Covid, payday loans, student debt
The headquarters of the Consumer Financial Protection Bureau 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 the office was almost entirely declawed under former President Donald Trump, and during his tenure enforcement action declined sharply. 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 more aggressively investigate consumer complaints and take action against companies that break the law. To lead it, President Biden has appointed Rohit Chopra, 38, a longtime consumer advocate and former student loan ombudsman at CFPB.
Rohit Chopra, President Joe Biden’s candidate for head 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 was acting director of Trump’s CFPB, at one point called the agency a “joke” in a “sick and sad way.”
But his job has never been more important, his supporters say, as so many Americans try to rebuild their finances after nearly a year of record-breaking job losses, evictions and increased debt. As people’s money problems have increased, their problems with financial companies have also increased: complaints to the CFPB have increased by 60% in 2020 compared to 2019.
“There are potentially a dozen, two dozen priorities,” said Richard Cordray, who served as director of CFPB from 2012 to 2017. “There is a lot to do.”
These are some of the likely areas of focus for Biden’s consumer watchdog.
The Covid crisis will likely be the office’s top priority, according to consumer experts and former agency officials.
The pandemic sent the U.S. economy into the deepest recession since the Great Depression, and at historic speed. It is estimated that millions of families fell into poverty by the end of the year.
“Covid has created a new set of issues, or highlighted and highlighted lingering issues for consumers,” Cordray said.
Americans can turn to financial companies for help, whether it is asking for various reliefs or new loans to cover their expenses.
The CFPB will likely implement more guarantees to ensure consumers get adequate (and promised) support. This work will cover two main areas, said Patricia McCoy, professor at Boston College Law School.
On the one hand, the agency could ensure that financial firms and debt collectors adhere to government protections, such as a nationwide ban on evictions until March and the payment hiatus for student loan borrowers until. in September. It can also meet corporate voluntary commitments to all types of borrowers, such as homeowners, car buyers, and credit card users, for example.
“It will be a top priority,” said McCoy, a former agency official under the Obama administration.
In a related vein, the agency will also attempt to overturn or rewrite Trump-era rules on debt collection, according to consumer advocates.
The previous administration issued two related rules towards the end of Trump’s tenure, one in October and the other in December. Generally speaking, they discussed how debt collectors can communicate and disclose information to consumers.
Kathy Kraninger, the former CFPB chief under the Trump administration, said the measures were helping to keep consumers informed. However, consumer advocates believe the rules have given companies too much power.
“Basically, these weren’t about rules for consumers,” said Rachel Gittleman, director of financial services at the Consumer Federation of America.
Trump-era policies allow debt collectors to hunt down consumers by calling them once a day, out of debt, Gittleman said. A consumer with five medical bills could receive 35 calls a week, she said. There is also no limit on text messages or social media.
The rules also do not prohibit the collection of “zombie debt,” according to the National Consumer Law Center. Debts sometimes fall outside a statute of limitations for collection – but consumers can accidentally revive that prescribed debt by making a small payment, for example. This in turn frees up debt collectors to re-sue a consumer.
Under Biden, the Office of Consumer Affairs is expected to exercise greater enforcement of the rules on the service of student loans.
Advocates have criticized student loan managers for misleading borrowers and directing them to more expensive repayment plans. During the Obama years, the office took legal action against Navient, one of the largest service providers. (Navient denies any wrongdoing.) With Biden in the White House, experts expect the lawsuit to be pursued and pursued aggressively.
Other changes under Biden could include requiring loan services to inform borrowers of all of their available options, including economic hardship or unemployment deferrals. And repairers who do not face penalties.
The Office of Consumer Affairs will also likely take a stronger stance against for-profit schools known to prey on vulnerable students and make unrealistic promises. Enrollment in these schools typically increases during recessions, and they did during the pandemic.
“It is time for the CFPB to use all its tools to defend student loan borrowers, including through enforcement action, creating stronger protections, monitoring complaints and regularly monitoring student loan companies,” he said. said Seth Frotman, executive director of the Student. Borrower Protection Center, which worked in the office from 2011 to 2018.
Credit rating companies are generally required to investigate consumer complaints within 30 to 45 days. But the Trump administration’s CFPB has said it will not take coercive action against companies if they take longer to do so during the pandemic.
It was the opposite of what the consumer agency should have done, advocates say. They predict that Biden’s CFPB will pressure credit rating companies to respond quickly and adequately to people’s complaints about false and outdated information in their records. These reports can determine the interest rate a person gets on a new car loan or mortgage or whether they are accepted into an apartment.
It’s clear that people face challenges: more than half of the complaints CFPB received between January 2020 and May 2020 were about credit reports.
When people are subject to multiple fees, they can be kicked out of the banking system and be unable to receive stimulus assistance like out-of-pocket payments and unemployment checks, advocates say.
The CFPB should act to contain the fees, said Alex Horowitz, senior research office for Pew’s Consumer Finance Project.
“This could restrict the overdraft practices that he considers unfair, deceptive or abusive,” he said. “An example might be a bank charging a customer a lot of overdraft fees in a single day if a customer has used a debit card more than once.”
Some 12 million Americans take out a payday loan each year. These loans carry extremely high interest rates for consumers, trapping some in a vicious cycle of debt.
Last year, the Trump administration repealed parts of a 2017 rule issued by Cordray, the CFPB chief under President Obama, which sought to curb potentially damaging payday lending practices.
For example, the measure removed mandatory underwriting provisions (which had not yet entered into force) that would have prohibited 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 it,” McCoy, the agency’s former head, said of the measure.
All of these efforts must be designed with the understanding that black and brown Americans have paid the highest price for bad financial products and discriminatory loans, advocates 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 a “black tax” exists for African-American homeowners. Etc.
The previous administration did not work to address these disparities, advocates say.
On the contrary, research shows that complaints filed with the CFPB by white wealthy neighborhoods during the Trump era were much more likely to result in financial restitution for consumers than those from low-income black neighborhoods.
When companies aren’t penalized for their bad behavior, it continues, said Remington Gregg, civil justice and consumer rights lawyer at Public Citizen.
“They were counting on the CFPB not to prosecute them,” said Gregg. “We need to have rigorous enforcement of our laws. “