The U.S. Senate on Monday confirmed Scott Bessent to be President Donald Trump’s Treasury secretary, giving the billionaire hedge fund manager a central role in shaping the new administration’s policy ambitions around tax cuts and spending and managing economic relationships with allies and adversaries alike.
As the 79th Treasury secretary, Bessent will have sway over the nation’s tax collections and its $28 trillion Treasury debt market, with vast influence over fiscal policy, financial regulations, international sanctions and investments from overseas.
The vote was 68-29, with 16 Democrats supporting the nomination. Bessent, 62, is already shaping up to be a forceful advocate for Trump’s economic agenda, which centers on reducing taxes and imposing steep tariffs that Democrats, and some economists, argue could undo some of the progress the Federal Reserve has made in getting inflation under control.
In his confirmation hearing, Bessent warned that failure to renew $4 trillion in tax cuts expiring at the end of this year would be a “calamity” for middle-class Americans, and made the case that tariffs would help combat unfair trade practices, increase revenues, and bolster U.S. leverage in international negotiations.
He also pushed back against the idea that Trump’s policies would be inflationary, and said that the administration’s efforts to increase oil production would actually help bring down prices.
As Trump’s top economic official, Bessent will face a range of challenges, the most immediate of which will be managing federal cash flows after the government hit its statutory debt limit on Trump’s second day in office. Even before he was sworn in, the Treasury Department was using “extraordinary measures” to avoid breaching the cap and triggering a catastrophic default. Bessent told senators in his confirmation hearing that there would be no default on his watch.
Bessent will also need to deal with the prospect of rising budget deficits and added government debt estimated to run into the trillions of dollars, if tax cut extensions and other promised tax breaks cannot be offset by revenue increases or spending cuts. If precedent holds, he will be a central actor working with Congress on the size and shape of any tax reforms.
More than 60% of the federal debt is scheduled to roll over on his watch – and that’s before taking into account issuance growth that has been running at more than $2 trillion a year since the COVID-19 pandemic.
‘OUT OF CONTROL’
Worries about rising budget deficits and stickier inflation have in recent weeks sent long-term bond yields up as investors demand more compensation for risk. That in turn has driven up the average rate on 30-year fixed-rate mortgages to more than 7%, a pain point with particular saliency for Americans looking to buy a home.
Bessent used his confirmation hearing to talk tough on deficits, declaring that government spending is “out of control,” though it is not clear how much he could do to rein it in. He backed Trump’s pledge not to touch the Social Security retirement program and Medicare insurance plan for seniors, among the biggest line items in the federal budget, along with interest expense, determined by market rates that the Treasury does not control.
Born and raised in South Carolina, Bessent says he still listens to farm radio. He earned a bachelor’s degree in political science from Yale University and has spent his career in finance, working for investors George Soros and Jim Chanos, and running his own firm Key Square. Bessent – as fifth in line to the presidency – is also the highest ranking openly gay federal official in history. He is married with two children.
Courtesy of Ann Saphir, Reuters
CFPB Updates List of Consumer Reporting Companies
The Consumer Financial Protection Bureau (CFPB) released its annual list of consumer reporting companies. The list identifies dozens of specialty reporting companies that collect and sell access to people’s data, including individuals’ finances, employment, check writing histories, or rental history records. People can use the list to, among other things, request their consumer reporting data, dispute inaccuracies, and block access to their credit reporting data through security freezes. The list also informs consumers about the types of personal financial information that is collected for credit and other consumer reports.
In the United States, personal financial data is used by a variety of entities when making lending, banking, employment, and housing decisions. Some less obvious entities that use personal financial data include casinos, phone companies, volunteer organizations, government agencies determining eligibility for assistance programs, debt collectors, and insurance companies. While three nationwide consumer reporting companies – Equifax, Experian, and TransUnion – dominate much of the credit reporting market, many specialty consumer reporting companies exist to support different industries. This means consumers’ personal financial data may be collected by and reported to a multitude of companies and individuals. That spread can also increase consumer risk, especially when consumers are unaware that it is happening.
The annual list of consumer reporting companies published by the CFPB allows people to find consumer reporting companies that provide specialized reporting for specific markets that might be relevant to them depending on their specific goals and situation. The list also provides information on how people can dispute inaccurate information and request a security freeze.
CFPB Finds Servicemembers Pay More in Auto Lending Market
The Consumer Financial Protection Bureau (CFPB) published a report showing that United States servicemembers pay higher costs and face greater financial risks than civilian borrowers when taking out credit to buy a car. The report analyzes more than 20 million auto loans originated between 2018 and 2022, and finds that servicemembers typically have larger loans, make smaller down payments, and ultimately shoulder higher monthly costs.
While servicemembers pay nearly the same for both new and used vehicles as civilian buyers do, servicemembers on average pay more in interest and fees than civilian borrowers do, and also make those higher payments for longer. Military borrowers are also less likely to make a downpayment, more likely to make a smaller downpayment, and more likely to make a negative equity trade-in. Because servicemembers are often required to have a personal vehicle for transportation in order to fulfill their military obligations, and because they may be young men and women far away from family supports, they may be especially vulnerable to overreaching lending practices and have fewer resources to draw upon.
Key findings in the report include:
- Servicemembers borrow more while putting less down: For new vehicles, servicemembers borrowed an average of $39,000 – over $2,200 more than civilians – while putting down about $1,100 less in down payments. For used vehicles, they financed $27,500 on average, which is almost $400 more than civilians.
- Military borrowers pay higher rates over longer terms: Servicemembers faced average annual percentage rates (APRs) 0.6 percentage points above civilian rates and longer loan terms. This has resulted in servicemembers’ monthly payments averaging $644 for new vehicles, nearly $20 more than for civilian borrowers and nearly $1,300 more over the life of the average new vehicle loan.
- Add-on products, including GAP products, increase costs further: Over 70% of servicemembers purchased add-on products and paid on average about $140 more for add-on products than civilians. Warranty, service, and maintenance plans were the most common and expensive category of add-on products purchased. The second most common was GAP products. Servicemembers’ purchase of GAP products increased sharply in 2020, after the Department of Defense changed its interpretation of the Military Lending Act .
Read today’s report, Auto Lending to Servicemembers.
Published
CFPB Report Finds Continued Challenges for Households that Rent
The Consumer Financial Protection Bureau (CFPB) released two reports looking at national rental payment data from September 2021 to November 2024. The percentage of renters who paid late fees in the last year reached 23% in February 2023. While the rate declined to slightly less than 14% in November 2024, the CFPB’s analysis found that the median outstanding rental balance rose 60% between September 2021 and November 2024, suggesting increased financial distress among affected households. Renters who do pay late fees often pay multiple late fees in a year, and the average late fee is $85, up significantly from September 2021. Only about half of renters behind on their rent catch up in one month.
For the 35% of American households that live in rental housing, rent is one of their largest expenses. Falling behind on rent payments often indicates financial stress and puts families at risk of eviction. While the data show that fewer renters are incurring late fees and that about 50% of renters who do incur a fee are able to bounce back to on-time payments, the data also reveal continued financial struggles for many renters.
The CFPB found a significant portion of renters who incur an initial late fee struggle to recover. Just under 60% of those who incur any late fees experience two or more. More than 20% of renters with at least one late fee have five or more late fees in the last twelve months. Late fees have also risen, along with the median outstanding rental balance, have increased since 2021. Late fees have risen steadily since September 2021 to $85 in November 2024. The reported outstanding rental balance has increased sharply from $2,000 in September 2021 to $3,200 in November 2024.
The CFPB’s reports also examine the incidence of non-sufficient funds fees and write-offs of unpaid amounts.
CFPB Finds More Vehicles Eligible for Repossession Than Pre-Pandemic
Published
The Consumer Financial Protection Bureau (CFPB) published a report showing that the rate of auto repossessions at the end of 2022 surpassed pre-pandemic levels. Additionally, lenders were increasingly more likely to use third parties, called forwarders, to manage the repossession process. The use of a third party generally increases consumer costs. The CFPB analyzed data from nine major auto lenders covering accounts with activity between 2018 and 2022. This data show increasing consumer risk in the $1.64 trillion auto loan market.
“Supply chain shocks and higher interest rates drove up costs to purchase and finance a car,” said CFPB Director Rohit Chopra. “With outstanding auto loans exceeding a trillion dollars, it’s critical that borrowers can avoid the costly consequences of repossession.”
Auto loans represent one of the largest sources of consumer credit outside of mortgage lending, with more than 100 million active auto finance accounts and $63 billion in new monthly originations as of April 2024. When vehicles are repossessed, consumers often lose their primary transportation to work, may be required to repay outstanding balances plus repossession fees, and may see additional negative impacts to their credit scores.
Key findings in the report include:
- Vehicles eligible for repossession exceeded pre-pandemic levels: In the month of December 2022, 0.75% of all outstanding vehicle loans were assigned to repossession – a 22.5% increase from December 2019 (0.61%).
- Repossessions completed using forwarders had higher costs charged to borrowers: Lenders’ use of third-party repossession forwarding companies increased from 31% in January 2018 to 66% in December 2022. Average repossession costs charged to consumers were higher when a forwarder was used.
- Consumers still owed thousands after repossession: Consumers can continue to owe money on their vehicle even after it is repossessed and sold by the lender. The average outstanding balance for consumers that had an outstanding balance after repossession in December 2019 was more than $10,000. Following a brief drop, the average outstanding balance sharply increased and was more than $11,000 in December 2022.
Read today’s report, Auto Repossession Trends and Consumer Impact.
Consumers can submit complaints about financial products or services by visiting the CFPB’s website or by calling (855) 411-CFPB (2372).
- The share of active credit card holders just making minimum payments rose to 10.75% in the third quarter of 2024, the highest ever in data going back to 2012.
- The share of balances more than 30 days past due rose to 3.52%, an increase from 3.21%, for a year-over-year gain of more than 10%.
- Even with the rising delinquency rate, it is still well below the 6.8% peak during the 2008-09 financial crisis and not yet indicative of serious strains.
Consumer stress has intensified, with an escalating share of credit card holders making only minimum payments on their bills, according to a Philadelphia Federal Reserve report.
In fact, the share of active holders just making baseline payments on their cards jumped to a 12-year high, data through the third quarter of 2024 shows.
The level rose to 10.75% for the period, part of a continuing trend that began in 2021 and has accelerated as average interest rates have soared and delinquencies also have accelerated. The increase also marked a series high for a data set that began in 2012.
Along with the trend in minimum payments came a move higher in delinquency rates.
The share of balances more than 30 days past due rose to 3.52%, an increase from 3.21%, for a year-over-year gain of more than 10%. It also is more than double the delinquency level of the pandemic-era low of 1.57% hit in the second quarter of 2021.
The news counters a general narrative of a healthy consumer who has kept on spending despite inflation hitting a more than 40-year high in mid-2022 and holding above the Fed’s 2% target for nearly four years.
Signs of strength
To be sure, there remain plentiful positive signs. Even with the rising delinquency rate, the pace is still well below the 6.8% peak during the 2008-09 financial crisis and not yet indicative of serious strains.
“A lot remains unknown. We’ve seen in the past few days how quickly things might be changing,” said Elizabeth Renter, senior economist at personal finance company NerdWallet. “The baseline expectation is consumers in aggregate economywide will remain strong.”
Adjusted for inflation, consumer spending rose 2.9% on an annual basis in November, according to Goldman Sachs, which noted Tuesday that it sees consumers as “a source of strength” in the economy. The firm estimates that consumer spending will slow some in 2025, but still grow at a healthy 2.3% real rate this year, and Goldman sees delinquency rates showing signs of leveling.
However, if the trend of solid consumer spending holds, it will come against some daunting headwinds.
Average credit card rates have climbed to 21.5%, or about 50% higher than three years ago, according to Fed data. Investopedia puts the average rate even higher, at 24.4%, noting that so-called low-cost cards that are given to borrowers with poor or no credit history have topped 30%. Consumers haven’t gotten any help from the Fed: Even as the central bank cut its benchmark interest rate by a full percentage point last year, credit card costs remained elevated.
Those rates are hitting much higher balances, with money owed on revolving credit swelling to $645 billion, up 52.5% since hitting a decade low of $423 billion in the second quarter of 2021, according to the Philadelphia Fed.
Renter noted that an increasing number of respondents — now at 48% — to the firm’s own consumer survey reported using credit cards for essentials. Moreover, the NerdWallet survey also found an even higher level, more like 22%, saying they are only making minimum payments.
With average credit card balances at $10,563, it would take 22 years and cost $18,000 in interest when just paying the minimum, according to NerdWallet.
“With higher prices, people are going to turn to credit cards more to use for necessities. You tack on higher interest rates and then you have more difficulty getting by,” Renter said. “If they’re only making the minimum payment, you can go very quickly from getting by to drowning.”
The trend in that direction is not encouraging. A recently released New York Fed survey for December found that the average perceived probability for missing a minimum debt payment over the next three months stood at 14.2%, tied with September for the highest since April 2020.
Home loans slow
It’s also not just credit cards where households are feeling the pinch.
Mortgage originations hit a more than 12-year low in the third quarter as well, according to the Philadelphia Fed report. After peaking at $219 billion in third quarter of 2021, originations are just $63 billion three years later.
“With high mortgage rates, consumers who have locked in low fixed-rate mortgages have little motivation to refinance, reducing mortgage demand,” the central bank branch said in the report.
Moreover, debt-to-income ratios on home loans also are on the rise, hitting 26% most recently, or 4 percentage points higher over the past five years.
The typical 30-year mortgage rate recently has swelled above 7%, posing another obstacle for housing and homeownership.
Courtesy of Jeff Fox, CNBC
Click here for the full article and links
Amid the blizzard of executive orders that marked the first day of the Trump administration, there was widespread speculation that the new president would take some significant steps to drastically reshape agencies such as the Consumer Financial Protection Bureau (CFPB) and the Federal Deposit Insurance Corp. (FDIC).
Thus far, at of Tuesday morning (Jan. 21), the standout order from President Donald Trump has been to pause all pending regulations. By extension, that order paves the path to the aforementioned reshaping of agencies that have been tasked with oversight of banking, FinTechs, financial services and products in general.
Sweeping in nature, the order can be found here, and applies to “all executive departments and agencies” while directing them to “not propose or issue any rule in any manner, including by sending a rule to the Office of the Federal Register (the “OFR”), until a department or agency head appointed or designated by the President after noon on January 20, 2025, reviews and approves the rule.” The read-across here is that new rule-making is on hold until the current administration heads (such as Rohit Chopra, director of the CFPB) are replaced.
Opening Up New Commentary Periods, Too
Trump’s order also states that agencies must “immediately withdraw any rules that have been sent to the OFR but not published in the Federal Register, so that they can be reviewed and approved,” which effectively shuts down any rule-making that’s been moving through the typical processes but have not yet made it into public discourse.
Perhaps most tellingly, the executive order also states that agencies must “consider postponing for 60 days from the date of this memorandum the effective date for any rules that have been published in the Federal Register, or any rules that have been issued in any manner but have not taken effect, for the purpose of reviewing any questions of fact, law, and policy that the rules may raise.” That postponement also opens the door to new commentary periods from stakeholders.
“Should actions be identified that were undertaken before noon on January 20, 2025, that frustrate the purpose underlying this memorandum, I may modify or extend this memorandum, to require that department and agency heads consider taking steps to address those actions,” Trump added in the order.
Flurries of Rule-Making
To be sure, there’s been a spate of rule-making, perhaps most visibly in evidence from the CFPB. As PYMNTS has reported, last month the bureau proposed a new rule that would curtail data brokers’ access to consumers’ data and the ability to sell that information. The rule would classify data brokers — which collect and sell consumer-level data, including details about credit scores, social security numbers and debt repayment histories — as consumer reporting agencies.
Separately, this month, the CFPB signaled that there may be new rules in the making for BNPL lenders, in response to a petition from consumer groups to increase oversight on loans extended by non-banking companies (which would also impact earned wage access lending). A November final rule (which took effect at the end of last year) essentially treats Big Techs moving more firmly into the payments sphere as banks.
As for the banks themselves, and with a nod to the FDIC, commentary periods for a proposed rule on record keeping tied to bank/FinTech partnerships had been extended to last week from early December. The proposed rule would enhance and expand recordkeeping for bank deposits received from third-party, non-bank companies that accept those same deposits on behalf of consumers and businesses.
At a high level, the proposal requires FDIC-insured banks holding certain custodial accounts to ensure accurate records are kept determining the individual owner of the funds and to reconcile the account for each individual owner on a daily basis.
The National Credit Union Administration today released a Research Note that provides an analysis of statistics for overdraft and non-sufficient funds fees, and observations on the relationship between overdraft and non-sufficient funds fees and other revenues.
“This Research Note provides important information for consumers, researchers, credit unions, and regulators about the use of overdraft and NSF fees at credit unions,” NCUA Chairman Todd M. Harper said. “The findings suggest that credit unions are not offsetting this income through reduced fees for other services or lower interest rates. Credit unions that rely heavily on fee income from overdrafts and NSF fees have concentration risk issues, which raises potential safety-and-soundness concerns. And, on the other side of the transaction, consumers who can least afford it are often paying an oversized portion of those fees. It’s time for credit unions to rethink their overdraft and NSF programs.”
Beginning with the first quarter of 2024 Call Report, federally insured credit unions with more than $1 billion in assets were required to submit their year-to-date revenues from overdraft and NSF fees. The Research Note, prepared by NCUA’s Office of the Chief Economist using revenue data from the first three quarters of 2024, evaluates overdraft and NSF revenues as a fraction of total revenues.
The Research Note highlights two observations:
- Credit unions with higher combined overdraft and NSF fees per member do not seem to have lower fees per member for other services.
- Credit unions with higher combined overdraft and NSF fee revenues do not seem to be using those fees to “subsidize” better interest rates.
The NCUA’s Office of the Chief Economist will continue to analyze evolving trends in overdraft and NSF fees revenue as additional data become available.
CFPB Orders Operator of Cash App to Pay $175 Million and Fix Its Failures on Fraud
Today, the Consumer Financial Protection Bureau (CFPB) ordered Block, the operator of the peer-to-peer payments app Cash App, to refund and pay other redress to consumers up to $120 million and pay a penalty of $55 million into the CFPB’s victims relief fund. Block employed weak security protocols for Cash App and put its users at risk. While Block is required by law to investigate and resolve disputes about unauthorized transactions, the company’s investigations were woefully incomplete. Block directed users — who had suffered financial losses as a result of fraud — to ask their bank to attempt to reverse transactions, which Block would subsequently deny. Block also deployed a range of tactics to suppress Cash App users from seeking help, reducing its own costs.
Enforcement Action
Under the Consumer Financial Protection Act, the CFPB has the authority to take action against institutions violating consumer financial protection laws, including those engaging in unfair, deceptive, or abusive acts or practices. The CFPB also has the authority to enforce the Electronic Fund Transfer Act. The CFPB’s order requires Block to:
- Pay $120 million to harmed consumers: Block is required to pay up to $120 million in refunds and other redress to consumers whose unauthorized transfers were not investigated, consumers who did not receive refunds they were entitled to, and consumers whose accounts were locked for an extended period of time or who were not provided provisional credits during a delayed investigation. Block must pay a minimum amount of $75 million in refunds and other redress. The CFPB will enforce the order’s redress requirements to ensure affected Cash App users receive redress. Consumers will not need to take action at this time to obtain redress.
- Fix customer service and investigate disputes: To ensure that the misconduct does not recur, the order requires Block to set up 24-hour, live-person customer service. The order also requires Block to fully investigate unauthorized transactions and to provide timely refunds, where appropriate.
- Pay a $55 million fine: Block will pay a $55 million penalty to the CFPB’s victims relief fund.
The CFPB order only addresses violations of consumer financial protection laws under the CFPB’s purview. Yesterday, state regulators separately ordered Block to pay $80 million for Bank Secrecy Act and anti-money laundering law violations.
The CFPB issued a new Electronic Fund Transfers Frequently Asked Question (FAQ) about the compulsory use prohibition. The new FAQ is Coverage: Transactions Question 6.
You can access the new FAQ here: https://www.consumerfinance.gov/compliance/compliance-resources/deposit-accounts-resources/electronic-fund-transfers/electronic-fund-transfers-faqs/.
Today, the Consumer Financial Protection Bureau (CFPB) sued Capital One, N.A., and its parent holding company, Capital One Financial Corp., for cheating millions of consumers out of more than $2 billion in interest. The CFPB alleges that Capital One promised consumers that its flagship “360 Savings” account provided one of the nation’s “best” and “highest” interest rates, but the bank froze the interest rate at a low level while rates rose nationwide. Around the same time, Capital One created a virtually identical product, “360 Performance Savings,” that differed from 360 Savings only in that it paid out substantially more in interest—at one point more than 14 times the 360 Savings rate.
Capital One did not specifically notify 360 Savings accountholders about the new product, and instead worked to keep them in the dark about these better-paying accounts. The CFPB alleges that Capital One obscured the new product from its 360 Savings accountholders and cost millions of consumers more than $2 billion in lost interest payments. The CFPB’s lawsuit seeks to stop the companies’ unlawful conduct, provide redress for harmed consumers, and impose civil money penalties, which would be paid into the CFPB’s victims relief fund.
Enforcement Action
Under the Consumer Financial Protection Act, the CFPB has the authority to take action against institutions violating consumer financial protection laws, including the Truth in Savings Act. It also has the authority to enforce the Consumer Financial Protection Act’s prohibitions on unfair, deceptive, or abusive acts or practices. The CFPB seeks to stop Capital One’s unlawful conduct, provide redress for harmed consumers, and impose civil money penalties, which would be paid into the CFPB’s victims relief fund.
Published
CFPB Issues Proposed Rule to Prohibit Certain Terms and Conditions in Agreements for Consumer Financial Products or Services
The CFPB issued a proposed rule related to prohibited terms and conditions in agreements for consumer financial products or services.
The rule would prohibit certain contractual provisions in agreements for consumer financial products or services. The proposal would prohibit covered persons from including in their contracts provisions purporting to waive substantive consumer legal rights and protections (or their remedies) granted by State or Federal law. The proposal would also prohibit contract terms that limit free expression, including with threats of account closure, fines, or breach of contract claims, as well as other contract terms. The proposal would also codify for covered persons under the Dodd-Frank Act certain longstanding prohibitions under the Federal Trade Commission’s (FTC) Credit Practices Rule.
Comments on the proposal are due: April 1, 2025.
You can access the proposed rule here: www.consumerfinance.gov/rules-policy/notice-opportunities-comment/open-notices/prohibited-terms-and-conditions-in-agreements-for-consumer-financial-products-or-services-regulation-aa/.
The Consumer Financial Protection Bureau (CFPB) issued a new report that found significant differences in the likelihood that homeowners with a mortgage are adequately insured against flooding based both on location and on income and assets. According to findings, homeowners in coastal areas were most likely to have flood insurance and generally had higher incomes and assets, suggesting that they were the best positioned to recover from flooding. Homeowners living near inland streams and rivers, however, were less likely to have flood insurance and less likely to have other financial resources to draw on to recover from a flood. The report uses a sample of mortgage applications from 2018-2022.
This report looks at flood risk in the southeast and central southwest census regions of the United States, as measured by flood risk data from both the Federal Emergency Management Agency (FEMA) and the First Street Foundation. FEMA’s assessment of flood risk is retrospective and focuses mostly on coastal flooding, while the First Street Foundation data better identifies inland flooding as well as having a forward-looking measure of flood risk. The analysis shows that the flood risk exposure of the mortgage market is more extensive and more geographically dispersed than previously understood. Homeowners can have significantly different access to insurance and therefore sharply different financial outcomes based on whether their risk of flooding comes from the coast or from inland rivers, streams, rainfall, and stormwater flooding.
The report’s key findings include:
- Current flood insurance maps may not capture accurate flood risk exposure. FEMA flood insurance maps rate flood risk highest in coastal areas, while First Street’s estimates predict significantly more exposure in inland areas as well as broader exposure in coastal regions.
- Over 400,000 homes may be underinsured for flooding events in the southeast and central southwestern parts of the country alone. The majority of flood insurance is provided through the federally subsidized National Flood Insurance Program, which uses the FEMA flood insurance maps to identify properties eligible for flood insurance. Homeowners with a mortgage are therefore likely to be underinsured for flooding if the FEMA flood insurance maps do not accurately measure future flood risk.
- Homeowners who may be underinsured for flood risk also are least likely to be able to self-insure and recover from flooding. Borrowers in inland areas at risk of flooding, as identified using the First Street flood risk model, had lower incomes and put less money down to purchase their homes compared to homeowners not in inland flood areas. This included both borrowers living in areas at high risk of coastal flooding and borrowers whose homes are not in an area of high flood risk, as identified either by FEMA or First Street. This suggests that these borrowers have the fewest financial resources to recover from flooding and are most at risk of suffering catastrophic loss after a flood.
CFPB Proposes Rule to Ban Contract Clauses that Strip Away Fundamental Freedoms
The Consumer Financial Protection Bureau (CFPB) proposed a rule that would stop financial companies from forcing Americans to choose between participating in the financial system or giving up their rights, including those guaranteed by the Constitution. The proposed rule seeks to stop companies from using a variety of contract clauses that limit fundamental freedoms, including waivers of substantive legal rights and fine print that suppresses speech.
In 2023, after taking a number of enforcement actions and observing practices in the market where companies sought to impose unusual conditions in consumer contracts, the CFPB increased its focus on clauses that force consumers to forfeit their rights. The CFPB is issuing this proposed rule to ensure consumer finance contracts focus on the main terms of a deal, instead of fine print to take away people’s rights. Specifically, the CFPB is proposing to block companies from:
- Undermining Rule of Law: The Constitution vests legislative power in Congress and reserves important authorities for the States. The CFPB is protecting that legal structure by ensuring that large companies cannot use form contracts to opt out of statutes passed by Congress or state legislatures, including protections for servicemembers, laws prohibiting elder fraud, and accountability for corporate lawbreaking.
- Deplatforming and Suppressing Speech: The rule would bar companies from fining, suing, or deplatforming based on consumer comments, reviews, or political or religious views. It protects consumers’ right to exercise free speech, including a consumer’s right to share negative reviews about a financial firm’s products or services, as well as political speech with which the company’s management disagrees.
- Amending Key Terms by Fiat: By stopping companies from unilaterally updating contracts in their favor, the rule seeks to protect consumers’ right to benefit from the contracts they agree to and gives people the ability to make decisions about their options in the marketplace.
- Forcing Customers to Automatically Plead Guilty: The CFPB is proposing to codify existing prohibitions against taking a consumer’s property without judicial due process or oversight. These longstanding prohibitions include prohibitions against “confessions of judgment,” which force consumers to essentially plead guilty even if they have defenses.
While many of the terms in this proposal are already unenforceable in various circumstances, some companies still use them. The rule would create a bright line of prohibition and heightened accountability by, for example, giving state Attorneys General authority to enforce these prohibitions against national banks.
Comments on the proposed rule must be received on April 1, 2025.
On December 3, the CFPB issued a proposed rule promoted as one that would require companies that sell data about income or financial tier, credit history, credit score or debt payments to comply with the Fair Credit Reporting Act. The proposal would make it clear that when data brokers sell certain sensitive consumer information, they are “consumer reporting agencies” under the FCRA. That would require them to comply with accuracy requirements. It also would require them to provide consumers access to their information. However, the proposal is much broader than a data broker rule, and the podcast explores the significant breadth of the proposal.
A link to the episode is here.
The rule might face an uncertain future, since it was issued by current CFPB Director Rohit Chopra and pushes beyond the boundaries of the FCRA. Chopra’s aggressive regulatory regime is opposed by the Trump Administration.
Joining us today is Dan Smith, president and CEO of the Consumer Data Industry Association, which represents the consumer data reporting industry.
The host of the discussion is Alan Kaplinsky, the former practice group leader for 25 years, and now senior counsel of the Consumer Financial Services Group at Ballard Spahr. Joining the discussion are two Ballard Spahr partners: Richard Andreano, the practice leader of our mortgage banking group at Ballard Spahr and John Culhane.
In this episode, we will discuss the key aspects of the landmark proposed rule, such as:
- The proposal being much broader than one addressing the sale of personal information to various parties, including stalkers, spies and scammers.
- The fact that the proposal does not even define what is a data broker.
- How the proposal would significantly change the concept of what constitutes a consumer report, including the proposal to treat credit header information as a consumer report.
- How the proposal would change the concept of what constitutes a consumer reporting agency.
- Requirements that the proposal would add to the written authorization permissible purpose to obtain a consumer report, including requirements regarding revocation of the authorization.
- How the proposal would modify the requirements to rely on the legitimate business need permissible purpose to obtain a consumer report.
- Whether the CFPB actually has legal authority to essentially rewrite the FCRA.
CFPB Approves Application from Financial Data Exchange to Issue Standards for Open Banking
The Consumer Financial Protection Bureau (CFPB) issued an order recognizing Financial Data Exchange, Inc. (FDX) as a standard setting body under the CFPB’s Personal Financial Data Rights rule. The order of recognition is the first to be issued under the rule. The Personal Financial Data Rights rule, which was released in October 2024, requires financial institutions, credit card issuers, and other financial providers to unlock an individual’s personal financial data and transfer it to another provider at the consumer’s request for free. The CFPB established a formal application process outlining the qualifications to become a recognized industry standard setting body, which can issue standards that companies can use to help them comply with the CFPB’s rule. The CFPB also issued updated procedures for companies seeking special regulatory treatment, such as through “no-action letters.”
FDX is a standard-setting organization, operating in the United States and Canada. It has over 200 member organizations, including depository and non-depository commercial entities; data providers and data recipients; data aggregators; service providers to open banking participants; trade and industry organizations; and other non-commercial members, including consumer groups. FDX’s stated primary purpose is to develop, improve and maintain a common, interoperable standard for secure consumer and business access to financial records.
In September 2024, the CFPB received the application for recognition from FDX. CFPB published the application from FDX for public comment later that month. The application was then the first to be published for public comment.
The CFPB approved the application, subject to a number of conditions, including:
- Ban on “pay-to-play” and other conflicts of interest: The approval order ensures that FDX will develop standards to promote open banking without regard to sponsorships or other financial incentives to give certain market players secret information or any other advantage. FDX would need to ensure that the organization and its staff do not have any side arrangements that skew its financial incentives toward particular players in the industry.
- Mandatory reporting on market adoption: The approval order would require FDX to report to the CFPB on market use of its consensus standards and/or maintain a publicly available resource where companies can disclose their use of standards as well as any certifications of adherence to standards, for the benefit of open banking participants, regulators, and the public.
- Transparency and availability of standards: The approval order requires FDX to make freely available to the public any consensus standards that it adopts and maintains, subject to reasonable safeguards, and to ensure that non-members have the same access as members do. FDX must also make publicly available information about its standards development and issuance processes.
CFPB Sues Experian for Conducting Sham Investigations of Consumer Report Errors
The Consumer Financial Protection Bureau (CFPB) sued Experian, the nationwide consumer reporting agency, for unlawfully failing to properly investigate consumer disputes. The CFPB alleges that Experian does not take sufficient steps to intake, process, investigate, and notify consumers about consumer disputes, resulting in the inclusion of incorrect information on credit reports. Inaccurate or false information on consumer reports can threaten consumers’ access to credit, employment, and housing.
The CFPB alleges that Experian has violated the FCRA’s requirements for handling consumer disputes in numerous ways. Specifically, the CFPB alleges that Experian is harming consumers by:
- Conducting sham investigations that fail to properly address consumer disputes: When handling disputes, Experian uses faulty intake procedures and does not accurately convey all relevant information about disputes to the original furnisher. Experian routinely and uncritically accepts the original furnisher’s response to the disputed information, even when that response was improbable or illogical on its face, or when Experian has other information available that suggests the furnisher is unreliable. At the conclusion of the investigation, Experian sends consumers notices that fail to inform them of the investigation results, and instead provides information that is confusing, ambiguous, incorrect, or internally inconsistent.
- Improperly reinserting inaccurate information on consumer reports: Experian has failed to implement basic matching tools that prevent or greatly reduce the likelihood of reinsertion by a new furnisher of a previously deleted tradeline. Instead, Experian improperly reinserts inaccurate information into consumer reports because it fails to match newly reported information with records of previously deleted information. Consumers who have disputed the accuracy of an account and thought that their consumer report had been corrected, instead see the same inaccurate information reappear on their consumer report without explanation under the name of a new furnisher.
CFPB Sues Vanderbilt for Setting Borrowers Up to Fail in Manufactured Home Loans
The Consumer Financial Protection Bureau (CFPB) sued Vanderbilt Mortgage & Finance for setting families up to fail when they borrowed money to buy a manufactured home. The CFPB alleges that Vanderbilt’s business model ignored clear and obvious red flags that the borrowers could not afford the loans. As a result, many families found themselves struggling to make payments and meet basic life necessities. Vanderbilt charged many borrowers additional fees and penalties when their loans became delinquent, and some eventually lost their homes. The CFPB is seeking to stop Vanderbilt’s illegal practices and obtain relief for the harmed homeowners.
The CFPB alleges that Vanderbilt failed to make reasonable, good-faith determinations of borrowers’ ability to repay loans, as legally required. Specifically, the lawsuit alleges Vanderbilt:
- Manipulated lending standards when borrowers did not make sufficient income: In its underwriting process, Vanderbilt often disregarded evidence that borrowers did not have sufficient income or assets (other than the value of their home) to pay their mortgage and cover recurring obligations and basic living expenses, like food and health care. Sometimes, Vanderbilt originated loans for borrowers who were already struggling, making their financial situation worse. For example, Vanderbilt approved a loan for a family with 33 debts in collection and two young children. The borrowers fell behind only eight months after getting the mortgage.
- Fabricated unrealistic estimates of living expenses: Vanderbilt justified its determination that borrowers could pay the loans by using artificially low estimates of living expenses that made no adjustment for higher expenses in different geographic areas. Vanderbilt’s estimated living expenses were about half of the average of self-reported living expenses for other, similar, Vanderbilt loan applicants. These families were left with little or no buffer to cover unexpected expenses. For example, Vanderbilt left one family of five with only $57.78 in net income after Vanderbilt applied its estimate of living expenses. That family first missed a payment only a year after signing the mortgage.
- Made loans to borrowers it projected could not pay: In some cases, Vanderbilt violated its own policy and made loans to borrowers who, even under the company’s overly optimistic estimates, did not have enough income to cover the mortgage and basic living expenses. For example, Vanderbilt approved a mortgage for a single mother with two dependents after estimating she had insufficient income, and then sent her loan to collections when she missed a mortgage payment after only four months in the home.
Phishing is a form of social engineering where attackers try to get you to reveal your sensitive information through malicious links, SMS, QR codes, and more. Here’s how to protect yourself.
Have you ever been sent a link that doesn’t look quite right, but you click on it anyway, only to discover it was malicious? If you did click on that link, you might find yourself on a site that looks legit enough to persuade you to enter sensitive information (such as logins, credit card numbers, and more). If you fall for the trick, you could wind up dealing with a nightmare of epic proportions.
One way to avoid this problem is to enable anti-phishing features in your browser.
You might be thinking, “Why not use an anti-phishing extension?” That’s a good question. The answer is simple.
Not every extension can be trusted. More malicious browser extensions are discovered regularly, so don’t install extensions without vetting them. But even if you’ve spent the time vetting an extension, there’s no telling if it could be later compromised or if it will wind up blocking legitimate sites and not blocking malicious ones.
With that in mind, your best bet is to use your browser’s built-in anti-phishing features so you won’t be caught unaware.
Now that you’ve been reminded of the possible danger of installing third-party software, let’s focus on Chrome and Firefox.
How to enable anti-phishing in Chrome
What you’ll need: The only thing you’ll need for this is an updated Chrome browser. I’ll demonstrate this feature on the desktop version of the browser, but the process is similar on the mobile version of the app.
- Open Chrome Settings
Open your Chrome browser and then open Settings by clicking the three-dot menu in the upper right-hand corner. From the drop-down menu, click Settings. - Go to “Privacy and security”
From the left sidebar, click “Privacy and security” and then click Security in the right pane. - Enable “Enhanced protection”
In the Security section, you’ll find three options under Safe Browsing: “Enhanced protection”, “Standard protection”, and “No protection”, You want to make sure to enable “Enhanced protection”. - Enable “Secure connections”
To bolster the Enhanced protection option, scroll down under “Secure connections” and click the On/Off slider for “Always use secure connections” until it’s in the On position.
Once you’ve done this step, you can close Settings and trust that Chrome is better capable of protecting you against phishing attacks.
Click here for the full article with examples and FireFox instructions.
Courtesy of Jack Wallen, zdnet.com
A federal audit of an Omaha-based credit union found statement fraud spanning decades that resulted in the loss of millions of dollars.
In a letter obtained by First Alert 6 on Tuesday, the National Credit Union Administration’s Inspector General shed light on Creighton Federal Credit Union’s sudden loss of $12.2 million in 2024.
Account statements led some banking watchdogs who spoke to First Alert 6 on Monday to begin raising questions around the fact that Creighton FCU, a $67 million institution, managed to suddenly lose 18 percent of its value in the span of just 90 days last spring.
The audit, requested by U.S. Rep. Mike Flood (R-Neb.), revealed the losses weren’t sudden at all.
According to NCUA Inspector General James Hagen, the loss of $12.2 million was accumulated over more than two decades as a result of statement fraud conducted by the institution’s former CFO, and that the NCUA had no knowledge of the fraud until after the CFO died in April 2024.
The CFO understated Creighton FCU’s ATM expenses to “artificially boost Creighton’s income statement over 26 years, which resulted in the more than $12 million loss,” the NCUA claims.
The missing money wasn’t used for direct personal gain, though, according to the NCUA. An audit of the CFO’s entire family uncovered no evidence that the money had ever been transferred improperly or illegally. The Inspector General believes the CFO perpetrated fraud with the goal of making Creighton FCU appear as if it were a thriving financial institution in the eyes of its board and membership.
In reality, it was failing.
In August 2024, Creighton FCU merged with Cobalt Federal Credit Union after declaring itself insolvent. No Creighton FCU members lost money as the accounts were federally insured.
One of those members of Creighton FCU — which was an independent organization entirely separate from Creighton University — was Omaha City Councilman Ron Hug.
“I think I knew everybody in the credit union on a first-name basis,” Hug said. “This is quite shocking. I’m very surprised because in my dealings with them, I found them to be extremely conservative.”
In total, Creighton FCU had about 150 ATMs, and the operation of those ATMs is largely where the fraud took place, according to the report, which exposed the institution’s weak accounting system to back-post, forward-post, and delete transactions when generating annual financial statements.
“I think [the Inspector General’s report] clearly says there was no personal gain,” Hug said. “There’s no personal intent. I think it was just a poor decision in accounting practices.”
Regardless of intent, Chip Filson, a banking watchdog who used to serve as a program director for the NCUA, is wondering how the fraud even happened. How did the CFO of a federally-insured credit union commit fraud for a quarter-century without anyone noticing?
“Even rudimentary due diligence would have discovered this kind of default,” Filson said.
The NCUA Inspector General will now conduct a full review of the oversight process. First Alert 6 contacted the former president of Creighton FCU, who declined to comment on the audit’s findings.
Courtesy of Nick Stavas and Mike McKnight, WOWT
The findings from the Consumer Financial Protection Bureau shed light on impacts to consumers who rely on major retailers’ credit programs. The Consumer Financial Protection Bureau found that 19% of retail cards had APRs above 35%.
Many credit cards offered by major retailers continue to charge exorbitant annual percentage rates (APRs), despite moves by the Federal Reserve to lower interest rates in the economy.
In a report released Wednesday, the Consumer Financial Protection Bureau found that 19% of retail cards had APRs above 35%, an interest rate that is at or near the legal cap for active-duty service members under the Military Lending Act. In December 2024, new cards offered by the top 100 retailers had an average private label APR of 32.66%.
There is no federal cap on interest rates. And while many states have usury laws, credit card issuers are often domiciled in states with more liberal rules about how much interest they can charge on a credit card.
The findings come as the Federal Reserve is set to lower interest rates for the third time this year as economic growth moderates and the job market cools.
The most direct impact from changes to the central bank’s federal funds rate is on the prime rate, which is the rate banks charge on loans to customers with good credit. That rate has declined from 8.5% in September to 7.75% today, and will decline further assuming the Fed announces an interest-rate cut on Wednesday.
Private-label cards tend to charge an APR based on the prime rate, plus a margin they deem necessary to cover their costs and maintain a profit. And some even ignore the prime rate altogether.
“As a result, the many cardholders charged APRs that are not based on the Prime Rate will not benefit from future cuts to the Prime Rate,” the CFPB said.
Earlier this year, the CFPB found these margins to be excessive — though that assertion has been disputed by the American Bankers Association, who say the high margins are necessary given changing market conditions.
The CFPB findings were part of a larger announcement about credit cards that also included a ruling that attempts to devalue credit card rewards programs, alongside the launch of a new tool allowing U.S. consumers to compare credit card offerings in a more transparent manner.
“Large credit card issuers too often play a shell game to lure people into high-cost cards, boosting their own profits while denying consumers the rewards they’ve earned,” said CFPB Director Rohit Chopra in a statement.
“When credit card issuers promise cashback bonuses or free round-trip airfares, they should actually deliver them,” he said. “The CFPB is taking aim at bait-and-switch tactics and promoting more competition in credit card markets to protect consumers and give people more choice.”
The CFPB remains under threat from members of the incoming Trump administration, including Elon Musk, who recently posted “Delete CFPB” on his X social media platform.