The Consumer Financial Protection Bureau (CFPB) was created to curtail predatory and unfair lending practices through the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. The CFPB made great strides toward helping Americans avoid the costs of dishonest bank misconduct. The average consumer, however, must still be alert to sneaky fees, unscrupulous debt collection practices, and dishonest payday lenders.
Debt collection practices have come a long way from the incessant calls to one’s employer or household. The Fair Debt Collection Practices Act limits collectors to specific methods they may legally engage in to recover funds owed.
Under new modifications to regulations, debt collectors may contact consumers as often as they choose through text messaging. While debt collection agencies are still prohibited from engaging in outright fraudulent measures to collect a debt (e.g., posing as the federal government), the reins are getting looser as to what is considered the acceptable activity to the debtor’s detriment.
In major markets like New York City, the so-called “sewer service” allows debt collectors to buy old debts, make minimally adequate attempts to “serve” the debtor, win a default judgment, and immediately garnish the debtors’ wages without their foreknowledge of the proceeding. Originally outlawed, this is but one of many recent rollbacks in consumer protections under the current administration.
Predatory Lending & Credit
Predatory lending is defined as contracts that include unscrupulous loan agreements that are drafted to take advantage of the borrower, often relying on the borrower’s ignorance or lack of understanding of loan terms.
One of the more common predatory lending schemes involves the concept of “payday loans.” Payday loans are loans offered at an extremely high-interest rate secured by the borrower’s upcoming expected paychecks. These loans are typically sought by those in immediate need of liquid cash. The CFPB imposed regulations on these loans, including requiring a full review of the borrower’s ability to repay and a mandatory cooling-off period to help borrowers avoid the debt trap cycle.
The CFPB is proposing to roll back the review of the borrower’s ability to repay, citing the apparent lack of obvious harm these loans will cause to borrowers if the borrower’s financial situation is not fully reviewed. In support of the roll-back, the CFPB opined that implementing a full review of borrowers’ ability to repay a payday loan would likely eliminate two-thirds of those who apply for this type of credit.
Bank fees. We’ve all had to deal with at least one or two. In 2016, CFPB reported nationwide overdraft fees totaling $8.4 billion. The CFPB has engaged in oversight and enforcement against banks dabbling in unfair and unlawful bank fee practices, including:
- Reordering the sequence of transactions in a given day such that the largest transaction is debited first, resulting in additional revenue in overdraft fees
- Inconsistency in the wait time for deposited checks to post to an account
- Excessive overdraft fees, including daily overdraft fees while an account is overdrawn
Regulations designed to protect consumers from the financial burdens of excessive overdraft fees may soon be a distant memory. The CFPB has requested public comment whether these protections put U.S. consumers and account holders at risk of harm if bank fee protections are eliminated.
States Taking Initiative
Some states have maintained an emphasis on protecting consumers from unscrupulous lending and debt and bank fees. Some states have funded state-level offices similar to the federal CFPB. For instance, several mid-Atlantic states including New Jersey, Pennsylvania, and Maryland have ensured “mini-CFPB” offices remain in place in their states, allowing residents the opportunity to lodge complaints against financial institutions for unfair practices. Many states are working on or have implemented laws to ensure state-level lending practices remain free from discrimination and disparate impact on vulnerable Americans.