it for purposes of one’s own choosing. Our pursuit of happiness is enhanced when the government helps to ensure that the opportunities that free markets and fair lending make possible are available to us all.”

Later in October, at the University of Michigan Law School, he explained the consumer bureau’s enforcement strategy against four obstacles that hurt consumers in the financial marketplace. He described the “4 D’s” that harm consumers: Deceptive marketing, Debt traps, Dead end markets, and, finally, circling back to the theme of the MSU speech, Discrimination.

Deceptive Marketing: We faced an epidemic of false or misleading information in the lead-up to the financial crisis. As a result, too many homebuyers ended up with complicated mortgage products that could not be made to work, products they often did not understand. These products were doomed to fail, and chances are that if consumers had known better, they would have avoided them.[…] But cleaning up deception in the marketplace also requires some tough action. So we have adopted a number of other regulations to protect consumers in the multi-trillion-dollar mortgage market.  […] We also have taken strong enforcement actions against a growing number of credit card companies that misled millions of consumers with deceptive sales pitches.

Debt Traps: Payday lending is one area we see as a potential debt trap for consumers. We issued a report earlier this year which found that payday loans put many consumers at risk of turning what is supposed to be a short-term, emergency loan into a long-term, expensive debt burden. […]This summer, we took action against ACE Cash Express, another large payday lender, for pushing payday borrowers into a cycle of debt. And, just last month, we sued an online payday lender, the Hydra Group, which was running an illegal cash-grab scam.

Dead Ends: These problems occur in markets where consumers cannot exert their influence by “voting with their feet” – markets like debt collection, loan servicing, and credit reporting. […] […] But some debt collection practices have long been a source of frustration for many consumers, generating a heavy volume of complaints at all levels of government. […]In the credit reporting industry, we have used our authority to improve practices that will better ensure the accuracy of information contained in people’s credit reports and their ability to get errors corrected. We also are pushing hard for the Open Credit Score Initiative, which is providing tens of millions of Americans with free credit scores and raising their awareness of how they are affected by a credit reporting system that judges their creditworthiness.

Discrimination: The fourth D we are taking on, perhaps the most damaging of them all, is discrimination. The greatest challenges some consumers face are rooted in unlawful treatment based on prohibited characteristics like race or national origin. So we are seeking economic justice and the right to equal treatment in the financial marketplace based on individual merit and responsibility.”

These are important speeches, worthy of a closer read. You can find them, and other remarks by Director Cordray, here.

— Ed Mierzwinski

This piece, which is reprinted by permission of the author, was originally poublished by US PIRG.

For-Profit College Rule Has Important Weaknesses (and strengths)

Last week the Department of Education released a final rule on gainful employment, a rule that will impose some new limits on career education programs that have poor outcomes for their graduates. The final rule provides some new protections for students in the for–profit education system, but it is also significantly weaker than the draft proposal released by the Administration earlier this year, and still leaves taxpayer dollars flowing to programs that trap students in abusive debt without providing substantial educational outcomes.

For-profit colleges, such as ITT-Tech and Corinthian, are coming under growing federal and public scrutiny for their abusive lending practices and deceptive marketing techniques. In September, the CFPB sued Corinthian Colleges for luring students into taking out private loans to cover expensive tuition by providing them with false and inflated job placement rates, and also for using illegal debt collection practices to collect on those loans.  Corinthian is currently in the process of being shut down by the Department of Education, as it runs 25 of the 114 programs with more defaulters than graduates.

Because Corinthian and programs like it depend almost entirely on federal student aid dollars, it is important that the Department of Education ensure at the front end that these dollars are not wasted and do not cause harm. In May, Americans for Financial Reform joined 50 other groups in urging the Administration to strengthen its proposed draft gainful employment regulation, but unfortunately the rule moved in the opposite direction. The new rule fails to provide financial relief for students who enroll in programs that lose eligibility, and lets poorly performing programs continue to enroll students up until they lose eligibility.  See comments on the rule from AFR members and allies including TICASSEIU, a coalition of Civil and Human Rights groups, CRL and more.

Despite these weaknesses in the new rule, it does provide some new protections for students. In recent years, some for-profit colleges have offered programs that they have said would prepare students for a specific occupation, yet after taking out loans and completing the program, students have found they were unqualified to legally practice that occupation in their state. The new rule protects against programs that do not qualify students to get the certification necessary to practice their intended occupation. However it fails to protect online students, who may still find themselves, upon graduating, not legally qualified to get the licenses they would need to practice in the state in which they live.

The rule also fails to take into account the outcomes of students who withdraw from programs— unfortunately a very large proportion in some schools. The final rule dropped a provision that would have considered the default rates of all program attendees—whether or not they graduated—instead of just the default rates of those who graduated from the program. Instead, the rule considers a student’s debt burden relative to their income after having graduated from the program. Though the Department kept the debt-to-earnings metric strong, not including those who enrolled but didn’t graduate from programs weakens the rule, as many for-profit college students are unable to complete their degrees yet still have debt from having tried.

The new regulations are a modest step forward. As advocates on these issues have made clear though, much more work in this sphere remains to be done to prevent abusive and predatory practices. The Department of Education needs to do more to protect Corinthian students as the school shuts down, and to take on problems facing students in other poorly performing schools and programs.

— Rebecca Thiess