Credit Scoring, Student Debt, and Payday Loans Top Consumer Concerns
By Charlène Crowell
On September 28, the US Senate confirmed Rohit Chopra for a full five-year term as director of the Consumer Financial Protection Bureau (CFPB). Chopra is returning to the agency where he previously helped design and implement key protections to create a level playing field for consumers and businesses.
In an era when the still ongoing COVID-19 pandemic has left much of America black – its people and small businesses – financially marginalized, an active and aggressive “consumer cop” is particularly needed. Based on his previous tenure with the agency, and as a commissioner at the Federal Trade Commission, Chopra is expected to be an advocate for more aggressive enforcement and greater accountability for bad actors, including leaders. whether the problem is the country’s trillion dollar student loan debt, predatory payday loans, or the guarantee of accurate credit reports to support equal access to affordable credit.
Chopra’s comments to the U.S. Senate Banking Committee at its confirmation hearing in March reflect her commitment to financial fairness.
“[W]We must not forget that the financial lives of millions of Americans are in ruins … Consumers continue to discover serious errors on their credit reports or feel pressured to pay debt collectors bills they have already paid or were never due at departure, including for medical reasons. treatment linked to Covid-19 ”, testified Chopra.
“Congress instructed the Consumer Financial Protection Bureau to carefully monitor markets to detect risks, ensure compliance with applicable law, educate consumers and promote competition,” he continued. “This not only helps protect Americans from fraud and other illegal behavior, but also ensures that law-abiding businesses, no matter their size, can compete… I am committed to being a good partner for everyone. from you and I approach the agency’s mission with an open mind. mind and attentive to market realities.
An aggressive combination of enforcement and regulation would go a long way in remedying many of the financial problems plaguing black America.
Analyzing complaints received by census tract data, a new CFPB report released in September found that communities with different racial or ethnic characteristics experience the credit market differently. In addition, census tracts with the highest share of Black or African American consumers submit the most complaints per capita.
“As of March 2020, the number of consumers filing credit complaints has grown rapidly from already high levels in 2019… A large portion of complaints from high black or African American census tracts relate to credit reports, ”the report says.
Inaccurate or outdated credit reports can have a negative impact on access to employment, access to credit as well as the cost of credit for individuals and businesses. For several years now, an increasing number of employers have used credit reports as part of the selection of candidates for employment. Applicants with irregular or risky credit profiles may be excluded from consideration. Additionally, when a small business or consumer applies for credit, their costs can increase due to negative credit reports. Worse yet, those who attempt to correct credit report errors often experience long delays or refusals, according to the CFPB report.
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“Given the breadth and persistence of the racial divide, these differences are hardly surprising, but they highlight the active role that consumers in Black and African American communities play in resolving credit problems… . Past barriers limiting access to traditional credit for racial minorities, the long-term impact of the 2008 mortgage crisis, and continuing inequality of access continue to determine the types of opportunities consumers have – and these contexts shape consumers’ interactions with the CFPB, ”the report concludes.
Likewise, several independent research reports attest to the serious financial impacts of student debt.
“[B]Missing students leave college with the highest average debt per borrower and per graduate of any racial group, ”according to Legislation, Policy, and the Black Student Debt Crisis, released in 2020 by the NAACP. “This is true for both bachelor’s and associate’s degree holders – who were both more likely to borrow and borrow more to finance their education – as well as black students from all public and private sectors of higher education. “
According to the Brookings Institution, four years after graduation from college, the average black graduate owes $ 52,726 in student debt, while the average white graduate owes $ 28,006.
“Extensive research has established that black borrowers and other borrowers of color tend to have more difficulty repaying student loans than their white peers due to past and current racial discrimination,” wrote Julia Barnard, Senior Researcher to the Center for Responsible Lending in a guidance note released this summer. “They are also among the communities hardest hit by the current pandemic and its effects. “
The ripple effects of heavy, long-term student debt frequently delay the decision to buy a home, contribute to high levels of financial stress, and can lead to working more than one job to reduce debt. These real-life concerns are familiar to Chopra.
Following the passage in 2010 of the Dodd-Frank law on Wall Street reform and consumer protection, Chopra helped launch the CFPB in 2011, as deputy director and supervisor of its student loan program. .
Shortly thereafter, he was appointed Student Loans Ombudsman, where he led efforts to stimulate competition in the student loan financing market and develop new tools to help student loan borrowers make decisions. more enlightened.
Under Chopra, CFPB has handed out hundreds of millions of dollars in repayments to borrowers experiencing deceptive and illegal behavior by loan officers, debt collectors and for-profit university chains.
By the end of its first decade of service, CFPB has returned over $ 12 billion to over 29 million consumers and fined bad financial players in other areas of consumer finance, including cards. prepaid, credit repair, debt settlement, and pawnshop and title loans. .
Under the Trump administration, however, restitution to consumers all but disappeared and many hard-won regulations were overturned. A wave of political appointments have replaced career civil servants and the agency’s actions have turned a blind eye to consumers, favoring private companies and little regulation instead
These actions were in direct opposition to the previous five-year period in which CFPB conducted a series of public forums across the country as well as published research and analysis related to low-cost and high-cost lending. The resulting payday rule, enacted under CFPB’s first director, focused on two lending issues: the ability to repay and ending the automatic entry of consumer payments into checking accounts.
While most forms of consumer credit include an underwriting to ensure repayment capacity, payday loans generally only require proof of income and an active checking account. By allowing lenders direct access to checking accounts, there is plenty of research showing that most borrowers are unable to meet other financial obligations. In the worst case, when excessive overdraft fees are incurred, consumer accounts are canceled by banks, making consumers more dependent on other expensive fringe financial services.
Despite the persistence of predatory lenders, Director Chopra begins his work with the support of a strong coalition of 138 state and national lawyers. In addition, key federal lawmakers like Representative Maxine Waters, chair of the House Financial Services Committee and Senator Sherrod Brown, chair of the Senate Banking Committee, have also offered their support.
In a speech on the ground leading up to the Senate vote, President Brown spoke directly to the hopes of consumers across the country.
“It’s no surprise that most people believe there is no one on their side fighting for them in the federal government, but we know that’s not true,” Brown said. “That’s why Rohit Chopra will prove them wrong. He will fight for all those who feel abandoned to themselves.
Charlene Crowell is a senior member of the Center for Responsible Lending. She can be contacted at [email protected]