New CFPB Rules Get Tougher With Payday-Lender Debt Traps

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In early October, the Consumer Financial Protection Bureau announced it would implement long-awaited new rules aimed at limiting the power of payday and title lenders. The bureau director, Richard Cordray,  has been a vocal critic of the nonbank lenders, and the agency has been working on new rules to regulate lenders in this space for several years.

“The CFPB’s new rule puts a stop to the payday debt traps that have plagued communities across the country,” Cordray said in a statement. “Too often, borrowers who need quick cash end up trapped in loans they can’t afford. The rule’s common sense ability-to-repay protections prevent lenders from succeeding by setting up borrowers to fail.”These rules will apply to both brick-and-mortar and online lenders.

What changes are happening

Lenders are going to have to prove that a borrower can afford to repay the loan

One of the major rules is a “full-payment test” that will determine if borrowers can “afford the loan payments and still meet basic living expenses and major financial obligations.” Payday lenders typically don’t run a credit report on borrowers and only usually look at a pay stub to determine if you qualify.

Most consumers end up unable to repay the loan when it comes due, usually a couple weeks later. According to the CFPB, more than 80 percent of all payday loans are rolled over or renewed. The same is true for title loans, with 20 percent of borrowers losing their vehicle to title loan companies. Because there is little regulation on interest rates, these loans usually have APRs of 300 percent or more.

However, borrowers can avoid the full-payment test if the lender meets the following requirements: It must make 2,500 or fewer covered short-term or balloon-payment loans per year and earn no more than 10 percent of its revenue from such loans.

It won’t be as easy for lenders to access funds in borrowers’ bank accounts

Another issue is that many payday and title loans require access to the user’s bank account, where payments will be automatically debited. If the user does not have the amount available in his or her account, the account will be overdrawn. This usually results in the consumer being charged overdraft fees on top of the hefty interest already going to the payday lender.

According to the CFPB, “these borrowers incur an average of $185 in bank penalty fees, in addition to any fees the lender might charge for failed debit attempts, specifically, a late fee, a returned-payment fee, or both.”

One of the rules that the CFPB installed is a limit on attempted debits, so the lender has to get authorization from the consumer to debit the account more than twice. The CFPB also hopes to limit the amount of times a loan can be extended, as a way to decrease the fees the borrower must pay.

Borrowers can repay debt more gradually

To avoid the full-payment test, payday lenders can lend up to $500 if they structure the payments so the borrower can pay them off “more gradually.” However, there will be strict rules in place for this type of loan.

For example, lenders won’t be able to offer gradual repayment plans to customers who have recent or outstanding short-term or balloon-payment loans. They also can’t make more than three loans in quick succession and can’t make loans under this option if the consumer has already had more than six short-term loans or been in debt for more than 90 days on short-term loans over a rolling 12-month period.

Few options for borrowers in need

The CFPB’s long-awaited rules may help protect borrowers from predatory lenders, but don’t solve a key issue: There just aren’t that many viable alternatives for people who need to borrow small sums quickly.

A report from the Milken Institute, “Where Banks Are Few, Payday Lenders Thrive,” found that neighborhoods with more banks tend to have fewer payday lenders, and vice versa. There was also a strong correlation between payday lenders and neighborhoods with higher African-American and Latino populations as well as a greater instance of payday lenders where there are fewer high school and college graduates.

Jennifer Harper, who researched predatory lending in Chattanooga, Tenn., as part of the Financial Independence Committee for the Mayor’s Council for Women, said she hopes there will be a solution for consumers that doesn’t require them to take out a payday loan.

“We want to find an alternative to payday lending that would still allow people to access they need, without those crazy interest rates,’ she said. “Getting that quick access to cash may be fine for that day, but then it really puts a burden on the borrower long-term.”

Jason J. Howell,  a certified financial planner and fiduciary wealth adviser in Virginia, agrees with the new regulations taking place.

“The CFPB is taking the opportunity to protect the most vulnerable consumers: lower-income borrowers that are typically ‘un-banked,’” he said. “The proposed rule would reduce fees that make payday loans especially hard to pay back; and that could also reduce the issuance of these loans in the first place.”

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More Than 40% of U.S. Adults Struggle to Make Ends Meet

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You may be struggling to pay bills every month, but so are plenty of other people.

The Consumer Financial Protection Bureau on Tuesday reported that 43 percent of American adults struggle to make ends meet, based on the results of a national survey conducted in 2016 on the financial well-being of U.S. consumers.

About 34 percent of all consumers surveyed reported experiencing material hardships —  these include running out of food, not being able to afford a place to live or lacking the money to seek medical treatment — in the past year, the bureau said.  

In the survey, the bureau asked more than 6,000 participants from all walks of life to answer 10 questions about current and future financial security and freedom of choice, and to give a score from 0 to 100 on each question. The average consumer score was 54 in the survey. Not surprisingly, consumers surveyed said that their financial conditions were closely tied to their level of education, income and employment status, according to the bureau. 

Young adults are especially susceptible to financial hardships, the agency found. 

Millennials — those age 34 and below — reported an average score of 51 for their financial well-being, 10 points lower than seniors ages 65 and up and three points lower than the national average. 

The report, what the bureau calls “the first of its kind,” not only provides a view of the the overall state of financial conditions in the U.S., it also sheds light on how individuals from different demographics are faring financially. 

Adults with scores of 50 or below have a high likelihood — more than 50 percent — of struggling to pay bills and of experiencing difficult financial situations, according to the report. 

In contrast, those who reported scores of 61 and above had a much lower probability — less than 10 percent — that they would have trouble paying for basic needs.  

 Savings = stability  

Of all the factors examined, the bureau found that the amount of savings and financial cushions is the most important when it comes to disparities in people’s financial situations. 

The average financial well-being for adults with savings of less than $250 — the lowest level — is 41. That compares with 68 for people with the highest level of savings — $75,000 or more, according to the report. 

Similar differences in scores were seen with the ability to absorb unexpected expenses.  

“These findings highlight the importance of savings and other safety nets in helping people to feel financially secure, one of the basic elements of financial well-being,” the report said. 

Having some sort of financial knowledge appears to benefit financial well-being. 

The survey found that individuals with higher levels of financial confidence, knowledge and day-to-day money management behaviors tend to report better financial conditions. 

Apart from the survey, the bureau initiated  an interactive online tool allowing consumers to measure their own financial well-being.  

 7 tips to improve your financial health: 

  1. Have “rainy day” cash available. Often, people who feel they are broke don’t have the means to absorb unexpected expenses. We’ve ranked the best options for when you need cash fast.  A good rule of thumb is to set aside at least three to six months’ worth of living expenses.   
  2. Save. Save. Save. It’s never too early to start saving for retirement. Financial planners often suggest you stash at least 10 percent of your income every month. 
  3. Focus on paying down high interest debts. Sometime it makes more sense to pay off debt than to save, especially if you have high-interest debt like credit cards.  Here are four fast ways to achieve that goal.
  4. Consider changing your lifestyle. Lifestyle inflation is the ultimate budget-killer — a widespread phenomenon that occurs when people spend more as their incomes increase.
  5. Learn to ignore the Joneses. Focusing on your needs and goals rather than aligning them with the people in your life or in your social media feed is critical to being happy with the state of your finances and your life.
  6. Come up with strategies to help break your negative spending habits. For example, we’ve written about a simple $20 rule that can help break your credit card addiction. Explore other ways to break bad money habits here.
  7. Educate yourself. The more you know about your finances, the better off you’ll be. It doesn’t have to be complicated. Simply using an app to track your spending or asking your HR department for a review of your retirement savings options are good places to start. The key is to engage in day-to-day money management and establish a habit of saving and budgeting. 

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How to Fix the Big Things You Hate About Your Credit Cards

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Credit cards may be in the wallets of most Americans, but not everyone is happy with their travel companion.

The Consumer Financial Protection Bureau (CFPB) released its monthly snapshot of consumer complaints in the financial services industry this week. The report, which regularly focuses on a different financial product to highlight consumer complaint trends, focused on credit cards and what irks consumers about their plastic friends (or foes, depending on how you view it).

Credit cards represent only about 10% of total complaints to the CFPB, a small amount considering how prevalent the cards are in Americans’ daily routine. That puts them in fourth for the most complained-about financial products, behind debt collection, credit reporting and mortgages.

Here are four of the major credit card complaints that surfaced in the bureau’s review.

1. Disputes Over Fraudulent Charges

Billing disputes were number one on the CFPB’s top credit card complaint list. Of the nearly 100,000 complaints the CFPB analyzed, 17% were over billing disputes. Credit cards often offer purchase protections and chargebacks — tools consumers can use to combat faulty merchandise or high prices — and these tools are rarely offered by debit cards and never offered by cash. But fraud seems to be the source of most complaints, as consumers finding fraudulent charges cite trouble removing or getting re-billed for them.

How to Avoid It: The best way to keep yourself from having to dispute fraudulent charges is to keep your credit card information as safe as possible from fraudsters. Never share your credit card with shady sites that don’t have a “lock” symbol or https:// when taking your data. And even though it’s convenient, avoid letting shopping websites “remember” your credit card info for next time. While some of those sites have excellent security, data breaches are becoming more and more common and credit card info is a literal gold mine for a hacker. (To keep an eye out for signs of identity theft, you can view your free credit report summary on Credit.com.)

2. Rewards Program Murkiness

If you’ve ever owned a rewards credit card, you know that to make the most of your card’s program, you need to read up on all the details (and those details do change). The CFPB found that confusion over how a credit card rewards program works was sometimes attributed to differences between what consumers encountered online and what they were told by customer service representatives over the phone.

How to Avoid It: The CARD Act of 2009 did a lot to make credit cards more consumer-friendly, but little regulation pertained to rewards programs specifically and business credit cards were not included at all in the act’s purview. That means you need to be a careful shopper, as you should be with all financial products — mortgages, business loans, you name it. Before you sign up for a rewards credit card, read the rewards terms carefully — they are often in a separate piece of paperwork from the APR and fee disclosures.

3. Being a Victim of Fraud/Identity Theft

Identity theft/fraud/embezzlement as a category came in third on the CFPB’s list at 10% of all credit card complaints. Many complaints pertained to account activity that the cardholder didn’t initiate, the report said. It points back to that top complaint of fraudulent charges as well — fraud is a problem for consumers as well as credit card issuers too.

How to Avoid It: In addition to keeping your credit card information safe (see tip #1), keep your identifying information safe. To open a new credit card in your name, a fraudster would need to have access to your Social Security number, name, address and other details. Protect that info and you limit your chance of getting got. And because “embezzlement” is included in this category as well, business owners should be sure to have a policy in place if they’re extending a company credit card to an employee. The rules should be clear so you don’t have to go through the painful process of disputing charges with your issuer.

4. Trouble Closing/Canceling an Account

Even though closing a credit card can do some credit score damage, it doesn’t stop consumers who want to avoid the temptation of spending too much or just have too many cards to manage. Roughly 7% of the CFPB’s credit card complaints pertained to consumers struggling to close accounts.

How to Avoid It: Call your issuer directly (you normally have a number on the back of your credit card) and ask to close the account. Be ready though — you’ll most likely be transferred to a department that is specifically going to try to keep you as a customer, perhaps offering a lower APR or a waived annual fee for that year. (Some consumers use this as a tactic to get a better credit card, in fact.) If you’re adamant on closing the card, just stick with your plan and make sure to monitor your email or mail for your last statement. You don’t want to miss the last payment on your card and put a black mark on your credit report just because you thought the card was closed. A credit card with a positive payment history, even though it’s closed, can still help your credit score. But missing a payment will definitely hurt it, and if you have a business credit card, it could impact not just your personal credit, but your business credit scores as well. You can find a full explainer on canceling credit cards right here.

Image: Anchiy

The post How to Fix the Big Things You Hate About Your Credit Cards appeared first on Credit.com.

Will a Trump Presidency Lead to More Predatory Lending?

Bank regulations, consumer protections and net neutrality all up for debate as the Trump administration takes the reins.

Free markets mean corporations and consumers are engaged in a constant arm-wrestling match over prices and rules governing marketplaces. When President-elect Donald Trump takes office, will the rules of this engagement change substantially?

Already, Republicans are fighting hard to dismantle, or at least disempower, the nation’s newest federal consumer protection agency, the Consumer Financial Protection Bureau (CFPB). But that’s just one of several steps being weighed that could dramatically impact the balance of power between consumers and corporations during the next several years. Trump and his appointees will soon be dealing with everything from net neutrality to robocalls to late fees. Like so much with Trump, it’s hard to know if he stands with traditional Republican positions on these issues, or if he has his own ideas. But clearly, the future of issues ranging from payday-loan regulation and binding arbitration rules to debit card swipe fees are at stake.

Consumer Protections On the Line

The power of federal consumer protection agencies like the Federal Trade Commission (FTC), which fields things like consumer identity theft complaints, tends to ebb and flow based on which political party holds power in Washington, and on the state of the American economy. The economic collapse last decade, combined with the rise of Democratic power in Washington, led to a host of steps taken to reign in what supporters say were abusive practices that hurt consumers, particularly by the financial industry. Financial reform saw passage of the CARD Act, which banned several credit card issuer practices that consumers found frustrating, such as double-cycle billing or seemingly random late fees and interest-rate hikes.

More importantly, the Obama years also saw creation of the first new federal consumer protection office in decades. As Trump takes office on Friday, a battle royale has already developed between consumer groups and conservatives who want to gut America’s youngest consumer-oriented agency. The war of words escalated last week, with opponents of the bureau calling for Trump to immediately remove bureau chief Richard Cordray, calling him “King Richard,” while supporters have promised they have “gone to Defcon One” to protect it.

The CFPB is the brainchild of Elizabeth Warren — then a bankruptcy expert, now a Democratic Senator from Massachusetts. The bureau was designed to pick up where other banking regulatory agencies, like the Office of the Comptroller of the Currency (OCC), left off. Bank regulators like the OCC have the difficult job of serving two masters — both the safety and soundness of the banking industry and the fairness with which consumers are treated. Critics said the abuses apparent during the housing bubble, such as unclear mortgage documents, demonstrated that regulators sided too often with banks and neglected consumer protection. So the CFPB was designed as a consumer-first agency. It was also designed to enjoy independence from industry pressure — it is not subject to Congressional purse string requirements, and its director not subject to removal for political reasons. At least, that was the intention of Warren and Democrats who wrote the legislation creating the CFPB.

A lawsuit that went in the favor of CFPB opponents last fall has, at least for now, paved the way for removal of CFPB director Cordray. The bureau and its supporters plan to appeal the ruling, but Republicans aren’t waiting around for that. They are urging Trump to remove Cordray as soon as he takes office.

“It’s time to fire King Richard,” Senate Banking Committee member Ben Sasse, R-Nebraska, wrote in a January 9 letter to Trump. “Underneath the CFPB’s Orwellian acronym is an attack on the American idea that the people who write our laws are accountable to the American people. President-elect Trump has the authority to remove Mr. Cordray and that’s exactly what the American people deserve.”

Bureau opponents say the CFPB should operate more like the FTC, with a slate of politically-appointed commissioners running things.

Last week, the Trump administration signaled it was leaning toward removing Cordray and reigning in CFPB power by revealing it had interviewed retired Texas Republican Congressman Randy Neugebauer as a potential CFPB chief. In Congress, Neugebauer was a leading CFPB critic, calling its efforts to regulate payday loans “paternalistic erosion of consumer product choices.”

Meanwhile, Rep. Jeb Hensarling, R-Texas, indicated he will move immediately to pass legislation he proposed last term named the Financial Choice Act, which is largely designed to roll back provisions of the Dodd-Frank Financial reform bill. It would eliminate the Volcker Rule, designed to prevent banks from taking some kinds of risks with their own money; it would also remove the Durbin Amendment that limited fees on debit card transactions.

“We were told [Dodd Frank] would lift our economy, but instead we are stuck in the slowest, weakest, most tepid recovery in the history of the Republic,” Hensarling said while supporting the bill last fall.

Bureau supporters are fighting back. Warren held a conference call on January 13 with 3,000 consumer advocates where she rang the alarm about the future of the CFPB and financial reform.

“It’s time to send a message to big banks, payday loan lobbyists and their Republican friends in Congress: The American people are watching,” Warren said, according to a press release from Americans for Financial Reform, an advocacy group. ”We’re going to fight back against any efforts to gut financial reform and to allow big banks and shady financial institutions to once again cheat consumers and put our economy at risk.”

Consumer advocacy groups universally support the CFPB, which says it has returned $12 billion to 27 million wronged consumers since its inception. One group held a “One of 17 Million” event in Washington, D.C. earlier this month.

“We’ve gone to DefCon One on protecting the CFPB because the predatory lending industry and the big Wall Street banks are all demanding the President-elect illegally fire the extraordinary CFPB director Richard Cordray and replace him with one of several industry henchmen who will help Congress eviscerate the successful bureau,” Ed Mierzwinski, program director at the Public Interest Research Group, an advocacy organization, said. “But how do you fire an effective official who has protected consumers and families from financial predators exactly as Congress asked him to do? You ignore the law and you ignore the voters’ demand for an unrigged financial system. We hope Mr. Trump has better judgment than that.”

Some Consumer-Friendly Officials Departing D.C.

Already, some noted consumer-friendly officials have started to leave Washington.

At the FTC, Chairwoman Edith Ramirez announced she would resign on Friday. Ramirez focused on emerging internet of things technologies during her six years at the FTC.

“Ramirez cast a spotlight on emerging privacy issues, involving ‘smart TV’s,’ cross-device tracking and other technologies,” the Center for Democracy and Technology said, praising Ramirez’s time at the agency. “Through a series of cutting-edge cases — Snapchat, D-Link, inMobi and Turn, for example — the commission made it clear that tech companies that deceived consumers or failed to protect their security would be punished and publicly shamed.”

In addition to consumer issues like privacy, the FTC’s main charge is to enforce antitrust law. During his candidacy, Trump signaled a break with traditional Republicans over anti-trust law, suggesting, for example, that he would have blocked the Time Warner-AT&T merger. But Trump picked former FTC commissioner Joshua D. Wright to run his FTC transition team. Wright, a traditional conservative who, in an op-ed penned days after Trump’s election victory, criticized “anti-merger mania.” He said evidence shows big mergers often help consumers, and cautioned against a return to the days of trust-busting.

Wright is widely believed to be the leading candidate to head the commission after Trump takes office.

The Trump transition team did not immediately respond to Credit.com’s request for comment.

So Long Net Neutrality?

Even bigger changes might be coming to the Federal Communications Commission (FCC), however Multichannel.com reported this weekend that Trump’s picks to head that agency — several veterans of the conservative American Enterprise Institute — have plans to eliminate the FCC’s consumer protection tasks altogether. Currently, the FCC helps consumers in dispute with telecommunications providers and sets policies, like net neutrality.

FCC Chairman Tom Wheeler, who led the charge for net neutrality and new privacy rules for broadband consumers, will vacate his spot on Inauguration Day. While Trump picked FCC transition team members with anti-net neutrality track records — one a Verizon economist, the other a former Sprint lobbyist — Wheeler said in a speech last week that overturning the commission’s rule is not a foregone conclusion. Changes would require a new rule making process, he said — and that would be a mistake.

“Tampering with the rules means taking away protections that consumers in the online world enjoy today,” Wheeler said in his speech.

While Trump transition team members Ajit Pai and Michael O’Rielly advocated for a streamlined FCC before, backtracking on issues like net neutrality seems less a sure thing after Trump added Republic Wireless co-founder David Morken to that transition team. As head of a small telecom company, Morken has said he is against changes that help entrenched competitors, and has a populist bent to his rhetoric.

“Traditional Republican telecom policy has favored incumbents who are heavily engaged in regulatory capture over innovators like us,” Morken told The Wall Street Journal in December.

His lack of opposition to net neutrality, in addition to that open challenge of established Republican thinking, has led some to think he might provide balance on a Trump FCC. But as with the many critical consumer issues the Trump administration will take on in the coming months, only time will tell whether populist positions or conservative leadership will win that arm-wrestling match — and how consumers will fare in their own wrestling match with corporations.

This story is an Op/Ed contribution to Credit.com and does not necessarily represent the views of the company or its partners.

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5 Ways the CFPB is Changing the Rules on Prepaid Debit Cards

happy girl at ATMThe Consumer Financial Protection Bureau on Wednesday finalized long-awaited regulations that will add federal protections for millions of Americans who use prepaid debit accounts. The agency’s new rule has been more than four years in the making and will equip prepaid card accounts with federal protections similar to those of credit card accounts. The rule officially goes into effect in October 2017.

Consumer advocate groups largely supported the agency’s rules. “The CFPB’s rule on prepaid cards is a big win for consumers,” said Nick Bourke, director of consumer finance for the Pew Charitable Trusts. “First and foremost, it keeps the cards free from overdraft penalties — which aligns with consumers’ preferences. Research shows many consumers turn to prepaid cards to control spending and to avoid overdraft fees.”

However, the Network Branded Prepaid Card Association criticized the final rule, saying it will create onerous restrictions on prepaid debit card issuers and ultimately lead to fewer options for consumers.

“Instead of fostering financial innovation and inclusion, the CFPB’s rule will ultimately limit access to an essential mainstream consumer product that helps millions of Americans participate in the digital economy, affordably manage funds, and safely hold money,” Brad Fauss, NBPCA president and CEO said in a statement.

According to a report from Pew Charitable Trusts, use of general purpose reloadable prepaid accounts among U.S. adults jumped more than 50% between 2012 and 2014. The accounts are widely used as budgeting tool or an alternative to traditional bank accounts for people who have poor banking histories. But they can also be used to issue federal benefits like Social Security, student loan refunds, tax refunds, and even paychecks.

5 ways the New Rule Will Affect Prepaid Account Customers:

Easy Access to Information

The final rule grants prepaid accounts similar protections to credit card accounts. It requires financial institutions to make account information such as account balances, transaction history, and charged fees, easily accessible and free to consumers. Consumers also will have access to the information over the phone, online, and in writing upon request, unless the institution issues periodic statements.

A Standardized Dispute Process

The new rule also means that financial institutions will have to cooperate with customers to fix errors such unauthorized or fraudulent charges in a timely manner. If you’ve registered your card and the financial institution can’t complete the investigation within 10 business days, it will have to credit the disputed amount to your account while it completes the investigation. Investigations are usually required to be completed within 45 days.

Limited Liability

Under the new rule, a customer’s losses are limited in the event that funds are stolen, similarly to debit accounts. So as long as you report the loss within two business days of finding out about it, your losses are limited to $50. If the institution is notified after two business days, then the loss is limited to $500. The rule limits liability for unauthorized charges and creates a way for consumers to get their money back as long as they notify the financial institution in a certain amount of time.

Know Before You Owe”

There’s a disclosure included in the new rule, coined “Know Before You Owe.” It requires institutions to give customers more information about the prepaid accounts available upfront, before someone elects to sign up to make comparison shopping easier.

The information has to be presented to you in two forms before you sign up: long and short. The short form would be a more concise overview of the account’s terms and fees that can fit on store packaging, while the long form would have more detailed list of fees and information. Card agreements also have to be publicly available, and posted on card issuers’ websites.  Institutions must also submit all of their agreements to the CFPB, which will post them in the future on a public site maintained by the bureau in the future.

Credit Protections

Some prepaid accounts can be paired with credit lines that provide funds for purchases if a customer doesn’t have sufficient funds in their prepaid account. The accounts are laden with hidden fees and considered a potential debt trap by some critics.

Prepaid companies now have to wait at least 30 days and make sure the consumer has the ability to pay back the debt before they offer a line of credit to a prepaid debit card user. The rule also requires prepaid companies to give consumers regular statements and at least 21 days after the statement is issued to make a payment before charging a late fee. Late fees have to be “reasonable and proportional” to the corresponding violation and can’t total more than 20% of the consumer’s credit limit during the first year the credit account is open.

The rule also puts a wall between the cardholder’s prepaid funds and their credit debt so that companies can no longer take funds from the prepaid account to repay the credit bill without the consumer’s consent.

Which Accounts Are Impacted by the New Rule?

The rule applies to general purpose reloadable cards as well as a growing number of electronic prepaid accounts. That includes mobile wallets such as Apple Pay or Google Wallet, person-to-person payment products like PayPal or Venmo, and other electronic prepaid accounts that can store funds. Other prepaid accounts like payroll cards, student financial aid disbursement cards, tax refund cards, and certain federal, state, and local government benefit cards such as those used to distribute unemployment insurance and child support are included under the rule.

Until the rule goes into effect next fall, consumers should make sure they are informed of the financial institution’s policies regarding fees, errors, and possible fraud because how they will be handled will depend on the card, company, and circumstances.

The post 5 Ways the CFPB is Changing the Rules on Prepaid Debit Cards appeared first on MagnifyMoney.

This For-Profit School Is Forgiving $23.5 Million in Student Loan Debt

A for-profit school that allegedly told students their loans would only cost $25 per month to repay must now forgive those loans, federal regulators announced Monday. The firm, publicly-traded Bridgepoint Education Inc., has agreed to discharge all outstanding private loans and refund some students after allegations that it engaged in unfair or deceptive practices, the Consumer Financial Protection Bureau announced Monday.

San Diego-based Bridgepoint currently has nearly 50,000 students, mostly enrolled online in schools it owns named Ashford University or the University of the Rockies. From 2009 to the present, the CFPB says students were encouraged to borrow money directly from the school to attend classes, and were told in some cases their loan payments would be as little as $25 per month.

“Bridgepoint deceived its students into taking out loans that cost more than advertised, and so we are ordering full relief of all loans made by the school,” said CFPB Director Richard Cordray. “Together with our state partners, we will continue to be vigilant in rooting out illegal practices facing student borrowers in the for-profit space.”

The settlement requires Bridgepoint forgive $18.5 million in outstanding loans and refund more than $5 million in loan payments that students have already made. The loans cover students enrolled from 2009 to 2015. Bridgepoint will also pay an $8 million penalty.

The CFPB has been more aggressive in its focus on for-profit colleges lately. It sued ITT Tech’s parent in February; ITT Education Services announced it was shutting down last week after the Department of Education said it could no longer enroll students receiving federal aid.

The CFPB also sued Corinthian Colleges in 2014, eventually winning a $530 million default judgment against the firm.

The CFPB’s Bridgepoint announcement focuses specifically on the school’s sales tactics.

“The Bureau found that the school deceived its students about the total cost of the loans by telling students the wrong monthly repayment amount. As a result, students at Bridgepoint were deceived into taking out loans without knowing the true cost, and were obligated to make payments greater than what they were promised,” the agency said in a press release. “Specifically, the CFPB found that Bridgepoint told students that borrowers normally paid off loans made by the school with monthly payments of as little as $25, an amount that was not realistic.”

Bridgepoint pointed reporters to a statement about the consent order posted on its website. In it, the firm said the refunds and forgiveness impact 1,277 students. The statement notes that the CFPB identified “only one area of concern with the loan program,” and that the CFPB did not raise questions about the firm’s educational credibility. The firm says the associated loan programs have been discontinued.

“This agreement simply allows us to return our full and undivided focus to our students and their success. We believe in the high quality of education our institutions provide and we will continue helping students achieve their goals of a quality and affordable college education,” said Andrew Clark, president and chief executive officer of Bridgepoint Education, in the statement.

The CFPB has also ordered Bridgepoint to remove negative information about its loans from borrowers’ credit reports, and to create a new financial and disclosure tool that makes it easier for students to understand their obligations when they borrow to attend the school. Students will be required to use the tool before enrolling.

Remember, student loan debt — and any associated missed payments — can hurt your credit. You can see how your students loans may be affecting you by pulling your credit reports for free each year at AnnualCreditReport.com and viewing two of your credit scores, updated every 14 days, for free on Credit.com.

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This For-Profit School Is Forgiving $23.5 Million in Student Loan Debt

A for-profit school that allegedly told students their loans would only cost $25 per month to repay must now forgive those loans, federal regulators announced Monday. The firm, publicly-traded Bridgepoint Education Inc., has agreed to discharge all outstanding private loans and refund some students after allegations that it engaged in unfair or deceptive practices, the Consumer Financial Protection Bureau announced Monday.

San Diego-based Bridgepoint currently has nearly 50,000 students, mostly enrolled online in schools it owns named Ashford University or the University of the Rockies. From 2009 to the present, the CFPB says students were encouraged to borrow money directly from the school to attend classes, and were told in some cases their loan payments would be as little as $25 per month.

“Bridgepoint deceived its students into taking out loans that cost more than advertised, and so we are ordering full relief of all loans made by the school,” said CFPB Director Richard Cordray. “Together with our state partners, we will continue to be vigilant in rooting out illegal practices facing student borrowers in the for-profit space.”

The settlement requires Bridgepoint forgive $18.5 million in outstanding loans and refund more than $5 million in loan payments that students have already made. The loans cover students enrolled from 2009 to 2015. Bridgepoint will also pay an $8 million penalty.

The CFPB has been more aggressive in its focus on for-profit colleges lately. It sued ITT Tech’s parent in February; ITT Education Services announced it was shutting down last week after the Department of Education said it could no longer enroll students receiving federal aid.

The CFPB also sued Corinthian Colleges in 2014, eventually winning a $530 million default judgment against the firm.

The CFPB’s Bridgepoint announcement focuses specifically on the school’s sales tactics.

“The Bureau found that the school deceived its students about the total cost of the loans by telling students the wrong monthly repayment amount. As a result, students at Bridgepoint were deceived into taking out loans without knowing the true cost, and were obligated to make payments greater than what they were promised,” the agency said in a press release. “Specifically, the CFPB found that Bridgepoint told students that borrowers normally paid off loans made by the school with monthly payments of as little as $25, an amount that was not realistic.”

Bridgepoint pointed reporters to a statement about the consent order posted on its website. In it, the firm said the refunds and forgiveness impact 1,277 students. The statement notes that the CFPB identified “only one area of concern with the loan program,” and that the CFPB did not raise questions about the firm’s educational credibility. The firm says the associated loan programs have been discontinued.

“This agreement simply allows us to return our full and undivided focus to our students and their success. We believe in the high quality of education our institutions provide and we will continue helping students achieve their goals of a quality and affordable college education,” said Andrew Clark, president and chief executive officer of Bridgepoint Education, in the statement.

The CFPB has also ordered Bridgepoint to remove negative information about its loans from borrowers’ credit reports, and to create a new financial and disclosure tool that makes it easier for students to understand their obligations when they borrow to attend the school. Students will be required to use the tool before enrolling.

Remember, student loan debt — and any associated missed payments — can hurt your credit. You can see how your students loans may be affecting you by pulling your credit reports for free each year at AnnualCreditReport.com and viewing two of your credit scores, updated every 14 days, for free on Credit.com.

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The post This For-Profit School Is Forgiving $23.5 Million in Student Loan Debt appeared first on Credit.com.

Watch Elizabeth Warren Grill a Former Regulator About the Financial Crisis

Elizabeth_Warren

Sen. Elizabeth Warren (D-Mass.) hasn’t shied away from take on high-ranking officials for their alleged roles in the financial crisis of 2008 during her tenure in office during the past three years.

The latest target of her ire? Leonard Chanin, a former senior regulator at the Federal Reserve during the George W. Bush administration.

During a Senate banking committee hearing on Tuesday, Warren let Chanin have it after he called data about the increases in mortgage foreclosure rates “anecdotal,” arguing the Fed had nothing concrete to act on to get ahead of the subsequent subprime mortgage crisis — a “failure,” Warren said, which had “devastating consequences” for families across the country.

Chanin, currently an attorney in the financial services practice group of Morrison & Foerster and a former director at the Consumer Financial Protection Bureau, had been asked by Senate Republicans to testify on the costs of current consumer finance regulations.

You can watch the rest of their hair-raising argument below.

Foreclosure rates in the U.S. have fallen in recent years, but families struggling to pay their mortgage could avoid losing their home by refinancing, negotiating with their current mortgage lender or seeking help from Department of Housing and Urban Development-approved counseling agencies. You can find more tips for saving your home from foreclosure here. You can also see how any missed mortgage payments may be affecting your credit by viewing your two free credit scores, updated each month, on Credit.com.

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Image: Ann Heisenfelt

The post Watch Elizabeth Warren Grill a Former Regulator About the Financial Crisis appeared first on Credit.com.

Attention Online Loan Shoppers, There’s Now a Place to Take Your Gripes

p2p_loans

Consumers with complaints about firms offering person-to-person loans can now register their displeasure with the Consumer Financial Protection Bureau, the federal regulator announced this week. The watchdog also published a consumer bulletin with general information about the “P2P” lending industry, also known as “marketplace lending.”

“When consumers shop for a loan online we want them to be informed and to understand what they are signing up for,” said CFPB Director Richard Cordray in a press release. “By accepting these consumer complaints, we are giving people a greater voice in these markets and a place to turn to when they encounter problems.”

There’s no reason to believe complaints are swirling around P2P lending at a higher rate than traditional lending. The CFPB has merely updated its systems to account for this new segment of the financial industry. But the announcement comes as the marketplace lending industry has hit a few bumps in the road.

What Is P2P Lending?

P2P lending is mostly what it sounds like: market makers like Prosper.com match people who want to borrow money — in Prosper’s case, up to $35,000 — with people who want to lend and get decent returns. Interest rates are high, averaging around 15%, but can be substantially lower than bank personal loan rates or credit card rates.

Lenders must follow consumer protections like the Truth in Lending Act and the Fair Debt Collection Practices Act, so the marketplace is fairly heavily regulated. Still, growth has been explosive. From 2010 to 2014, the national online lending market grew from $1 billion in loans to $12 billion, and Morgan Stanley estimates that by 2020 the volume will grow to $122 billion.

But there have been bumps in the road recently. In December, the California Department of Business Oversight announced it had opened an inquiry into the industry.

“These online lenders are filling a need in today’s economy, and we have no desire to squelch the industry or innovation,” CDBO Commissioner Jan Lynn Owen said in a press release. “We have a duty, however, to protect California consumers and businesses, and they have more and more at stake as this industry grows. We want to assess the effectiveness and proper scope of our licensing and regulatory structure as it relates to these lenders.”

Prosper told Credit.com it’s cooperating with the CDBO.

In February, citing a “turbulent market environment,” Prosper announced it was raising interest rates by an average of 1.4% to 14.9%. (Lending Club announced it was raising its rates back in December.)

At nearly the same time, Moody’s said it placed bonds linked to Prosper loans “on review for downgrade,” warning of higher default rates.

“Moody’s original estimates of loss were well below Prosper’s internal forecasts as well as those set by rating agency Fitch,” said Sarah Cain, Prosper spokeswoman. “Most importantly, our portfolio of unsecured consumer loans continues to deliver net returns between 6-8%.”

Vetting P2P Loans

Of course, plenty of other loans — like car loans — are also facing higher default rates. And an “inquiry” should not be considered an investigation. Still, the activity has spooked investors; Lending Club, which is publicly traded, has seen its share price cut by more than half in the past year. (Lending Club did not respond to request for comment regarding the CDBO investigation and the recent Moody’s downgrade.)

Consumers, however, should maintain a critical eye when considering marketplace loans, as the CFPB suggests. The traditional advice about obtaining any kind of loan applies – shop around, know your credit score before you apply, borrow as little as possible. (You can check your credit by pulling your credit reports for free each year at AnnualCreditReport.com and viewing your credit scores for free each month on Credit.com.) The CFPB also makes a critical point to potential P2P borrowers: When using a new loan to repay an old one, make sure you are not losing any important protections.

“While some marketplace lenders may advertise lower interest rates, in some cases consumers could lose important loan-specific protections by refinancing an existing debt,” the CFPB warns. “Specifically, consumers should know that they may sign away certain federal benefits, such as income-driven repayment for federal student loans or servicemember benefits related to debt incurred prior to entering active duty.”

The CFPB marketplace lending brochure is available here.

Have you tried P2P lending? What did you think?

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The post Attention Online Loan Shoppers, There’s Now a Place to Take Your Gripes appeared first on Credit.com.

The One Tool That’ll Help You Find the Best Mortgage Rates

Mortgage

Well it happened. The first interest rate hike in almost a decade occurred at the end of 2015.

If you’re in the market for a house right now, the rate hike may have been a bit of a downer, but fear not, there’s still time to find great deals. This current hike was a relatively small one (moving interest rates from 0% to 0.25% to 0.25% to 0.5%), but mortgage rates will rise, so if you are looking for that dream home, it may be time to get serious about your research.

Luckily, the Consumer Financial Protection Bureau is here to help.

Their nifty tool, which you can find here, is a great way to compare interest rates from actual lenders with information that gets updated on a daily basis. You’ll need some basics to start the process — your credit score, state, home price and down payment percentage — but you’ll be rewarded with a graph of lenders and interest rates specific to where you’re shopping for a home.

Let’s go through an example. Say Carry is looking for a house in her Colorado hood. She has a credit score of 625 (the average credit score for millennials), and she’d like to purchase a home for $250,000 with a 15% down payment. According to a quick CFPB tool search, in Colorado, most lenders are offering rates at or below 4.625%, while two lenders are actually offering rates of 4.090%.

Armed with this information, Carry can head into her pre-approval meetings with the knowledge of what’s a “good” offer and what’s not-so-great, which makes her odds of negotiating successfully that much greater.

Carry can even do a quick Google search to see which lenders are offering the 4.090% because the CFPB unfortunately doesn’t provide the names of lenders.

If you’re ready to start the house hunting process and you’ve already armed yourself with knowledge from the CFPB tool, check out this piece about when it’s smart to apply for a mortgage without your spouse, and this one about why you can’t afford a 3% down payment mortgage.

The post The One Tool That’ll Help You Find the Best Mortgage Rates appeared first on MagnifyMoney.