Veterans, military families most at-risk for deceptive debt collectors

When it comes to consumer concerns, debt collection remains the top complaint most often reported to the Consumer Financial Protection Bureau (CFPB). Two newly released CFPB reports reveal which consumers are most at risk and the businesses most often identified in debt collection issues.

As of March 1, CFPB found that California, Florida, Illinois, New York and Texas account for more than 40 percent of all complaints received since July 2011. Further, in Florida, nearly 60 percent of the state’s entire complaints came from just three metro areas— Miami, Orlando and Tampa Bay.

Still, military members and their families remain the most at-risk in debt collections, even when compared to the general population. Among all complaints received from the military community, debt collection represents almost half— 46 percent— of all military complaints filed. By comparison, all debt collection complaints CFPB received during the reporting period amounted to approximately 26 percent.

Mortgage complaints from military families, was the second ranked lending issue, at 15 percent. Service members returning home from deployment or to temporary duty stations also frequently reported fraudulent activity on their credit report and/or identity theft.

San Diego-based Encore Capital Group and Portfolio Recovery Associates (PRA) Group based in Virginia are two of the largest debt collectors in the country have been identified the most often in CFPB’s complaints. Each firm averaged over 100 complaints per month to the Bureau from October through December 2015.

Last fall, CFPB also took respective enforcement actions against the firms for their deceptive tactics involving both debt buying and debt collection. PRA was assessed an $8 million fine, ordered to refund $19 million to consumers and to stop collection efforts on other debts valued at $3 million. Similarly, Encore Capital was ordered to stop collection efforts on $125 million in debts, refund consumers $19 million and pay a $10 million fine.

Commenting on the disproportionate number of military complaints with debt collections, Holly Petraeus, Assistant Director for CFPB’s Office of Service Member Affairs said, “While this could be due to a variety of factors, one issue which we have highlighted in the past is the concern that unpaid debts can threaten a military career. Because of this, we encourage all service members to diligently check their credit reports and proactively protect their credit files while they are away from home.”

The Consumer Financial Protection Act of 2010 makes it illegal for businesses to:

•Contact service members’ commanding officers regarding unpaid debt;

•Disclose service members’ debts to commanding officers; or

•Characterize debt delinquencies as military violations subject to service members’ disciplinary actions.

Despite these legal protections, egregious problems persist. CFPB has brought actions over the past year against businesses that continue to violate its rules. For example, the Ohio-based auto lender, Security National Automotive Acceptance Company (SNAAC) was ordered in 2015 to refund or credit $2.28 million to service members and other consumers who were harmed by the firm. In addition, SNAAC was also assessed a $1 million penalty, and ordered in a separate district court action to stop using aggressive tactics to coerce service members into making payments.

Though fewer in number but perhaps with higher financial stakes, mortgage complaints by veterans and military members are another major concern. Disabled veterans, for example, have been charged a funding fee associated with the Veterans Administration (VA) Home Loan program – even though they are exempted from paying the fee that can range from 1.25 percent to over 3 percent of the total home loan.

Once such disabled veterans wrote CFPB, “As a 100 percent disabled US combat veteran, I am informed by VA that the terms of my VA mortgage entitle me to a refund of the funding fee the mortgage provider received when I took out the loan… Now [company], despite numerous phone calls and requests for update, as well as an in-person meeting and referrals to VA contacts, has not returned this funding fee to me. I need help with [this company’ which [is] in my view taking money from veterans in order to further their own gains.”

Anyone needing assistance to resolve problems with a financial service or product can file an online complaint with CFPB at:

Charlene Crowell is a communications manager with the Center for Responsible Lending. She can be reached at

Veterans and consumers of color often targeted for fraud

Although the former Corinthian Colleges, once one of the nation’s largest for-profit colleges, closed its doors last year, many of the problems incurred by its former students persist. The now-defunct college is the only questionable actor among for-profit colleges.

To date, investigations, and lawsuits have focused on a growing list of other for-profit schools and colleges including but not limited to Computer Systems Institutes, DeVry University, ITT Tech, Marinello Schools of Beauty and Trump University.

With tuition costs higher than many public colleges and universities, many for-profit college students are financially forced to take on private student loan debt at interest rates that exceed those of federal student loans. Others are advised to add related charges to credit card accounts.

One of the worst financial abuses perpetrated are against the men and women who sought to successfully transition from military to civilian life. Many veterans enrolled and even graduated from for-profit institutions, like Corinthian, but now find there are three strikes against them: the promised better careers and high earnings never materialized, and thirdly, educational benefits that underwrote a portion of the so-called educational cost have now been suspended.

In response, eight state Attorneys General have challenged the Department of Veterans Affairs (VA) to “restore the educational and vocational rehabilitation benefits that thousands of veterans are deprived of due to misleading advertising, or enrollment practices of predatory institutions, such as Corinthian Colleges, Inc.” These Attorneys General (AGs) represent the states of California, Connecticut, Illinois, Kentucky, Massachusetts, New Mexico, Oregon and Washington.

“Most of the student relief flowing from enforcement actions against predatory educational institutions has, however, pertained to student loans – not the hard-earned benefits of our nation’s veterans,” wrote the AGs.

Two taxpayer funded programs, the Post-9/11 G.I. Bill and the Vocational Rehabilitation and Employment (VR&E) program are at the heart of the AGs’ concerns. G.I. Bill benefits, funded by Title IV federal student aid, provide up to $21,084 per year for tuition; additional funding covers housing, books and supplies. VR&E benefits are awarded for service-related disabilities that can include job training and education, workplace accommodations and career coaching.

Legally, for-profit colleges may receive up to 90 percent of their annual revenues from Title IV. VR&E assistance is not included as part of Title IV. If both Title IV funds – which also include Pell Grants — are combined with VR&E benefits, taxpayers are almost completely funding for-profit enterprises.

“[T]he VA’s decision to provide funds to Corinthian for student veterans’ attendance at these programs should be deemed an administrative error,” said the AGs. “This administrative error deprived student veterans of their right to use their benefits at an institution that was free of erroneous, deceptive, and misleading advertising, sales, and enrollment practices.”

For the Federal Trade Commission (FTC), the apparent lack of actual benefits derived from enrollment at DeVry are at the heart of a lawsuit filed in late January. Its complaint charges that one of DeVry’s key claims was deceptive — that its graduates had 15 percent higher incomes one year following graduation. FTC also cited how DeVry promised that its graduates would find jobs in their fields of study and would earn more than those graduating with bachelor’s degrees from other colleges or universities. In most cases, these promises never materialized.

On March 10, according to FTC, DeVry filed a motion to have the case dismissed. On May 2, a hearing will be held to hear oral arguments from both sides.

“Millions of Americans look to higher education for training that will lead to meaningful employment and good pay,” said FTC Chairwoman Edith Ramirez. “Educational institutions like DeVry owe prospective students the truth about their graduates’ success finding employment in their field of study and the income they can earn.”

In at least one case, ‘university’ was used in the name of a for-profit enterprise even though it lacked a required state charter to do so.

According to New York Attorney General Eric T. Schneiderman, between 2005 and 2011, Trump University operated as an unlicensed educational institute that promised to teach real estate investment techniques. The office’s investigation revealed that participating consumers paid up to $1,495 for a three-day seminar. While in attendance, they did not receive the real estate training promised but were encouraged to sign-up for programs ranging in costs from $10,000 to $35,000.

In 2005, the New York State Education Department advised the enterprise of its state law violation. The enterprise’s name was not changed until 2010. Through it all, it never received a license to operate in the state.

“More than 5,000 people across the country who paid Donald Trump $40 million to teach them his hard sell tactics got a hard lesson in bait-and-switch,” said AG Schneiderman.

The pending lawsuit filed in Manhattan’s New York Supreme Court, seeks full restitution for consumers defrauded of more than $40 million.

A separate but similar 2010 cased filed in San Diego filed against Trump University is a second class-action lawsuit, and is scheduled for a May 6 pretrial hearing.

As for the now-defunct Corinthian Colleges, recent news accounts reveal how the purchaser of the former colleges, nonprofit Zenith Education Group, has failed to correct many of the problem students continue to face. While ownership may have changed and enrollment dropped, other issues like allegations of fraud and mismanagement by the same people who worked under Corinthian persist.

In response the Department of Education confirmed to Associated Press on March 15 that the law firm hired to monitor the college turnaround was fired and further that a replacement will be hired.

Last fall the Center for Responsible Lending (CRL) released research that found how high-cost, for-profit colleges make millions each year by targeting students of color. As students of color enroll more often at for-profit colleges, they are also disproportionately harmed.

The quest for financial justice continues….

Charlene Crowell is a communications manager with the Center for Responsible Lending. She can be reached at

Blacks and hispanics charged higher interest rates

In recent months, this column has reported on a series of settlements reached between banks and finance companies with the Consumer Financial Protection Bureau and the Department of Justice. All of the actions were taken to resolve claims of discrimination in auto lending.

To date, over $200 million in fines and restitution have been made to car buyers of color who paid higher interest rates than White borrowers— a violation of the Equal Credit Opportunity Act. Additionally and as a condition of the settlements, defendants were required to change their lending practices by significantly reducing the amount of additional interest dealers can add to car loans for compensation.

Despite these developments, discriminatory practices in auto finance persist with some lenders and dealers. While law enforcement comes after discriminatory acts have already been committed, a new advocacy effort appeals for dealers to change their practices to prevent further discrimination in auto lending.

A group of consumer advocates and civil rights groups recently wrote Warren Buffett, chairman and CEO of Berkshire Hathaway, to stop this discriminatory practice at his dealerships. Last year, Berkshire Hathaway acquired the Van Tuyl Group, the largest privately held dealership group in the nation. Renamed “Berkshire Hathaway Automotive,” the firm now operates 81 dealerships in 10 states, selling a range of domestic and foreign brands.

“While we welcome and applaud efforts of federal regulators to rein in this discriminatory practice, we urge responsible auto dealers to move immediately to end the practice on their own,” wrote the advocates. “As you have publicly stated, we need to end discrimination in any number of settings. We are writing to you to respectfully request that you join us and openly condemn this discriminatory practice and help lead the way to a fair, open and transparent marketplace.”

When a consumer finances a car purchase through an auto dealer, the dealer has the discretion to increase the interest rate offered by the lending institution and keep some or all of the difference as compensation. This difference between the interest rate priced for risk and the additional interest the dealer adds more compensation is known as dealer interest rate markup. It has also long been shown to result in higher interest rates for borrowers of color.

The 17-member coalition calling on Buffett to act includes the Leadership Conference on Civil and Human Rights, League of United Latin American Citizens, NAACP, National Consumer Law Center, National Urban League, and the Center for Responsible Lending among others. The joint appeal also acknowledged the influential opposition faced in fighting for fair lending in auto finance.

“Unfortunately, the nation’s largest auto dealer trade association, the National Auto Dealers Association, has responded with a campaign to defend this discriminatory practice, jeopardizing the good will that auto dealers may have in their communities,” said the coalition. “As you have said, ‘it takes 20 years to build a reputation and five minutes to ruin it.’ As a leader in the financial sector…[Y]our leadership would have a market-wide impact.”

Ranked by Forbes as the nation’s second wealthiest billionaire— surpassed only by Bill Gates— Buffett built a solid reputation for astute investing and major deals that grew Berkshire Hathaway into a multinational firm with more than 90 businesses owned and additional investments in corporations such as American Express, Coca-Cola, IBM and Wells Fargo.

Beyond Buffett, the Center for Responsible Lending (CRL) and its allies have also called on regulators to end the practice of dealer interest rate markup.

Charlene Crowell is a communications manager with the Center for Responsible Lending. She can be reached at

Collecting $200 Million from the debt collectors

— At one time or another, many consumers have fallen behind on paying their bills. For the working poor, unemployed and underemployed, the struggle to get out of debt can be a daily challenge. At the same time, there are businesses that exploit others’ financial woes, reaping high profits on debt purchased for just a few cents on the dollar. In some scenarios, debt buyers become nagging collectors who hound consumers at all hours of the day and night.

The irony is that the harassment is not always warranted or even accurate. Debt buyers have a documented history of suing the wrong person for the wrong amount. In the worst scenarios, some consumers first learn of alleged debts after a court judgment has been entered against them.

These are only a few of the concerns that recently led the Consumer Financial Protection Bureau (CFPB) to take enforcement actions against the nation’s two top debt collectors. CFPB’s actions also suggest that financial abuses may be inherent in debt buyers’ business models. Together, the San Diego-based Encore Capital Group, Inc. and its subsidiaries comprise the nation’s largest debt buyer and collector. The Norfolk-based Portfolio Recovery Associates, the second largest debt operation, will halt collections totaling $128 million. The firms will also pay another $61 million in consumer refunds and an additional $18 million in penalties.

“Encore and Portfolio Recovery Associates threatened and deceived consumers to collect on debts they should have known were inaccurate or had other problems,” said CFPB Director Richard Cordray. “Now, the two biggest debt buyers in the market must refund millions and overhaul their practices. We will continue to take action to protect consumers from illegal and obnoxious debt collection practices.”

The litany of CFPB’s charged offenses read like a primer of what not to do in consumer lending. Here are just a few of the illegal and deceptive actions the firms were charged with:

  • Illegally attempting to collect debt they knew, or should have known, may have been inaccurate or unenforceable;
  • Collecting debts through lawsuits and threats of legal action in unlawful ways;
  • Falsely telling consumers the burden of proof was on them to disprove the debt;
  • Suing or threatening to sue consumers past the statute of limitations; and
  • Disregarding or failing to adequately investigate consumers’ disputes.

“The Portfolio Recovery Associates and Encore Capital Group consent orders underscore the questionable tactics used by even the largest debt buyers attempting to collect old debts – deception, intimidation, and the mass-production of lawsuits against the wrong people for the wrong amount of money,” said Lisa Stifler, a policy counsel at the Center for Responsible Lending (CRL). “Consumers deserve to be protected from wrongful collection and legal action.”

Further, abusive debt collection is annually among the top complaints to the Federal Trade Commission and the CFPB. In the aftermath of the Great Recession, CRL is working with lawmakers and regulators at both the state and federal levels to ensure that consumers are effectively protected from unscrupulous and predatory businesses.

Beyond CFPB’s enforcement actions, state attorneys general in Arkansas, Colorado, Minnesota, Pennsylvania, New York, Texas and West Virginia have all taken state actions against debt buyers and their collection practices. In New York alone, more than 7,500 court judgments valued at more than $34 million have been vacated between 2014 and 2015.

Commenting on the New York actions, Attorney General Eric Schneiderman said, “My office will continue to hold debt collectors and lenders accountable so that New Yorkers can keep more of their hard-earned money where it belongs – in their pockets. It is absolutely urgent that the CFPB propose new rules that will stop all debt collectors from engaging in abusive behavior, prevent them from collecting debts based on inaccurate information and punish them when they do lie to courts and consumers.”

Charlene Crowell is a communications manager with the Center for Responsible Lending. She can be reached at

Debt can help or hurt wealth building

— Money and credit are two items that affect nearly everyone. We earn, spend and sometimes save money. But it seems nearly inevitable that the need for credit arises and efforts to retire it become debt that can hang around longer than a bad penny.

For most Americans, debt is a complicated reality. Whether a consumer is retired, nearing the end of a career or beginning one, the likelihood of holding debt of some kind is fairly high. A new research report by Pew Trust finds that 80 percent of the nation has some form of debt and further that nearly 7 in 10 view debt as a necessity they would prefer not to have.

By comparing and contrasting how families of different generations, races and ethnicities hold debt, the new report suggests that as conditions vary, debt can help or hurt a consumer’s ability to build wealth.

A mortgage loan, for example, is often a debt that becomes a building block to accumulating family wealth. As consumers pay down mortgage principal, home equity generally grows correspondingly. In these circumstances over the life of the loan, homeowners gain choices to keep the home and eventually retire its mortgage or move into a higher-value home with proceeds from its sale reducing the need to finance the purchase.

Not every homeowner, however, enjoys that same rosy financial prospect. Homeowners of color – largely Black and Hispanic – who experienced higher rates of foreclosures and/or depreciated values because nearby foreclosures, mortgage debt can restrict their financial choices.

“[H]ome equity for Black homeowners has not increased at the same rate as it has for White homeowners, largely because home values in minority neighborhoods have been slow to recover since the housing crisis, and so have generated lower returns on mortgage debt,” states the report.

Similarly, while incurring student loans is often viewed as an essential investment in a career and a middle-class lifestyle, racial disparities persist.

“Despite the higher-than-average rate of student loan debt among young Black Americans, it is not clear that this debt is fully building their human capital,” the report explains. “Black Gen Xers and millennials who owe student debt in their own names are more likely than their white peers to be paying for a degree they did not complete (38 percent versus 26 percent).”

Even more startling, when Pew asked student loan borrowers whether they would do things differently if they had that chance, a majority of both Blacks (51 percent) and Hispanics (52 percent) responded they would find a different way to pay for school in order to owe less money. By contrast, only 32 percent of White respondents gave the same answer.

Before anyone concludes that buying a home or getting a college education is a poor financial decision – think again.

According to Sarah Wolff, a senior researcher with the Center for Responsible Lending (CRL), the Pew report portrays the complexities – not the inevitability of debt.

“The implications of debt for opportunities depend not just on the raw dollar amount of debt but also on the quality and appropriateness of the product,” noted Wolff. “Not all student loans are the same. This is true for all kinds of loans – including mortgages and credit cards,” Wolff said. “The terms and conditions under which loans are made are very important and we should consider these factors when trying to answer broad questions like “is debt good or bad.”

CRL’s recent report on the cumulative impacts of predatory lending likens consumer credit to a hammer – which can be used to build a house or destroy it. Pew’s research provides evidence that debt is actually both good and bad.

“It is the terms and conditions under which credit is extended that ultimately determine how the loan affects a borrower,” concluded Woolff.

Other independent CRL findings help to explain why debt affects borrowers in different ways:

Across many financial products, low-income borrowers and borrowers of color are disproportionately affected by abusive loan terms and practices; and

Loans with problematic terms are repeatedly concentrated in neighborhoods of color.

Understanding these factors that affect our daily lives should also spur continued work to eliminate and rid the marketplace of products that are designed to trap borrowers in debt while enriching lenders.

On a personal level, perhaps we can do ourselves a financial favor by taking time to review the fine print of loan and credit agreements; and insisting on clear answers to our credit questions before another debt is incurred. Every consumer considering a financial obligation has a right to know.

Charlene Crowell is a communications manager with the Center for Responsible Lending. She can be reached at

Financial shackles still in place

— As the annual, month-long Black History observance begins, now is a good time to reflect on the journey that previous generations of blacks have taken in the quest for total freedom and equality. From 1865’s Emancipation Proclamation, to 1954’s U.S. Supreme Court decision in Brown v. Board of Education, and 1965’s voting rights legislation, black Americans have vigilantly fought for freedom.

Celebrations of our milestone moments convey our unique American history. By embracing our history, we teach our youth and remind older ones of significant strides achieved when we had none of the freedoms promised by our nation. Most of these achievements were fought and won when Black personal financial resources were rare, limited or nonexistent.

Blacks serving in the United States Colored Troops during the Civil War fought for the union as well as for themselves and the futures they envisioned for their families. Imagine the pride they must have felt when for the first time in their lives they held their own paychecks. According to the National Archives, beginning in 1864, banks such as South Carolina’s Military Savings Bank and Louisiana’s Free Labor Bank were created for these soldiers. For many, it was the first time they had ever been paid for their work.

Following the Civil War and regardless of locale, an important goal was to incorporate economic opportunity into the transition from slavery to freedom. For a short time between 1888 and 1934, 134 black banks were established across the country. As black banks grew, so did the number of black customers and businesses. These were the institutions that sold and serviced loans for mortgages, built schools and churches, and invested in black small businesses.

Unfortunately, the Great Depression of the 1930s destroyed banks serving customers of all races. Few institutions were able to survive panicked runs by depositors who demanded all of their money as they closed accounts.

It also began a serious distrust of banks and other lending institutions. For many, money in the mattress or hidden places in the home were thought to be safer options than financial institutions. The National Negro Bankers Association, founded in 1924, tried to provide support for its members. But by 1942, only 70 such institutions survived.

Fast forward to today when many consumers of color continue to distrust lending institutions. Despite federal laws, unequal treatment in the financial services sector has worsened age-old distrust and helped contribute to the growing racial wealth gap.

The number of black-owned banks has shrunk to only 25 institutions as of last September, according to the Federal Deposit Insurance Corporation. This still-dwindling number of black financial institutions is especially intriguing when contrasted with findings from the National Newspaper Publishers Association commissioned Neilsen Company report that projects black purchasing power will reach $1.1 trillion this year.

With all of the growth in purchasing power, why is it that so few black people have wealth comparable to other groups?

One piece of this puzzle is the predatory lending practices that plague our communities and has been documented by a series of research reports from the Center for Responsible Lending (CRL). From financing major purchases to small-dollar loans, predatory lending siphons off black America’s money and wealth.

Subprime auto loans, now an $870 billion industry, actively seeks consumers with less than stellar credit, only to lock them into long-term loans that charge interest rates as high as 400 percent or more and for as long as 96 months.

High-cost, for-profit colleges heavily recruit students of color through misleading marketing practices. More often than not, students wind up dropping out of school and are left with no education and a lot of high-cost loans. The few who earn degrees quickly learn that their time and student debt investment did not bring respected academic credentials or training that would lead to gainful employment.

When household expenses exceed money available, borrowing a few hundred on a payday loan will result in fees that cost more than the principal borrowed. With each loan renewal, a difficult and deepening cycle of debt leaves borrowers even more financially challenged than ever.

Only time will tell how long it will take to recover the nearly $1 billion of wealth lost by Black and Latino mortgage borrowers as a result of foreclosures, short sales and devalued properties.

The chains of slavery are long gone but have been replaced by shackles of debt that deny our dreams and desired futures.

In 2015, let us learn from our history to take our financial patronage to businesses that offer fair and transparent value for their products. It is time to keep more of our money in our own pockets.

Charlene Crowell is a communications manager with the Center for Responsible Lending. She can be reached at

Debt settlement programs are misleading

— You’ve probably heard the advertisements on urban radio urging consumers with at least $10,000 in debt to call a number right away for a financial rescue. Promising to end debt troubles by getting creditors to somehow accept less money than what is owed can sound really appealing. In reality, however, consumers mired in debt may often find debt settlement programs to be costly, misleading, and far less helpful than the radio ad promises.

In the newest chapter in the research series titled The State of Lending, the Center for Responsible Lending (CRL) finds that debt settlement is a risky strategy that can leave consumers more financially vulnerable and still laden with debt years after they enroll in such programs.

Regardless of how well consumers follow the instructions of their debt settlement firm, they may ultimately be unsuccessful because many creditors simply refuse to deal with debt settlement companies.

According to the report, “Debt settlement companies do not tell consumers whether creditors will work with their firms at the time of enrollment. However, even if debt-settlement companies were required to disclose whether a particular creditor routinely works with their firm, this provides no real guarantee. In many cases, the party who owns a debt changes over time, since a debt may be sold successively to multiple parties.”

Available data suggests that at least two-thirds of debts must be settled in order to achieve a net positive outcome from debt settlement. Even more debts must be settled for the consumer to achieve real savings if they end up being liable for taxes on the debt reduction.

In the end, many consumers never realize that kind of experience. Rather, they end up worse off financially. According to the American Fair Credit Council, an industry trade association, consumers must typically be enrolled in debt settlement plan for three to four years in order to complete the program. During this time, debt balances grow an average 20 percent while consumers wait for settlements to be reached. Additionally, their credit scores are negatively affected, financial instability increased, and the likelihood of creditor lawsuits loom near.

According to Leslie Parrish, co-author of the report and deputy research director at CRL, “When a consumer stops making payments on a debt, not only is she/he vulnerable to fees and an increased interest rate, the reporting of this delinquency to credit bureaus can impact credit scores for years.”

In general, the higher a consumer’s credit score is, the lower the cost of credit they will incur. Conversely, the lower one’s credit score, the higher the cost of credit and interest will be. Whether applying for a credit card, auto loan or a mortgage, bad credit histories make future credit and borrowing more expensive.

In 2010, the Federal Trade Commission (FTC) issued regulation that barred debt settlement companies from charging fees until they reached settlements with the client’s creditors. While this regulation has stopped some of the most egregious industry practices, CRL’s report finds that significant financial risks remain for debt settlement clients.

Today, the Consumer Financial Protection Bureau shares regulatory oversight of debt settlement with the FTC. Thus far, CFPB has taken multiple enforcement actions against several debt-settlement companies and one payment processor.

CRL also sees a role for states to establish meaningful limits of debt settlement fees. One recommendation is to limit the fees that can be charged and to calculate such fees on the basis of the amount of savings achieved for the consumer.

State and federal regulators could also require better screening of prospective customers to lower the risk of a bad outcome. Factors such as the amount of debt to be enrolled, creditors and the consumer’s financial circumstances would be taken into account. Additional recommendations can be found in the report located at:

Ellen Harnick, co-author of the report and senior policy counsel at CRL, said, “What’s clear is that more action is necessary to protect consumers.”

Charlene Crowell is a communications manager with the Center for Responsible Lending. She can be reached at

Predatory lenders take aim at our soldiers

— When it comes to payday and other small-dollar, high-cost loans, many think of urban areas plastered with signage and neon lights. And while those images are all too true, predatory lenders have another favored target: America’s military families.

Military installations populated by the men and women who wear the nation’s uniform are also easy targets for high-cost lending. Often young but earning a steady paycheck, high-cost lenders beckon them with a wide range of triple-digit interest rates on lending products ranging from payday and auto title loans to refund anticipation checks, installment loans and more.

In 2007 President George W. Bush signed into law the Military Lending Act (MLA). Before its enactment, the Department of Defense (DoD) found that “predatory lending undermines military readiness.” To address the abuses, MLA capped annual interest rates at 36 percent for consumer credit. Further, it banned the use of a borrower’s bank account as collateral for payday loans.

Has progress been made? Yes. But is small-dollar lending reform complete? No.

Last month DOD issued a report that noted how too many service members are still caught in predatory debt. Other predatory lending products, such as high-cost installment loans, are now being offered but fall outside the scope of the existing MLA. As a result, DOD now seeks to broaden its current protections to include other forms of abusive credit.

DOD advised Congress that consumer education alone was simply not enough to overcome predatory lenders’ aggressive marketing.

“While the Department also believes that education is both important and helpful, it is simply not as effective in steering vulnerable Service members away from high-cost loans as prohibiting those loans. . . . Financial protections are an important part of fulfilling the Department’s compact with Service members and their families,” it stated.

A survey of active duty Services members found that 88 percent of enlisted members said they did not think they would be inconvenienced if there was no access to credit products with more than 36 percent interest rates.

The Department of Defense also asked financial counselors who work with service members additional questions. Nearly the same proportion – 87 percent – did not view a 36 percent annual percentage rate as being too restrictive.

With these and other findings, DOD concluded that new, more comprehensive regulations are needed to protect service members from high-cost credit.

That same conclusion is shared by the Center for Responsible Lending (CRL). Independent research by CRL has found that high-cost lending robs the most financially vulnerable of their monetary assets:

Repeated payday borrowing costs consumers $3.5 billion in fees each year.

Like payday lenders, auto title lenders derive more revenues from fees than on the actual principal borrowed;

The average car title customer renews his/her loan eight times;

Like payday and car title loans, installment loans have also been associated with repeated refinances and account for as much as 75 percent of

this loan business; and installment loans typically include high-cost, add-on products such as credit life, disability insurances and discount clubs

that significantly raise the total costs of credit.

DOD reports that 67 percent of enlisted service members reported seeing other military members get in trouble using credit. Additionally, because of conflicting state statutes, only 24 states have the authority to enforce the MLA.

In states that already have a comprehensive rate cap in place to prevent high-cost loans of any type, they already extend these important protections to military and civilians alike. However, in states where such triple-digit interest debt trap lending is legal, the DOD’s enhancements would be a welcome way to protect active duty military nationwide.

Reacting to the Department’s report, CRL said, These findings are consistent with earlier analyses by our respective organizations that found that far too often, the important protections established by the Military Lending Act are easy to evade . . . We applaud the Department of Defense for its commitment to protecting the financial stability of service members and their families and we look forward to continued progress on this critical issue.”

A call to end predatory small-dollar lending

— After waiting for more than a year for a hearing on a bill that would reform how small dollar loans operate, six U.S. Senators have now taken their concerns to the Consumer Financial Protection Bureau (CFPB). A May 14 letter to CFPB Director Richard Cordray lays out how rulemaking could accomplish much of what proposed legislation has aimed to do.

Speaking in a united voice, Senators Jeff Merkley (Oregon), Dick Durbin (Illiois), Tom Harkin (Iowa), Tom Udall (N.M.), Richard Blumenthal (Conn.) and Elizabeth Warren (Mass.) said, “Sadly, the evidence shows that these loans trap consumers in a cycle of debt in which consumers end up owing more than the initial loan amount – an appalling practice that exploits the financial hardship of hard working families and exhibits a deeply flawed business model that does not consider borrowers’ ability to repay the loan.”

As sponsor and co-sponsors of the pending Senate Bill 172, Stopping Abuse and Fraud in Electronic (SAFE) Lending Act, the lawmakers urged CFPB to include the bill’s provisions in its rulemaking. Despite being assigned to the Senate Banking, Housing and Urban Affairs Committee since January 2013, no hearing has been held on the SAFE Lending Act. Should CFPB embrace the lawmakers’ request, its new rules would achieve many of the same lending reforms.

The letter’s timing is also significant, following a CFPB public forum in Nashville in late March. That event coincided with the Bureau’s release of its own payday research. After analyzing 11 months of borrowing at 12 million storefront locations, CFPB confirmed that the industry relies not on individual borrowers’ ability to quickly repay, but on their inability to repay, resulting in individual borrowers taking out many loans each year.

Additionally, CFPB found that four out of five payday loans are rolled over or ‘renewed’ within two weeks of when the borrower paid off a prior loan. Further, more than two-fifths of payday borrowers who were paid on a monthly basis – most of whom were public benefits recipients, including those on Social Security – had 11 loans in its 11-month study period.

Earlier, research by the Center for Responsible Lending (CRL) found payday borrowers are annually charged $3.4 billion in fees alone. The typical borrower takes out 10 payday loans in a year at interest rates averaging 391 percent over a year’s time.

Importantly, the Senators urged CFPB to include more small-dollar loans, not just payday, in its reforms.

“Although your authorities may differ from that of the states, one especially critical lesson is that laws should apply not only to payday loans but also to auto title and other consumer loans. This broad scope of coverage has been essential to ensuring that regulating predatory payday lending does not create opportunities for similarly harmful products disguised in different formats. We urge the CFPB to follow a similarly broad approach for any rules it crafts in the small dollar lending market.”

Auto title lenders take title to the borrower’s car for security rather than direct access to the borrower’s bank account, as payday lenders do. CRL’s recent policy brief highlights these lenders’ routine disregard for borrowers’ ability to repay (

By broadly addressing the varied forms of these small-dollar loans, CFPB’s rules would deliver reforms that would benefit consumers who reside in states where payday lending still allows triple-digit interest on debts.

Since 2005, no state has authorized high-cost payday lending. In fact, when voters have been given the opportunity to decide whether to allow or ban triple-digit payday lending, the overwhelming voter sentiment has been against payday. Arkansas, Arizona, Montana and New Hampshire are among the most recent states to ban this form of high-cost lending.

“Predatory payday lending has taken advantage of the fragile financial position of far too many hard working families”, wrote the Senators. “We encourage the CFPB to move as quickly as possible to propose rules that put a stop to predatory small-dollar lending practices, while preserving safer, more affordable alternatives.”

Charlene Crowell is a communications manager with the Center for Responsible Lending. She can be reached at

Time to end predatory career college loans

— Are you tired of complaining to family and friends about things you feel powerless to change? Or, as college costs continue to climb and student loan debts increase, do you or someone you know feel helpless that your opinion could make a positive change?

If you answered yes, know that the federal government is giving you a chance – now through May 27– to speak up during an important public comment period. Specifically, the U.S. Department of Education (DOE) wants to learn more about the quality of career education programs. These programs, offered by a variety of for-profit colleges, have raised concerns about greater student debt and poor employment outcomes. These schools are also large beneficiaries of federal student loan dollars.

If enough collective voices – organizations, educators, consumers and others – speak in support of consumer protections, for-profit colleges’ ‘rules of the road’ can and will change for the better.

Commonly known as the ‘gainful employment’ rule, DOE proposes to cut off federal funds to career education programs where former students earn incomes too low in comparison to their debt. When incomes are too low or loan defaults too high, then students have not been prepared for “gainful employment.”

By the May 27 comment deadline, DOE wants to learn the answer to one basic question: Are students really gaining the skills and training that lead to career tracks with incomes large enough to offset the heavy debts incurred?

For Black and Latino students, the gainful employment rule is particularly important. A new research brief by the Center for Responsible Lending (CRL) finds that students of color enroll more frequently in for-profit colleges than other students. The disproportionate enrollment is caused in part by high-pressure sales tactics. Some schools have been accused of deliberately targeting students of color for enrollment in their predatory programs.

Further, for-profit colleges often have high tuition and fees that cost more than twice as much for a four-year public institution and four times as much for a two-year public school, often with sub-par graduation rates.

The brief states, “A post-secondary education can serve as an asset that enables graduates to secure good jobs with steady incomes, enabling further accumulation of other assets in the future such as a home, business and secure retirement . . . . Unfortunately, for-profits often fail to provide a quality education for students, leaving many with a dangerous level of debt and little improvement in earning potential.”

The proposed rule would also require:

• Institutions to certify that their programs meet applicable accreditation requirements and state or federal licensure standard; and

• Institutions to publicly disclose information about the program costs, debt, and performance of their gainful employment programs so that students can make better-informed decisions.

An earlier 2012 report by the Senate’s Health, Education, Labor and Pensions Committee found that a majority of students at for-profit schools were unable to complete their programs. It also found that schools often misled students about their ability to secure a job in their field after graduation or to transfer to another institution to continue their studies.

The low graduation rate of for-profit colleges imposes financial burdens that will linger long after enrollment. As these former students enter the job market, they are hindered by the lack of a marketable credential and simultaneously burdened with loan repayment. The low-level of graduates, CRL finds, may also explain why for-profit college borrowers are also more likely to default on their student loans.

In a recent letter to the editor of the Washington Post, Maura Dundon, a CRL senior policy counsel wrote, “Since students of color disproportionately enroll in for-profit colleges, they have been disproportionately harmed.”

In 2011, for-profit advocates spoke up when a similar proposal was made. Their strident voices derailed attempts to bring fairness to this area of consumer lending. In 2014, we cannot afford a second mistake. If you or someone you know has been affected by this dilemma or felt powerless to change it, now is your chance to make a meaningful contribution to this important public debate.

This time, the same consumers harmed by these institutions should share their real-life experiences at

Charlene Crowell is a communications manager with the Center for Responsible Lending. She can be reached at