Consumer Law & Policy Blog

Report: "Consumers Lured Into Predatory Car Repair Loans"

Consumer Reports writes today:

Auto repair shops affiliated with well-known brands—including AAMCO, Big O Tires, Grease Monkey, Jiffy Lube, Meineke, Midas, and Precision Tune Auto Care—are steering unsuspecting customers into loans charging up to 189 percent interest, according to a study by consumer advocacy groups including Consumer Reports.

While most states have interest-rate limits to stop lending practices such as this, a company can evade state regulations by teaming up with a bank in a state where no such rate-cap laws exist. This practice, known as “rent-a-bank,” exists in a legal gray area. In this case, the auto repair shops are offering the loans through EasyPay Finance, which runs the loans through Transportation Alliance Bank (TAB,) based in Ogden, Utah, where high-interest rate-caps don’t exist.

Emergency auto repairs can be expensive. One in 3 U.S. drivers isn’t able to pay the average $500 to $600 cost, according to a 2017 survey by the AAA automotive group. The consumer advocates say that questionable business practices by EasyPay Finance and high interest rates make those payments even worse.

The full article, which also includes suggestions for consumers, is here.

CFPB advisory opinion on coverage of fair lending laws

The Consumer Financial Protection Bureau yesterday published an advisory opinion affirming that the Equal Credit Opportunity Act—a federal civil rights law that protects individuals and businesses against discrimination in accessing and using credit—bars lenders from discriminating against customers after they have received a loan, not just during the application process. Read the press release and access the advisory opinion here.

CFP: Beyond Fresh Start: Fixing the Broken Student Loan Default and Collection System

We received the following Call for Papers:

On April 6, 2022, in addition to announcing an extension of the federal student loan payment pause, the White House announced that the U.S. Department of Education is taking steps to  give a fresh start to millions of struggling borrowers who are currently in default on their federal student loans, protecting them from the harsh consequences of default if payments resume in the future. For too long, defaulted borrowers have slipped through the cracks, experienced ruined credit, and been made to suffer at the hands of the Department of Education’s punitive collection system, which seizes their wages, social security benefits, and Earned Income Tax Credits in retaliation for these borrowers defaulting on their federal loans.

While the relief the White House announced in April is critically needed for people living in or close to poverty, it is not a long-term solution to a crisis decades in the making. The Department now has an opportunity to fix the broken student loan default and collection system.

According to the regulatory agenda, the Department is planning on undertaking a rulemaking on student loan debt collection issues. This is an opportunity to influence the Department and encourage it to end its punitive collection practices and ensure meaningful pathways for borrowers to get out of debt.

In 2020, the Student Borrower Protection Center, in partnership with the Student Loan Law Initiative at the University of California, Irvine School of Law, released a roadmap for the Biden Administration to use existing authority to cancel student loan debt for servicemembers, public service workers, defrauded borrowers, borrowers facing total and permanent disabilities, and other vulnerable groups who have been forced to shoulder debts that should have been canceled under the law. Over a year on from these papers, the ideas laid out in our initial roadmap have animated policies providing relief for millions of struggling borrowers across the country. As we continue to hold the Administration accountable for canceling the debt of everyone who is entitled to relief under the law, we are also working tirelessly to fix our broken default and collection system. 

In August 2022, the Student Borrower Protection Center will hold a virtual panel series on issues related to debt collection titled Beyond Fresh Start. We call on all academics, practitioners, and any other advocates to submit abstracts for papers to be presented at this panel series, which will involve conversations with top scholars moderated by key participants in the student loan ecosystem such as journalists and leading advocates.

We are currently inviting short (7-10 page) papers for the following themes:
● Harm of the current collection system
● Racial disparities in student loan default and collection
● Ideas for reforming debt collection
● Existing legal authority for administrative fixes
● Role of states
Please submit paper abstracts to Mark Huelsman (mark@protectborrowers.org) by May 15, 2022.
If selected, first drafts will be due on July 20, 2022, and final papers will be due on August 1, 2022.

FTC says credit repair operation was a scam

The Federal Trade Commission filed a complaint last Friday against a company called The Credit Game, which claimed it could boost credit scores through “credit piggybacking” and other credit repair services. The FTC's complaint against the operators of The Credit Game (formerly called Wholesale Tradelines) says that the services were a scam and that the defendants engaged in illegal practices to bilk cash-strapped people out of hundreds or thousands of dollars for repair services that were ineffective, undeliverable, or illegal. Details are here.

CFPB orders Bank of America to pay $10 million penalty for illegal garnishments

The Consumer Financial Protection Bureau has finalized an enforcement action against Bank of America for processing illegal, out-of-state garnishment orders against customers’ bank accounts.

The CFPB's press release, with links to relevant documents, is here.

En Banc Fifth Circuit "Express[es] No View" in CFPB v. All American Check Cashing

    After many months and multiple rounds of supplemental briefing in the wake of the Supreme Court’s decisions in Seila Law v. CFPB (2020) and Collins v. Yellen (2021), the en banc Fifth Circuit in CFPB v. All American Check Cashing finally decided—well, nothing. According to the 3-page, unsigned per curiam opinion issued by the court, the Supreme Court’s decision in Seila Law already said everything necessary to decide the “pure question of law” posed by the appeal: whether the tenure protection conferred on the CFPB’s director by the Dodd-Frank Act was unconstitutional. Seila Law, of course, held that the statutory provision preventing the President from firing the CFPB director without cause was unconstitutional, but severable, nearly two years ago. The Firth Circuit concluded that that holding required it to answer the “pure question” before it by vacating the district court’s pre-Seila Law holding that the CFPB’s structure was constitutional but allowing the CFPB to proceed with the enforcement action that gave rise to the appeal—subject to any further defenses (including constitutional challenges) the defendant, All American Check Cashing, might assert. The court “place[d] no limitation on the matters that [the district] court may consider” and “express[ed] no view on the actions it should take in accordance with this opinion or otherwise.”

    Five “concurring” judges, including Judge Edith Jones and three of the court’s Trump appointees, disagreed with the court’s disposition of the appeal and would have held the CFPB’s structure unconstitutional for another reason not addressed in Seila Law—the “budgetary independence” the CFPB enjoys under statutory provisions funding it through the Federal Reserve rather than annual appropriations. Those judges would have also held that the separation-of-powers violation they saw in the CFPB’s funding mechanism required dismissal of the CFPB’s enforcement action because, in their view, the CFPB lacked authority to do anything requiring the expenditure of funds—that is, anything at all.

    The majority said nothing about the concurring judges’ constitutional theory other than that it was outside the scope of the issues before the court on All American’s interlocutory appeal. The concurring judges disagreed with that, too, but nonetheless chose not to label their opinions dissents—perhaps to give the views they expressed more traction in the lower courts.

    The bottom line is that, 22 months after the Supreme Court decided Seila Law, the Fifth Circuit did what its per curiam opinion suggests it could and should have done almost immediately in light of Seila Law’s holding. And now the district court will have to consider the concurring judges’ theory, which will undoubtedly give rise to another appeal—and, very likely, one or two petitions for certiorari (one now, and, if it doesn’t succeed, another after the next round of appeals).

  Why did the court take so long to do so little? In the immediate aftermath of Seila Law, the question whether its constitutional holding might require dismissal of the CFPB’s enforcement action in All American was at least a debatable one. But before the Fifth Circuit could resolve it in light of the supplemental briefs filed by the parties to address Seila Law, the Supreme Court decided Collins, which left little if anything of the argument that the tenure protection held unconstitutional in Seila Law required courts to invalidate actions taken by the agency before Seila Law struck down and severed the tenure provision.

    Nonetheless, the appellant in All American continued to argue in its post-Collins supplemental brief that Collins somehow left room for the argument that a CFPB enforcement action initiated before Seila Law had to be dismissed. Not even the five concurring judges in the Fifth Circuit appeared to give that argument any credence (see pp. 41-43 of Judge Jones’s opinion).

    As for the argument that did interest the concurring judges, All American relegated it to a two-page throwaway section of its supplemental brief, to which the CFPB responded in a similarly abbreviated fashion. Although All American devoted more space to the argument in its supplemental reply, it appears likely that the en banc court as a whole may have felt that the relatively cursory briefing of the issue (and the rejection of the argument by all other courts that have addressed the issue so far) counseled leaving it for another day.

    The result is that after nearly two years, the can has been kicked down the road, with nothing to show for that time except a concurring opinion that will serve as a roadmap for further challenges to the CFPB’s authority.

Why the CFPB is right that it can act against discrimination using its unfairness power

by Jeff Sovern

Recently the CFPB announced that in conducting supervisory operations, it takes the position that discrimination is unfair and so violates the Consumer Financial Protection Act. You might think this is pretty straightforward: most of us would think odious discrimination is unfair. Discrimination easily qualifies as unfair under the statutory requirements of unfairness, which require that "(A) the act or practice causes or is likely to cause substantial injury to consumers which is not reasonably avoidable by consumers; and (B) such substantial injury is not outweighed by countervailing benefits to consumers or to competition." It's so obvious that offensive discrimination meets that standard that I won't take up space explaining why but if you want to know more, read this report by the Student Loan Borrower Protection Center. The statute also permits the Bureau to consider public policy in determining if conduct is unfair, as long as public policy considerations are not the primary basis for the determination of unfairness. So many statutes bar discrimination that it's clear that public policy counsels against allowing abhorrent discrimination.

But Senator Toomey disagreed during the Senate Banking Committee hearing on the CFPB on Tuesday and so do some others. Their principal argument appears to be that if discrimination is unfair, statutes explicitly prohibiting discrimination, like the Equal Credit Opportunity Act, would have been unnecessary. But, the argument goes, Congress did enact such statutes and so Congress must not have seen unfairness as reaching discrimination. This argument has at least three significant flaws.

First, ECOA does many things in addition to proscribing discrimination in credit transactions. For example, ECOA provides injured consumers a private claim, punitive damages, and attorneys’ fees. The CFPB’s determination that its unfairness power extends to discrimination does not authorize consumers to bring private claims because the CFPA does not provide for private claims. Put another way, ECOA would have been needed even if everyone agreed from the get-go that the Bureau could use its unfairness power against discriminators because Congress wanted injured consumers to have a private claim. Only Congress, not the Bureau, could have provided for that. And that is also true of other provisions of ECOA, like the requirement that creditors notify consumers of the reasons for adverse action.

Second, the argument ignores the statutory text. The argument is based on speculation as to the legislative intent. And the Supreme Court has made clear that it has no interest in speculations about congressional intent when the words of a consumer protection statute answer the question.

Third, if we are going to speculate about legislative intent, does it really make sense that Congress would not have wanted the Bureau to have the power to outlaw odious discrimination in the consumer financial industry?  Congress was concerned with the fairness of the marketplace and gave the Bureau authority to block misconduct that most of us would see as less objectionable than discrimination.  It beggars the imagination to suggest that Congress would have wanted the Bureau to allow discrimination to continue unchecked but, for example, to take action against debt collectors that put words or symbols on envelopes.

In short, Director Chopra is exactly right to take steps to prevent offensive discrimination from taking place in the consumer financial industry. If the industry argues otherwise, it risks convincing consumers that the industry wants to discriminate. And that wouldn’t serve anyone.