Dear Chairman Barr and Ranking Member Foster:

As consumer protection and civil rights organizations, we write to express our concerns with two legislative proposals being discussed at today’s hearing, namely H.R. 6789, the Rectifying UDAAP Act and a still unintroduced bill to amend the Truth in Lending Act to allow covered entities to offer small-dollar credit products and for other purposes.  These proposals are deeply misguided, and our organizations urge Committee Members to oppose and prevent their advancement.

H.R. 6789, the “Rectifying UDAAP Act”

 This bill would narrow the scope of UDAAP under the Consumer Financial Protection Act and hinder the ability of the CFPB to determine when an activity is an unfair, deceptive and abusive practice. It would hamper the CFPB’s ability to identify UDAAPs and significantly raise the threshold for abusiveness. The bill accomplishes the long-standing goal of preventing the CFPB from defining discriminatory practices as UDAAPs, even though discrimination is inherently unfair and harmful.

It would slow down the CFPB’s efforts to implement enforcement actions. For example, because it permits entities that self-report violations to have special notification rights, it extends delays between the identification of a UDAAP and an enforcement action to prevent it. It would also introduce new hurdles to providing monetary relief.

By requiring the CFPB to conduct unnecessary rulemaking to establish policies and procedures for issuing penalties, it could leave consumers at risk of being harmed by UDAAPs. It is also concerning that the bill would require the rulemaking to include a cost-benefit analysis, as such a step could lead to the result where the profits derived by an unfair or discriminatory practice are weighted as a benefit.

We strongly oppose this bill.

 H.R. ___, a bill to amend the Truth in Lending Act to allow covered entities to offer small-dollar credit products and for other purposes.

In the guise of adopting safeguards for small-dollar credit, this bill would exempt any bank or other creditor that offers specified small-dollar loans from any civil penalties or damages for violation and law in the entire Title 15 of the United States Code in connection with the small-dollar product. That title covers 122 chapters, including the entire Chapter 41, which includes the Truth in Lending Act, the Restrictions on Garnishment of Social Security and other federal benefits, the Credit Repair Organizations Act, the Fair Credit Reporting Act, the Equal Credit Opportunity Act, the Fair Debt Collection Practices Act, and the Electronic Fund Transfer Act, as well as the antitrust provisions of Chapter 1 and many other laws. Lenders would be able to violate these laws with impunity.

We strongly oppose this bill.

Americans for Financial Reform

Center for Responsible Lending

Consumer Federation of America

National Consumer Law Center (on behalf of its low-income clients)

The post Letter Regarding Congressional Hearing, “Politicized Financial Regulation and its Impact on Consumer Credit and Community Development” appeared first on Consumer Federation of America.

“The CFPB’s new rule prioritizes the needs of cash-strapped households ahead of big bank profiteering,” said Adam Rust, Director of Financial Services for the Consumer Federation of America. “In 2022, credit card companies charged $14.5 billion in late fees. By prohibiting issuers from charging  a $31 missed payment fee when the true cost to credit card companies is less than eight dollars, the rule closes the loophole that permitted this form of price-gouging and injects fairness where it has been sorely needed.”

Fact sheet:

The rule will save consumers money. The CFPB estimates the rule will reduce the sum of late fees charged per year from $12 billion to $3 billion. These fees serve no purpose except to pad the profits of big banks.

The rule will not make banks stop offering credit cards: The industry contends that without late fee income, some credit card companies will issue fewer cards or exit the market entirely. This logic is unfounded. Credit card companies charged more than $105 billion in revenues in 2022 – and with increases in interest rates and outstanding balances since then, their revenues are likely to be higher regardless of how much they can charge for a missed payment.

Applying strong consumer protections to credit cards does not undermine credit availability. Research on the impacts of the CARD Act revealed an interesting pattern. Consumers benefited from the lowered cost of credit, avoided billions in late fees, and still opened more than 100 million new credit card accounts in 2014. Total available credit increased 10 percent from 2012 to 2015.

Curbing late fees will not force banks to lose money. It will just prevent them from making exorbitant profits from a junk fee. The rule still allows them to recover their costs. But it corrects a loophole that has favored credit card companies at the expense of consumers. Over the years, late fee income has been three to five times greater than collection costs on accounts that are  past-due but have not yet been written off. Federal Reserve research shows that collection costs, the main expense of late payments, hover around 25 percent of late fee income.

Consumers like the proposed rule. Fifty-three percent of survey respondents said they “strongly support” lowering the maximum late fee, and another 29 percent “somewhat support” it. Only 7 percent strongly oppose it.

The CFPB created the rule using evidence-based research. The CFPB analyzed financial data from six large credit card banks to determine the real cost of late payments. The choice of an $8 immunity provision is derived from this research. The CFPB rule allows any bank that can demonstrate that its costs were higher to receive an upwardly adjusted cap consistent with these proven costs.

The rule will not cause credit card issuers to curtail rewards programs. The credit card market is better understood as several segments within a single product space. Rewards cards are generally offered to consumers with prime credit or better, whereas below prime consumers rarely receive the same benefits. In its most recent survey of the credit card market, the CFPB found that prime plus and above accounts redeemed approximately 80 percent of all rewards, whereas below-prime cardholders redeemed only about six percent of rewards. Subprime accounts were more likely to carry revolving debt, pay only the minimum balance, and miss a payment. Interestingly, because deep subprime consumers carried higher levels or revolving credit and paid higher interest on those debts, they had higher average minimum payment due amounts. In the same study of 2022 accounts, deep subprime accounts incurred 15 times as many late fees per year than did prime accounts. Accounts that paid off their balances each month – and thus did not incur late fees – redeemed a high share of rewards. There is little evidence to support the theory that lower revenue on credit card late fees will force banks to curtail rewards.

The post CFA Statement and Factsheet in Response to the Publication of the CFPB’s Credit Card Late Fees Rule appeared first on Consumer Federation of America.

“Lead generation fees paid by banks to these websites are invisible hands that guide consumers into higher-priced credit cards,” said Adam Rust, Director of Financial Services at the Consumer Federation of America. “But consumers should be concerned that those hands will end up in their wallets, because banks cover the cost of advertising on digital shopping sites by charging higher interest rates. By casting a spotlight on the practices of digital comparison-shopping platforms, the CFPB’s circular is an appropriate remedy to a market where so many top 10 lists found on these card comparison sites point consumers to a big bank credit card, even though credit cards issued by smaller banks and credit unions tend to have lower interest rates.”

The post CFA Statement on CFPB “Rigged” Comparison-Shopping Results Guidance appeared first on Consumer Federation of America.

“This timely report provides clear evidence to show how credit card companies aren’t just covering their costs – they are applying an additional ‘greedflation charge,’” said Adam Rust, Director of Financial Services for the Consumer Federation of America. “Increasingly, credit card companies play by different economic rules, especially the big credit card issuing banks. This report is another piece of evidence highlighting the effects from a lack of competition. Even though more than three thousand banks issue credit cards, ten banks have more than four–fifths of all accounts – and they charge higher interest rates. It underscores how large marketing budgets permit a few banks to hide higher rates and penalty fees behind rewards promotions. The result is a market that is out of balance. 

Today’s report further justifies the CFPB’s work to curb junk fees and promote transparent pricing. In no uncertain terms, it explains why they must level the playing field between consumers and banks and presents one more reason for prudential regulators to increase their scrutiny of merger applications.” 

The post CFA Statement in Response to CFPB Credit Card Interest Rate Report appeared first on Consumer Federation of America.

“We applaud the CFPB for taking this needed step to rein in junk NSF fees,” said Adam Rust, Director of Financial Services for the Consumer Federation of America. “When a bank consciously chooses not to honor a payment request, but still charges a fee, it prioritizes its greed above its customer’s needs and adds insult to injury. It is telling that most banks have stopped charging NSF fees, and revealing that some have not. The CFPB’s rule will force financial institutions that have been dragging their feet on doing away with these junk fees to finally stop their harmful practices.” 

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The new rule closes a regulatory loophole that had permitted financial institutions to offer overdraft services but exempted them from prohibitions in the Truth in Lending Act (TILA). When the Federal Reserve implemented TILA in 1968, it decided to not include overdraft services within the definition of credit. At the time, the practice of covering occasional check overages was a discretionary service extended to customers through manual review. However, with the introduction of the debit card in the 1980s, banks automated the service and introduced them at scale. Overdraft fees morphed into a line of revenue of more than $10 billion annually.

“Banking is supposed to be about making loans, taking deposits, and facilitating payments, but at some point, some banks decided it was also about charging junk fees,” said Adam Rust, Director of Financial Services for the Consumer Federation of America. “The CFPB’S proposed rule restores balance in the relationship between consumers and their financial institutions.

The CFPB’s proposal says that if a bank wants to make obscene profits on overdraft fees, then the service will be regulated as credit, but if it keeps prices to a reasonable and proportional level, it has a safe harbor.

The rule gives banks who want to charge overdraft fees a choice: they can charge a reasonable fee, in which the price is closely tied to the cost banks experience from overdrawn account balances, or they can build a profit-generating overdraft service, but as “covered overdraft credit,” with required pricing disclosures and regulatory treatment consistent with credit cards.

“Ideally, more banks would follow the lead of the ones that have eliminated overdraft fees entirely,” said Adam Rust. “But under the CFPB’s new proposal, while a financial institution can still choose to derive profits from overdraft, new disclosure rules will distinguish it unfavorably from its rivals.”

The CFPB believes the new rules will save consumers at least three billion dollars per year.

Some banks have eliminated these fees, others have reduced the penalty and limited the number of charges, but many other institutions still need to alter their practices. In 2022, consumers paid approximately $8 billion in overdraft fees. Before that, annual fees were regularly greater than $11 billion. However, some financial institutions have never changed their policies, and their dependence on those revenues comes at the great expense of their customers.

See the proposed rule and the corresponding fact sheet.

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The critically important Credit Card Penalty Fees rule will help ensure that the late fees charged on credit card accounts are “reasonable and proportional” to the late payment as required under the Truth in Lending Act (TILA). The proposal would adjust the safe harbor dollar amount for late fees to $8 and eliminate a higher safe harbor dollar amount for late fees for subsequent violations of the same type; prevent credit card companies from adjusting the safe harbor dollar amount every year for inflation; and provide that late fee amounts must not exceed 25 percent of the required payment.

The post Consumer Federation of America and Other Advocates Support CFPB Rule Related to Credit Card Penalty Late Fees appeared first on Consumer Federation of America.

“By making it difficult for consumers to report fraud and maintaining policies of not reimbursing victims of imposter scams, Venmo and Cash App are claiming to ‘hear no evil and see no evil,’” said Adam Rust, Director of Financial Services at the Consumer Federation of America.  “Fraudsters will exploit any advantage they can find, and as long as they believe they can operate on a payment app’s platform with impunity, they will harm consumers and small businesses to the tune of billions. We applaud Senators Brown, Reed, and Warren for holding Venmo and Cash App accountable.”

The post CFA Applauds Senators for their Actions to Address Payment App Fraud appeared first on Consumer Federation of America.

“We applaud the President’s actions today and the CFPB’s proposed rule on credit card late fees, which currently total $12 to $14 billion a year and disproportionately burden subprime consumers and consumers of color,” said Rachel Gittleman, CFA’s Financial Services Outreach Manager. “We look forward to working with the CFPB on this much-needed rulemaking that, as proposed, will profoundly impact consumers and their financial well-being.”

“Consumers pay billions each year to hotels, airlines, telecommunications providers and ticket sellers in junk fees, and we fully support these proposals to rein in the practices that perpetuate them,” said Erin Witte, CFA’s Director of Consumer Protection. “We are glad to see that President Biden is sensitive to these economic pressures on consumers and we encourage Congress to approach this pervasive problem with equal vigor.”

The post Statement of Consumer Federation of America on President Joseph Biden’s Actions on Junk Fees appeared first on Consumer Federation of America.

1. More closely tailor late fees to the amount of the debt owed by the cardholder;
2. Require a mandatory waiting period of several days before a late fee can be assessed;
3. Decline to incorporate deterrence as a factor in setting late fee rules and safe harbor amounts;
4. Include the savings from online-only statements in the calculation of costs, and require a postal mail notification before a late fee can be imposed for an online-only account; and
5. Exclude the costs of being a furnisher of information to consumer reporting agencies.

The post Consumer Groups Submit Comments to CFPB on Credit Card Late Fees and Late Payments appeared first on Consumer Federation of America.

Consumer Federation of America, the National Consumer Law Center (on behalf of its low income clients), Center for Responsible Lending also submitted a longer, more detailed comment.

The post Comments Regarding the CFPB’s Inquiry Into Buy-Now-Pay-Later (BNPL) Provider appeared first on Consumer Federation of America.

CFA President White has announced the formation of a Transition Committee made up of representatives of CFA’s Board, Executive Committee and staff.  “We are pleased that Jack will remain as CEO during the search for a replacement,” said White.

“During his long tenure at CFA Jack has not only been CFA’s main conduit between the organization and the media, but over the years he has led CFA’s efforts in child and product safety, indoor air quality, consumer education, auto sales practices and, most significantly, auto safety.  As a well-known consumer advocate, Gillis is author, co-author and editor of 75 consumer books including The Car Book, published for 40 consecutive years.  He served for ten years as a contributing consumer correspondent for NBC’s Today Show representing CFA, was Good Housekeeping’s personal finance columnist, and was a child product safety columnist at Child Magazine,” said White.

“Gillis’ advocacy has been responsible for major changes in the automobile industry, including significantly improved vehicle safety, better warranties, and increased fuel efficiency.  Early in his career, The New York Times featured Gillis as a leader in a new breed of consumer advocates.  He was an adjunct professor at The George Washington University, where he taught in the Graduate School of Government and Business Administration, and he currently serves on the boards of the Center for Auto Safety (chair), Advocates for Highway and Auto Safety, Center for the Study of Services (Consumers’ Checkbook) and CAPA.  Previously, he was Executive Director of the Certified Automotive Parts Association, a non-profit standard setting organization.  He received his MBA from The George Washington University where he served as a Teaching Fellow and his BA from the University of Notre Dame,” added White.

“Serving the Consumer Federation of America for all of these years has truly been an honor.  It has enabled me to work closely with some of America’s greatest consumer and safety advocates, men and women who have truly changed America for the better.  Any success that I’ve had at CFA rests squarely on the shoulders of these remarkable activists.  As it enters its 54^th year, CFA has a very exciting future ahead and I will always cherish being a small part of its distinguished history,” said Jack Gillis.

Contact: Marceline White, marceline@marylandconsumers.org

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Our nation’s comprehensive COVID-19 response must include a strong paid sick leave policy and protecting consumers by ensuring affordable access to communications services, preventing utility shutoffs, mortgage foreclosures, student loan defaults, negative credit reporting effects, overpriced insurance, and making sure that airline and hotel customers’ rights are protected in any financial bailout of these industries.

The Consumer Federation of America has identified critical consumer protection issues that must be addressed as part of a comprehensive response to this crisis. Many of these items are focused on protecting those hardest hit by the economic fallout. Doing so is not just a matter of economic justice; it is the best way to stabilize the economy.

CFA and it’s over 250 national, state and local organizations are committed to working with policymakers at all levels to implement a “Comprehensive Consumer Agenda to Address the COVID-19 Crisis”.  For the details behind the following agenda, please see our LINK March 20, 2020 letter to the President and Congress.

A Comprehensive Consumer Agenda to Address COVID-19

1. Create a comprehensive national paid sick leave policy to reduce the spread of the disease. Lack of paid sick leave encourages tens of millions of workers to continue working when they are sick, which can nullify the critically important benefits of social distancing.

2. Protect those hardest hit from economic hardship by:

• Providing forbearance to economically distressed mortgage borrowers. Any homeowner experiencing economic hardship because of the virus must have access to 180 days of forbearance on mortgage payments.
• Halting evictions and foreclosures. There must be a 180 day moratorium on evictions of tenants experiencing economic hardship because of the virus, with support provided to property owners who suffer rental income losses.
• Canceling student loan payments for the duration of the crisis. It is not enough to pause monthly payments, the government must make tax free payments on holder’s behalf so millions of Americans can continue to make progress reducing their student debt as the economy struggles.
• Suspending debt collection. Debt collection activities, including legal proceedings, garnishments, repossessions, and debt selling, must be prohibited during the state of emergency.
• Curtailing high-cost lending schemes: A rate cap of 36% must apply to high-cost credit, such as payday loans, refund anticipation loans, and car title pawns to ensure that vulnerable consumers aren’t trapped by overpriced debt.
• Placing a moratorium on negative credit reporting. To protect consumers’ credit records during the pandemic, there must be, at least, a four month moratorium on negative credit reporting.
• Maintaining consumers’ access to affordable communications services. As remote communications become critically important, service providers must abandon pricing practices that maximize revenues, suspend overcharges for “excess” data usage, terminate service cut-offs, and increase network availability to the public.
• Requiring big data platforms to promote the public interest. Big data platforms must remove misleading information. Their big microphones must promote the public interest, not the corporate bottom lines. Non-commercial pandemic information from public health, safety and governmental entities must be given a prime location on all screens.
• Preventing misleading advertising and price-gouging. Advertisers, and the media carrying ads, must ensure that claims related to the coronavirus are completely accurate. Online marketplaces must reject products and services making misleading claims or that offer basic necessities at unfairly inflated prices.

3. Ensure that consumers’ interests are protected as industries seek federal financial support by:

• Mandating fairness in the skies. Airlines must waive cancelation and change fees for all consumers during the federal state of emergency. As a condition of an airline bailout, Congress must require price transparency, make future fees for cancelations, changing flights, and checking bags proportionate to actual costs, lift state preemption, and provide consumers with private rights of action.
• Accommodate hotel customers. As organizations and individuals heed requests to limit non-essential travel and cancel events, some hotels have continued to charge consumers and organizations. As a condition of a hotel bailout, Congress must require hotels to honor requests for room and event cancelations without penalty and to refund deposits until the federal state of emergency is suspended or travel limit recommendations are lifted. Going forward they must provide full price transparency on charges and extra fees.
• Reduce auto insurance premiums to reflect reduced driving. Insurers should be required to offer discounts to people driving less due to COVID-19.  Miles driven, a key factor in claims costs, will drop dramatically as workers are laid off, switch to telework, or self-isolate. This should be a consumer benefit, not an insurer windfall. See CFA’s letter to Insurance Commissioners.

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 Top Ten Tips for Holiday Shoppers

 Make a List, Check It Twice: Decide how much you can spend this holiday and stick to it. When you make your list, include an amount for each person and, if you know what you’re getting them, what you expect to pay for the item.  Adding your list up at the kitchen table can be an eye opener—so make adjustments early rather than when you are running through the stores or pounding on your keyboard.  And when you’re shopping, keep a running total of your spending—it’s amazing how keeping tabs on your total will protect your wallet as it fills with receipts!

You Gotta Shop Around: You can easily save 10 percent, or considerably more, by comparing prices. When shopping around online, be sure you purchase from a secure site, review receipts for accuracy, and be mindful of shipping costs. If free shipping is available with a minimum purchase, be sure the additional items are really needed and don’t put you way over the ‘free shipping’ requirement.

Give the Scammers Goose Eggs, Not Your Money: If you see a popular item online for much less than the typical price, beware—it could be from a fraudster. That amazing deal may simply be a way to get your credit card information. Stick with companies you know and steer clear of email and social network offers from unfamiliar sellers – they could be scammers who will take your money and run.

Santa’s Receipts are Gold: Whether buying online or in-store, keep all receipts—they are gold! Without a receipt, retailers will usually refund the item’s current price, not what you actually paid.  And if you find an item cheaper elsewhere, many retailers will match the lower price, but only if you have the receipt.

Avoid Extra Treats: When shopping online, be careful of additional “suggested” items based upon your purchases. Your savings after searching for the best price can evaporate when you buy the extras that pop up as you check out.

Don’t Get Wrapped Up in Debt: Avoid borrowing money for holiday gift giving. Remember, the old adage—it’s the thought that counts—not the cost! If you use a credit, rather than debit card, be sure you know the day your payment is due so that high interest charges don’t evaporate the great buys you made.

Dream of a Green Christmas: To avoid overspending, consider paying with cash. Surveys show we spend more when using a credit card—doling out the “green” is a great way to limit your spending.

Don’t Let the Grinch Steal Your Christmas: Identity thieves love unsecured wireless networks—so only connect to networks that require a security key or certificate.  If you use a wireless connection at home, be sure that the security features are turned on and set your own password, rather than use the default password.

Ask Santa About Returns: Before checking out, double check return policies and time limits. Some retailers will let you return online purchases to their stores to avoid return shipping charges, others actually provide free return labels.

Checkout with Care: Watch out for “savings” coupons and clubs when checking out—you may be signing up for a monthly program and your credit or debit card number could be transferred to a another company. These programs typically charge $10 to $15 a month and the rigmarole to cancel can be a hassle.

The post Shopping Smart: CFA’s Jack Gillis Releases His Latest Tips to Keep Holiday Shopping From Becoming a January Hangover appeared first on Consumer Federation of America.

“As interest rates have risen, financing holiday purchases with credit cards has grown more expensive,” noted Steve Brobeck, a senior fellow at the Consumer Federation of America (CFA). “Consumers with high credit card debt levels should be particularly cautious about increasing their debt during the holiday season,” he added.

Credit card debt, as well as interest rates, has also increased significantly in the past several years.  According to Federal Reserve Board data, outstanding revolving credit rose from $855.6 billion in 2013 to $1,041.4 billion in August 2018, an increase of 22%.[3]  Consumers are not paying interest on a portion of this debt since it includes new balances that are paid off at the end of the month.  And a small portion of the outstanding credit represents debt from overdraft loans.[4]  Yet, in 2018 consumers will still be paying tens of billions of dollars more in credit card interest than they did in 2013.[5]

The credit card interest rate hike is significantly higher than the rate increase for other types of consumer credit, as the Federal Reserve data below indicates.

“Issuers should explain why credit card rates have risen much more rapidly than other consumer loan rates,” said CFA’s Brobeck.  “The increase in the prime rate by two percentage points in the same period does not explain all of the 3.5 percentage point hike in card rates,” he added.  Many credit card rates are variable and linked to the prime rate.

There are recent signs that some consumers are having greater difficulty making credit card payments though credit card delinquency and default rates remain low relative to these rates since the 1990s.[6]  For the largest 100 banks, these rates are well below peak rates during the Great Recession – for delinquency rates, 2.48% this past August compared to 6.64% in the second quarter of 2009, and for charge-off rates, 3.72% in August compared to 10.68% in the fourth quarter of 2009.  But for all other banks, the rates were at Great Recession levels – for delinquency rates, 6.14% in August compared to 5.61% in the fourth quarter of 2008, and for charge-off rates, 7.57% in August compared to 8.36% in the first quarter of 2010.[7]

“The relatively high credit card debt and interest rate levels may not be affordable for many consumers in the event of an economic downturn,” noted CFA’s Brobeck. Before the Great Recession, credit card payment problems had been steadily on the rise: Delinquency rates at commercial banks increased from 3.54% in the fourth quarter of 2005 to 6.77% in the second quarter of 2009, while charge-off rates at these banks rose from 3.17% in the first quarter of 2006 to 10.54% in the fourth quarter of 2009.

Contact: Steve Brobeck

[1] Federal Reserve Board, Consumer Credit G.19 release (November 7, 2018).  The assessed interest rate is the one charged on outstanding balances, not the one, also reported, for all credit card accounts.

[2] St. Louis Federal Reserve Bank, FRED, historic data on assessed credit card rates charged by commercial banks (https://fred.stlouisfed.org/series/TERMCBCCINTNS).

[3] Federal Reserve Board, G. 19 release, loc. cit.  The August figure was used to be comparable to the latest reported interest rate figure.  The November release reported August figures for both statistics but only the September figure for outstanding credit (which at $1041.1, was virtually identical to the August figure).

[4] For a discussion of these issues, see:  Consumer Financial Protection Bureau, The Consumer Credit Card Market 2017, chapter 2.

[5] No federal agency reports the percentage of total outstanding revolving credit that incur interest charges.  However, using bank reports of credit card interest collected, it is possible to estimate this percentage for credit cards.  The research organization R.K. Hammer estimated credit card interest income at $63.4 billion in 2016, which given the average assessed interest rate that year, suggests that about one-half of outstanding revolving credit incurred interest charges.  Using this 50 percent figure, estimated credit card interest charges rose from about $55 billion in 2013 to a projected $80 billion in 2018.

[6] Credit card delinquency rates indicate the percentage of loans for which payments, typically two consecutive ones, have been missed.  Credit card charge-off rates indicate the total amount of charges in default, typically at least 180 days, as a percentage of total charges.

[7] Historic delinquency and charge-off rates on credit cards for all commercial banks, for the 100 largest banks, and for all smaller banks are reported by FRED (Federal Reserve Economic Data) maintained by the St. Louis Federal Reserve Bank.

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“The rule will help to combat the culture of companies profiting from charging illegal fees and committing other crimes against their customers,” said Rohit Chopra, Senior Fellow at the Consumer Federation of America. “This is an important step of restoring law and order to the financial marketplace.”

Arbitration is a method that resolves disputes outside the court system. Tens of millions of financial contracts include clauses that allow companies to block lawsuits from moving forward in court, including those by a group of consumers banding together.

In 2010, Congress banned forced arbitration clauses in mortgage contracts. Congress also directed the CFPB to conduct a study of forced arbitration clauses and restrict their use if doing so would be in the public interest.

Today’s rule does not ban forced arbitration altogether. Instead, it bans arbitration clauses only if they forbid groups of consumers from getting their day in court, sometimes referred to as a “class action.”

Group Claims

Companies that break the law by overcharging millions of consumers a small amount know that individual consumers have little incentive on their own to spend the time and energy to take the company to court. The most effective way to get a refund is to join together with other consumers in similar situations.

For example, credit card companies paid out hundreds of millions of dollars to consumers who used their credit cards when traveling overseas. Roughly ten million consumers were given refunds as part of the action, which alleged that the credit companies conspired to conceal markups and fees on foreign exchange rates. Many of the consumers who benefited probably did not know they were cheated by their credit card company.

CFPB Forced Arbitration Study

In 2015, the CFPB published a 728-page study on forced arbitration. The study concluded that forced arbitration limited relief for consumers. Other key findings included:

• Few arbitration cases involved small claims. Most consumers pursuing an arbitration case were seeking relief for more than $1,000.
• No evidence that forced arbitration reduces prices. There was no statistically significant evidence that forced arbitration leads to lower prices for consumers.
• Frequently used to block group claims. The study revealed that it was uncommon for companies to block individual lawsuits, but frequently used to block class action lawsuits.

The study also found that, over a five-year period, 160 million consumers received $2.7 billion in cash, refunds, and fees, far more expansive that relief obtained through individual arbitration filings.

“The final rule is closely tailored to the findings of empirical studies on arbitration and should withstand any frivolous challenges in Court,” Chopra said.

Support from Consumer and Veterans Groups

Industry lobbyists have vigorously defended arbitration, noting that arbitration is faster and cheaper than going to court, but have struggled to defend the practice of denying the choice to a consumer. Today’s rule does not limit consumers from voluntarily resolving a dispute through arbitration.

Denying a consumer the choice to pursue a group claim can allow certain frauds to continue. According to a complaint by the Department of Justice, Santander illegally repossessed more than 1,100 vehicles from members of the military. Santander succeeded in concealing the crime from the public and other servicemembers by blocking a group claim by US Army National Guard Sergeant Charles Beard, forcing him into an individual, private arbitration. Eventually, regulators caught Santander in similar illegal conduct against another servicemember. The rule would ban such conduct.

Consumer and veterans groups strongly supported the CFPB’s proposed rule. In a letter from a coalition representing 5.5 million current and former servicemembers and their families and survivors, The Military Coalition noted, “Our nation’s veterans should not be deprived of the Constitutional rights and freedoms that they put their lives on the line to protect, including the right to have their claims heard in a trial by a jury when their rights are violated. The catastrophic consequences these clauses pose for our all-voluntary military fighting force’s morale and our national security are vital reasons for the CFPB to act quickly to finalize the regulations.”

Contact: Rohit Chopra, rchopra@consumerfed.org

The Consumer Federation of America is an association of more than 250 non-profit consumer groups that, since 1968, has sought to advance the consumer interest through research, education, and advocacy.

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And the large player that invented the prepaid industry, Green Dot, supports the rule.  The rule will, however, result in another industry player, NetSpend losing $80 to $85 million a year in overdraft fees. It is perhaps no surprise then that the Congressional Review Act Resolution was sponsored by Senator Perdue of Georgia, and that Senator Isakson of Georgia was one of six Republican co-sponsors—NetSpend’s parent company TSYS is headquartered in Georgia.  Representative Graves of Georgia with cosponsors Reps. Loudermilk (GA) and Huizenga (MI) have also introduced a resolution in the House.

The Congressional Review Act (CRA) allows Congress to, relatively quickly, disapprove a pending rule within a certain timeframe and without filibuster.  The repeal also has the impact of barring an agency from issuing another rule in substantially the same form as the disapproved rule.

The prepaid card rule was developed over a period of more than four years and informed by an in-depth study. That is what good government looks like: policy decisions informed by research that help everyday people. Good government does not look like invalidating consumer protections that have industry support so that a company can continue to profit off of consumers as the only major prepaid card provider with overdraft fees.

But under the surface there is an even more troubling current of a general attack on the CFPB’s work to protect consumers as this resolution is only the first of many to come.  There will undoubtedly also be CRA Resolutions looking to repeal other forthcoming rules from the CFPB including protections for consumers trapped in cycles of using payday loans continuously to make ends meet, and restoring access to the court system for consumers currently forced into unfair arbitration systems.

CFA has a long history of working in coalition with other groups that have released statements detailing why this rule is of critical importance to consumers such as Consumers Union (press release) and the National Consumer Law Center (press release).

Our coalition of advocates for everyday people will continue to advocate that consumers who use prepaid cards deserve protections just like people who use traditional checking accounts.

If you also believe that’s true let the Senators and representatives sponsoring these resolutions know, especially if you live in their state: Sen. Perdue (R-GA) @sendavidperdue, Sen Cotton (R-AR) @SenTomCotton, Sen. Isakson (R-GA) @SenatorIsakson, Sen Johnson (R-WI) @SenRonJohnson, Sen. Lankford (R-OK)  @SenatorLankford, Sen. Lee (R-UT) @SenMikeLee, Sen. Rounds (R-SD)  @SenatorRounds, Sen. Enzi (R-WY) @SenatorEnzi, Rep. Graves (R-GA-14) @RepTomGraves, Rep. Loudermilk (R-GA-11) @RepLoudermilk, and Rep. Huizenga (R-MI-2) @RepHuizenga.

The post Congressional Review Act Should Not Be Used on the Prepaid Card Rule or Any Other CFPB Rule appeared first on Consumer Federation of America.

“Financial services providers include arbitration agreements in their contracts for the purpose of limiting a consumers access to relief,” said Tom Feltner, director of financial services at the Consumer Federation of America.  “Today’s proposal, if finalized, would restore consumers’ ability pursue class actions when abuses are widespread and provide an important deterrent to future bad practices.”

The proposed ban follows a comprehensive study of arbitration clauses in financial product contracts released in March 2015.  The report, the most comprehensive empirical study of arbitration agreements to date, found that consumers rely on class actions to achieve relief and that arbitration clauses act as a barrier to important class actions.  The report also found that consumers are unlikely to know that arbitration clauses limit their right to pursue their claim in court.

The CFPB’s proposal does not propose to eliminate arbitration clauses that prohibit consumers from pursuing claims against a company as individuals.   Instead, the proposal would require companies to disclose the number of claims filed and awards issued in arbitration.

“Disclosure alone is not enough to protect consumers’ right to hold financial providers accountable for abusive practices,” said Feltner.  “We urge the Bureau to prohibit arbitration agreements that limit consumers’ access to justice as part of a class action or individually.”

The proposal will be reviewed by panel of small business stakeholders and is the first step in a CFPB rulemaking.

Contact: Tom Feltner, 202-618-0310

The Consumer Federation of America is an association of more than 250 nonprofit consumer groups that was established in 1968 to advance the consumer interest through research, advocacy, and education.

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Now it is time, advocates urge, to address abusive fees on debit and prepaid cards.

“The CARD Act has been hugely successful in banning the biggest unfair credit card gotchas like retroactive interest rate hikes and excessive penalty fees,” says Linda Sherry, director of national priorities at Consumer Action. “Now it’s time to tackle the missing protections, like limits on fees and credit features, on the other payment cards like debit and prepaid.”

“More reform is needed in order to rein in abuses on prepaid and debit cards and continue the effort to protect American consumers,” says Rachel Anderson, program director with the Center for Responsible Lending.

For debit card transactions, overdraft fees are particularly destructive. For debit cards, the typical overdraft fee exceeds the size of the overdraft itself. At $35 per overdraft, these fees can quickly overwhelm customers, particularly when multiple fees are applied in a short period of time.  Even following a 2010 “opt-in” requirement intended to curb such abusive charges, CRL research found that overdraft fees on ATM and debit card transactions cost consumers at least $5.8 billion per year.

“One of the biggest money-savers in the CARD Act was a requirement that penalty fees be reasonable and proportional; overdraft fees for checks and electronic payments should be subject to the same requirement,” stated Chi Chi Wu, staff attorney for the National Consumer Law Center. “Right now, we estimate that banks make about $25 in pure profit from each overdraft fee, giving banks an incentive to push consumers into overdrafting.”

“Overdraft fees should be completely banned on debit and prepaid card transactions,” said Lauren Saunders, associate director at the National Consumer Law Center.  “Debit card transactions can be denied without a fee if the account is empty, and then the consumer can decide whether to pay on credit or skip the purchase.  Keeping overdraft fees off of prepaid cards is especially important to keep those cards safe for people who have been shut out of bank accounts.”

While the debit card market has been subject to some oversight, the quickly expanding prepaid card market has not. Despite the market’s rapid recent growth, there are no federal laws or regulations protecting consumers from hidden fees, expensive credit features, and other hazards; moreover, there are no requirements to clearly disclose all the costs and fees of prepaid cards to consumers. Currently, the Consumer Financial Protection Bureau (CFPB) is considering rules on prepaid and debit cards.

The CARD Act demonstrated that good regulation can make financial services more transparent and cheaper for consumers without reducing access. The same kind of thoughtful, forward-thinking reform is needed to bring clarity and fairness to debit cards and prepaid cards.

“Before the CARD Act passed, card issuers ratcheted down the thumbscrews on honest consumers. Increased late fees were not enough as issuers also imposed penalty interest rates on consumers who were as little as one hour late, often due to unfair practices, such as making bills due on a Sunday,” said Ed Mierzwinski, Consumer Program Director for U.S. PIRG. “By all accounts, the CARD Act is a government success story that aligned the interests of the banks with their customers.”

“The CARD Act is proof that upfront pricing and strong consumer protections can work together to give consumers safe choices in a competitive marketplace,” concluded Tom Feltner, director of financial services at Consumer Federation of America.  “Protecting consumers from unpredictable or hidden fees is the clear way forward in the debit and prepaid card markets because we know it works.”

Contact: Catherine An, catherine.an@responsiblelending.org, 202-349-1878

For more information about the Credit CARD Act – or to request an interview with an expert – please contact Catherine An at catherine.an@responsiblelending.orgor 202-349-1878 or Jim Lardner at jim@ourfinancialsecurity.org or 202-466-1885.

The post Credit CARD Act Saves Consumers $12.6 Billion appeared first on Consumer Federation of America.

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Industry has expressed concerns and argued that this information should not be made public, but we don’t believe that it will be detrimental to reputable companies. If credit card issuers improve their practices and the way that they respond when customers contact them about problems, customers will be happier with their services and less likely to complain to the CFPB. Working with our colleagues in AFR, CFA will encourage the CFPB to go further and make information about complaints that it receives concerning other types of financial services publicly available. We will also continue to advocate for the complaint narratives to be included in the publicly accessible database, as we believe that this would provide even more useful insight into the problems that consumers are experiencing.

CONTACT: Susan Grant 202-939-1003

The Consumer Federation of America is an association of nearly 300 nonprofit consumer organizations that was established in 1968 to advance the consumer interest through research, advocacy, and education.

The post CFA Lauds Creation of Credit Card Complaint Database and Urges CFPB to Make More Complaint Data Public appeared first on Consumer Federation of America.

Washington, D.C. – The Consumer Federation of America lauded new protections for credit card consumers that take effect today as part of the Credit Card Accountability, Responsibility, and Disclosure (CARD) Act.  CFA also cited continuing abuses in the credit card marketplace as a reason for the creation of a new federal Consumer Financial Protection Agency.

“The new protections of the Credit CARD Act are groundbreaking, but large credit card issuers are already coming up with new tricks and traps to extract as much money as possible from consumers,” said Travis Plunkett, CFA’s Legislative Director.  “Card issuers have increased interest rates and fees in advance of the law’s implementation and imposed new terms to evade protections in the law.  That’s why we need the Senate to enact the Consumer Financial Protection Agency, so that consumers will have a cop on the beat to stop continuing credit card company antics.”

Most provisions of the credit card law, which was approved by Congress and signed into law by President Obama last year, take effect today.  The law requires card issuers to:

• Provide at least 45 days notice to most customers before making significant changes to their card, such as hiking the rate or fees.
• Inform customers on their monthly bill how long it will take to pay off their balance if they make only minimum payments.
• Mail a monthly bill at least 21 days before payment is due and not use holidays and weekends as an opportunity to levy late fees.
• Apply payments to the highest interest balances first.

And the law prohibits card issuers from:

• Increasing the card’s interest rate in the first year of the account in most cases.
• Applying any increase in rates to old charges in most cases.
• Charging an over-the-limit fee unless the customer affirmatively authorizes over-the-limit charges.
• Issuing cards to consumers under 21 years of age unless they show they have the ability to make payments or get a co-signer.
• Using double-cycle billing, where interest charges are imposed on purchases that have already been paid off.

“As we’ve seen, overseeing the credit card companies is like playing Whack-A-Mole – just when one abuse is shut down, they come up with something new,” said Susan Weinstock, Financial Reform Campaign Director at CFA.  “That’s why we need a Consumer Financial Protection Agency whose sole mission will be to look out for consumers and to stop these abuses as they develop.”

The post New Credit Card Protections Are a Good Start But Show That Americans Still Need a Consumer Cop on the Beat appeared first on Consumer Federation of America.

As Chairman Dodd prepares to leave the Senate, the fate of efforts to overhaul the financial regulatory system that failed to prevent our current financial crisis hangs in the balance.  If Senator Dodd is successful in spearheading the passage of meaningful regulatory reform comparable to the legislation he has proposed, he will improve the lives of Americans and help protect our economy from future financial catastrophe for generations.  In particular, the Consumer Federation of America looks forward to working with Senator Dodd in the next few months to achieve his goal of creating both an independent Consumer Financial Protection Agency, whose sole mission will be to look out for consumers in the areas of mortgages, credit cards, and consumer lending as well as a strong package of protections for average investors.

Senator Dodd deserves the thanks of American consumers everywhere for his accomplishments and continuing efforts on their behalf.

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