Covid, payday loans, scholar debt

The headquarters of the Consumer Financial Protection Bureau in Washington, DC

JHVEPhoto | iStock Editorial | Getty Images

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 for millions of Americans.

Consumer advocates say the office was almost entirely ransacked under former President Donald Trump and fell sharply during his tenure enforcement action. The agency was founded in 2010 after the previous economic downturn to protect people from predatory lenders.

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

Rohit Chopra, President Joe Biden’s candidate to head 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 served as vice president. Mick Mulvaney, who served as Trump’s deputy CFPB director, once described the agency as a “joke” in a “sick, sad way.”

But his job has never been more important, proponents say, as so many Americans are trying to rebuild their finances after nearly a year of record losses, evictions, and increased debt. As people’s money problems have increased, so too have their problems with financial firms: Complaints with the CFPB increased 60% in 2020 compared to 2019.

“There are possibly a dozen or two dozen priorities,” said Richard Cordray, who served as CFPB director from 2012-2017. “Its a lot to do.”

These are some of the likely focus areas for Biden’s Consumer Watchdog.

Covid crisis

According to consumer experts and former agency officials, the Covid crisis is likely to be the office’s top priority.

The pandemic plunged the US economy into its deepest recession since the Great Depression and at historic speeds. It is estimated that millions of families will have fallen into poverty by the end of the year.

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

Americans can turn to financial firms for help, whether they are looking for various types of relief or new loans to cover their expenses.

The CFPB is likely to put more security in place to ensure consumers receive adequate (and promised) assistance. 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 collection agencies comply with government protections, such as the national eviction ban through March and the student loan debt break through September. It can also meet companies’ voluntary commitments to all types of borrowers, such as homeowners, car buyers, and credit card users.

“That will be a top priority,” said McCoy, a former agent for the agency during the Obama administration.

Collection of debts

Similarly, the agency is also likely to try to repeal or rewrite the Trump-era rules regarding collections, according to consumer advocates.

The previous administration issued two related rules towards the end of Trump’s tenure, one in October and one in December. By and large, they looked at how collection agencies can communicate with and pass information on to consumers.

Kathy Kraninger, the former CFPB head during the Trump administration, said the measures helped keep consumers informed. However, consumer advocates believe that the rules give too much power to businesses.

“At heart, these weren’t rules for consumers,” said Rachel Gittleman, financial services manager for the Consumer Federation of America.

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

According to the National Consumer Law Center, the rules do not prohibit the collection of “zombie debts” either. Debt sometimes falls outside of a statute of limitations for collection – but consumers can inadvertently revive that statute-barred debt by making a small payment, for example. This in turn gives debt collection agencies the opportunity to re-file lawsuits against a consumer.

Student Loans

Under Biden, the consumer bureau is expected to enforce regulations on student loan servicing.

Lawyers have criticized student loan service providers for misleading borrowers and guiding them into more expensive repayment plans. During the Obama years, the office took legal action against Navient, one of the greatest soldiers. (Navient denies any wrongdoing.) With Biden in the White House, experts expect the lawsuit to continue and be aggressively pursued.

Other changes under Biden could include lending service providers notifying borrowers of all options available, including economic difficulties or postponement of unemployment. And servicers who don’t do this could face penalties.

The consumer bureau is also likely to take a tougher stance on nonprofit schools, which are known to persecute vulnerable students and make unrealistic promises. Enrollment in these schools usually increases during recessions, and it does so during the pandemic.

“The time has come for the CFPB to use all of its tools to advocate for student loan borrowers, including through enforcement actions, stronger protections, complaint monitoring and routine monitoring of student loan companies,” said Seth Frotman, Executive Director the Student Borrower Protection Center who worked in the office from 2011 to 2018.

Credit report

Credit rating 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 it took longer during the pandemic.

That was the opposite of what the consumer authority should have done, say proponents. They anticipate that Bidens CFPB will put pressure on rating companies 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 is getting on a new car loan or mortgage, or whether they will be taken into an apartment.

It’s clear that people are facing challenges: more than half of the complaints the CFPB received between January 2020 and May 2020 were about credit reports.

Overdraft fees

When people are burdened with multiple fees, they can be ousted from the banking system and it is impossible to get incentive aid like direct payments and unemployment checks, proponents say.

The CFPB should take steps to cap fees, said Alex Horowitz, senior research office at Pews Consumer Finance Project.

“It could curb overdraft practices that it considers unfair, misleading or abusive,” he said. “An example could be a bank that charges a customer many overdraft fees in a single day if a customer has used a debit card multiple times.”

Payday loan

Approximately 12 million Americans take out a payday loan every year. These loans come at extremely high interest rates for consumers, which puts some in a vicious circle of debt.

Last year, the Trump administration overturned parts of a rule issued in 2017 by Cordray, President Obama’s CFPB chief, attempting to curb potentially harmful payday loan practices.

There are maybe a dozen, two dozen priorities. Its a lot to do.

Richard Cordray

former director of the Consumer Financial Protection Bureau

For example, the measure removed the mandatory underwriting requirements (which had not yet come into effect) 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 this,” said McCoy, the agency’s former official, of the move.

Mandatory arbitration

Racial justice

All of these efforts should be designed with an understanding that Americans in black and brown paid the highest price for poor financial products and discriminatory credit, proponents say.

For example, the Center for Responsible Lending has found that payday lenders are focused on African American neighborhoods. Professors at the Massachusetts Institute of Technology recently argued that there is a “black tax” on African American homeowners. Etc.

The previous government did not work to eliminate these differences, proponents say.

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

If companies are not punished for their bad behavior, then things will just move on, said Remington Gregg, civil justice and consumer rights attorney at Public Citizen.

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

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