THE CFPB WHAT IT DOES, AND WHY YOU SHOULD CARE

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1 THE CFPB WHAT IT DOES, AND WHY YOU SHOULD CARE

2 Center for Responsible Lending CRL is a nonprofit, non-partisan organization that works to protect homeownership and family wealth by fighting predatory lending practices. Our focus is on consumer lending: primarily mortgages, payday loans, credit cards, bank overdrafts and auto loans.

3 Agenda Predatory Lending Payday, Car-title, and Installment Lending Educational Debt & For-Profit Colleges Debt Buying & Debt Collection What Does The CFPB Do? Let s Talk What Can You Do?

4 PredatoryLending Predatory lending imposes unfair loan terms with consequences that are harsher than the borrower anticipates. Predatory lenders typically aim to keep the borrower in longterm debt. They often take advantage of a borrowers lack of understanding or sophistication. Predatory lenders tend to target minorities, the poor, the elderly and veterans.

5 The Cycle of Debt: Costumer gets payday loan. Payday & Car Title Lending Can t afford to repay loan while paying bills and other obligations Gets another payday loan. In Colorado, close to 40% of loans are back-to-back transactions which means that the loans are taken out same day the prior loan was repaid.

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7 Installment Lending Considered less expensive than payday loans, but Amounts are much larger than payday loans. Last much longer! Often secured by a borrower s car or household goods. True cost is much higher than appears due to junk credit insurance. Insurance Must be paid at time loan is made and is typically of low value. Insurance is issued by lender s affiliates. Borrower s typically can t pay lump sum, so lenders increase the loan amount to cover the cost

8 Student loan debt has topped $1 trillion in recent years, making it the largest type of consumer debt outstanding other than mortgages. Educational Debt The average student loan borrower graduates with nearly $30,000 in debt.

9 For Profit Schools & Universities Students in for-profit colleges have less favorable outcomes in comparison to their peers at public and non-profit institutions. Lower graduation rates. Students at Colorado s for-profit 4-year colleges are less likely to graduate than their peers at public or private non-profit colleges. Higher debt burdens. For those who do graduate, for-profit students leave school with substantially higher federal debt than their public and private peers. Higher default rates. Students who take out student loans to attend Colorado s for-profit colleges are likelier to default within three years after leaving school than students at other 4-year colleges.

10 Impact on Students of Color African Americans and Latinos disproportionately enroll at for-profit colleges Similarly, they have higher debt levels and lower completion rates than their counterparts attending public or private, non-profit schools This outcomes places our community at particular risk.

11 Debt Buying/Debt Collection The debt buying industry has grown dramatically in recent years, today the Debt Buyers Association has more than 575 members. In addition to attempting to collect debts through letters and phone calls, debt buyers flood the courts with lawsuits. Those they sue rarely have access to a lawyer. Frequently they sue the wrong person or for the wrong amount or for a debt already repaid or not owed.

12 Who is affected? Roughly 77 million Americans have debt in collections Who is more likely to deal with debt collectors? Those in neighborhoods with: 1. Higher unemployment rates, lower household income; 2. Lower health insurance coverage; 3. Lower homeownership rates or home values; and 4. Higher rates of mortgage delinquency or underwater homeowners; and People in neighborhoods with greater African American and Latino populations.

13 Getting Sued for Debts Not Owed One of the biggest concerns is that as the debt is sold from the original creditor and among debt buyers critical documentation about the borrower and the amount owed is rarely provided to the debt s new owner. The most common complaint about debt buyers is that the debt is not owed. In some cases, the debt may have been extinguished in bankruptcy or paid back (in full or in part) by the borrower. In other cases the debt is so old that the borrower is no longer legally obligated to repay Debt buyers often garnish wages, seize a bank account, or attach a lien to a property.

14 Default Judgements Debt buyers count on the fact that most people will not hire a lawyer or defend the suits themselves. In a sample of 300 cases in Oregon, only one consumer had an attorney representing them In a Colorado sample, 71% of those sued lost in a default judgment meaning they mounted no defense. And 38% of those sued had their wages garnished. In Oregon, 48% of the consumers had liens placed against them for any current or future property.

15 The Consumer Financial Protection Bureau (CFPB) was created with the passage of the Dodd-Frank Act, to protect consumers from financial abuse. The CFPB: Accepts consumer complaints; The CFPB: What do they do? Enforces the law when companies illegally harm consumers; Does in-depth, state-of-the-art research into market practices; Sets standards and rules to rein in industry abuses; Provides information to consumers and advocates. Has returned $12 billion to defrauded consumers!

16 CFPB Work Example: Payday Rule Lender must check-borrower has sufficient income versus expenses to repay without reborrowing or defaulting other obligations. Limits on re-borrowing where borrower struggles to repay. Payment protections to limit bank account troubles.

17 Other CFPB work Data Gathering CFPB has a complaint portal that allows consumers to report any wrong doing by companies. Allows to see if a particular experience is the beginning of a new issue. Responses! The CFPB will respond to the complaint and it will help find a solution. Enforcement Actions Ace Cash Express Pushing borrowers into unaffordable loans Navient Student loan servicing abuses Encore Suing people for debts they do not owe Consent Judgements A blue print for legislation

18 Myth vs. Facts How to answer industry s claims on: Payday, Car-Title, and Installment Loans Debt Collection and Debt Buyers Educational Loans and For-Profit Universities Read and Re-Enact Read the hand outs Practice with your group Switch roles, and try again! Ready to Defend!

19 Defending the CFPB: What can YOU do? Continue the call for a strong payday rule. Write to your Congress member. Write an op-ed. Wrong Choice Act Let s make sure Congress doesn t weaken or undermine the CFPB. This Act would prevent the CFPB from working on payday issues. Forever. Mobilize! Sign-on letters or Call in days. Join the social media campaign to #StopTheDebtTrap and #DefendCFPB

20 Questions? Center for Responsible Lending Ezekiel Gorrocino Policy Associate