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.

New Poll Shows Overwhelming Support for Strong Action Against Payday Loans

According to a new, bipartisan national poll sponsored by the Center for Responsible Lending, huge majorities across party lines support regulations to keep payday and car title lenders from making dangerous loans.  Majorities across party loans also have unfavorable views of payday lenders.

Republicans, Democrats and Independents alike are deeply concerned about a loan product with interest rates that average 300 percent. Payday and car title lenders, say most of those surveyed, should have to make sure borrowers can repay before issuing a loan, just as other responsible lenders do.

  • 78 percent of those surveyed – including 80 percent of Republicans – would support a rule that payday lenders be required to check a borrower’s ability to repay a loan within that loan’s stated time period.
  • Seven in ten voters oppose the current system of allowing payday lenders direct access to borrowers’ bank accounts.
  • Over 7 in 10 voters, across party lines, agree that car title lenders should be subject to rules capping the interest rates they can charge, and be required to assess borrowers’ ability to repay their loans.

The survey of 800 likely voters was conducted by Lake Research Partners and Chesapeake Beach Consulting.

 — Gynnie Robnett

Ho! Ho! Ho! A Season of Opportunity for Payday Lenders

The holidays are upon us, and for many this is a season of financial stress and strain as well as joy – a time when the need for an extra couple of hundred dollars can seem especially acute.

For payday, title loan, and auto title lenders, that makes the holidays a season of opportunity. And many of these lenders don’t just make an extra push at the end of the year; they actually insert a holiday theme into their advertising!

Cash Title Exchange, a Mississippi-based lender, sent out a colorful direct-mail piece promising “the cash you need this holiday season” and featuring a smiling Santa Claus with an armful of presents. “Even Santa needs help,” the ad pointed out.

Santa was also a co-star in a TV spot for TitleMax, based in Savannah, Georgia: “Come to TitleMax now for cold hard cash,” says the cheery announcer. “Your car title is your credit – Ho! Ho! Ho!”

What such companies don’t advertise, and what many borrowers don’t know, is exactly how much money they will ultimately have to pay for the relatively small sum they receive immediately. Because such loans typically carry fees that work out to the equivalent of 300 to 500 percent in annual interest, many borrowers are forced to take out a long string of loans to cover payments on the original one. Their loan fees often end up dwarfing the amount of money they borrowed in the first place.

Targeting borrowers during the holiday season hits many when they are feeling the most vulnerable. And ads aren’t just splashed in public places, they are sent out in focused mass mailings to people who are particularly likely to respond—the elderly or those with low annual incomes.

While loans like these may be marketed as a way to deal with a one-time emergency or secure a little extra holiday cash, they routinely lead people into a cycle of long-term debt. The Consumer Financial Protection Bureau, in its research on the small-dollar loan market, has found that four out of five payday loans end up being rolled over or renewed within two weeks, with half of those becoming part of a sequence of 10 or more loans. And that is exactly the outcome these lenders are counting on: Getting people to borrow repeatedly, paying fee after fee, is their business model.

In an enforcement action against ACE Cash Express, the bureau exposed the company for using a variety of illegal tactics, including false threats of criminal prosecution, to bully its borrowers into repeatedly taking out new loans to cover the cost of old ones. A graphic from the company’s own training manual spelled out its preferred method of entrapment.

In 2015, the Consumer Financial Protection Bureau is widely expected to announce a set of proposed consumer protection rules that could change this market for the better. This should be welcome holiday news: Most Americans have a negative opinion of payday lenders. (65 percent hold an unfavorable view, versus only 15 percent with a favorable view, according to a recent national survey.)

Payday lenders are hurting Americans; but the industry has been using political contributions to safeguard its profit stream, and Congress has so far been unwilling to regulate.

A recent report by Americans for Financial Reform sheds light on exactly how much this industry is spending to exercise influence in Washington. In the 2014 election cycle, payday, auto title and installment lenders, along with other entities that play a role in their operations, reported more than $13 million in political spending, with much of that money coming from trade associations that represent the industry in Washington. Major spenders also include some of the trade associations’ big corporate members — the actual payday lenders themselves. Cash America, a company found by the Consumer Financial Protection Bureau to be using illegal debt collection tactics and overcharging servicemembers and their families, spent over $1.7 million in the 2014 cycle on lobbying and campaign contributions.

But the next holiday season could be a bit brighter. The bureau could make lenders verify that loans are affordable in light of a borrower’s income and expenses; reduce the payday debt trap from the typical 200 days a year to no more than 90; and put borrowers back in control of their own bank accounts. The holidays are a time for joy and giving, and as the residents of Whoville know, there is no room for the Grinch.

– Rebecca Thiess

Originally published in USNews.com

Help Win More Protection for Your Retirement Savings: Have Your Portfolio Reviewed

As traditional pension plans have gone by the wayside, American workers have become increasingly responsible for their own retirement security. How much money to set aside? How to invest it?  Most people, feeling intimidated by these complicated decisions, seek help from professional financial advisers.

And their recommendations can have a profound effect on whether you enjoy a comfortable retirement or have to make significant sacrifices to your quality of life just to survive. Against that background, Americans for Financial Reform is working with the Consumer Federation of America and other organizations to ensure that workers saving for retirement get investment advice that is designed to serve their best interests.
To help make the case, we want to hear about your experiences with financial advisers. Please complete this simple online survey if any of the questions apply to you. We would also greatly appreciate it if you can forward the survey to your allies and supporters, so we have the strongest participation possible. — Marvin Silver

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.

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