Prepared Remarks of Seth Frotman at the Poverty Law Conference

Consumer Financial Protection Law as Poverty Law

Thank you to Professor Hammond and everyone involved with the Poverty Law Conference for inviting me to speak today. You may wonder why the General Counsel of the Consumer Financial Protection Bureau is even here. The reason is straightforward: I believe that we at the CFPB have a truly significant impact on the lives of those with the least.

How is that the case? The CFPB focuses on consumer financial products and services - things like mortgages, student loans, credit cards, and bank accounts. I think everyone has a sense that those things can be pretty important. But when people are struggling with the basics - like feeding their family or keeping a roof over their head - consumer finance may not be the first place you'd look to make a truly big difference. What I hope to convince you of today is that consumer financial protection law is in fact critically important for people precisely when they are struggling.

The consumer financial laws protect people when they need a loan, or take on a debt, or when they're just trying to pay for something - in a store, or online, or, increasingly, even for things like rent. What we have seen at the CFPB is that when those markets fail, people really suffer - in ways that may seem small, at least to those who have enough, but in big ways, too. We have seen how set-up-to-fail loans can cause catastrophe for people who are just trying to send their kids to school or who find that there is "more month than money." And especially for those most in need, consumer protection can be the difference between a tough month being a blip in someone's life and that month becoming an ever-deepening hole that they can't dig out of. In other words, the consumer financial protection laws are critically important for those least well-off in part because it is exactly when people are vulnerable that they can really be taken advantage of.

Today I'm going to focus on the CFPB's work on junk fees and how they disproportionately affect - and indeed often unfairly target - those with the very least in our society, thereby perpetuating cycles of poverty. And I'll explain how the CFPB is using existing federal law to combat practices that take advantage of the vulnerable and discriminate against them. In the process, I'll emphasize why it is crucially important - especially for the clients who need help the most - that we are constantly thinking about how we can strengthen our consumer laws. We need to ensure that the law is keeping up with the new and not-so-new ways that companies try to take advantage of people, to boost their own profits on the backs of the people most in need.

Consumer Finance Has a Big Impact on Nearly Everyone, Especially Those Least Well-off

In 2024, it is hard to find a person in America without at least a few, and often several, interactions with the consumer financial marketplace. Long gone are the days when a sizable portion of the population received cash, a check, or even direct deposit from their employer and used that money - perhaps after putting it into a basic bank account - to pay expenses in a very straightforward way. For hundreds of millions of people, finding a place to live, accessing medical care, or just putting food on the table means interacting a lot with the consumer finance industry. That may mean taking out credit, falling into debt, or choosing or being forced to use any number of other financial products, such as a payment app "offered" by an employer or landlord.

And for far too many people, using a consumer financial product or service comes at great personal peril. This can mean becoming one of the millions of Americans with persistent credit card debt they may never escape,¹ or one of the 15 million Americans with a medical debt on their credit report,² or one of the nearly 40 percent of federal student loan borrowers over the age of 65 in default, with many having their social security garnished or other needed cash drained.³

There is very strong evidence that people's experience with consumer finance can have a major impact on their overall well-being. For example, we already know how transformational it can be when people get out from under runaway debt. In one case, a group of consumers were able to secure cancellation on a series of dubious debts that the purported owners could not prove title to, and which had been the focal point of a variety of predatory collection practices.⁴ Researchers showed that when these debts were canceled as a result of litigation, borrowers' delinquency on other debts went down by 24 percent, their incomes increased by thousands of dollars, and their mobility across geographies and jobs increased substantially.⁵ To take another example, we also know that people with medical debt are likely to put off medical care - and have not just worse financial outcomes but also substantially more health problems as well.⁶ I believe that people are willing to accept that their actions have consequences. I don't think many people are trying to get away with buying something with a credit card and not paying for it. Most people just want to be treated fairly. When someone misses a payment or falls behind on their bills, that may have some negative financial consequences. What's not OK is for companies to take advantage of people when they are vulnerable - to make a loan into a trap, or turn a temporary setback in someone's life into a never-ending blackhole. That's where consumer financial protection comes into the picture.

Consumer Financial Protection Law as Poverty Law

At the CFPB, we enforce over a dozen federal consumer financial laws, many or all of which are critically important for the most vulnerable members of our society. (That doesn't mean they have the most memorable names.) For example:

• The Fair Debt Collection Practices Act, which not only mandates key disclosures but also gives consumers powerful protections - such as to push back against a bill in the wrong amount,⁷ to prevent lawsuits on zombie debt,⁸ and even to fight back against illegal evictions.⁹
• The Truth in Lending and Real Estate Settlement Procedures Acts, which - among many other key protections - help prevent rapid foreclosure when a consumer misses a payment on a mortgage.¹⁰
• The Electronic Fund Transfer Act, which, for example, requires institutions to make consumers whole when they've been the victim of fraud on their bank account or payment app.¹¹
• The Fair Credit Reporting Act, which, among other things, allows people to dispute the inaccuracies in a background report that might ruin their chance to get a job or an apartment.¹²
• The Equal Credit Opportunity Act, which prohibits credit discrimination, including the predatory targeting of people or communities, based on things like age or race or, as I'll discuss, the receipt of public benefits.¹³

States can also enforce these protections,¹⁴ and consumers can themselves sue to enforce most of them.¹⁵

Additionally, most states have prohibitions on unfair or deceptive practices, and the CFPB and state regulators can enforce the federal prohibition on unfair, deceptive, or abusive acts or practices.¹⁶ These laws make it possible to hold bad actors accountable as they evolve and create ever-more inventive schemes, an unfortunately outsized share of which target the least well-off. And we have seen the consumer financial protection laws make a real difference in the lives of people with low incomes by putting a stop to predatory practices - from luring people seeking a better life into student debt with false claims about job placement¹⁷ to wrongfully disabling peoples' cars using "kill switches" when they weren't even in default on their auto loan.¹⁸

Junk Fees and Poverty

As we talk about the ways that consumer financial protection law is poverty law, I want to home in on some of the recent work that the CFPB has been doing to rein in abuses that disproportionately affect or are even targeted at people dealing with poverty. One fairly obvious example is our work to combat "junk fees" - the inexplicable and unavoidable ticky-tacky fees that are ubiquitous across the American economy.¹⁹ I think we all know that these fees can be pretty annoying. It's frustrating to plan a family trip or buy tickets to an event only to see the price jump when you've already made all the decisions. As President Biden has said, "Folks are tired of being played for suckers."²⁰ In many ways, our activity in this area is a continuation of truth-in-advertising and similar protections that many of us learned about in law school.

These practices truly affect everybody, and we have a lot of evidence that they hurt consumers by inhibiting a competitive market. It's difficult or even impossible to shop for the best deal when the actual price you'll be paying is opaque, and companies know this when they design these schemes. Yet what I want to focus on today is the how junk fees disproportionately affect - and often are expressly targeted at - people who are struggling.

Junk fees disproportionally affect those with limited resources

Junk fees extract untold billions of dollars of wealth from hundreds of millions of Americans.²¹ It probably won't surprise you to learn that we have a lot of evidence showing that junk fees disproportionately burden Americans with the least resources. And when you drill down into the details, the amount of harm that these fees do to those least fortunate really adds up.

To take just one example, consider our work to reduce harmful late fees on credit cards. Our most recent estimates are that Americans pay more than $14 billion each year in credit card late fees.²² That means Americans are spending more on credit card late fees than they are on electronics for kids in school (which is now the biggest back-to-school-expense), and more than three times what the federal government spends on community health centers.²³ And data shows that credit card late fees in particular are disproportionately paid by people living in low-income and majority-Black neighborhoods.²⁴

Credit card late fees are at the levels they are today, in part, because of an outdated rule that the CFPB inherited from the Federal Reserve Board. In fact, Congress actually instructed the Fed to limit credit card late fees, so that banks could charge only a fee that is "reasonable and proportional."²⁵ But with scarce justification, the Federal Reserve created a giant loophole that now allows banks to charge as much as $41 for a single late payment - which is more than five times what's needed for big banks to recover the cost associated with late payment.²⁶

In March, we moved forward with a change that would close the Fed's late-fee loophole. This change would reduce the typical late fee for consumers from $32 to $8. One external analysis estimates that this change could lead to $2.7 billion in savings for households and create 34,000 jobs annually.²⁷

The connection to poverty is readily apparent here. That same analysis found that among the biggest impacts of reducing credit card late fees would be putting money into people's pockets for everyday, immediate needs. For example, the study estimated that people would allocate $447 million of the savings from excessive credit card late fees just to food²⁸ - enough to pay for the groceries of around 80,000 households per year.²⁹ The straightforward result of the CFPB's rule would be that people will have more money in their pockets to feed their kids, instead of big banks boosting their earnings.

Another type of fee that is worth mentioning here is when companies charge people to access basic information about their accounts. This is particularly relevant to families with low incomes, who are constantly called on to prove that they are poor. For example, we know that many states require people applying for Medicaid or other public benefits to provide copies of their bank statements³⁰ - sometimes going back years³¹ - to show that they do not exceed asset limits. Even though all the systems are electronic at this point, many big banks and other financial institutions have continued to charge the same old "research" or "statement" fees to provide documents. Again, Congress actually addressed this practice in the Consumer Financial Protection Act by requiring big banks and credit unions to provide their customers with information about their own accounts.³² But we heard many stories from advocates about how people with low incomes and seniors were foregoing the very programs that could lift them out of poverty to avoid these ridiculous fees or devoting their scarce dollars to them. So the CFPB made clear last year that big banks cannot charge people fees to access their own account information.³³

And as this audience knows better than most, it's not just the money that matters. I haven't even mentioned the time that it takes to deal with these fees and their consequences. This also puts a disproportionate burden on people who can't necessarily step away from the warehouse floor or excuse themselves from a shift at the diner to shout "representative" into the phone.

Junk fees unfairly target the vulnerable

That all being said, junk fees aren't just unfair because they disproportionately affect people with limited resources. In fact, companies often structure their complex, back-end pricing - including fees - in a way that specifically takes advantage of people when they are vulnerable. There are many examples here - including credit card late fees, which I've already talked about - but I'll highlight just a few more.

Overdraft and insufficient funds fees are charges that banks levy on people when they don't have enough money to cover a transaction. These fees are extremely profitable for financial institutions: big banks typically charge $35 for an overdraft loan, equal to an APR of as much as 16,000 percent,³⁴ even though the majority of consumers' debit card overdrafts are for less than $26 and are repaid within three days.³⁵ These charges add up: banks have pocketed roughly $280 billion in overdraft fees over the past two decades.³⁶ And I just want to highlight - although it's pretty obvious - how these fees target those who have the least. As with credit card late fees, the data is very clear that the people who frequently face charges for not having enough money in their accounts are dramatically more likely to be low income and people of color.³⁷ For example, researchers at the Federal Reserve found that consumers with incomes between $25,000-$50,000 per year were more than twice as likely to pay an overdraft fee than consumers with incomes more than $100,000.³⁸ In short, banks and credit unions don't charge everyone for their accounts, let alone people who have a lot of money. They charge those who don't have enough.

These practices persist in part because the Federal Reserve Board drafted the rules that govern this space as far back as 1969, when paper checks made up most of the payment system. In that world, overdrafts were an occasional convenience for consumers, not a major source of revenue for big banks. And the Fed, albeit with scant support, exempted these infrequent loans from key consumer protections. Now, however, overdrafts are something quite different. Rather than occasional fees, nearly one-in-five consumers frequently faces overdraft or insufficient funds fees.³⁹

Consumers deserve better options. That's why, this past January, the CFPB proposed new rules to close the hugely outdated loophole that allows the biggest banks to charge consumers billions of dollars in junk overdraft fees without lending protections⁴⁰ and to address unfair insufficient funds fees.⁴¹ Under the overdraft rule, consumers who take out an overdraft loan from a large bank would receive the same protections as borrowers do with other lending products - and financial institutions offering overdraft would have to compete on a level playing field with those products.

We estimate that this rule change could save 23 million households $3.5 billion or more in overdraft fees per year, equal to $150 per household.⁴² And people who more frequently don't have enough to make ends meet would receive more, rather than less, of the benefit.

I could go on.

Another problematic area is so-called "pay-to-pay" fees, where companies charge people fees just to pay for basic goods or services. For example, we have found that companies that process payments that parents make for school lunch are increasingly charging fees, even where families have little choice in how they add funds to student accounts. We observed that the fees these companies charge each time money is added to an account average out to nearly 5% of the total that families are paying. And because companies often charge flat fees for each transaction, lower-income families who can only afford small payments end up paying more than their share - shockingly, as much as 60 cents in fees for each dollar they spend.⁴³

We are also seeing similar fees in the rental space, where payment companies have partnered with landlords to impose fees just for people to pay their rent.⁴⁴ We have been told that these fees can be $15 per month or even higher. And it often does not seem like a coincidence that these fees are structured in ways that target people with low or variable incomes, such as by charging a "per transaction" fee instead of a percentage or waiving the fee when consumers set up automatic payments.

In all of these cases, consumer financial protection can be a critical tool to prevent companies from unfairly pocketing people's hard-earned money, from the income of someone making minimum wage to the last few dollars of a social security check. For example, we have taken numerous actions to crack down on illegal "pay-to-pay" fees.⁴⁵ Yet more work needs to be done. As I said, we are very focused on the effect that these fees have on everyone, including by reducing the competitiveness of markets where companies compete on price and quality.⁴⁶ But we are especially focused on how these fees drain money from low and moderate-income families and are even structured to target those who have the least.

The Next Wave of Consumer Finance?

Many of the ways that we see people being taken advantage of today are connected to broader trends in the economy. We hear a lot about "innovation" and "financial technology" in the consumer financial marketplace. I'll be totally frank, from what I have seen, there is reason to be skeptical about whether many of these supposedly novel products and services are doing much that is really new or to the benefit of consumers.

I think that it's helpful to zoom out a bit here. We know that debt used to play a much smaller role in people's lives.⁴⁷ As Senator Warren described twenty years ago, the cost of basic necessities such as education, health care, and housing rose significantly from the period after World War II through the 1990s - much more than wages did.⁴⁸ Senator Warren wrote that, in the wake of these changes, "middle-class mothers went into the workforce in a calculated effort to give their families an economic edge."⁴⁹ But she also described how families filled in holes in their household budgets with consumer debt, which was increasingly deregulated over the same time period.⁵⁰ Over the decades, people began borrowing to pay their expenses, and new innovations in consumer credit, like general purpose credit cards and home equity loans, further enabled consumers to take out loans just to make ends meet.⁵¹ That first wave of consumer credit culminated in many of the big fights of the 1990s and 2000s about credit card debt, payday lending, medical bills, and bankruptcies. Unfortunately, particularly before the 2008 financial crisis, federal policymakers often responded by blaming consumers and cutting back on key protections, such as bankruptcy and state interest-rate caps.⁵²

After the financial crisis, the passage of the Consumer Financial Protection Act as part of the Dodd-Frank Act and other reforms marked a big change in consumer protection. But the debt kept piling up.⁵³ Credit became the "solution" to a variety of problems, from the rising cost of college to paying for a car.⁵⁴ Student debt is one area where this pattern is clearly visible.⁵⁵ After the financial crisis, state funding for public education never truly rebounded, and prices just keep on rising.⁵⁶ The result has been a larger share of the burden of education being placed on the shoulders of individual students, in the form of five and even six-figure debts, contributing to the trillion-dollar rise in student debt since the crisis.⁵⁷ We have also seen more and more debt in the auto, medical, and small-dollar lending spaces, just to name a few.⁵⁸

And I am increasingly worried about where we are headed today. After decades of more and more and more lending, the American people now have a significant debt burden. Yet there is no shortage of venture capital, private equity, and other pools of money swirling around, looking for more ways to profit. And a new generation of entrepreneurs has devised an endless list of creative but often harmful ways to squeeze more out of people who all too often don't have much to give. Although some of these products involve new technologies, it's often the case that the underlying financial service isn't really new - it's a shiny veneer on top of an age-old practice. Even worse, these companies often try to engage in regulatory arbitrage - their real innovation is not that their product is so groundbreaking, but that they pretend that consumer protection laws don't apply to them.⁵⁹ As always, the people most likely to be harmed are those who are most vulnerable.

Even if you are not too familiar with these developments, the business models being supported by these backers might ring a bell for those in this room who work with low-income clients:

• Consumers who can't afford basic goods are being offered Buy Now, Pay Later products to make ends meet.⁶⁰ These loans often masquerade as "no interest," only to leave people overextended and trapped in these loans on top of other forms of debt, such as credit cards.⁶¹ Research shows that the use of Buy Now, Pay Later products is associated with overdrafts, credit card interest charges, and late fees, leaving the most vulnerable consumers to pay hundreds more each year across their financial lives.⁶²
• Consumers whose wages fall short are being marketed Earned Wage Access (EWA) products, which in many ways resemble payday loans (albeit with better branding and websites, as well as some other differences). Eighty percent of people who use these products do so to cover "[r]egular expenses like groceries, gas, rent, and childcare."⁶³ And when they do, they face APRs of, on average, 110 percent.⁶⁴ As a result, consumers regularly find themselves locked into a cycle of use. In 2023, for example, the Government Accountability Office found that the typical user of some of these products access these loans as much as 33 times per year.⁶⁵
• Consumers who can't afford needed medical treatment are increasingly being sold medical installment loans, credit cards, and payment plans,⁶⁶ often at the encouragement of their healthcare provider.⁶⁷ These products can have risky "deferred interest" features, which can leave consumers paying on surprise, retroactively applied interest charges.⁶⁸ Moreover, these products can lead patients to pay more, especially when they have low- or no-cost alternatives available that they might not know about.⁶⁹ Among other things, we are very worried that the promotion of these products is cutting off access to the financial assistance that non-profit hospitals are required by the Affordable Care Act to make available to the most needy.⁷⁰
• Consumers buying basic home goods are being preyed on by shady lease-to-own financing companies. These companies rent things like home appliances and furniture to cash-strapped people who can't afford them, with the promise that they will eventually own them after a series of expensive payments.⁷¹ In many ways, this practice is a tale as old as time,⁷² but there are some modern, disturbing wrinkles. For example, these companies sometimes market their financing as being "lease-to-own" even when consumers are paying for services, like auto repairs.⁷³Just think about that - the chance to "lease to own" a service. (What would that even mean?) And that's in addition to a range of other abuses that we see across this market, including companies lying about the terms and cost of their products.⁷⁴

Looking at these developments together, I believe healthy skepticism is warranted toward those who suggest that the elixir for people who are already drowning in loans, debts, and fees - whose paychecks are too small or medical bills are too high - is more loans, debt, or products laden with fees. The magic wand is also not going to be "innovation" that just tries to avoid the protections passed by Congress to prevent consumer harm.⁷⁵ It is not uncommon for these businesses to boast about how they "serve" an underprivileged population.⁷⁶ Some of them may even believe that. But we need to be serious about what steps are actually going to improve the lives of the least well-off, and what is rationalized by firms and investors looking to make a buck.

Public Benefits and Consumer Financial Protection Law

I thought I'd conclude by discussing how the consumer financial protection laws are also crucial for ensuring that people can actually access the benefits that can help lift them out of poverty - without those amounts being chipped away at by illegal junk fees and without people facing unlawful negative consequences elsewhere in their financial lives.

Particularly since COVID, we have seen just how much of an impact public support can have on people and families. Whether that means greatly reducing child hunger,⁷⁷ allowing older Americans to live with dignity in their later years,⁷⁸ or keeping our promise to veterans who have come home,⁷⁹ government support for vulnerable populations is an incredibly valuable investment that we make as a society. It seems that real progress has been made in building a broad-based understanding of why these programs are so important.⁸⁰

The point I would make to you, though, is that all of that work can be undermined if public benefits are siphoned away by financial institutions, or if the receipt of public support is used to unfairly discriminate against people. Again, this is why the consumer laws are so important.

The CFPB has examined how the financial products used to deliver public benefits - such as prepaid cards - may subject people to high fees and other significant obstacles to accessing and using their benefits.⁸¹ Under the Electronic Fund Transfer Act, people cannot be required to establish an account with a particular financial institution to receive a government benefit such as unemployment.⁸² Yet in some states, that is exactly what happens.⁸³ Accordingly, we have been working closely with the Department of Labor on steps to ensure that people have a choice about how they receive their benefits and that states prioritize people's needs over the bottom line of financial institutions when negotiating state contracts.⁸⁴ The CFPB has also taken enforcement action against big banks for freezing the accounts of tens of thousands of workers and leaving them without access to their benefits for weeks at a time.⁸⁵

Additionally, if people are discriminated against for receiving critical government assistance when they apply for a mortgage or a student loan, they can be knocked back just when they're starting to get on their feet. So it is critically important that people get treated fairly even if they get some help through a public assistance program.

The CFPB administers and enforces a key protection here. The Equal Credit Opportunity Act prohibits lenders from discriminating against borrowers because they receive public assistance income.⁸⁶ Under that law, a public assistance program includes any federal, state, or local governmental assistance program that provides a continuing, periodic income supplement, such as TANF, SNAP, unemployment, or veterans' benefits. And we have repeatedly found violations of this prohibition. In particular, we have found that mortgage lenders and servicers have prevented borrowers from including public assistance income on their mortgage applications and in other circumstances.⁸⁷ The Federal Trade Commission, which also enforces the Equal Credit Opportunity Act, also recently brought an action against a company offering consumer loans for illegally refusing to consider any income received through a public assistance program.⁸⁸

As you know, there are promising new anti-poverty efforts at both the federal and state level regarding programs like the child tax credit, whose tremendous success we saw during the COVID era.⁸⁹ When these activities are successful, it is so important that we don't take two steps forward and one step back. Like so many other people today, people helped by these programs may need to apply for a loan or take on debt just to access the basic necessities of life. And it would generally violate the Equal Credit Opportunity Act for lenders to unfairly penalize people for part of their income being from these types of programs.

While governmental support is often the critical first rung on the ladder, we can't forget what may be the next one - and that means ensuring that the law is enforced and followed here.

Conclusion

I want to end by thanking you all for the work that you do - and will do - helping the people in this country who have the least resources. I hope that I have explained why we at the Consumer Financial Protection Bureau believe we are contributing to that work alongside you. Please feel free to reach out if you think there is anything that you think that we can do, using our tools and authorities, to help even further. Thank you.

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