Dec. 13: CFPB Recent Updates

Published 

Today, the CFPB issued a final rule that amends Regulations Z and E to ensure that extensions of overdraft credit offered by very large financial institutions adhere to consumer protections required of similarly situated products, unless the overdraft fee is at or below the institution’s costs and losses.

The CFPB also issued an unofficial redline and executive summary of the final rule.

You can read the final rule, the unofficial redline, and the executive summary here: www.consumerfinance.gov/compliance/compliance-resources/deposit-accounts-resources/overdraft-lending-very-large-financial-institutions/.

Published 

The Consumer Financial Protection Bureau (CFPB) took action to close an outdated overdraft loophole that exempted overdraft loans from lending laws. The agency’s final rule on overdraft fees applies to the banks and credit unions with more than $10 billion in assets that dominate the U.S. market. The reforms will allow large banks several options to manage their overdraft lending program: they can choose to charge $5; to offer overdraft as a courtesy by charging a fee that covers no more than costs or losses; or continue to extend profit-generating overdraft loans if they comply with longstanding lending laws, including disclosing any applicable interest rate. The final rule is expected to add up to $5 billion in annual overdraft fee savings to consumers, or $225 per household that pays overdraft fees.

“For far too long, the largest banks have exploited a legal loophole that has drained billions of dollars from Americans’ deposit accounts,” said CFPB Director Rohit Chopra. “The CFPB is cracking down on these excessive junk fees and requiring big banks to come clean about the interest rate they’re charging on overdraft loans.”

Today’s action closes the large bank regulatory loophole that exempted overdraft fees as a finance charge. When Congress passed the Truth in Lending Act (TILA) in 1968, many families used mail to send and receive checks, and were subject to various bank processing times in order for their deposits and withdrawals to clear. In 1969, the Federal Reserve Board exempted banks from TILA protections for infrequent cases where a bank was honoring a check that had not cleared and subjected the customer to overdraft fees. At the time, overdraft services were not considered profit drivers but courtesy services extended by the bank when, for instance, a paper check sent through the mail may have arrived late.

Over the past few decades, these highly profitable overdraft loans have increased consumer costs by billions of dollars. The loans have also led to tens of millions of consumers losing access to banking services, as well as facing negative credit reporting that has prevented them from opening another account in the future. Read more

Published 
CFPB Takes Action Against Student Loan Debt Collector Performant Recovery for Illegal Fee Generating Scheme That Cost Borrowers Thousands of Dollars

The Consumer Financial Protection Bureau (CFPB) took action to address unlawful student loan debt collection practices by Performant Recovery, Inc. against defaulted borrowers. The CFPB found that Performant delayed borrowers’ loan rehabilitation processes, generating fees for itself and costing individual borrowers thousands of dollars. The CFPB’s order requires Performant to pay a $700,000 penalty and bans it from servicing or collecting any student loan debts.

“Performant concocted a scheme to juice their profits by delaying student borrowers their rightful relief,” said CFPB Director Rohit Chopra. “The CFPB is holding Performant accountable for its unlawful debt collection practices that cost borrowers thousands of dollars.”

Performant Recovery, Inc., is a California corporation headquartered in Plantation, Florida that collected on student loan debt, including from borrowers who had defaulted on Federal Family Education Loan Program (FFELP) loans. FFELP borrowers who have defaulted have a one-time right to rehabilitate their loans and bring them back into good standing by entering into an agreement and making a series of reasonable and affordable payments.

If borrowers entered into loan rehabilitation agreements within 65 days of default, the loan holders did not charge the borrowers collection costs for the rehabilitations and also did not typically pay debt collection agencies any fees for these rehabilitations. Between 2015-2020, Performant used its control over the rehabilitation process to delay borrowers’ loan rehabilitations beyond 65 days so that these borrowers would incur collection costs and Performant would generate fees for itself.

When borrowers called Performant with 65 days of default, the company routed these borrowers to specialized agents, who were told by managers that “the objective is to delay as much as possible without getting Performant in trouble.” Instead of filling out rehabilitation forms over the phone as they did with other borrowers, agents told these borrowers that they would need to receive blank forms by postal mail, and typically did not use email, fax, or other methods. Performant agents held up these borrowers’ rehabilitations at every stage. As a manager explained to agents, “[W]e want them to mail all documents. Remember the whole objective is to DELAY, DELAY, DELAY.” Read more

Published 

CFPB Kicks Off Rulemaking to Help Mitigate the Financial Consequences of Domestic Violence and Elder Abuse

The Consumer Financial Protection Bureau (CFPB) launched a rulemaking to address the harmful effects of inaccurate credit reporting affecting survivors of domestic violence, elder abuse, and other forms of financial abuse. The agency is issuing an advance notice of proposed rulemaking to gather additional public input on potential amendments to the regulation that implements the Fair Credit Reporting Act (FCRA). After gathering public comment, the CFPB intends to issue a proposed rule.

“People trapped by domestic abuse must often sign documents under the threat of violence, ruining their financial lives and making it even more difficult to escape,” said CFPB Director Rohit Chopra. “Expanding identity theft protections could help survivors rebuild their financial lives and would ensure that our credit reporting system is not used as a tool for domestic and elder abuse.”

Abusers often use coerced debt as a tool of control, forcing their partner or other family members to take out credit cards or loans through threats, physical violence, or manipulation. They may secretly open accounts in survivors’ names, force them to sign financial documents, or run up charges on existing accounts.

Studies show that this type of financial abuse creates substantial, long-lasting harm for survivors. For example, nearly three-quarters of domestic violence survivors report staying longer in abusive relationships in part because of coerced debt. The impact falls particularly hard on women of color, who face higher rates of financial abuse resulting in nearly double the average debt burden. When survivors are able to remove these debts from their credit reports, one third see their credit scores improve by 20 points or more – enough to qualify for better rates on loans.

Today’s Advance Notice of Proposed Rulemaking asks consumer advocates, credit reporting companies, and the public to comment on:

  • The prevalence and extent of harms to people with coerced debt, including through the credit reporting system.
  • Evidence regarding the relevance of coerced debt to a survivor’s credit risk.
  • Barriers to accessing existing protections under federal or state law for survivors of economic abuse.
  • Challenges resulting from coerced debt facing specific populations including survivors of intimate partner violence and gender-based violence, older Americans, and children in foster care.
  • Potential documentation or self-attestation requirements for showing that a person’s debt was coerced.

Today’s rulemaking is in response to a petition for rulemaking submitted by the National Consumer Law Center and the Center for Survivor Agency and Justice. To help Americans exercise the constitutional rights to petition the government, the CFPB established a petition process in 2022. The new protocols ensure that there is an easy and transparent way to request action. Read more

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