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)

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“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 bill enacts limits and protections, many of which consumers have when using other forms of credit, like requiring that overdraft and nonsufficient funds fees be reasonable and proportional to cost. In addition, the bill prohibits certain predatory practices like re-ordering transactions to artificially increase fees.

“We applaud Congresswoman Maloney and the House Financial Services Committee on passing this critical legislation that will protect consumers from abusive overdraft fees,” said Rachel Gittleman, Financial Services Outreach Manager at Consumer Federation of America. “These fees are borne predominately by those who can least afford them and disproportionately fall on low-income consumers and consumers of color. Consumers cannot wait for banks to individually put an end to this practice—the cost is just too high.”

Overdraft fees have become a financial powerhouse for the banks and credit unions that charge them with revenue for overdraft and non-sufficient funds (“NSF”) fees reaching $15.47 billion in 2019. Earlier, the CFPB found that nearly 80% of all overdraft revenue is borne by less than 9% of consumer accounts whose account balances average $350, paying 10 or more overdrafts per year. The average overdraft fee is nearly $35, while the most common transaction to trigger overdrafts are debit card transactions and the average overdraft for those transactions is just $20, according to the Center for Responsible Lending. Although CFA acknowledges and applauds that some banks have made significant changes to their overdraft programs, these measures are insufficient by themselves to make permanent, systemic change.

CFA submitted a statement for the record to the Committee calling for congressional action and joins a coalition of consumer, labor, civil and human rights, and religious organizations in support of this legislation.

“We urge the full House to swiftly pass this legislation requiring all banks and credit unions to limit the destructive use of overdraft fees which do far more to hurt consumers than to help,” continued Gittleman.

Contact:  Rachel Gittleman, rgittleman@consumerfed.org

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As the FDIC prepares to conduct a Community Reinvestment Act (CRA) examination of Utah-based TAB Bank – which works with EasyPay Finance to snare consumers into predatory loans for auto repairs, tires, furniture, and even pets – the Stop the Debt Trap coalition filed a petition with the FDIC signed by more than 44,500 people.

The petition notes that “the typical predatory loan borrower will make payments for months that go mostly to interest and do little to pay off the loan,” and urges the FDIC to stop “Transportation Alliance Bank and any other bank from fronting for predatory lenders evading state interest rate limits.”

In addition to the petition, the Coalition submitted a CRA comment letter to the FDIC describing hundreds of consumer complaints filed against TAB Bank’s lending partner, EasyPay Finance. The letter asserts that EasyPay originates loans in TAB Bank’s name and the bank is responsible for its conduct. The letter concludes: “The FDIC should downgrade TAB Bank’s CRA rating in light of the extensive evidence of the abusive lending and potential violations of the law that it is facilitating. High-cost credit that extracts wealth and burdens borrowers in debt does not meet credit needs in a responsible manner and must be penalized on CRA exams.”

In its comment letter, the coalition argues: “In assessing whether TAB Bank is appropriately serving its communities, the FDIC should consider not merely access to credit but also the quality of credit extended. Predatory credit at high interest rates that borrowers cannot afford to repay, credit designed to evade state interest rate laws, credit that is the result of deceptive practices, and credit that leads to violations of debt collection, credit reporting, and other laws does not meet the convenience and needs of communities.”

Today’s action follows reports by the Stop the Debt Trap Coalition about predatory puppy loans and predatory auto repair loans by EasyPay Finance and TAB Bank, demonstrating that hundreds of consumers have filed complaints describing outrageous interest rates hidden in fine print, deceptive promises of rebates, and payments that go mostly to interest. These loans often result in damaged credit reports and debt collection activity. Another report details the harm to veterans and military families, and potential violations of the Military Lending Act, which generally prohibits interest rates above 36% for servicemembers and dependents.

Contact:  Rachel Gittleman, rgittleman@consumerfed.org

The post In Evaluating TAB Bank, FDIC Should Consider Consumer Harm, Possible Legal Violations, from Predatory Lending appeared first on Consumer Federation of America.

The post Predatory Lenders TAB Bank and EasyPay Finance Harm Veterans and Military Servicemembers with Loans up to 189% APR appeared first on Consumer Federation of America.

EasyPay Finance, which charges up to 189% APR, is popping up as a financing option at furniture stores, auto repair shops, pet stores and other retail outlets everywhere – including at shops near military bases where the loans are more likely to affect servicemembers. For example, EasyPay Finance is available at numerous auto repair locations and furniture stores that offer EasyPay loans near a military base.

“The fact that predatory lenders continue to target military families is unacceptable,” said Besa Pinchotti, CEO of the National Military Family Association. ”Military families make tremendous sacrifices for our country every day. It’s outrageous that after all the work we’ve done to protect our military families, they continue to be preyed upon by lenders—especially when they’re at their most vulnerable—needing money for car repairs, to furnish their homes after a military-mandated moves or to make ends meet during a deployment.”

Because banks are exempt from state interest rate caps, TAB Bank helps disguise EasyPay Finance loans as “bank loans,” enabling it to charge exorbitant rates in states that prohibit them. One Virginia military consumer complained about “illegal” 119% interest that appeared to be far above Virginia’s legal rate.

“The men and women who have served our country deserve better than predatory loans,” said Paul E. Kantwill, Executive Director of The Rule of Law Institute at Loyola University Chicago School of Law. “At 100% to 189% APR, TAB Bank and EasyPay Finance’s loans evade state interest rate laws and harm members of the military community.”

The complaints indicate that EasyPay Finance and TAB Bank may be violating or evading the Military Lending Act, a law that limits the annual interest rate on loans to military servicemembers and their dependents to no higher than 36%. For example, one servicemember in Virginia got stuck with 96% APR for an auto repair and couldn’t get EasyPay to fix the rate. Another servicemember in Nevada advised the pet store that they were military but “I am now paying 189% interest on my loan. When I called [EasyPay] they were rude and said they do not have to lower my interest rate at all and they based it all on a loophole.”

“EasyPay and TAB Bank are using the harmful rent-a-bank model to evade state and federal laws and lure servicemembers and veterans into predatory, outrageously priced loans for auto repairs, pet adoptions, and other retail purchases,” said Rachel Gittleman, Financial Services Outreach Manager of the Consumer Federation of America.

“It is unconscionable that TAB Bank and EasyPay Finance are making loans with up to 189% interest to servicemembers and veterans,” said Lauren Saunders, Associate Director of the National Consumer Law Center. “Auto repair shops, pet stores, and other retailers concerned with their reputation should stop steering customers to predatory loans by TAB Bank and EasyPay Finance.”

Numerous military consumers have complained about EasyPay loans to the Consumer Financial Protection Bureau, reporting:

• Outrageous interest rates of 96% to 189% charged to servicemembers, veterans or their family members, sometimes in states that do not allow those rates.
• Payments for months and years that do little to reduce the loan balance.
• Interest rates hidden in fine print. Applications required to be completed on small cellphones, making the contract language barely legible, leave consumers in the dark about the terms.
• Promises of elusive full interest rebates if paid in 90 days, with obstacles that prevent consumers from avoiding interest.
• Automatic payments not properly processed, leading to late payments that deprive the consumer of the interest rebate.
• Rude and unhelpful customer service and administrative errors, leading to missed payments, fees, and loss of the interest-free option.
• Harm to credit reports, including from loans paid in full or reported inaccurately. No response to consumer disputes.
• Debt collection issues, with loans sent to collectors after the interest balloons, insults even when payments errors happened while the consumer was in the hospital, and collectors failing to correct credit reports after the loan is paid.

“The Department of Defense studied high-interest loans like those issued by EasyPay Finance and TAB Bank and concluded they harmed troops and their families – and undermined military readiness,” said Nadine Chabrier, senior policy counsel at the Center for Responsible Lending. “TAB Bank and retailers, such as Meineke, should stop facilitating the sale of EasyPay loans, which inflict pain upon military communities and consumers across the country. The FDIC is responsible for supervising TAB Bank and should stop it from abusing its charter by enabling these predatory loans.”

A recent consumer alert warns of deceptive auto repair financing practices and tells consumers what steps to take if they’ve taken out an EasyPay/TAB bank loan. Military Families need to read the small print to avoid costly loans at high interest rates, and know their rights under the Military Lending Act. Those who have experienced these unreasonably high interest rates and deceptive financial lending practices should contact the Consumer Financial Protection Bureau for investigation.

The coalition is also circulating a petition to urge the FDIC to stop TAB Bank and other banks from helping nonbank lenders disguise their loans as bank loans that are exempt from state interest rate limits. The petition currently has more than 19,000 signatures.

Contact: Rachel Gittleman

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“This is a great step forward for America’s consumers, and we applaud the efforts of the Consumer Financial Protection Bureau in pushing credit reporting agencies to reevaluate their use of medical debt on consumer credit reports,” said Rachel Gittleman, Financial Services Outreach Manager at Consumer Federation of America. “However, many consumers will still have medical debts on their credit reports, which can negatively impact their ability to secure housing, loans, or even jobs. Black, Hispanic, and low-income consumers are more likely to have medical debt and more likely to be under- or uninsured. Consumers should not face lasting repercussions from getting sick.”

“Medical debt is frequently overwhelming and confusing, and consumers face an uphill battle trying to remove inaccurate information from their credit reports,” said Erin Witte, Director of Consumer Protection at Consumer Federation of America. “Particularly while the COVID-19 pandemic is ongoing and medical debt is surging, consumers will benefit from having these medical debts removed from their credit reports so that they can meaningfully participate in the economy.”

The credit bureaus announced that, beginning in July, they will remove medical debt which was paid after it was sent to collections. Prior to this change, these debts could stay on a consumer credit report for up to seven years. In addition, the bureaus will wait a year before adding new unpaid medical debts sent to collections and, starting next year, the bureaus will stop including medical debts of less than $500.

These changes were announced on the heels of a report issued by the Consumer Financial Protection Bureau which showed that consumers have $88 billion in medical debt on their credit reports. Although 1 in 3 consumers have past due medical bills, according to the National Consumer Law Center, the debt burden is disproportionately carried by Black and Hispanic people, young adults and low-income consumers. Medical debt has lasting repercussions for consumers— and is a leading cause of bankruptcy, with 62% of bankruptcies related to medical debt.

Contact: Rachel Gittleman, 609-571-5953

Contact: Erin Witte, 202-596-9807

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When Congress passed the first of the modern income-driven repayment (IDR) plans in 1992, it made a promise to borrowers that federal student loan payments would be affordable, and that even if borrowers were low-income, through eventual cancellation, their student loans would not be a lifetime burden. IDR has failed to deliver on every aspect of that promise. The groups urged the Biden Administration to restore faith in IDR through the creation of an IDR waiver.

The Biden Administration recently recognized and took steps to address similar failings in the Public Service Loan Forgiveness (PSLF) program by implementing a waiver that would allow the millions of public service workers to finally benefit from the promise of PSLF. While the groups applauded and celebrated these efforts, they urged the Administration to simultaneously address the parallel failures of the IDR program through a similar waiver.

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The legislation, which is supported by more than 200 groups and academics representing all 50 states and the District of Columbia, reestablishes usury laws that existed in nearly every state throughout most of the 20^th century and protects consumers from predatory lenders that have historically targeted vulnerable consumers including veterans, senior citizens, low- income consumers, rural consumers, and communities of color. This landmark legislation is reintroduced on the heels of a bipartisan referendum on the harmful rent-a-bank model that is being used by predatory payday and installment lenders to make triple-digit interest rate loans that are illegal across the country.

“This important legislation is needed now more than ever as consumers across the country try to recover from the financial ruin caused by the COVID-19 pandemic,” said Rachel Gittleman, Financial Services Outreach Manager with the Consumer Federation of America. “We thank Congressmen García and Grothman for prioritizing consumers and ensuring they are protected from predatory, high cost lenders that thrive on the unaffordable debt trap created by the borrower’s inability to repay and continual reborrowing.”

This legislation extends protections that currently exist for our nation’s servicemembers through the Military Lending Act (MLA) to veterans, Gold Star Families, unactivated reservists, and all consumers. The MLA passed in 2006 and caps the Annual Percentage Rate (APR) on loans offered to servicemembers and their families at 36 percent. The MLA has helped curb predatory lending among military members, as have rate caps in eighteen states and the District of Columbia that prevent short-term payday loans. However, the MLA fails to protect veterans or surviving family members, who have made unparalleled sacrifices for this country, and does not protect American consumers who live states that do not have any limits on the amount of interest a lender can charge.

“Payday loans disproportionately target and harm those who have historically been excluded from mainstream financial services,” Gittleman continued. “By disproportionately locating storefronts in majority Black and Latino neighborhoods, predatory payday lenders systemically target communities of color stripping these consumers of wealth and further exacerbating the racial wealth gap. This legislation not only protects Black, Latino and other consumers of color who have been targeted by predatory lenders, but also protects other communities, including veteran, low-income, rural, and senior citizen consumers, targeted by high cost lenders who see their historic financial exclusion as a ticket to exploitation.”

The proposed VCFCA would amend the Truth in Lending Act (TILA) to extend the MLA’s 36 percent APR cap to all consumers, covering payday, car-title and other high-cost toxic loans. This legislation will uphold stronger state protections, as 36% is a relatively high rate and only appropriate as an upper limit. A super-majority of both Republican and Democratic voters support reestablishing the traditional interest rate limits that were in effect throughout the vast majority of American history as illustrated through recent polling and every recent ballot measure held on the subject.

Problems in the repayment of payday loans and similar forms of high-cost debt rarely end with the next paycheck. Predatory loans trap families in cycles of debt with triple-digit interest rates, leading to ever-increasing loan balances that the vast majority of borrowers will struggle to repay. Instead, borrowers are forced to take on loan after loan in an attempt to pay back the loan’s original balance, now inflated with interest costs and additional fees: in fact, more than 80% of payday loans are re-borrowed within two weeks. Lender profits depend on a consistent cycle of re-borrowing. Data from the Consumer Financial Protection Bureau show that 75% of all payday loan fees come from victims who wind up taking out an average of 10 loans before they can finally pay off their debt. Many will see their cycle of debt last even longer. The repercussions are often devastating – consumers are unable to afford basic living expenses and can end up bankrupt, their property repossessed, and their bank accounts closed. Not only do these loans severely damage a family’s finances, but they result in financial pressure that can lead to anxiety, depression, and even suicide.

“We applaud Representatives García and Grothman for their leadership in introducing this critical legislation. All consumers should be able to access safe, affordable credit without being forced into a downward spiral of high-cost debt,” said Rachel Weintraub, Consumer Federation of America’s Legislative Director and General Counsel.

Contact: Rachel Gittleman, 609-571-5953

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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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CFA’s statement addresses three types of emerging forms of credit: Buy Now, Pay Later loans; Earned Wage Access (EWA) programs; and faux Earned Wage Access, overdraft protection, and cash advance products that collect “tips.”

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