Covid, payday loans, student debt

The Consumer Financial Protection Bureau headquarters in Washington, DC

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The Consumer Financial Protection Bureau is expected to become a more aggressive consumer watchdog under the Biden administration and as the coronavirus pandemic poses financial challenges to millions of Americans.

Consumer advocates say that under former President Donald Trump, the office has been almost completely decrypted and enforcement action has plummeted during his tenure. The agency was established in 2010 after the previous economic downturn to protect people from predatory lenders.

Now it is expected that the CFPB will investigate consumer complaints more aggressively and take action against companies that break the law. President Biden has appointed 38-year-old Rohit Chopra, a longtime consumer advocate and former student loan ombudsman at the CFPB, to head his office.

Rohit Chopra, director of the Consumer Financial Protection Bureau.

Alex Edelman/Bloomberg via Getty Images

Of course, some were skeptical of the agency’s work during the Obama administration, when Biden was vice president. Mick Mulvaney, who served as Trump’s acting CFPB director, once called the agency a “joke” in “a sick, sad way.”

But his work has never been more important, supporters say, as so many Americans seek to rebuild their finances after nearly a year of record job losses, evictions and mounting debt. As people’s money worries have increased, so have their problems with financial companies: Complaints to the CFPB are up 60% in 2020 versus 2019.

“There are potentially a dozen, two dozen priorities,” said Richard Cordray, who served as CFPB director from 2012 to 2017. “There’s a lot to do.”

These are some of the likely areas of focus for Biden’s consumer protection agency.

Covid crisis

The Covid crisis is likely to be the bureau’s top priority, according to consumer experts and former officials.

The pandemic has plunged the US economy into the deepest recession since the Great Depression at historic speed. It is estimated that by the end of the year millions of families would have slipped into poverty.

“Covid has created a number of new problems or highlighted and underscored ongoing issues for consumers,” Cordray said.

Americans may be turning to financial firms for help, whether it’s applying for various reliefs or new loans to cover expenses.

The CFPB is likely to take further safeguards to ensure consumers receive adequate (and promised) support. This work will fall into two main areas, said Patricia McCoy, a professor at Boston College Law School.

For one, the agency could ensure financial firms and debt collectors comply with government protections, like the national ban on evictions until March and the moratorium on student loan payments until September. It can also uphold voluntary commitments made by businesses to all types of borrowers, such as homeowners, car buyers, and credit card users.

“That’s going to be a top priority,” said McCoy, a former government official during the Obama administration.

Collection of debts

Similarly, the agency is also likely to seek to repeal or rewrite Trump-era regulations on debt collection, according to consumer advocates.

The previous administration issued two related rules, one in October and one in December, near the end of Trump’s term. Broadly speaking, they looked at how collection agencies can communicate with and share information with consumers.

Kathy Kraninger, the former CFPB chief during the Trump administration, said the measures helped keep consumers informed. But consumer advocates believe the regulations have given companies too much power.

“At their core, these weren’t rules for consumers,” said Rachel Gittleman, financial services executive at the Consumer Federation of America.

Trump-era policies allow debt collectors to track consumers by calling them once a day and per debt, Gittleman said. A consumer with five medical bills can get 35 calls a week, she said. There is also no limit on text or social media messages.

The rules also don’t prohibit collecting “zombie debt,” according to the National Consumer Law Center. Debts sometimes fall outside of a statute of limitations for collection — but consumers can inadvertently revive those statute-barred debts by making a small payment, for example. This, in turn, frees collection agencies to file suits against a consumer again.

student loans

Under Biden, the Consumer Bureau is expected to do more enforcement of student loan management rules.

Advocates have criticized student loan administrators for misleading borrowers and steering them into more expensive repayment schedules. During the Obama years, the bureau took legal action against Navient, one of the largest service providers. (Navient denies any wrongdoing.) With Biden in the White House, experts expect that process to continue and be aggressively pursued.

Other changes under Biden could include requiring loan servicers to inform borrowers of all available options, including economic hardship or unemployment delays. And service providers who don’t do this face penalties.

The Consumer Bureau is also likely to take a tougher stance on for-profit schools, which are known to take advantage of vulnerable students and make unrealistic promises. Enrollment at these schools typically increases during recessions, and it has done so during the pandemic.

“It is time for the CFPB to use all of its tools to advocate for student loan borrowers, including through enforcement action, creating stronger safeguards, monitoring complaints and routinely monitoring student loan companies,” said Seth Frotman, executive Director of Student Borrower Protection Center who worked at the office from 2011 to 2018.

credit report

Credit evaluation companies typically have 30 to 45 days to investigate consumer complaints. However, the Trump administration’s CFPB said it would not take enforcement action against the companies if they are taking longer to do so during the pandemic.

That was the opposite of what the consumer advice center should have done, supporters say. They anticipate that Biden’s CFPB will pressure credit rating firms to respond quickly and appropriately to people’s complaints about incorrect and outdated information in their records. These reports can determine the interest rate someone will receive on a new car loan or mortgage, or if they will be admitted to an apartment.

It’s clear people face challenges: more than half of the complaints received by the CFPB between January 2020 and May 2020 were related to credit reports.

overdraft fees

When people are hit with multiple fees, they can be pushed out of the banking system and find it impossible to get stimulus support like direct payments and unemployment benefits, proponents say.

The CFPB should strive to cap fees, said Alex Horowitz, senior research office at Pew’s Consumer Finance Project.

“It could restrict overdraft practices it deems unfair, misleading or abusive,” he said. “An example might be a bank charging a customer many overdraft fees in a single day when a customer has used a debit card multiple times.”

payday loan

About 12 million Americans take out a payday loan each year. These loans come with extremely high interest rates for consumers, putting some in a vicious circle of debt.

Last year, the Trump administration reversed portions of a rule enacted in 2017 by Cordray, President Obama’s CFPB chief, aimed at curbing potentially harmful payday loan practices.

There may be a dozen, two dozen priorities. There’s a lot to do.

Richard Cordray

former Director of the Consumer Financial Protection Bureau

For example, the measure removed mandatory underwriting requirements (which had yet to come into effect) that would have prevented lenders from issuing money to consumers without first assessing their ability to repay the loan.

“I would be shocked if the CFPB didn’t get rid of this,” McCoy, the agency’s former official, said of the action.

Mandatory Arbitration

racial justice

All of these efforts should be framed with the understanding that black and brown Americans have paid the ultimate price for bad financial products and discriminatory lending, proponents say.

For example, the Center for Responsible Lending has found that payday lenders are concentrated in African American neighborhoods. Professors at the Massachusetts Institute of Technology, meanwhile, recently argued that there is a “black tax” for African-American homeowners. And so forth.

The previous government didn’t work to address these differences, supporters say.

On the contrary, research shows that during the Trump era, complaints to the CFPB from white, affluent neighborhoods were far more likely to result in financial compensation for consumers than complaints from low-income, black neighborhoods.

If companies aren’t punished for their bad behavior, they just keep going, said Remington Gregg, civil justice and consumer rights attorney at Public Citizen.

“They bet the CFPB will not go after them,” Gregg said. “We have to enforce our laws consistently.”