Archive for 'cfpb'

CFPB Finds that Payday Loans Trap Consumers in Debt

Tuesday, April 30th, 2013 at 3:22 pm  
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The Consumer Financial Protection Bureau recently issued a report on payday loans and deposit advance loans, finding that these financial services products “lead to a cycle of indebtedness.” No surprise there.

Consumers often take payday loans as a way to bridge the gap, perhaps in order to pay for things like unexpected car repairs or medical bills – or simply to make ends meet until the next check arrives. Typically, the loans come due in one lump sum, along with a fee. Payday loans are administered by non-financial services storefronts, whereas deposit advance loans are typically administered by banks and are more akin to a line of credit.

The fees associated with payday loans are astronomical. Typically, the fees range between $10 and $20 for every $100 borrowed. According to the CFPB report, a fee of $15 per $100 “would yield an APR of 391% on a typical 14-day loan.”

The CFPB study looked at 12 months worth of records from payday lenders, and analyzed the consumers who had loans within the first month of the 12-month period, tracking them throughout subsequent months. In total, the CFPB studied 15 million storefront loans across 33 states. The average loan was $392, the average loan term was 18.3 days, the average fee was $14.40 per $100 borrowed, and the average APR was 339%. The average income of the borrower was $26,167 per year, although a quarter had an annual income of $14,172 or less. Three-quarters of borrowers were employed either part or full-time, while a quarter received either public assistance or retirement funds – Social Security, unemployment, disability, or other government assistance.

In the CFPB study, 48% of borrowers had more than 10 loans during the 12-month period, including 14% of borrowers who had more than 20 transactions. Twenty-five percent of borrowers paid $781 or more in fees during the study period. On average, borrowers were in debt 196 days of the year.

According to CFPB Director Richard Cordray, “This comprehensive study shows that payday and deposit advance 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. For too many consumers, payday and deposit advance loans are debt traps that cause them to be living their lives off money borrowed at huge interest rates.”

The CFPB report can be downloaded here: http://files.consumerfinance.gov/f/201304_cfpb_payday-dap-whitepaper.pdf

FTC Issues FDCPA Report

Saturday, February 16th, 2013 at 5:00 am  
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The Federal Trade Commission issued a report to the Consumer Financial Protection Bureau (CFPB) regarding the FTC’s enforcement of the Fair Debt Collection Practices Act (FDCPA). The Dodd-Frank Act of 2010 created the CFPB and tasked the agency with taking over the annual FDCPA report to Congress. Because the FTC is still responsible for FDCPA enforcement actions, it produced the report for use in the CFPB’s Congressional report, expected to be released in March.

According to the FTC’s press release, the agency brought cases against seven debt collectors. The agency settled charges and banned Rumson, Bolling & Associates from debt collection activity. It also settled with Luebke Baker, which was accused of caller ID spoofing and threatening wage garnishments, among other things. Two cases, those pertaining to Goldman Schwartz and AMG Services, are still in litigation.

The FTC also highlighted its work in what it termed “phantom debt” cases, where defendants collected money that wasn’t owed or that wasn’t applied to the debts. The three defendants are American Credit Crunchers, Pro Credit Group, and Broadway Global Master.

RJM Acquisitions got off the hook when the FTC closed a case alleging that the debt collector attempted to collect time-barred debt. In exchange, RJM Acquisitions included language in its debt collection notices so that consumers wouldn’t think they could be sued for the debt.

Finally, and arguably most importantly, the FTC, CFPB, and Department of Justice filed an amicus brief in a U.S. Supreme Court case that will determine whether or not consumers who file FDCPA lawsuits in good faith and lose are required to pay defendants’ attorney fees.

CFPB Issues Report on Credit Bureau Data

Thursday, December 13th, 2012 at 6:36 pm  
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The Consumer Financial Protection Bureau has issued a report on how the “big three” credit bureaus manage consumer data, and the CFPB’s press release highlights fascinating facts and figures. After analyzing Experian, TransUnion, and Equifax, the CFPB found that the vast majority of items on credit reports come from bank credit card information furnishers:

  • 40% of items reported by information furnishers come from bank credit cards
  • 18% of items reported come from retail credit cards
  • 7% of items reported come from mortgage lenders or servicers
  • 4% of items reported come from auto lenders

Of the disputes that credit reporting agencies receive, a whopping 40% relate to debt that is in debt collection.

The numbers of files and numbers of items on credit reports is staggering. Each major credit bureau has more than 200 million files on consumers. The CFPB notes, “In a typical month, they receive updates from approximately 10,000 information ‘furnishers,’ which are the entities that supply data on consumers. The furnishers do this on more than 1.3 billion ‘trade lines,’ which are individual information sources on a consumer report such as a consumer’s accounts for a car loan, mortgage loan, or credit card.”

Consumer Financial Protection Bureau Highlights Specialty Credit Bureaus

Thursday, December 6th, 2012 at 7:56 pm  
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Most people are familiar with the “big three” consumer reporting agencies, namely Experian, TransUnion, and Equifax. But there are dozens of other credit bureaus that most folks have never heard of. These specialty consumer reporting agencies can have a tremendous impact on a person’s ability to rent or lease an apartment or home, to get a job or promotion, or to obtain insurance.

The Consumer Financial Protection Bureau announced that it had sent warning letters to many of these specialty agencies, reminding them of their responsibility under the Fair Credit Reporting Act to provide consumers with free annual credit reports. The CFPB reminded these credit bureaus that the must provide consumers with a toll-free number and an easy way to obtain their free reports. Moreover, the CFPB informed the companies that they may face an enforcement action if they do not comply.

You can download a list of consumer reporting agencies, including phone numbers and addresses, from the CFPB website.

Consumer Financial Protection Bureau Launches Debt Collection FAQ

Thursday, October 25th, 2012 at 5:00 am  
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The Consumer Financial Protection Bureau has launched a consumer information site regarding debt collection. Using a question and answer format, the CFPB walks consumers through various elements of the Fair Debt Collection Practices Act. The resource can be found here: http://www.consumerfinance.gov/askcfpb/search?selected_facets=category_exact:Debt%20Collection

Consumer Financial Protection Bureau Announces Rules on Debt Collection Oversight

Wednesday, October 24th, 2012 at 7:02 pm  
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The Consumer Financial Protection Bureau, which was created via the Dodd-Frank Wall Street Reform Act, announced published a rule that enables the CFPB to supervise large debt collection agencies. According to the CFPB’s press release, Director Richard Cordray said, “Today we are announcing that we will be supervising the larger debt collectors in the market for the first time at the federal level. We want all companies to realize that the better business choice is to follow the law – not break it.”

The CFPB’s supervision will cover companies with more than $10 million in annual revenue and that are debt buyers, third-party debt collection agencies, debt collection lawyers that sue consumers, or a combination thereof. These criteria encompass about 175 debt collectors, and will take effect on January 2, 2013.

CFPB examiners will evaluate debt collectors using a number of measures, including whether they are “properly identifying themselves and properly disclosing the amount of debt owed”; whether they are “using accurate data in their pursuit of a debt”; whether “complaints are resolved adequately and in a timely manner”; and whether “debt collectors have harassed or deceived consumers in pursuit of a debt.”

CFPB Releases Procedures for Overseeing Credit Bureaus

Tuesday, September 11th, 2012 at 5:00 am  
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The Consumer Financial Protection Bureau, which was created under the Dodd-Frank Act of 2010, is charged with looking out for consumers’ interests. One area of responsibility beginning September 30 is overseeing nonbanking financial industry; this includes credit bureaus and other consumer reporting companies. According to a CFPB press release, the agency has released the examination procedures it will use for credit bureaus and those that report information to them, such as debt collection agencies. Richard Cordray, the CFPB Director, said, “Consumer reporting, and especially credit reporting, plays a significant role in a consumer’s life. It can dictate whether or not a consumer is able to get a credit card, a mortgage, or a student loan.”

While the CFPB won’t examine all of the players, it will oversee those with more than $7 million in annual receipts. According to the agency’s press release, the procedures it will use will help ensure that companies are using and providing accurate information; that reporting agencies conduct reasonable investigations into consumer disputes; that companies provide consumers with their file information and credit scores when it’s required; and that companies are abiding by requirements to prevent fraud and identity theft.

CFPB’s First Major Enforcement Action Targets Capital One

Thursday, August 16th, 2012 at 5:15 am  
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Last month, the Consumer Financial Protection Bureau made a big splash with its first enforcement action. Charging that Capital One engaged in deceptive marketing and credit card practices, the CFPB and the Office of the Comptroller of the Currency entered into a settlement with the financial services company for $210 million.

According to a CFPB press release, the CFPB alleged that Capital One’s telemarketers deceptively sold add-on products such as payment protection and credit monitoring. The settlement requires Capital One to refund $140 million to two million Capital One customers who were pressured into buying the add-on products, to pay a $25 million penalty to the CFPB’s Civil Penalty Fund, $10 million in restitution to customers harmed by unfair billing practices, and an additional $35 civil penalty. In addition, Capital One agreed to end deceptive marketing and work with an independent auditor to assure compliance.

CFPB Launches Complaint Database; Debt Collection Industry Whines

Tuesday, June 19th, 2012 at 12:53 pm  
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The Consumer Financial Protection Bureau has launched the beta version of its Consumer Complaint Database, which seeks to increase transparency regarding the nature and resolution of consumer complaints against the financial services industry. In a CFPB blog post, Scott Pluta explains that, until now, the complaints registered with the CFPB (and its predecessor in information-gathering, the Federal Trade Commission) have been only known “to the individual complainant, bank, regulator, and those in the public willing to pursue this information through the Freedom of Information Act.” Now, he writes, “this data-rich window into consumer financial issues will be widely available to everyone: developers, policymakers, journalists, academics, industry, and you.” However, the database won’t contain any personally identifying consumer information.

In this initial phase, the database contains only complaints related to credit cards, but the CFPB is proposing to expand the database to include the other financial products (mortgages, loans, checking and savings accounts, etc.) that it is responsible for. The CFPB blog explains the complaint process, which in some ways mimics what the Better Business Bureau does. After vetting the complaint to make sure it is complete and isn’t a duplicate, the CFPB forwards the complaint to the financial institution for review, and the company has 15 days to respond, and typically 60 days to resolve the complaint. If the company doesn’t respond or doesn’t resolve the issue, the CFPB’s Consumer Response division works with the Supervision and Enforcement divisions. You can see the beta version in action here: http://www.consumerfinance.gov/complaintdatabase/

Although the database doesn’t include complaints about debt collection agencies, it’s not surprising that they’re already whining. An article in the industry publication InsideARM enumerates and lauds the objections of the American Banking Association, and concludes, “Since the CFPB has plans to oversee the collection industry, it’s almost a guarantee at this point that, perhaps within the year, the CFPB will also publish consumer complaints in a similar database.”

Our take? Sunshine is the best disinfectant. Increased transparency into the complaint and resolution process is valuable for all financial services stakeholders, including bank presidents, lawmakers, consumers, and yes, even those in the debt collection industry.

Congressional Republicans Attempt to Gut Consumer Financial Protection Bureau

Friday, June 15th, 2012 at 5:00 am  
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The Consumer Financial Protection Bureau was created by the Dodd-Frank Act of 2010. Since its inception, it has faced a number of obstacles from House Republicans who have tried to water down its effectiveness by pushing to replace the agency’s director with a commission and then by refusing to approve a noncontroversial nominee to become CFPB director (President Obama ended up making a recess appointment). As written in the Dodd-Frank Act, the CFPB is funded through the Federal Reserve. One would assume this source of funding was put in place to ensure that the CFPB wouldn’t become a political football, its funding (and effectiveness) subject to the whims of Congress. Now, as reported in Reuters, Congressional Republicans on the House Appropriations Committee have put forth a proposal to move CFPB funding from the Fed to Congress itself. If that happens, one can assume that the agency will move from boom to bust, depending on which political party controls the purse strings. This is simply wrong.

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