Responsible financial products and services play an important role in the lives of Americans: helping families pay for goods and services, manage risk, borrow to build assets and save and invest for the future. However, predatory features of financial products and services can have devastating consequences. They can trap consumers in a debt cycle that they can't escape, fool consumers into paying for what they don't want or surprise consumers with hidden fees and costs. Consumer advocates work to reform financial products and services so that they work for, not against, consumers.
In July 2014, CRL released an Issues and Outcomes Report that summarized financial regulations for the year 2013. This report provides a review of some of the financial products and services most in need of reform and an accounting and analysis of reform outcomes from January to December 2013.
Below is a brief description and summary of the report; the full report can be accessed as a PDF here.
Results and Findings
While many financial products and services need reform, the 12 considered in this report are active targets for advocates. In 2013, legislators and regulators at the state and federal level all acted to address these issues. Some lenders also changed their offerings. Not all actors are relevant for every issue. For example, credit cards are primarily overseen at the federal level so no state actions occurred on this issue this year.
On the whole, the outcomes increased consumer protections for many financial products and services. The outcomes also reflect an increased appetite by federal actors, and some state actors, to draw attention to bad practices and hold companies accountable to consumer protection standards and laws.
When looking across products some general themes emerge. Most notable is the important role of the CFPB. State actions and outcomes tended to be more mixed with some states taking strong stances for consumer protection and others actively stripping away existing protections. Lender outcomes also tended to be positive, though these actors may have publicized only product changes perceived to benefit consumers.
Federal regulators actively promoted consumer protections. Some federal regulator actions, like the FTC's report on errors on credit reports and the CFPB's public release of consumer complaints, served mainly to draw increased attention to harmful practices. Others, like the change the Department of Education made to income-based repayment for borrowers with student loans, made tangible positive changes in financial products and services. Not surprisingly, the CFPB was the most active federal regulator on consumer protection issues. Many of the CFPB's actions supported or set a path for reform (collecting and disclosing data, issuing reports) rather than changed policy (rulemaking) with some notable exceptions (remittance rules, payday enforcement actions and bulletins). The chart below summarizes CFPB actions by issue and type. Other federal actors – the FDIC, OCC, Federal Reserve, FTC and the Department of Education – also took action over this time period on these issues.
State legislatures were active in proposing and passing bills that both added protections and took away existing protections. Many of the state legislative victories in 2013 maintained existing consumer protections rather than creating new ones. While advocates lost some of these fights, most notably in consumer installment lending and debt collection, advocates managed to stave off a number of state bills that would have reduced or eliminated existing consumer protections. The defeat of proposed payday and car title bills in six states (NC, WA, NY, AL, NV, TX) is particularly notable as well-funded industry interests were pitted against coalitions of consumer advocates.
State regulators increased oversight and scrutiny of the marketplaces in their states, in some cases aggressively. For example, a host of states took action against to prevent one payday lender, Western Sky, from operating illegally based on state laws. Western Sky stopped lending late in 2013 as a result of these strong actions. New York's AG was particularly aggressive and attacked illegal loans from many angles. Attorneys general in six states (FL, NC, MO, WI, CT, CO) sued debt settlement companies for illegally operating in their boarders.
Some lenders/providers of financial products and services reformed their practices voluntarily. Regions Bank pulled their deposit advance (payday) product from NC. American Express added protections to one of their popular prepaid cards. Huntington Bank stopped reordering deposit account transactions in a way that maximized the chance an accountholder would overdraw their account. FICO opened up their proprietary credit scores a bit for consumers. These changes, all voluntary, improved the marketplace for consumers and reformed the products in ways consumer groups intended.
Methodology
The 12 issues covered in this report were chosen by CRL, AFR and the Ford Foundation. The issues were chosen primarily because consumer advocates are actively working on them – some for a long time and some less until recently. We identified a set of market ideals and describe the current state of the marketplace for each product or service.
The narrative assessment section describes the product or service in more depth with a focus on the current practices that are harmful to consumers. This section includes a 1-2 sentence description of the status of the issue in 2013. The orange section highlights a few recent statistics about each market. The ideals (presented in italics) describe attributes of each financial product or service that, if in place, would ensure consumers are protected and able to benefit from the product or service. The assessment and ideals were developed by CRL after reviewing press releases, papers, reports and other documents produced by consumer advocates.
Associated with each issue, we present a list of outcomes. These outcomes occurred between January and December 2013 and include regulatory and legislative actions and product or market changes. Some outcomes improved the market and some added challenges for consumers. We identified outcomes by reviewing news stories and press releases and by soliciting ideas from AFR members. All suggested outcomes that could be verified (by news stories, press releases or legislative documents) were included in the report.
We summarize, rate, and describe the impact of each outcome. The outcome rating indicates the degree to which the outcome changes the market with respect to the ideals. The scale for the rating is:
GAIN: Fosters good or eliminates bad practices
HELPS: Supports good practices, but does not lead to a tangible change
HOLD: Maintains status quo practices (good and bad practices)
HARMS: Supports bad practices, but does not lead to a tangible change
LOSS: Fosters bad practices or restricts good practices.