Protecting our Wallets: Consumers Union Recommends Priority Areas
for the Consumer Financial Protection Bureau’s First Year
October 5, 2010

Starting July 21, 2011, the Consumer Financial Protection Bureau will have these jobs:

  • Identify and stop unfair, deceptive, and abusive practices in the sale and provision of financial services to consumers – no matter what type of lender, bank, or non-bank offers the product. 
  • Keep the rules up-to-date for a wide variety of existing consumer financial protection statutes.
  • Respond to consumer complaints about financial services products and practices.
  • Enforce the laws and oversee the conduct of big banks, mortgage lenders and brokers, and larger non-banks.

Consumers Union recommends these priorities for the CFPB’s first year and beyond.

End credit card rip-offs:
The CFPB should finish the job of protecting consumers from abuses by big banks and their credit card programs.  There is more to be done to implement and enforce the Credit CARD Act.  The CFPB should:

  • Reduce the amount that credit card banks can charge for a penalty fee, such as a late fee, which is “always ok,” from the $25 permitted by the existing regulation to $10.  Reduce the “always ok” penalty fee level for a repeat incident from $35 to $15.
  • Exercise Credit CARD Act authority to limit the size of penalty interest rates to amounts that are “reasonable and proportional” to the incident, such as no more than 7 percentage points over the prior rate.  The current regulation addresses only the amounts of penalty fees, not penalty interest rate charges.
  • Require credit card banks to give “earn your way back to a good rate” to all consumers who make six consecutive on time payments.  Currently, consumers get this opportunity only if the first six payments after a penalty interest rate begins are all on time.
  • Find and stop all evasions and violations of the Credit CARD Act.
  • Require that credit card terms and conditions be simple enough to fit on a two page plain language contract.

Protect individual checking accounts:
We need better and safer checking accounts.  Today, consumers face long waits for deposits, some banks process the biggest checks first to bump up the number of overdraft or bounced check fees, banks engage in confusing marketing for expensive overdraft programs, and someone else can even write a check on a consumer’s account and claim it was orally authorized.  The CFPB should:

  • Make banks stop clearing checks and other payments in an order that increases the number of bounced checks and overdrafts.  A federal court told Wells Fargo to stop this practice in August 2010, but Wells chose to appeal.(1) 
  • Speed up funds from deposits.  Banks are allowed to make consumers wait until the second business day plus any weekend days to get access to funds from the checks they deposit.  The bank can insist on this check hold delay even if the check has already cleared.  The CFPB and the Federal Reserve Board can reduce check hold times by acting together.(2)   
  • Eliminate the “demand draft.”  A demand draft is a check that someone else creates on an account, stating that the account holder has authorized it.  This tool for fraudsters should be eliminated as an unfair practice.(3)
  • End all checking account overdraft loan programs unless the consumer affirmatively requests the program.  Consumers are now protected from fees for overdrafts caused by debit cards unless they have asked for an overdraft loan program, but that same protection should be extended to overdrafts caused by checks and automatic payments.
  • Don’t permit more than one overdraft fee per month or six per year, and make banks tell consumers how to avoid expensive overdraft loan programs, such as by linking a checking account to a savings account.
  • Enforce the law allowing consumers to cancel preauthorized periodic debits and develop a rule to allow consumers to cancel preauthorized single debits before they are paid. Consumers have trouble cancelling automatic payments at their banks even though the Electronic Fund Transfer Act allows consumers to cancel a preauthorized periodic debit by notifying the bank.(4) 

Require the same strong consumer protections for every payment method:
Consumers are offered many ways to pay, but not every method of payment has the same legal protections if the card or other payment device is lost, stolen, or misused, or if the consumer has a dispute with the seller of goods or services.  For every payment method, particularly every form of plastic card and every form of mobile payment, the CFPB should:

  • Provide for full protection from unauthorized charges and mistakes, including a right to get the disputed money back into the consumer’s account within 5-10 business days.(5)
  • Require banks to set up all prepaid payment methods in which they participate, including prepaid cards and mobile phone-based payment systems, with full deposit insurance protection for all monies paid in advance.
  • Make everyone who takes an advance deposit for future payments get a banking license and meet banking standards.  The CFPB may have to work with the banking regulators to accomplish this.
  • Ban overdraft loans tied to prepaid cards, mobile payments, and other emerging payment methods.   
  • Ban inappropriate fees such as nonuse fees, fees to check the balance on a prepaid card or mobile phone payment account, overdraft fees, and denied transaction fees.
  • Work with Congress to extend the credit card “chargeback” right to all other forms of card payments and to all forms of mobile payments.  This is the right to reverse a charge when there is a dispute with a seller over the acceptability or the delivery of goods or services.(6)

Fix the credit reporting system:
Credit reports and credit scores affect who can get credit and at what price.  Credit reports also affect access to rental housing, the ability to get certain types of jobs, and in some states even the cost of insurance.  The CFPB should:

  • Audit the big credit reporting agencies for compliance with their existing obligation to ensure “maximum possible accuracy” in consumer credit files.(7) 
  • Require that credit reporting agencies give consumers who order their free annual credit report, or who pay for an extra credit report, the same information that a creditor receives when ordering a report about that consumer.
  • Make credit reporting agencies fix errors in consumer credit reports.  Currently, credit reporting agencies use an automated system that merely verifies that the furnisher of the disputed information has a record of it, without conducting a real investigation.(8)  

End debt collection abuses and debt relief scams:
Debt collection abuses are in the top two consumer complaints nationwide. (9)  The CFPB will have a new power never before available to any federal agency to write rules for debt collector conduct under the federal Fair Debt Collection Practices Act.  The CFPB should:

  • Require creditors collecting debts owed to them to at least meet the standards that apply to third party debt collectors.
  • Put an expiration date on very old debt. It just isn’t fair to the consumer to face collection on a debt that is more than 7 years old – after so much time it is hard to prove prior payments or even to determine if the correct amount is being sought.(10)
  • Stop debt buyers from trying to collect a debt when they have no evidence of the debt.  Debt buyers should have to obtain evidence of the debt and provide it to the consumer, so that the consumer can know what debt is being collected, what the original debt was, and how the amount now sought has been calculated.(11)
  • Stop practices that restart the time to sue on very old debt by tricking the consumer such as getting the consumer to make a small payment on a debt too old to be sued upon.(12)  
  • Expand the 2010 FTC debt relief services rule.  The FTC issued a strong rule against a key abuse in debt settlement.  Effective October 27, 2010 the FTC rule stops debt settlement companies from collecting full fees before there are any settlements, and instead ties the timing of the fees to the timing of any settlements achieved.   However, the FTC rule only applies to telephone sales, leaving room for abuse in face to face sales and Internet-only sales.  The CFPB should promptly reissue the FTC rule as a general rule against unfair or deceptive practices, without the limitations inherent to the FTC Telemarketing Sales Rule.  Then it should move to cap the amount of debt settlement fees, an issue that the FTC did not address.

Police the mortgage market:
The CFPB must police the mortgage market to stop scams against consumers and to prevent toxic loans and dangerous lender practices from coming back.  The CFPB should:

  • Watch the mortgage market for new forms of toxic product features and careless lender practices, and stop those features and practices before they poison the housing market.
  • Ensure that all future home loans are based on the ability to repay the loan.
  • Stop brokers and mortgage lenders from steering a homebuyer or homeowner into a high cost loan when the consumer could qualify for a better loan.
  • Require mortgage servicers to consider loan modifications where appropriate prior to foreclosing.
  • Stop mortgage servicers from imposing unnecessary servicing fees and adding too-expensive insurance onto home loans.

Address dangerous short-term small loans:
Auto title lenders and payday lenders make loans at annual percentage interest rates of 300%, 400%, or more. The loans are due in such a short time that consumers often have to renew or “roll over” their loans several times, paying new fees each time without reducing the amount owed.(13)The CFPB should:

  • Ban the practice of payday lenders taking a check or a right to future electronic access to the consumer’s bank account.
  • Stop the evasion of existing interest rate caps through junk fees and other tricks.  
  • End car title lending, where a very short term loan can cause the loss of the car for a fraction of its value – typically less than 33% of the car’s value.(14)  
  • Require that all lenders have a good faith reason to believe that the borrower will be able to repay the loan by the time of the first due date.
  • Require that loans be repayable in installments, not just be due all at once in short time after they are made.

Clean up car loans:
The CFPB will have authority over most auto lenders, while the FTC will have most of the authority over car dealers.  The CFPB and the FTC together should:

  • Stop lender payoffs to dealers who put consumers into more expensive loans than necessary;
  • Prohibit so-called “yo-yo” tactics where the dealer promises one type of financing when the car is sold and then tells the consumer to come back and sign up for higher priced financing or the sale will be cancelled.
  • In addition, the FTC should clean up other problems in car sales such as not disclosing known defects.

End mandatory arbitration in financial services contracts:
The CFPB has the power to ban mandatory arbitration clauses in contracts for consumer financial services.  It just isn’t fair to make consumers accept arbitration in order to get financial services, particularly long before the dispute has arisen.  Arbitration undermines the application of consumer law because the decisions can be kept secret, arbitrators don’t have to follow the law, and the banks are repeat players in selecting the arbitration provider and hiring the arbitrators. The CFPB should:

  • Ban mandatory arbitration clauses in consumer financial services contracts.  If consumers and banks both want to arbitrate, they can agree to it voluntarily after the dispute arises.

Resolve consumer complaints:
Consumers need and deserve an accessible, well publicized complaint handling system that provides results for individuals and informs regulators in enforcing current rules and in developing new rules.  The CFPB should:

  • Actively solicit consumer complaints and work to resolve those complaints.
  • Use complaint information in overseeing financial services providers.
  • Make information about the type and nature of consumer complaints, and the identities of the companies complained about widely available to the public, minus the personal information of the individual consumer.

Gail Hillebrand
Financial Services Campaign Manager
Consumers Union of U.S., Inc.
1535 Mission St.
San Francisco, CA 94103
(415) 431-6747

Pamela Banks
Senior Policy Counsel
Consumers Union of U.S., Inc.
1101 17th St., N.W.
Washington, DC 20036
(202) 462-6262

____________________

(1) Veronica Gutierrez, et al. v. Wells Fargo Bank, N.A., No. 10-16959 (N.D. Cal. 2010) (appealed on Sep. 9, 2010).

(2) See Dodd-Frank Consumer Financial Protection Act, Pub. L. No. 111-203, § 1086 (2010). 

(3) See Nat’l Ass’n of Attorneys General, Demand Draft Fraud (2005), available at http://dch.georgia.gov/vgn/images/portal/cit_11783501/69079842DemandDraftFraud_gar.doc.

(4) 15 U.S.C. § 1693e(a).

(5) Current law requires recredit to the account within ten business days when an electronic fund transfer or debit card charge is disputed for error or for unauthorized use.  15 U.S.C. § 1693f(a).  Consumers Union believes that ten business days is too long, and that the time period should be reduced to five business days or shorter.  Even more important, however, is that this basic protection does not currently apply to all forms of payments, such as certain prepaid debit cards or mobile payment programs not tied to a bank account.

(6) See Gail Hillebrand, Before the Grand Re-Thinking: Five Things to Do Today with Payments Law and Ten Principles to Guide New Payments Products and New Payments Law, 83 Chi.-Kent L. Rev.769, 771 (2008), available at http://www.consumersunion.org/pdf/WhereisMyMoney08.pdf.

(7) Fair Credit Reporting Act, 15 U.S.C. § 1681e(a) (2006).

(8) Nat’l Consumer Law Ctr., Automated Injustice 13 (2009), available at http://www.scribd.com/doc/13061217/Automated-Injustice.

(9) Consumer Fed’n. of America, et al., 2009 Consumer Complaint Survey Report 6 (2010), available at http://consumerfed.org/elements/www.consumerfed.org/file/Consumer_Complaint_Survey_Report072009.pdf.

(10) See “Zombie Debt Never Dies,” Consumer Reports, Oct. 2010, available at http://www.consumerreports.org/cro/magazine-archive/2010/october/viewpoint/overview/index.htm.

(11) See Comment from Consumers Union to FTC Debt Collection Roundtable (Aug. 1, 2009), available at http://www.consumersunion.org/FTCdetbcollectioncomment.pdf.

(12) See Fed. Trade Comm’n, Repairing a Broken System iii (2010), available at http://www.ftc.gov/os/2010/07/debtcollectionreport.pdf.

(13) See, e.g., Ctr. for Responsible Lending & Consumer Fed’n. of America, Car Title Lending: Driving Borrowers to Financial Ruin 6 (2005), available at http://www.responsiblelending.org/other-consumer-loans/car-title-loans/rr008-Car_Title_Lending-0405.pdf.

(14) Car Title Lending: Driving Borrowers to Financial Ruin, at 5.