Sept. 15: CFPB Updates This Week
CFPB Report Finds College Tuition Payment Plans Can Put Student Borrowers at Risk
The Consumer Financial Protection Bureau (CFPB) issued a new report finding that students face risk when entering into agreements with colleges to spread the upfront cost of tuition into several, interest-free loan payments. The report, which looks at tuition payment plans offered by nearly 450 institutions, finds that many plans have inconsistent disclosures and confusing repayment terms, putting students at risk of missing payments, incurring late fees, and accumulating debt. The report also finds that many institutions withhold transcripts from students as a debt collection tool, a potentially illegal practice that can have severe consequences for students trying to begin their careers or finish their education.
The report, Tuition Payment Plans in Higher Education, finds that some schools are partnering with third-party service providers to facilitate their tuition payment plans. The schools act as lenders, and commonly include enrollment fees, late fees, and other fees as part of the tuition payment plan. Nearly 4 million students each term are in some form of tuition payment plan arrangement with their school. The CFPB’s report finds that while these payment plans can be a good option for some students, the plans can carry risk. And because of the unique circumstances in which schools offer tuition payment plans — sometimes making no other option available for meeting tuition payment obligations — students might represent a captive market in some situations.
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Prepared Remarks of CFPB Director Rohit Chopra at the Better Markets Conference on the 15th Anniversary of the Collapse of Lehman Brothers and the Onset of the Global Financial Crisis
Director Chopra delivered remarks discussing the implosion of Lehman Brothers and the regulatory framework implemented by the CFPB.
“Fifteen years ago, in mid-September, Lehman Brothers collapsed, and the financial system crashed. Troubles in the United States mortgage market infected the entire globe, and American families and businesses lost trillions of dollars and experienced an incalculable level of pain. The story is not just one of an out-of-control financial industry, but it is also a story about a series of the worst failures by regulators in modern history…”
Prepared Remarks of CFPB Director Rohit Chopra at The Mortgage Collaborative National Conference
Director Chopra delivered prepared remarks on the CFPB’s mortgage rules.
“In my remarks today, I want to first touch on a defunct mortgage giant that is well-known to you, but less known to the public: IndyMac. I then want to share a bit more details on the post-crisis reforms, including the establishment of the Consumer Financial Protection Bureau and the mortgage rules required by Congress. I’ll close by addressing some of the mortgage industry’s concerns about the legal validity of those rules…”
CFPB Orders Leasing Company Tempoe to Provide $36 Million in Penalties and Relief for Tricking Consumers and Hiding Contract Terms
The Consumer Financial Protection Bureau (CFPB) today took action against Tempoe, LLC for tricking consumers into expensive leasing agreements by concealing the contract terms and costs, and failing to provide legally required disclosures. Forty-one states and the District of Columbia are entering into a parallel multi-state settlement addressing the same conduct. Tempoe offered financing at the point of sale to customers at major retailers such as Sears and Kmart. By hiding the true nature of the agreements, Tempoe tricked consumers into signing the leases, and consumers found themselves unable to return products and on the hook for unexpectedly large payments. The CFPB is permanently banning Tempoe from offering consumer leases, requiring the company to close each of its outstanding consumer accounts, and ordering the company to let customers keep leased merchandise with no further payment, representing approximately $33.6 million in released payments. Tempoe is also paying a $2 million penalty, with $1 million deposited into CFPB’s victims relief fund and $1 million paid to the states entered into the settlement.
Tempoe, LLC is an Ohio-based nonbank consumer finance company that offered lease purchase agreements to consumers nationwide. Between 2015 and 2022, Tempoe entered into over 1.8 million financial agreements with consumers. Today’s enforcement action covers conduct by Tempoe from January 1, 2015 to the present.
CFPB Report Highlights Role of Big Tech Firms in Mobile Payments
Apple and Google set regulations on “tap-to-pay” which can impact innovation and competition
The Consumer Financial Protection Bureau (CFPB) published a new issue spotlight highlighting the impacts of Big Tech companies’ policies and practices that govern tap-to-pay on mobile devices like smartphones and watches. Apple currently forbids banks and payment apps from accessing the tap-to-pay functionality on Apple iOS devices and imposes fees through Apple Pay. Google’s Android operating system does not currently have such a policy. The issue spotlight explains how regulations imposed by mobile operating systems can have a significant impact on innovation, consumer choice, and the growth of open and decentralized banking and payments in the U.S.
“Regulations imposed by Big Tech firms have a big impact on whether consumers and businesses can make payments using third-party apps,” said CFPB Director Rohit Chopra. “We are carefully evaluating Big Tech’s role in our banking and payments system.”
As of the second quarter of 2023, Apple’s iOS operating system was on 55 percent of smartphones shipped in the U.S., and Google’s Android operating system was on 45 percent of smartphones shipped. Apple and Google set regulations that govern app developers’ ability to integrate near field communication (NFC) technology into their apps, which is needed to execute tap-to-pay transactions. The dominant market share of these two operating systems, coupled with the increasing shift toward mobile device payments, underscores the important role their policies and practices play in retail payments.
Today’s issue spotlight finds:
- Rapid growth of tap-to-pay usage: Consumers’ usage of tap-to-pay options in the U.S. has grown considerably in recent years, nearing an estimated $300 billion across Apple Pay, Samsung Pay, and Google Pay, with some analysts estimating that digital wallet tap-to-pay transactions will grow by over 150 percent by 2028. In 2021, there were an estimated 25 million Google Pay users and 16.3 million Samsung Pay users. An estimated 130 million people in the U.S. use an iPhone at least once per month, and three-fourths of them have activated Apple Pay. An estimated 55.8 million made an in-store payment using Apple Pay in April 2023, accounting for nearly half of iOS users.
- Dominant mobile operating systems impose different regulations on contactless payments: Apple’s iPhone and other iOS devices do not permit third-party payment apps to access the NFC technology that is necessary to execute tap-to-pay contactless payments. Apple’s proprietary payment app, Apple Pay, is the only option for tap-to-pay payments on iOS devices. While Google’s Android operating system does not currently restrict third-party payment app access to the NFC chip on Android devices, this policy could change in the future.
- Restrictive tap-to-pay practices may reduce consumer choice and hamper innovation: Restrictions on the use of tap-to-pay reduce consumer choice and inhibit progress toward a more robust open banking ecosystem, where consumers have more control over their personal financial information and developers provide payments solutions that better meet consumers’ needs. For example, Apple’s current NFC policy prohibits directly integrating tap-to-pay functionality into existing banking applications and other payment apps (e.g., PayPal, Venmo, Cash App).