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 throws financial challenges at millions of Americans.
Consumer advocates say the office was almost entirely declawed under former President Donald Trump and during his tenure enforcement measures have fallen sharply. The agency was created in 2010 after the previous economic downturn to protect people from predatory lenders.
Now, the CFPB is expected to more aggressively investigate consumer complaints and take action against companies that break the law. To lead it, President Biden named Rohit Chopra, 38, a longtime consumer advocate and former CFPB student loans ombudsman.
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 under the Obama administration, when Biden was vice president. Mick Mulvaney, who served as Trump’s acting CFPB director, at one point called the agency a “joke” in a “sick and sad way.”
But his work has never been more important, say advocates, as so many Americans try to rebuild their finances after nearly a year of record job losses, evictions and increase in debt. As people’s problems with money have increased, their problems with financial companies have increased: complaints to the CFPB increased by 60% in 2020 compared to 2019.
“There are potentially a dozen, two dozen priorities,” said Richard Cordraywho was director of the 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 has pushed the US economy into the deepest recession since the Great Depression, and at historic speed. Millions of families are estimated to have fallen into poverty by the end of the year.
“Covid has created a new set of issues, or underscored and underscored lingering issues for consumers,” Cordray said.
Americans can turn to financial companies for help, whether applying for various relief items or new loans to cover their expenses.
The CFPB will likely implement more safeguards to ensure consumers have adequate (and promised) support. This work will fall into two main areas, said Patricia McCoyprofessor at Boston College Law School.
On the one hand, the agency could make sure financial firms and debt collectors adhere to government protections, like the nationwide ban on evictions until March and the payment pause for student borrowers until September. . It can also meet companies’ voluntary commitments to all types of borrowers, such as homeowners, car buyers and credit card users.
“It will be a top priority,” said McCoy, a former agency official during the Obama administration.
On a related note, the agency will also likely try to roll back or rewrite Trump-era debt collection rules, consumer advocates say.
The previous administration issued two related rules near the end of Trump’s term, one in October and another in December. Generally speaking, they discussed how debt collectors can communicate with consumers and disclose information to them.
Kathy Kraninger, the former director of the CFPB during the Trump administration, said the measures helped keep consumers informed. However, consumer advocates say the rules have given companies too much power.
“Basically, these were not rules for consumers,” said Rachel Gittlemanhead of financial services at the Consumer Federation of America.
Trump-era policies allow debt collectors to harass consumers by calling them once a day, per debt, Gittleman said. A consumer with five medical bills might receive 35 calls a week, she said. There is also no limit for SMS or social media messages.
Nor do the rules prohibit the collection of “zombie debts”, according to at the National Center for Consumer Law. Debts sometimes fall outside a statute of limitations for collection – but consumers can accidentally revive that statute-barred debt by making a small payment, for example. This in turn frees debt collectors to pursue further lawsuits against a consumer.
Under Biden, the Consumer Affairs Office is expected to exert greater enforcement of the rules on servicing student loans.
Advocates have criticized student loan servicers for misleading borrowers and steering them toward more expensive repayment plans. During the Obama years, the office filed a lawsuit against Navient, one of the largest repairers. (Ship deny any wrongdoing.) With Biden in the White House, experts expect this lawsuit to be pursued and pursued aggressively.
Other changes under Biden could include requiring loan officers to tell borrowers about all of their available options, including economic hardship or unemployment deferrals. And repairers who don’t could face penalties.
The consumer affairs office will also likely take a tougher stance against for-profit schools that have been known to prey on vulnerable students and make unrealistic promises. Enrollment in these schools typically increases during recessions, and he has during the pandemic.
“It’s time for the CFPB to use all of its tools to defend student borrowers, including through enforcement action, creating stronger protections, following up on complaints, and routine oversight of student loan companies,” he said. declared Seth Freemandirector general of the Center for the Protection of Student Borrowers, who worked in the office from 2011 to 2018.
Credit reporting companies generally must investigate consumer complaints within 30 to 45 days. But the Trump administration’s CFPB said so. would not take enforcement 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 anticipate that Biden’s CFPB will pressure ratings firms to respond quickly and appropriately 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 or mortgage loan or if they are accepted into an apartment.
It is clear that people face challenges: More than half of the complaints that entered the CFPB between January 2020 and May 2020 related to credit reports.
When people face multiple charges, they can be kicked out of the banking system and find it impossible to receive stimulus aid such as direct payments and unemployment checkssay the defenders.
The CFPB should act to limit charges, said Alex Horowitzsenior analyst at the Consumer Finance Project at Pew.
“It could restrict overdraft practices that it deems unfair, deceptive or abusive,” he said. “An example might be a bank charging a customer numerous overdraft fees in a single day if a customer has used a debit card multiple times.”
Some 12 million Americans take out a personal loan each year. These loans carry extremely high interest rates for consumers, trapping some in a vicious cycle of indebtedness.
Last year, the Trump administration rolled back parts of a 2017 rule issued by Cordray, the head of the CFPB under President Obama, which sought to curb potentially harmful payday lending practices.
For example, the measure removed mandatory underwriting provisions (which had not yet come 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 official, said of the move.
All of these efforts should be designed with the realization that black and brown Americans have paid the highest price for bad financial products and discriminatory lending, advocates say.
For example, the Center for Responsible Lending found payday lenders concentrate in African American neighborhoods. Professors at the Massachusetts Institute of Technology, meanwhile, recently argued that a “black tax“exists for African-American owners. And so on.
The previous administration did not work to address these disparities, advocates say.
On the contrary, Studies show that complaints to the CFPB from white and affluent neighborhoods during the Trump era were much more likely to result in financial restitution for consumers than those from lower-income black neighborhoods.
When companies aren’t penalized for bad behavior, it continues, said Remington Greggcivil justice and consumer rights attorney at Public Citizen.
“They bet on the CFPB not to prosecute them,” Gregg said. “We need to have strong enforcement of our laws.”