Consumer Law & Policy Blog

"Don’t let Congress block consumer protections for prepaid card users"

Washington Post columnist MIchelle Singletary warns: "If you use a prepaid card — and millions of you do — take heed, because there’s an effort in Congress to block new rules that would give you the kind of federal protections afforded to debit and credit card users.

Her full column is here.

Financial Choice Act 2 Draft Now Out: More Like a Bank Protection Act

by Jeff Sovern

Here.  As previously reported on the blog, it would eliminate the CFPB's power to stop unfair, deceptive, or abusive practices (section 736)--that is, the power the Bureau used to stop Wells Fargo from opening sham accounts--and to regulate arbitration (section 738)--that is, the section that would give the CFPB the power to preserve class actions against bad actors in the financial industry. So if another bank wanted to do what Wells did, the Bureau and private plaintiffs who wanted to bring a class action would be powerless to do anything about it.  Of course, the Office of the Comptroller also fined Wells.  But it was the CFPB that brought the OCC into the matter and the OCC has now issued a report indicating that it knew about the problem as early as 2005--eleven years before it brought its enforcement action.  The bill has many other defects as well. The House Financial Services Committee will hold a hearing on the bill next Wednesday. No word on who the witnesses will be.  While the House may pass the bill, the Senate is less likely to do so, at least in this form, as long as the bill is subject to a filibuster.

Payday Loan Customers Support Regulation

Opponents of payday loan reform argue that the payday loan industry benefits its customers by providing access to credit for customers who could not otherwise obtain it, and that it is paternalistic to deny consumers the opportunity to afford themselves of these benefits.

Payday loan customers, however, have a different view: Bring on the “paternalism.” A Pew Charitable Trust survey shows that 7 in 10 payday loan consumers support regulation to prevent industry abuses that result in typical borrowers paying about $520 in fees and interest annually on loan balances of about $375.

According to the survey, borrowers are particularly supportive of regulatory changes that would allow banks and credit unions to offer small installment loans to customers with poor credit—loans that would still be expensive compared to those offered borrowers with better credit, but would be six times less costly than payday loans and less likely to suck borrowers into the cycle of repeatedly taking out loans (and incurring the accompanying fees) to pay off loan balances within the two weeks required by most payday lenders.

Borrowers also would support the kind of reforms enacted in 2010 in Colorado, which required that lenders allow more time for repayment and limited fees. The result was that over half of Colorado's payday lenders shut their doors, but the remaining lenders doubled their number of customers while charging lower fees, saving consumers over $40 million a year. By a 9 to 1 margin, payday loan customers agreed that that outcome was a good thing.

Debt Collectors Using Even Newer Technology to Seek Payment

NerdWallet reports here about the leaving of voicemails without ever calling--to evade limits on phone calls--and avatars, among other things.  

Op-Ed Argues for Rescission of CFPB Prepaid Cards Reg Because It Gives Same Protections Credit Cardholders Have

by Jeff Sovern

Earlier, Allison posted a link to an op-ed opposing rescission of the CFPB's prepaid card rule. For readers who would like to hear what opponents of the prepaid card rule argue, here is an op-ed in The Hill by Andrew Langer of the Institute for Liberty (I wonder who provides their funding). Excerpt:

 [T]he rules seek to impose the same kinds of regulations on prepaid cards that have applied to credit cards and checking accounts. Implementing those requirements on prepaid cards will increase the cost of providing such services to consumers, directly leading to higher costs for consumers who use prepaid card services.

Imagine that!  Giving the users of prepaid card the same protections that credit cardholders and checking account customers have! What were they thinking?

Center for American Progress Report on the Proposed Financial Choice Act

Here.  Excerpt:

The CHOICE Act also rejects the painful lessons about toxic financial products from the financial crisis and Great Recession in which 10 million families lost their homes and Americans collectively lost $19 trillion in wealth. Instead of continuing post-crisis reforms that have ensured the availability of safe and affordable financial products, it would give a free pass to financial institutions to once again sell harmful products that wreck family balance sheets, as well as entire communities, without fear of getting caught.

Ronald Mann's Report on the Argument in Henson v. Santander

Here, in SCOTUSblog.  Sounds like the justices are leaning towards finding for the debt buyers, but oral arguments can be a treacherous guide to the final result.

"Wells Fargo scandal weighs heavily on other big banks"

The Washington Post reports:

Eager not to be the next Wells Fargo, some other big banks say they are examining their own practices against the board report and actively looking for ways to avoid any sales issues before becoming engulfed in a similar kind of scandal. ...

Wells had by far the most aggressive sales goals among the big banks, and the board’s report said the problems date back at least 15 years — but that executives had little interest in dealing with the issue until it spiraled out of control. The board also reclaimed another $75 million in pay from former CEO John Stumpf and former community bank executive Carrie Tolstedt, saying they dragged their feet for years.

That report has been making its way through top executive offices at nearly every big bank, executives said.

For the industry, the next potential shoe to drop will likely be from federal bank regulator the Office of the Comptroller of the Currency, whose bank examiners are currently combing through each of big bank sales programs. Their findings are expected this summer. And the Consumer Financial Protection Bureau is also doing its own investigation.

In the meantime, ... managers [a]re actively searching for ideas on how to stop what happened at Wells from potentially occurring at their banks.

The full article is here.

Op-ed on CFPB's prepaid card rule

In 2016, the CFPB issued a rule addressing prepaid cards, which are cards that work like debit cards but are not associated with a bank account. Prepaid cards include but are not limited to what we think of as gift cards; some employers pay their workers with prepaid cards.

As the Senate is set to consider eliminating the CFPB's rule, the National Consumer Law Center's Tom Cox explains in an op-ed today why the rule is important:

The rule gives prepaid cards the same fraud protections as debit cards; provides a simple, uniform chart of fees; and allows people to check their account balances and transaction history for free. Employers will have to provide workers clear payroll card fee information and advise them that they do not have to use a payroll card. The rule caps overdraft fees, requires them to be affordable, and gives consumers a 30-day waiting period before overdraft features are added.

The full op-ed is here. (Note that the webpage asked me to answer a quick question when it opened, but then quickly showed the full article.)

CFPB sues law firm for misrepresenting attorney involvement in debt collection

This week, the Consumer Financial Protection Bureau filed a lawsuit in a federal district court against the debt collection law firm Weltman, Weinberg & Reis for falsely representing in millions of collection letters sent to consumers that attorneys were involved in collecting the debt. The law firm made statements on collection calls and sent collection letters creating the false impression that attorneys had meaningfully reviewed the consumer’s file, when no such review has occurred. The CFPB is seeking to stop the unlawful practices and recoup compensation for consumers who have been harmed.

Details are here.