May 10: Recent CFPB Activities

The Consumer Finance Protection Bureau (CFPB) is responsible for consumer protection in the financial sector. CFPB’s jurisdiction includes credit unions,  banks, securities firms, payday lenders, mortgage-servicing operations, foreclosure relief services, debt collectors, and other financial companies operating in the United States. NASCUS closely monitors CFPB developments and responds to requests for comments on rules impacting the credit union system.


CFPB Report Highlights Consumer Frustrations with Credit Card Rewards Programs

The Consumer Financial Protection Bureau (CFPB) issued a new report finding consumers encounter numerous problems with credit card rewards programs. Consumers tell the CFPB that rewards are often devalued or denied even after program terms are met. Credit card companies focus marketing efforts on rewards, like cash back and travel, instead of on low interest rates and fees. Consumers who carry revolving balances often pay far more in interest and fees than they get back on rewards. Credit card companies often use rewards programs as a “bait and switch” by burying terms in vague language or fine print and changing the value of rewards after people sign up and earn them. New problems have been created by the growth of co-brand credit cards and rewards programs where consumers can transfer miles or points to merchants.

Credit card rewards programs have become increasingly complex in recent years. Especially for credit cards with high annual fees, a key part of attracting consumer interest comes from benefits like getting airline miles or hotel points and access to exclusive lounges and loyalty status that affords premium service or additional perks. Introductory offers have existed since the first rewards cards, but their amount and prevalence has dramatically climbed. Nearly 1-in-10 dollars earned by consumers in rewards are linked to sign-up bonuses.

The CFPB has received a growing number of complaints on how these rewards programs have been administered. As mentioned in today’s report, consumers have encountered numerous issues in using these programs, including:

  • Credit card issuers impose vague or hidden conditions that keep consumers from receiving rewards: Consumers indicate that requirements detailed in the fine print of rewards programs’ terms and conditions do not match marketing materials, turning sign-up offers or other promotional rewards into a “bait and switch.”
  • Companies devalue rewards: Consumers mention that issuers and merchant partners reduce the value of rewards already earned by increasing the number of points or miles needed for a redemption. Consumers also observe that card issuers do not protect them from rewards program partner decisions to remove benefits from rewards programs or increase requirements for achieving status.
  • Consumers encounter redemption issues with earned benefits: Consumers describe customer service issues and technical glitches that block or delay redemption, which prevent an easy transfer of rewards to third-party merchants. Issuers often redirect cardholders to partners and fail to reinstate rewards when consumers are unable to redeem them through no fault of their own.
  • Companies revoke previously earned rewards: Consumers indicate their points, cash back, and miles vanish when an account closes. Consumers also describe financial institutions revoking rewards on open and active accounts through expiration policies, which is often done without prior communication.


CFPB Takes Action Against Chime Financial for Illegally Delaying Consumer Refunds

The Consumer Financial Protection Bureau (CFPB) took action against Chime Financial for failing to give consumers timely refunds when their accounts were closed. Thousands of consumers waited for weeks or even months for balance refunds after closing their accounts – a failure that inflicted significant financial harm on consumers who did not have access to critical funds to help make ends meet. In some cases, consumers had to seek expensive forms of credit to cover bills that were due. The CFPB’s order requires Chime to provide at least $1.3 million in redress to consumers it harmed, and pay a $3.25 million penalty into the CFPB’s victims relief fund.

Chime Financial is a nonbank company headquartered in San Francisco. The company partners with banks to offer financial products, including checking accounts, savings accounts, and credit cards. Chime has $1.5 billion in annualized revenue. Approximately seven million consumers make $8 billion in transactions using Chime cards each month. It is not publicly owned, and relies, in large part, on investments through venture capital firms.

Chime is responsible for processing accounts’ payments, which it does by contracting with a

third-party payment processor. Chime is also responsible for nearly all consumer communications concerning accounts, and sets and applies the policies and procedures for servicing them with the review and approval of the company’s partner banks.

In most instances, when consumers’ checking and savings accounts are closed, Chime automatically refunds remaining balances by check. Until 2021, Chime’s policy, reflected in consumer account agreements, was to process and mail refund checks within 14 days of an account’s closure.

The CFPB found that Chime:

  • Failed to timely provide consumer refunds: Chime failed to issue consumer refunds within the 14 days promised by its policy, including thousands of instances in which Chime did not get refunds to consumers within 90 days.
  • Deprived consumers of needed funds to meet their responsibilities: Chime’s slow response in returning consumer funds prevented thousands of consumers from accessing their money – sometimes for months on end. Consumers who did not have access to their funds were often unable to pay for basic living expenses, and likely had to use or search for expensive credit alternatives, such as credit cards or payday loans.


CFPB Takes Action to Require National Collegiate Student Loan Trusts and Pennsylvania Higher Education Assistance Agency to Pay More than $5 Million for Student Loan Servicing Failures

The Consumer Financial Protection Bureau (CFPB) today took action against the National Collegiate Student Loan Trusts and Pennsylvania Higher Education Assistance Agency (PHEAA) for multi-year servicing failures. The National Collegiate Student Loan Trusts purchase and securitize student loans, and PHEAA services the loans. The CFPB alleges that the defendants failed to respond to borrowers seeking relief from student loan payments, including during the COVID-19 national emergency. The CFPB today filed proposed stipulated final judgments, which, if entered by the court, would require the National Collegiate Student Loan Trusts and PHEAA to pay $400,000 and $1.75 million in penalties, respectively, to the CFPB’s victims relief fund. They would also pay nearly $3 million in redress to harmed borrowers.

This is the CFPB’s second public enforcement action against the National Collegiate Student Loan Trusts. The CFPB earlier filed a lawsuit against this web of investment vehicles alleging, among other things, that the National Collegiate Student Loan Trusts brought improper debt collection lawsuits for private student loan debt that they could not prove was owed or that was too old to sue over. The National Collegiate Student Loan Trusts claimed that, as trusts, they were not covered under the Consumer Financial Protection Act. In March 2024, the United States Court of Appeals for the Third Circuit ruled the National Collegiate Student Loan Trusts are covered persons under the Consumer Financial Protection Act. That case remains pending in federal court.

In today’s case, the CFPB alleges that the defendants violated the Consumer Financial Protection Act. The CFPB’s complaint alleges that from 2015 until 2021, thousands of borrower requests—often seeking forms of payment relief—went unanswered. These included requests for co-signer release, extension of forbearance or deferment, loan settlement or forgiveness, Servicemember Civil Relief Act benefits, or other forms of payment or interest rate reduction.

The defendants failed to properly respond to borrower requests for years, including during the COVID-19 pandemic. Thousands of borrowers sent requests during the pandemic seeking forbearance on loans held by the National Collegiate Student Loan Trusts. However, many of those requests were mishandled. Specifically, the defendants harmed consumers by:

  • Failing to ensure responses to borrower requests:The National Collegiate Student Loan Trusts’ internal processes for handling borrower requests broke down in 2015, and they failed to take the steps necessary to fix them. Thousands of borrowers waited months and even years for responses to their requests, and many received no answer at all.
  • Failing to provide accurate information to borrowers: PHEAA misrepresented to consumers that certain requests would be answered when, in fact, the company knew that they would not. The company also failed to inform borrowers that forbearance requests submitted to the National Collegiate Student Loan Trusts would not be appropriately processed, and that other payment relief options were available.
  • Incorrectly denying forbearance requests: PHEAA denied, or failed to timely respond to, eligible borrower requests for COVID-19-related natural disaster forbearance.