It is a real pleasure to be with you all today and to see so many familiar faces of people that I’ve been fortunate to work with over the years as a financial justice advocate, a civil rights enforcer at the Department of Justice, and in my current position at the CFPB. Like many people in this room, I was engaged in this work during the financial crisis—a formative experience that animates me to this day. I am especially pleased to be joining you at this conference.
The CFPB’s Enforcement Work To Date
The last two years have been exciting ones for CFPB Enforcement, even as we’ve faced down a challenge to the constitutionality of the CFPB’s funding and authority, and, fundamentally, to our mission. Of course, this is not the first time the CFPB has faced such challenges. But those challenges have never deterred us. Since the Bureau opened its doors just over a decade ago, our enforcement actions have resulted in nearly nineteen billion dollars for almost two hundred million people, and have moved markets in important ways that benefit consumers. In the last two years alone, our Enforcement actions have returned almost eight billion dollars in consumer redress and penalties, for more than twenty million Americans, and imposed significant injunctive relief that has changed industry conduct.
I especially want to highlight the work we have done recently to address illegal junk fees, or unnecessary, unavoidable, or surprise charges that inflate prices while providing little to no benefit to the consumer. Illegal junk fees affect all Americans, but, as the Bureau’s research has found, their harmful effects disproportionately hit communities of color. And our research has confirmed that, for many lower-income Americans, these fees can put them on a treadmill of debt.
In the Office of Enforcement, we’ve taken action against some of the nation’s largest banks for the imposition of these fees. That includes Wells Fargo and Regions Bank, for, among other things, charging customers surprise overdraft fees over the course of many years; as well as Bank of America, for charging multiple non-sufficient funds fees for the same transaction.
And it also includes the PGX Holdings companies, which you may know through the brands Lexington Law or CreditRepair.com. This group of companies is one of the largest players in the multi-billion dollar credit repair industry, an industry that targets consumers with low credit scores and who are struggling with debt. In this long-running case, the court ruled that PGX collected advance fees for credit repair services through telemarketing in violation of federal law. Our settlement with the company imposed a $2.7 billion dollar judgment as well as a 10-year ban on the companies from telemarketing. And, importantly, the credit repair industry is on notice that this widespread practice violates the law.
We’ve attacked junk fees across a number of markets and product lines. For example, we’ve taken action against a payment processor that took hundreds of millions of dollars in fees by tricking consumers into signing up for a membership program;1 auto servicers who failed to ensure consumers received refunds of unearned fees for add-ons;2 and a company that charged people who are being released from jail or prison fees to access their own money.3
While I am proud of what we’ve accomplished, I want to emphasize: we have much more to do. Consumer debt burdens are historically high, and they are rising. High interest rates strain the balance sheets of families across the country, making it harder to buy a car or a home or take out a line of credit. And at the same time, the consumer economy continues to get more complex and less transparent every day. At the CFPB, we are committed to ensuring that crucial consumer protection standards keep up with the ever-more complicated technology and automation that we see creeping into the world of consumer finance. We have been very clear: companies and individuals must comply with the law even when they are new to the market or take advantage of technological innovation.
Yet we understand that we have a lot more work ahead of us, and so we are concentrating our resources on addressing what we see as the biggest sources of consumer harm. This includes focusing on the largest market actors, whose conduct affects significant numbers of consumers.
That means seeking meaningful injunctive relief in addition to redress and penalties, and being prepared to litigate, if necessary, to secure this relief. Such conduct relief includes product line limitations, as in our actions on surprise overdraft fees; bans on specific activities, as in our action against the PGX companies; and industry bans. It also includes the imposition of measures for holding companies accountable for future compliance, as in our action against TitleMax, where the Bureau has required the company to report compliance findings directly to the company’s chief officers.
Relatedly, where appropriate, we are emphasizing individual as well as corporate accountability. We recognize that compliance has to flow from the top, and that the individuals that make the business decisions that lead to violations of law should not be insulated from the knowledge or consequences of those violations. For example, last year we sued TransUnion Interactive as well as its now former-President, for violating a 2017 CFPB order that bound the company and its leadership.
To achieve these priorities, we are looking to bolster our capacity in a couple of key ways. First, we continue to work closely with our state4 and federal5 government partners, including the prudential regulators,6 to ensure maximum protection, and redress, for consumers. Second, we are expanding, and plan to add about 75 new full-time employees to the office of Enforcement. We will be looking for talented people committed to the mission of the CFPB. We hope that you all will help spread the word that we are hiring.
Today I want to talk about three of the many areas of consumer risk that we are focused on. They all implicate an important and seemingly obvious idea: that the market for consumer financial products and services should be a level playing field, and that individual consumers should have the leverage and ability to exercise their own agency in the market. This is one of the ideas that led to the creation of the CFPB over a decade ago, and it resonates today.
Challenges of the Surveillance Economy
I first want to discuss the risks created by what I will broadly refer to as the “surveillance economy.” This is the marketplace where the product is consumer data. The users of the product are companies that are making consequential decisions that affect consumers’ ability to obtain housing, employment, and access to credit. As a practical matter, consumers may have little to no insight as to how their data is being used to make these life-altering decisions, or, many times, whether the decision relies on data that is accurate. And, even when they know the data is inaccurate, consumers often lack the knowledge or means to effectively dispute it.
Among the biggest players in the surveillance economy are the three nationwide credit reporting agencies, or NCRAs, whose core business is collecting personal data and credit account information and selling consumer credit reports that are used to make important decisions regarding consumers’ creditworthiness. I will note first, of course, that the obligations associated with consumer reporting do not rest alone with the NCRAs—we are carefully monitoring all entities that contribute to, use, and produce consumer reports, whether they are among the Big Three or not. The Big Three, do, however, have significant power over the lives of consumers, by virtue of the fact that between the three of them they collect data and produce consumer reports about more than 200 million Americans.
This month, we settled with one of the Big Three, TransUnion, in an action that illustrates the role the credit reporting agencies play in the most fundamental aspects of consumers’ lives. Together with the Federal Trade Commission, we took action against the company for failing to ensure the rental background checks that landlords use to make rental decisions were accurate, and for withholding information renters needed to correct inaccurate information. An unfair denial of rental housing has effects beyond just the loss of rental application fees—it may mean losing out on the opportunity to live in a person’s preferred neighborhood, the neighborhood that makes sense for them in terms of schools, work, and more; and it may mean having to pay even more for housing down the line, given fewer choices in the market. At a time when the cost of housing is at historic highs, as well as American households’ biggest expense, the effects of failures to ensure accuracy are potentially catastrophic for consumers.
The responsibility for accuracy in consumer reports doesn’t just rest with CRAs—it also lies with the companies that furnish data to CRAs. Last year we settled with Hyundai Capital America, one of the largest furnishers of auto finance information in America. Hyundai provided inaccurate information to nationwide consumer reporting agencies and, even though the company was aware of the issues, it systematically failed to address inaccurate information. This resulted in substantial consumer injury—not just the obvious harms flowing from the negative impact on consumers’ credit scores, but also the time and effort spent by consumers attempting to dispute inaccurate information and correct it.
We are paying close attention to how companies furnish and make use of consumer data, as well as whether entities are appropriately investigating disputes or addressing issues about the accuracy of the consumer data they are furnishing and using.
Again—the companies that hold and control consumers’ most sensitive data have heightened obligations as stewards of that data. We take those obligations very seriously, and are watching closely to ensure compliance with federal law.
Opaque Algorithms and Automated Decision Making
A second risk we are monitoring is the risk to consumers created by financial institutions’ reliance on opaque algorithms or other types of automation to carry out basic decision-making, or to replace human judgment in investigating and resolving disputes. The use of these technologies does not eliminate companies’ legal obligations to consumers—when the technology goes wrong, it can cause dire consumer harm. In the last year, we have taken action against two of the nation’s largest banks—Bank of America and Wells Fargo—for their reliance on faulty automated fraud filters in lieu of reasonable investigations of suspected fraud. In the case of Bank of America, this resulted in the freezing of hundreds of thousands of prepaid debit cards that were the exclusive mechanism for delivering unemployment benefits to California consumers at the height of the COVID-19 pandemic and caused hundreds of millions of dollars in harm. For some Wells customers, the faulty fraud filter resulted in a freeze not just of allegedly suspicious deposits, but all funds in their deposit account—which had obvious consequences for their ability to meet basic household needs.
Ultimately it is consumers who pay the cost of these errors of automation. The cost manifests in loss of access to their own money, and the time, effort and frustration for consumers who are forced to resolve—often with little or no success—highly consequential errors not of their making.
Predatory Lending and Abusiveness
The final category of consumer risk I want to talk about is, in many ways, at the heart of what the Bureau does. The CFPB was created in the wake of the most serious financial crisis in this country since the Great Depression. At its root were the predatory lending practices of companies targeting consumers with subprime financial products that ultimately set those consumers up to fail. Financial institutions were able to make, buy, and sell mortgage securities they never examined for quality or ability to repay. Ultimately, when a housing downturn came, the bubble burst, and the losses in mortgages and mortgage-related securities infected the global economy, causing the Great Recession and devastating losses in jobs and housing. It was from the ashes of this crisis that the CFPB was created—to guarantee not just the rights of consumers in the marketplace, but also to ensure that risks to consumers do not spread and infect entire markets.
We thus continue to be focused on predatory lending in its many and evolving forms, and continue to exercise our authority over unfair, deceptive and abusive acts and practices that are aimed at financially vulnerable consumers and that cut across markets and product lines.
In the small-dollar market, we recently sued Heights Finance Holding Company, formerly known as Southern Management Corporation, a high-cost installment lender, for illegal loan-churning practices that harvested hundreds of millions in loan costs and fees from consumers whose median annual income is less than $25,000 and who have severely impaired credit.
As we describe in our complaint, Southern’s business model turns the normal borrower-lender relationship on its head. Borrowers and lenders normally have a shared interest in the full and timely repayment of a loan. Lenders typically are incentivized to structure, underwrite, and service their loans to ensure that borrowers can successfully repay them. But, rather than ensure that borrowers can successfully repay them on time, we allege that Southern aims to identify borrowers who are struggling to repay their existing loan and induces them to repeatedly refinance their loans. We allege that the company employs an array of harmful underwriting, sales, and servicing practices for their refinanced loans that are designed to churn delinquent borrowers into repeated, fee-laden refinances—a cycle of debt they will struggle to escape. And Southern does this because it generates more revenue through fees imposed on frequent, delinquent refinancers than timely re-payers. Our lawsuit alleges that Southern’s loan-churning practices are unfair, and that they are abusive, both because they take unreasonable advantage of borrowers’ lack of understanding of the material risks, costs or conditions of a refinanced Southern loan, and because they take unreasonable advantage of borrowers’ inability to protect their interests.
Our concern with predatory lending extends to products that purport to be alternative financing arrangements in order to mislead consumers as to the true nature of what they are getting into. In the last year we brought public enforcement actions against two “lease-to-own” finance companies, Snap Finance, and Tempoe, for violations that include deceiving consumers about the terms and costs of the contracts. These companies offered point-of-sale financing for goods and services including appliances, mattresses, and auto parts and repairs. Both targeted their finance products at consumers who did not qualify for traditional financing. Both duped consumers about the true costs they were incurring, and, we allege in the case of Snap, then made false threats and deceptive statements when they attempted to collect from struggling borrowers.
As I noted, predatory conduct spans markets. We recently took action against a car title lender,7 high-cost online lender,8 and a pawn lender9 all for violations of the Military Lending Act’s interest rate cap—conduct that harmed servicemembers and their families. We have sued a major servicer of buy here pay here auto loans for wrongfully using remote kill switches to disable borrowers’ vehicles and improperly repossessing cars10; as well as a payday lender for concealing free repayment options to funnel borrowers into costly reborrowing;11 and a subprime auto lender for hiding the true costs of the loan and setting borrowers up to fail.12
I cite these enforcement actions to illustrate that, fifteen years after the financial crisis and Great Recession, the need is as great as it ever was for a federal watchdog focused on protecting consumers from predatory conduct. The marketplace is not yet free of products that are debt traps for low-income consumers. We are attuned to emerging risks in this area, including “alternative” financial products designed to evade regulation, and predatory targeting of consumers on the basis of race, national origin or other characteristics protected by the Equal Credit Opportunity Act.
And so our work continues. We will aggressively pursue violations of federal consumer law, remediate consumers, and seek injunctive relief that deters future wrongdoing.
I’d like to close by thanking you for the hard work you do to fight on behalf of consumers, and to make the American economy one that works for not just people with means, but also for the most vulnerable.
- https://www.consumerfinance.gov/about-us/newsroom/cfpb-orders-wells-fargo-to-pay-37-billion-for-widespread-mismanagement-of-auto-loans-mortgages-and-deposit-accounts/; https://www.consumerfinance.gov/about-us/newsroom/cfpb-sues-usasf-servicing-for-illegally-disabling-vehicles-and-for-improper-double-billing-practices/; https://www.consumerfinance.gov/about-us/newsroom/cfpb-orders-wells-fargo-to-pay-37-billion-for-widespread-mismanagement-of-auto-loans-mortgages-and-deposit-accounts/; https://www.consumerfinance.gov/about-us/newsroom/cfpb-sues-usasf-servicing-for-illegally-disabling-vehicles-and-for-improper-double-billing-practices/
- https://www.consumerfinance.gov/about-us/newsroom/cfpb-ftc-take-actions-against-transunion-illegal-rental-background-check-and-credit-reporting-practices/; https://www.consumerfinance.gov/about-us/newsroom/cfpb-doj-order-trident-mortgage-company-to-pay-more-than-22-million-for-deliberate-discrimination-against-minority-families/
- https://www.consumerfinance.gov/about-us/newsroom/bank-of-america-for-illegally-charging-junk-fees-withholding-credit-card-rewards-opening-fake-accounts/; https://www.consumerfinance.gov/about-us/newsroom/cfpb-orders-regions-bank-pay-191-million-for-illegal-surprise-overdraft-fees/