Archive for 'Consumer Financial Protection Bureau'

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

CFPB Pushing Refinance Plan for Private Student Loans

Wednesday, March 6th, 2013 at 3:12 pm  
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The New York Federal Reserve reports that student loan debt is an enormous burden – $966 billion at the end of 2012. Moreover, that number is contributing to the lack of economic growth, evidenced by fewer borrowers buying homes. According to the Huffington Post, the Consumer Financial Protection Bureau is investigating ways in which it might be easier for those with private student loans to refinance, helping to reverse the domino effect that student loans have on the economy.

Here’s HuffPo’s interview with a CFPB representative:


Federal Regulators Consider How to Best Regulate Debt Collection Industry

Thursday, February 7th, 2013 at 5:00 am  
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Bloomberg reports that the ways in which the debt collection industry uses social media may be scrutinized by the Consumer Financial Protection Bureau (CFPB) and the Federal Trade Commission (FTC) in the coming year. With the passage of the Dodd-Frank Act in 2010, the CFPB was created. Among its designated functions is oversight of the Fair Debt Collection Practices Act (the FTC is still responsible for FDCPA enforcement actions, however).

On January 2, 2013, the CFPB began exercising its supervision authority over approximately 175 debt collection agencies, all of which have more than $10 million in annual receipts. CFPB examiners will be evaluating debt collection agencies for their practices surrounding proper disclosures to consumers, providing consumers with accurate information, and dispute resolution.

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.”

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.

Warren Passed Over to Head New Consumer Financial Protection Bureau

Monday, July 18th, 2011 at 2:11 pm  
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Harvard Professor Elizabeth Warren championed the rights of consumers and, with the backing of the White House, fought for the inclusion of the new Consumer Financial Protection Bureau in last year’s Dodd-Frank Act, the sweeping financial reform legislation crafted in the wake of the financial crisis. Warren succeeded, and has been at the helm as the agency ramps up to its launch this week.

Understandably, Warren made a number of political enemies during the course of her relentless battle to protect consumers. So while she nurtured the agency to fruition, she has been passed over to lead the CFPB in favor of former Ohio Attorney General Richard Cordray. The Washington Post reports that Cordray has been leading the enforcement arm of the agency and has a solid consumer protection track record, but still has an uphill battle to achieve confirmation. According to the Dodd-Frank Act, the agency cannot engage in rulemaking or supervise companies other than banks in the absence of a director. In the meantime, 44 Republican senators have signed a letter refusing to confirm any nominee. Wall Street and the business community – including debt collection agencies and payday lenders – have spent considerable time and money pushing back against the perceived threat of the CFPB, and Republicans are demanding that the agency be headed by a board of directors rather than a single leader.

Elizabeth Warren is still fighting the good fight. In a column published by the Huffington Post, Warren cautions that “this agency still has enemies in Washington, D.C. And they have a plan.” She concludes “Today, I’m celebrating – but I’m not taking my eye off those who want to cripple this agency. We got this agency by fighting, we stood it up by fighting, and, if takes more fighting to keep it strong and independent, then we can do it.”

It’s a shame that the single-minded, straightforward Warren won’t lead the agency as it officially comes online Thursday. Her unwavering commitment is to be admired, as is her tireless work on behalf of consumers.

Debt Collectors as Victims?

Monday, June 13th, 2011 at 5:18 pm  
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The New York Times reports that debt collectors are feeling victimized by consumers who are rude to them. Huh? While it goes without saying the people should be civil in their interactions with one another, it’s hard to conjure up a whole lot of sympathy for those who work in an industry notorious for abusing consumers. However, the Times story does delve into the lobbying efforts of ACA International, the debt collection industry trade group. The organization is advocating that its members lobby legislators and regulators. Next month, debt collection agencies will be regulated by the new Consumer Financial Protection Bureau. While the Federal Trade Commission will still have some enforcement duties, the new CFPB will be able to write rules and regulations governing the industry.

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