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North Carolina Legislative Update July 12, 2017

July 12, 2017
Consumer Finance
Bill Law

Dear Coalition Supporters,

This update discusses serious threats from the federal level to our NC protections against predatory lending as well as several positive actions in NC and nationally. It includes recent developments about payday lending, student lending, housing finance reform and the new arbitration ban. And it discusses the threat of Congress dismantling the Consumer Financial Protection Bureau (CFPB), our main watchdog on Wall Street, including the impact on the military.

For up to date developments, follow me and CRL on Twitter and "like" CRL on Facebook. Also, over the next few weeks, look for information about the 2017 NC General Assembly session as well as US Senate efforts to dismantle the CFPB.

Consumer Finance

Payday Loans

Still waiting for national payday rule: Just over a year ago, the CFPB released its proposed national rule to rein in the harms caused by payday, car title, and other high-cost installment loans. During the comment period, thousands of North Carolinians spoke loud and clear in support of a strong national rule and emphasized the danger of a weak rule in payday free states like ours. Thank you!

Meanwhile, payday lenders and their supporters in Congress keep trying to delay and block the CFPB from releasing this important rule. We will continue to push for a strong national rule as long as necessary.

US House passes Financial CHOICE Act that gives free pass to payday lenders: The US House of Representatives recently passed the Financial CHOICE Act (H.R. 10) — the Wrong Choice Act—a terrible bill to rollback important safeguards to prevent another financial crisis. This bill specifically bars the CFPB from regulating payday and car title lenders and makes it easier for payday and other high cost lenders to evade our NC interest rate caps by overriding a court case. We estimate that these caps save North Carolinians $457 million every year. With one exception, the House vote for this bill was along party lines. Representative Walter Jones was the only Republican in the House to oppose the Financial CHOICE Act. In his statement about his vote, Rep. Jones highlighted his support for the military and the CFPB, and his opposition to payday. Please thank Representatives Jones, Adams, Butterfield and Price for their votes to protect North Carolinians from payday lenders.

The legislation is currently waiting to be considered in the US Senate. Look for alerts about contacting NC Senators to oppose similar legislation on the Senate side.

Check out faith leader opposition to the Wrong CHOICE Act:

Crackdowns against illegal payday & car title lenders: In May, NC Attorney General Josh Stein took final action against Liquidation LLC (also operating as Auto Loans LLC, Car Loan LLC and Sovereign Solutions LLC), a car title lender that made illegal loans online to more than 700 North Carolinians. These loans, with interest rates of 161% to 571% far exceeding our legal limits, were deemed void and cancelled and frozen funds were used for consumer restitution and consumer protection. In addition, a civil penalty of $3.5 million was entered against the defendants.

In April, the CFPB took action against four on-line lenders making illegal loans in North Carolina and 16 other states – loans with interest rates between 440% and 950%. The CFPB is seeking monetary relief, civil penalties and injunctive relief (including prohibiting the lender from collecting on void loans).

Consumer Finance

Student Loans

NC Attorney General Sues US Department of Education for Abandoning Student Protections: Last week, NC Attorney General Stein announced that he, along with 18 other attorneys general, is suing the US Department of Education and Secretary Betsy DeVos for delaying rules to protect federal student loan borrowers defrauded by their schools. The rule was finalized in November 2016 after nearly two years of negotiations, following the collapse of Corinthian Colleges, a national for-profit chain which enrolled thousands of North Carolina students.

The rules, known as "borrower defense to repayment," were set to go into effect on July 1, 2017. The premises of the rule are simple, a) career programs should provide sufficient education to enable graduates to obtain jobs and actually pay off their debt without a significant financial hardship and b) students defrauded by their schools should be able to have their loans discharged. These rules are designed to make it easier for defrauded student loan borrowers to seek debt forgiveness. They also prohibit colleges from requiring students to resolve complaints against their school through arbitration rather than in court.

For more information about this lawsuit, see:

US Department of Education budget gives boost to predatory for-profit colleges: Predatory for-profit colleges are attempting to make a comeback through the Department of Education’s proposed budget, which includes cutting $10.6 billion from federal education initiatives. The plan would drive low-income students to for-profit colleges that too often leave them with a high debt load and limited career opportunities. The budget is also expected to exacerbate the explosive burden of student loan debt that now follows millions of Americans over the course of their lives, with the worst impact hitting women and people of color.

Consumer Bureau hosts NC student loan events: In early May, the Consumer Financial Protection Bureau (CFPB) Office of Students hosted a community roundtable on student lending issues at Shaw University in Raleigh. North Carolinians from across the state attended, including representatives from CRL, a number of HBCUs, the NC Independent Colleges and Universities, and national and HBCU Alumni Associations, faith leaders, legal service providers, credit counselors, community development and housing advocates, and researchers from the UNC Center for Community Capital, among many others.

Just a few weeks ago, CFPB Director Cordray, joined by NC Attorney General Stein, hosted a second North Carolina event that focused on student loan servicing problems with the Public Service Loan Forgiveness program. This program provides people in public service jobs (teachers, first responders, etc.) with a path to debt forgiveness after 10 years, with the first borrowers eligible in October 2017.

At this event, Director Cordray released a new CFPB report spotlighting borrower complaints about student loan servicers mishandling this Public Service Loan Forgiveness program – delays or denying access to loan forgiveness through wrong information about their loans, flawed payment processing, and bungled job certifications. The CFPB also announced updated guidelines for servicers’ administering this program, and launched its "Certify Your Service" campaign to help borrowers stay on track for loan forgiveness.

Consumer Finance

Housing Finance Reform

CRL President testifies on Housing Finance Reform: In late June, CRL President Mike Calhoun testified before the U.S. Senate Committee on Banking, Housing, and Urban Affairs for a hearing on housing finance reform, and the future of the GSEs (Fannie Mae and Freddie Mac) in housing finance. In his testimony, Calhoun argued that any proposed legislation to reform the US housing system must ensure broad access for all creditworthy borrowers and permit equal participation for small lenders and community banks.

He also cautioned that reform has already occurred with the Housing and Economic Recovery Act of 2008, and through the new independent regulator, Federal Housing Finance Agency, and that ongoing reform efforts must not interrupt the current market. CRL has consistently fought to push GSE reform that would benefit all creditworthy borrowers, especially rural residents, low-income families, and communities of color. See our press release.

CRL President testifies on Dodd-Frank impact: In March, President Mike Calhoun testified before a Subcommittee of the House Financial Services Committee. In his testimony, he highlighted how the Dodd-Frank Wall Street Reform and Consumer Protection Act is working to expand credit and strengthen consumer protections while also helping community banks and credit unions rebound to pre-recession levels. Calhoun emphasized that bank and credit union profitability is at near record levels, and lending volumes are increasing.

Consumer Finance

Win & Threat in Congress

First the Win! CFPB's prepaid card rule holds: A Congressional Review Act (CRA) resolution to rescind a new consumer protection rule on prepaid cards was stopped in the Senate, nixing its chances of Congressional repeal. This was an important victory since it was the first CRA challenge to a CFPB rule. Thank you so much for your action to oppose this resolution.

CFPB’s prepaid card rule, finalized last October, includes many commonsense protections for prepaid card users. These protections apply to resolving errors, lost cards, and unauthorized transactions. It also finalizes new "Know Before You Owe" disclosures for prepaid accounts to give consumers clear, upfront information about fees and other key details. The rule is especially important for low-income families, many of whom have no bank account and use prepaid cards to manage their household finances.

Financial CHOICE Act attempts to dismantle CFPB: Under the payday section, we talked about how the Financial CHOICE Act (H.R. 10) — the Wrong Choice Act—would bar the CFPB from regulating payday and car title lenders and overrides a court case making it easier for high cost lenders to evade our NC interest rate caps. That is just one of many problems with this bill. Along with hundreds of other dangerous provisions, this bill dismantles the CFPB in the following ways:

  • Repeals the legal authority that allowed the CFPB to bring a case against Wells Fargo for creating millions of fraudulent bank accounts.
  • Subjects the CFPB to partisan politics by making it easy for the President to remove the Director and puts its funding at the mercy of Congress, eliminating a long-standing practice of independent funding for bank regulators.
  • Makes another foreclosure crisis more likely by making mortgage protections even weaker than they were before 2008.
  • Eliminates most supervisory authority, a crucial tool for the CFPB to detect abuses.

The CFPB has returned nearly $12 billion to 29 million Americans harmed by illegal financial practices. We need this agency to continue to aggressively protect consumers from the tricks and traps of banks, mortgage lenders, student loan servicers, debt collectors, payday lenders and others. See our response to CFPB attacks in CFPB protects Americans from predatory loan sharks.
In addition, the CFPB’s enforcement actions have also returned $130 million in relief to active duty servicemembers, veterans and their families. Read more about how the CFPB protects servicemembers and veterans from financial harm:

Consumer Finance

Arbitration Ban

This week, the CFPB announced a new rule to ban companies from using mandatory arbitration clauses to deny groups of people their day in court CFPB Director Richard Cordray said:

"Many consumer financial products like credit cards and bank accounts have arbitration clauses in their contracts that prevent consumers from joining together to sue their bank or financial company for wrongdoing. By forcing consumers to give up or go it alone – usually over small amounts – companies can sidestep the court system, avoid big refunds, and continue harmful practices. The CFPB’s new rule will deter wrongdoing by restoring consumers’ right to join together to pursue justice and relief through group lawsuits."

"Arbitration clauses in contracts for products like bank accounts and credit cards make it nearly impossible for people to take companies to court when things go wrong. These clauses allow companies to avoid accountability by blocking group lawsuits and forcing people to go it alone or give up. Our new rule will stop companies from sidestepping the courts and ensure that people who are harmed together can take action together."

Their announcement also includes links to more information, a video explaining the rule and the text of the rule.