Wednesday, February 8, 2017

CFPB releases summary of consumer complaints, total tally now above 1 million


CFPB RELEASE DATE: February 8, 2017

CONSUMER FINANCIAL PROTECTION BUREAU MONTHLY SNAPSHOT SPOTLIGHTS MORTGAGE COMPLAINTS


Report Also Looks at Consumer Complaints from Tennessee
WASHINGTON, D.C. – Today the Consumer Financial Protection Bureau (CFPB) released a monthly complaint snapshot highlighting consumer complaints about mortgages. The snapshot shows that consumers continue to report experiencing problems with mortgage servicers. This month’s report also highlights trends seen in complaints coming from Tennessee. As of Jan. 1, 2017, the Bureau handled approximately 1,080,700 consumer complaints across all products nationwide.  
“Today’s snapshot shows that consumers continue to report running into issues when making payments on their mortgages or when trying to overcome obstacles to keep themselves in their homes,” said CFPB Director Richard Cordray. “The Bureau will continue to work to ensure that mortgage servicers give consumers the timely and effective assistance they deserve.” 
Category Spotlight: MortgagesWith a value of over $10 trillion, the U.S. mortgage market is the largest consumer financial market in the world. Over the past three years, the Bureau has created new protections for consumers such as requiring lenders to determine that consumers can afford to repay their mortgages. The Bureau has also introduced new consumer-friendly forms to help people shop for mortgages and avoid unexpected issues at the closing table. As of Jan. 1, 2017, the Bureau handled approximately 260,500 mortgage-related complaints. Some of the findings in the snapshot include: 
  • Consumers continue to report problems with mortgage servicing: More than 80 percent of mortgage-related complaints submitted to the Bureau had to do with issues consumers report running into when they were making payments, or when they were unable to pay their mortgage. 
  • Consumers complain about funds being misapplied: Consumers complained that when they paid for identified shortages in their escrow accounts, the money they paid was not applied accurately and resulted in an increase in their monthly payments. Additionally, consumers complained that electronic monthly mortgage payments made via bill pay services through their financial institutions were not properly credited to their loan accounts.   
  • Consumers report issues dealing with servicers when trying to resolve loan problems: A frequent mortgage-related complaint from consumers had to do with problems dealing with their servicer when trying to negotiate foreclosure-relief assistance on their loans. Consumers stated that servicers were slow to respond, made repeated requests for already submitted documents, and provided ambiguous denial reasons. 
  • Companies with the most mortgage-related complaints: The three companies that the Bureau has received the most average monthly complaints about were Wells Fargo, Bank of America, and Ocwen. 
National Complaint OverviewThrough Jan. 1, 2017, the CFPB has handled approximately 1,080,700 complaints nationally. Some of the findings from the statistics being published in this month’s snapshot report include: 
  • Complaint volume: For December 2016, debt collection was the most-complained-about financial product or service. Of the approximately 23,000 complaints handled in December, there were 7,196 complaints about debt collection. The second most-complained-about consumer product was credit reporting, which accounted for 3,837 complaints. The third most-complained-about financial product or service was mortgages, accounting for 3,762 complaints. 
  • State information: Alaska, Georgia, and Louisiana experienced the greatest year-to-year complaint volume increases from October to December 2016 versus the same time period 12 months before; with Alaska up 57 percent, Georgia up 46 percent, and Louisiana up 32 percent. 
  • Most-complained-about companies: The top three companies that received the most complaints from August through October 2016 were Equifax, Wells Fargo, and TransUnion. 
Geographic Spotlight: TennesseeThis month, the CFPB highlighted complaints from Tennessee. As of Jan. 1, 2017, consumers in Tennessee submitted 17,800 of the 1,080,700 complaints the CFPB handled. Of those complaints, 4,700 and 5,800 have come from consumers in the Memphis and Nashville metro areas respectively. Findings from the Tennessee complaints include: 
  • Debt collection is the most-complained-about product or service: Consumers in Tennessee most often submitted complaints about debt collection. Debt collection complaints accounted for 34 percent of the complaints submitted to the Bureau by consumers from Tennessee, while nationally debt collection complaints account for 27 percent of complaints.   
  • Rate of mortgage-related complaints lower than the national average: Complaints related to mortgages accounted for 19 percent of all complaints submitted by consumers from Tennessee. This is lower than the rate of 24 percent at which consumers nationally submit mortgage complaints to the Bureau. 
  • Most-complained-about companies: Equifax, Experian, and TransUnion, were the most-complained-about companies for consumers in Tennessee. 
The Dodd-Frank Wall Street Reform and Consumer Protection Act, which created the CFPB, established consumer complaint handling as an integral part of the CFPB’s work. The CFPB began accepting complaints as soon as it opened its doors in July 2011. It currently accepts complaints on many consumer financial products, including credit cards, mortgages, bank accounts and services, student loans, vehicle and other consumer loans, credit reporting, money transfers, debt collection, and payday loans. 
In June 2012, the CFPB launched its Consumer Complaint Database, which is the nation’s largest public collection of consumer financial complaints. When consumers submit a complaint they have the option to share publicly their explanation of what happened. For more individual-level complaint data and to read consumers' experiences, visit the Consumer Complaint Database at: www.consumerfinance.gov/complaintdatabase/ 
Company-level complaint data in the report uses a three-month rolling average of complaints sent by the Bureau to companies for response. This data lags other complaint data in this report by two months to reflect the 60 days companies have to respond to complaints, confirming a commercial relationship with the consumer. Company-level information should be considered in the context of company size. 
To submit a complaint, consumers can:
  • Go online at www.consumerfinance.gov/complaint/
  • Call the toll-free phone number at 1-855-411-CFPB (2372) or TTY/TDD phone number at 1-855-729-CFPB (2372)
  • Fax the CFPB at 1-855-237-2392
  • Mail a letter to: Consumer Financial Protection Bureau, P.O. Box 4503, Iowa City, Iowa 52244
  • Additionally, through “Ask CFPB,” consumers can get clear, unbiased answers to their questions at consumerfinance.gov/askcfpb or by calling 1-855-411-CFPB (2372). 
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The Consumer Financial Protection Bureau is a 21st century agency that helps consumer finance markets work by making rules more effective, by consistently and fairly enforcing those rules, and by empowering consumers to take more control over their economic lives. For more information, visit consumerfinance.gov.

CFPB sues debt relief attorneys (press release repost)

CFPB RELEASE DATE: January 30, 2017

CONSUMER FINANCIAL PROTECTION BUREAU SUES DEBT RELIEF ATTORNEYS FOR COLLECTING ILLEGAL FEES FROM STRUGGLING CONSUMERS


Lawyers Revived an Illegal Debt Relief Scheme that the CFPB Previously Shut Down
Washington, D.C. – The Consumer Financial Protection Bureau today took action against a ring of law firms and attorneys who collaborated to charge illegal fees to consumers seeking debt relief. In a complaint filed in federal court, the CFPB alleges that Howard Law, P.C., the Williamson Law Firm, LLC, and Williamson & Howard, LLP, as well as attorneys Vincent Howard and Lawrence Williamson, ran this debt relief operation along with Morgan Drexen, Inc., which shut down in 2015 following the CFPB’s lawsuit against that company. The CFPB seeks to stop the defendants’ unlawful scheme, obtain relief for harmed consumers, and impose penalties. 
“The defendants exploited consumers who were already suffering financial difficulties by tricking them into paying steep, illegal fees,” said CFPB Director Richard Cordray. “We put a stop to this scam once already, and we intend to do it again.” 
Howard Law and Williamson & Howard are law firms based in Orange County, Calif. The Williamson Law Firm is registered in Kansas. Vincent Howard is the president of Howard Law, and Lawrence Williamson heads the Williamson Law Firm. Both are part owners of Williamson & Howard. These firms and lawyers offer debt relief services to consumers nationwide. 
The Telemarketing Sales Rule generally prohibits debt relief providers from charging a fee until they have actually settled, reduced, or changed the terms of at least one of the consumer’s debts. It also limits the types of fees a debt relief provider can charge for already settled debts. Under this rule, consumers facing financial difficulties should not pay any fees for debt relief until they receive the services they signed up for. 
The CFPB’s complaint alleges that the defendants violated the Telemarketing Sales Rule by collecting illegal fees and deceiving consumers about being charged upfront fees. Consumers seeking debt relief help from the attorneys in this case were given two contracts, one for debt settlement services and the other for bankruptcy-related services. The CFPB alleges that consumers who signed up sought services only for debt relief and not bankruptcy. The contract given to consumers related to bankruptcy was a ruse to disguise illegal upfront fees. The CFPB alleges that the attorneys collected tens of millions of dollars in unlawful fees this way from consumers, and often failed to settle any debts. 
The defendants also assisted illegal debt relief practices by Morgan Drexen, Inc. and its president and chief executive officer, Walter Ledda. In 2015, the CFPB secured a judgment against Ledda for participating in the unlawful debt relief operation. In 2016, the CFPB secured a judgment against Morgan Drexen for the same conduct. The attorneys named in today’s case had worked alongside Morgan Drexen and Ledda to collect illegal fees, and then took over the operation after the CFPB halted Morgan Drexen’s and Ledda’s illegal activities. 
The CFPB’s complaint is not a finding or ruling that the defendants have actually violated the law. 
The CFPB’s complaint can be found here:
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Wednesday, January 25, 2017

CITI (Citibank) subsidiaries CitiFinancial Servicing and CitiMortgage, Inc. to pay 28.8 mil for giving runaround to borrowers trying to save their homes (CFPB release re-post)

January 23, 2017
CONTACT:Office of CommunicationsTel: (202) 435-7170

CONSUMER FINANCIAL PROTECTION BUREAU ORDERS CITI SUBSIDIARIES TO PAY $28.8 MILLION FOR GIVING THE RUNAROUND TO BORROWERS TRYING TO SAVE THEIR HOMES
Mortgage Servicers Kept Borrowers in the Dark About Options, Demanded Excessive Paperwork

Washington, D.C. – The Consumer Financial Protection Bureau (CFPB) today took separate actions against CitiFinancial Servicing and CitiMortgage, Inc. for giving the runaround to struggling homeowners seeking options to save their homes. The mortgage servicers kept borrowers in the dark about options to avoid foreclosure or burdened them with excessive paperwork demands in applying for foreclosure relief. The CFPB is requiring CitiMortgage to pay an estimated $17 million to compensate wronged consumers, and pay a civil penalty of $3 million; and requiring CitiFinancial Services to refund approximately $4.4 million to consumers, and pay a civil penalty of $4.4 million. 
“Citi’s subsidiaries gave the runaround to borrowers who were already struggling with their mortgage payments and trying to save their homes,” said CFPB Director Richard Cordray. “Consumers were kept in the dark about their options or burdened with excessive paperwork. This action will put money back in consumers’ pockets and make sure borrowers can get help they need.” 
CitiFinancial ServicingCitiFinancial Servicing is made up of four entities incorporated in Delaware, Minnesota, and West Virginia, and headquartered in O’Fallon, Mo. All are direct subsidiaries of CitiFinancial Credit Company, and an indirect subsidiary of New York-based Citigroup, Inc. As a mortgage servicer, CitiFinancial Servicing collects payments from borrowers for loans it originates. It also handles customer service, collections, loan modifications, and foreclosures. 
CitiFinancial Servicing originates and services residential daily simple interest mortgage loans. With these loans, the interest amount due is calculated on a day-to-day basis, unlike a typical mortgage, where interest is calculated monthly. With a daily simple interest loan, the consumer owes less interest and pays more toward principal when they make monthly payments before the due date. But if payments are late or irregular, more of the consumer’s payment goes to pay interest. Some consumers who notified CitiFinancial Servicing that they faced a financial hardship were offered “deferments.” This postponed the consumer’s next payment due date, and the consumer could still be considered current on payments. But CitiFinancial Servicing did not treat a deferment as a request for foreclosure relief options, also called loss mitigation options, as required by CFPB mortgage servicing rules. 
CitiFinancial Servicing violated the Real Estate Settlement Procedures Act, the Fair Credit Reporting Act, and the Dodd-Frank Wall Street Reform and Consumer Protection Act’s prohibition on deceptive acts or practices. Specifically, CitiFinancial Servicing: 
  • Kept consumers in the dark about foreclosure relief options: When borrowers applied to have their payments deferred, CitiFinancial Servicing failed to consider it as a request for foreclosure relief options. As a result, borrowers may have missed out on options that may have been more appropriate for them. Such requests for foreclosure relief trigger protections required by CFPB mortgage servicing rules. The rules include helping borrowers complete their applications and considering them for all available foreclosure relief alternatives. 
  • Misled consumers about the impact of deferring payment due dates: Consumers were kept in the dark about the true impact of postponing a payment due date. CitiFinancial Servicing misled borrowers into thinking that if they deferred the payment, the additional interest would be added to the end of the loan rather than become due when the deferment ended. In fact, the deferred interest became due immediately. As a result, more of the borrowers’ payment went to pay interest on the loan instead of principal when they resumed making payments. This made it harder for borrowers to pay down their loan principal.   
  • Charged consumers for credit insurance that should have been canceled: Some borrowers bought CitiFinancial Servicing credit insurance, which is meant to cover the loan if the borrower can’t make the payments. Borrowers paid the credit insurance premium as part of their mortgage payment. Under its terms, CitiFinancial Servicing was supposed to cancel the insurance if the borrower missed four or more monthly payments. But between July 2011 and April 30, 2015, about 7,800 borrowers paid for credit insurance that CitiFinancial Servicing should have canceled under those terms. These payments were still directed to insurance premiums instead of unpaid interest, making it harder for borrowers to pay down their loan principal. 
  • Prematurely canceled credit insurance for some borrowers: CitiFinancial Servicing prematurely canceled credit insurance for some consumers. Some of those borrowers later had claims denied because CitiFinancial Servicing had improperly canceled their insurance. 
  • Sent inaccurate consumer information to credit reporting companies: CitiFinancial Servicing incorrectly reported some settled accounts as being charged off. A charged-off account is one the bank deems unlikely to be repaid, but may sell to a debt buyer. At times, the servicer continued to send inaccurate information about these accounts to credit reporting companies, and didn’t correct bad information it had already sent. 
  • Failed to investigate consumer disputes: CitiFinancial did not investigate consumer disputes about incorrect information sent to credit reporting companies within the required time period. In some instances, they ignored a “notice of error” sent by consumers, which should have stopped the servicer from sending negative information to credit reporting companies for 60 days. 
Under the consent order, CitiFinancial Servicing must: 
  • Pay $4.4 million in restitution to consumers: CitiFinancial Services must pay $4.4 million to wronged consumers who were charged premiums on credit insurance after it should be been canceled, or who were denied claims for insurance that was canceled prematurely. 
  • Clearly disclose conditions of deferments for loans: CitiFinancial Servicing must make clear to consumers that interest accruing on daily simple interest loans during the deferment period becomes immediately due when the borrower resumes making payments. This means more of the borrowers’ loan payment will go toward paying interest instead of principal. CitiFinancial Servicing must also treat a consumer’s request for a deferment as a request for a loss mitigation option under the Bureau’s mortgage servicing rules. 
  • Stop supplying bad information to credit reporting companies: CitiFinancial Servicing must stop reporting settled accounts as charged off to credit report companies, and stop sending negative information to those companies within 60 days after receiving a notice of error from a consumer. CitiFinancial Servicing must also investigate direct disputes from borrowers within 30 days. 
  • Pay a civil money penalty: CitiFinancial Servicing must pay $4.4 million to the CFPB Civil Penalty Fund for illegal acts.  
The consent order against Citi Financial Services is available at: http://files.consumerfinance.gov/f/documents/201701_cfpb_CitiFinancial-consent-order.pdf 
CitiMortgageCitiMortgage is incorporated in New York, headquartered in O’Fallon, Mo., and is a subsidiary of Citibank, N.A. CitiMortgage is a mortgage servicer for Citibank and government-sponsored entities such as Fannie Mae and Freddie Mac. It also fields consumer requests for foreclosure relief, such as repayment plans, loan modification, or short sales. 
Borrowers at risk of foreclosure or otherwise struggling with their mortgage payments can apply to their servicer for foreclosure relief. In this process, the servicer requests documentation of the borrower’s finances for evaluation. Under CFPB rules, if a borrower does not submit all the required documentation with the initial application, servicers must let the borrowers know what additional documents are required and keep copies of all documents that are sent. 
However, some borrowers who asked for assistance were sent a letter by CitiMortgage demanding dozens of documents and forms that had no bearing on the application or that the consumer had already provided. Many of these documents had nothing to do with a borrower’s financial circumstances and were actually not needed to complete the application. Letters sent to borrowers in 2014 requested documents with descriptions such as “teacher contract,” and “Social Security award letter.” CitiMortgage sent such letters to about 41,000 consumers. 
In doing so, CitiMortgage violated the Real Estate Settlement Procedures Act, and the Dodd-Frank Act’s prohibition against deceptive acts or practices. Under the terms of the consent order, CitiMortgage must: 
  • Pay $17 million to wronged consumers: CitiMortgage must pay $17 million to  approximately 41,000 consumers who received improper letters from CitiMortgage. CitiMortgage must identify affected consumers and mail each a bank check of the amount owed, along with a restitution notification letter. 
  • Clearly identify documents consumers need when applying for foreclosure relief: If it does not get sufficient information from borrowers applying for foreclosure relief, CitiMortgage must comply with the Bureau’s mortgage servicing rules. The company must clearly identify specific documents or information needed from the borrower and whether any information needs to be resubmitted. Or it must provide the forms that a borrower must complete with the application, and describe any documents borrowers have to submit. 
  • Freeze any foreclosures related to the flawed application process and reach out to harmed consumers: For consumers covered under the order who never received a decision on their application, CitiMortgage must stop all foreclosure-related activity, and reach out to these borrowers to determine if they want foreclosure relief options. 
  • Pay a civil money penalty: CitiMortgage must pay $3 million to the CFPB Civil Penalty Fund for illegal acts.  
The consent order reflects that CitiMortgage took affirmative steps to reach out to some borrowers before it may have been required to by CFPB rules. While those borrowers also would have benefited from more tailored and accurate notices, and the institution will provide compliant notices to them going forward, those individuals were not included the affected group of consumers in this settlement. This will avoid penalizing the institution for making additional effort, which the Bureau encourages other institutions to make as well.   
The consent order against CitiMortgage is available at: http://files.consumerfinance.gov/f/documents/201701_cfpb_CitiMortgage-consent-order.pdf 
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The Consumer Financial Protection Bureau is a 21st century agency that helps consumer finance markets work by making rules more effective, by consistently and fairly enforcing those rules, and by empowering consumers to take more control over their economic lives. For more information, visit consumerfinance.gov.

Sunday, October 2, 2016

CFPB issues updated examination procedures under Military Lending Act and July 2015 DOD Rule (re-post)


CONSUMER FINANCIAL PROTECTION BUREAU RELEASES UPDATED EXAM PROCEDURES FOR MILITARY LENDING ACT
CFPB to Evaluate Military Lending Act Violations in its Exams of Creditors and Will Use Its Enforcement Authority in Cases of Substantial Consumer Harm
FOR IMMEDIATE RELEASE:September 30, 2016
CONTACT:Office of CommunicationsTel: (202) 435-7170
WASHINGTON, D.C. – Today the Consumer Financial Protection Bureau (CFPB) issued the procedures its examiners will use in identifying consumer harm and risks related to the Military Lending Act rule which was updated in July 2015. The exam procedures being released today by the Bureau provide guidance to industry on what the CFPB will be looking for during reviews covering the amended regulation.
“Protecting servicemembers is a priority for the CFPB,” said CFPB Director Richard Cordray.“The updated exam procedures being released today will help ensure that servicemembers and their families are dealt with in a fair and safe manner when attempting to access credit.”
In 2006, Congress passed the Military Lending Act to help address the problem of high-cost credit as a threat to military personnel and readiness. In July 2015, the Department of Defense issued a final rule expanding the types of credit products that are covered under the protections of the Military Lending Act. The protections provided by the Military Lending Act extend to active-duty servicemembers (including those on active Guard or active Reserve duty) and covered dependents. When lending to servicemembers and their dependents creditors must abide by the following requirements:
  • A 36 percent rate cap: Creditors cannot charge servicemembers or their covered dependents more than a 36 percent Military Annual Percentage Rate, which generally includes the following costs (with some exceptions): finance charges, credit insurance premiums or fees, add-on products sold in connection with the credit extended, and other fees such as application or participation fees.
  • No mandatory waivers of consumer protection laws: Creditors cannot require servicemembers or their covered dependents to submit to mandatory arbitration or give up certain rights under state or federal law, such as the Servicemembers Civil Relief Act.
  • No mandatory allotments: Creditors cannot require servicemembers or their covered dependents to create a voluntary military allotment in order to qualify for a loan.
Early examinations will evaluate financial institutions’ compliance management systems and overall efforts to follow the rule’s requirements. Specifically, examiners will consider an institution’s implementation plan, including actions taken to update policies, procedures, and processes; its training of appropriate staff; and its handling of early implementation challenges.The Bureau also expects institutions to ensure servicemembers and other eligible consumers are receiving the consumer protections afforded by the Military Lending Act. Risks to consumers resulting from Military Lending Act violations are significant, and the CFPB will exercise its enforcement authority in appropriate cases of substantial consumer harm.
For most forms of credit subject to the updated Military Lending Act rule, creditors are required to comply with the amended regulation as of Oct. 3, 2016; credit card providers must comply with the new rule as of Oct. 3, 2017.
The revised Military Lending Act exam procedures released today are based on the approved Federal Financial Institutions Examination Council procedures. This interagency effort helps promote a consistent regulatory experience for industry.
Today’s revised Military Lending Act Exam Procedures can be found at:http://files.consumerfinance.gov/f/documents/092016_cfpb_MLAExamManualUpdate.pdf
A copy of the Department of Defense’s Military Lending Act rule can be found here:https://www.gpo.gov/fdsys/pkg/FR-2015-07-22/pdf/2015-17480.pdf
Information for consumers about the Military Lending Act is available here on AskCFPB:http://www.consumerfinance.gov/askcfpb/
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The Consumer Financial Protection Bureau is a 21st century agency that helps consumer finance markets work by making rules more effective, by consistently and fairly enforcing those rules, and by empowering consumers to take more control over their economic lives. For more information, visit consumerfinance.gov.

Wednesday, September 7, 2016

CFPB Unveils Youth Financial Education Initiatives (press release re-post)

CFPB RELEASE: September 7, 2016 
CONSUMER FINANCIAL PROTECTION BUREAU UNVEILS YOUTH FINANCIAL EDUCATION INITIATIVES
Bureau Releases Report on Teaching Financial Fundamentals and Offers a Tool for Educators
Washington, D.C. – The Consumer Financial Protection Bureau (CFPB) today unveiled new resources for financial educators including Building Blocks to Help Youth Achieve Financial Capability, a report that presents a new financial capability developmental model and makes recommendations for financial education. Based on the developmental framework described in the report, the Bureau also released a personal finance pedagogy, a teaching tool to enhance personal financial education in schools.
“The first line of defense for consumers to protect themselves is the ability to make informed and responsible decisions, and financial education that starts in childhood is an essential first step,” said CFPB Director Richard Cordray. “Our Building Blocks report adds to our ongoing efforts to see that every young American can gain the knowledge, skills, and resources they need to build a healthy financial future.”
The CFPB created the model to help financial education policy and program leaders to more effectively deliver financial education opportunities to American youth. The report outlines the building blocks of financial capability, as well as strategies for supporting its development from early childhood through adolescence. Financial capability is the capacity to manage financial resources effectively, understand and apply financial knowledge, and the ability to make a plan, stick to it and successfully complete financial tasks. People with financial capability are more likely to be able to meet current and ongoing financial obligations and feel more secure in their financial futures.
The  Bureau’s report Building Blocks to Help Youth Achieve Financial Capability highlights key milestones from early childhood through young adulthood that support the development of adult financial capability, and makes recommendations on achieving it, including:
  • Support the growth of executive function: Strong executive function makes it easier to plan, focus attention, remember details and juggle multiple tasks. This skill is used to set goals, save for the future, and stick to a budget. This typically begins to develop at ages 3 to 5.
  • Encourage the development of positive financial habits and norms: Financial habits are the values, standards, routine practices, and rules of thumb around financial matters that help people navigate day-to-day financial lives. Children and teens absorb these habits and norms by watching their peers and adults. Parents and caregivers play a central role in this development by demonstrating healthy financial values and behaviors and talking about everyday financial decisions. These skills typically start to develop at ages 6 to 12.
  • Teach financial knowledge and decision-making skills: Financial decision-making includes financial planning, research, and choices such as buying a car or financing higher education. Learning from direct, hands-on experience helps young people to acquire relevant knowledge and practice financial decision-making skills. This becomes most relevant during ages 13 to 21.
The report outlines recommendations for ways to help youth learn the building blocks of financial capability. And it provides real-life examples and strategies for putting these capabilities into action. Creators of financial education curricula and program providers can use the developmental model to adapt programs, lessons, and activities. Policy and community leaders can use the recommendations to shape and promote financial education initiatives.
Based on the developmental model described in the report, the Bureau is also releasing a personal finance pedagogy, a teaching tool to enhance personal financial education in schools and to promote lifelong learning and financial skills development. It outlines strategies for instructing students of all ages with a broad range of skills, habits, and attitudes that characterize adult financial capability.
A chief component of this education tool is the “personal finance wheel,” which helps simplify the process by clearly identifying the most appropriate teaching techniques and learning strategies for financial capability. The wheel’s inner ring contains the three building blocks of youth financial capability: executive function, financial skills and decision-making, and financial habits. These divide the wheel into three sections. Each section then points to teaching techniques and learning strategies for developing that specific financial capability building block. This will help equip young people with the knowledge and skills they need to find and evaluate relevant financial information, and help them recognize situations that call for additional research.
The Building Blocks to Help Youth Achieve Financial Capability report is at:http://files.consumerfinance.gov/f/documents/092016_cfpb_BuildingBlocksReport_ModelAndRecommendations.pdf
The personal finance pedagogy teaching tool is available at:http://files.consumerfinance.gov/f/documents/092016_cfpb_YouthFinEdPedagogy.pdf
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The Consumer Financial Protection Bureau is a 21st century agency that helps consumer finance markets work by making rules more effective, by consistently and fairly enforcing those rules, and by empowering consumers to take more control over their economic lives. For more information, visit consumerfinance.gov.


FOR IMMEDIATE RELEASE:September 7, 2016
CONTACT:Office of CommunicationsTel: (202) 435-7170
Prepared Remarks of Richard CordrayDirector of the Consumer Financial Protection Bureau
Youth Financial Capability Town Hall Remarks
Dallas, TexasSeptember 7, 2016
Ann Baddour is the vice chair of our Consumer Advisory Board. I want to thank her and her organization, Texas Appleseed, for hosting us here in the Lone Star state. Today we are pleased to announce two new pieces of work in the field of financial education. First, we are issuing a new report discussing a development model that identifies the building blocks our young people need to achieve financial capability at different stages of their growth and maturity. Second, we are releasing a teaching tool that we call a “personal finance pedagogy.” This tool will help support teachers in more effectively delivering financial education to their students. The Consumer Bureau believes that these new resources will prove valuable for anyone working to promote youth financial education.
Each year as summer turns to fall, millions of young people are back in class and settling into the routines of a new school year. That is true, in fact, of my own high-school-age twins. Students across the country are navigating new class schedules, homework loads, and after-school activities. And many others, for the first time, are confronting the new reality that they are not going back to class because they have finally finished school. Instead, they are now standing on their own two feet, expected to navigate a financial marketplace that requires people to make increasingly complex decisions.
Those of you here today include financial education practitioners, bankers, parents, and many others. You know the challenges people face when they lack a solid foundation of financial know-how and decision-making skills. We also must face the fact that our country has done a remarkably poor job of providing financial education in our schools. That represents an unfortunate failure for our society. It puts many of our people at risk and exposes them to needless harm. It is a situation that needs to change – one that we and many of you are dedicated to changing.
Studies show that nearly 90 percent of parents and teachers believe that financial education should be taught in our schools. Yet only 17 states – Texas among them – currently require high school students to take a personal finance course in order to graduate. A recent study explored the credit outcomes of young adults who had taken a personal finance course in high school and compared them to the outcomes of young adults in similar states with less rigorous financial education. It found that students who had taken a personal finance course had improved credit scores and less likelihood of delinquency later in life.
That comes as no surprise to me and probably to many of you. We have all seen other research raising doubts about the effectiveness of financial education. I have never found it convincing. To me, all it says is that we simply have not yet been at this work long enough or hard enough, and we are still trying to figure out how to do it more effectively. The same was true of the general project of public education going back more than a century. Yet nobody today doubts that good education improves people’s lives. Nor should we doubt that good financial education will improve people’s financial lives. So when we see positive results like these linked to financial education courses, it tells me that this type of instruction should be just as fundamental as the education we all receive in reading, writing, and arithmetic. And we should focus keenly on how we can continue to improve on our methods and approach.
One cornerstone of our mission at the Consumer Bureau is to do exactly this kind of work: to study how we can improve financial education for people of all ages. One of the things we all recognize is that what we teach to our young people can vary significantly at different stages of their development. So we have been considering this question: Where and when during childhood and adolescence do people acquire the foundations of financial capability?
This question led to the creation of our new evidence-based developmental framework. Through it, we are seeking to understand how young people learn and how they develop the building blocks of financial capability. Our report, released today, includes recommendations about how to apply this developmental model to financial education programs, policies, and initiatives.
In particular, our recommendations identify three key building blocks. The first, which begins to be primarily developed in early childhood around ages 3 to 5, is a focus on developing executive function. This refers to a basic sense of self control that people draw upon to set goals, save for the future, and stick to a budget. The next, which begins to be primarily developed during the pre-teen years around ages 6 to 12, is a focus on encouraging parents and caregivers to help instill positive financial habits and norms in the child. The third building block is a focus on financial knowledge and decision-making skills, which is primarily developed as children approach maturity, around ages 13 to 21. At this point, children are ready and able to learn from actual experiences, such as shopping, and through their own financial research. These three building blocks reflect what we have found previously, that financial capability is not the same as financial knowledge. We have seen that financial capability goes well beyond just learning facts and is shaped by this broader set of attributes that are developed throughout childhood.
Earlier today, we saw one of these building blocks in action during a “Reality Fair” at Lake Highlands Junior High School. This program provides a unique forum for students to begin to experience some of the same financial challenges they will face when they start life on their own. Personally, I have been an enormous fan of this approach since I first ran across it in Ohio more than a decade ago. I commend credit unions for embracing it to help educate many thousands of young people each year. My children’s high school operates the same type of program, which they call “Reality Days,” and every student participates at some point during their high school years. Activities like these make a big impression on young people. Students deepen their financial knowledge and build financial capability in a more lasting way through such hands-on activities, which can also include school banking programs, entrepreneurship training, and financial games or simulations.
For many teachers, personal finance is a relatively new area of study. Although most parents want their children to learn about personal finance in the classroom, many teachers do not feel empowered to provide this instruction. Their lack of familiarity translates into a lack of confidence. So we have expanded on the research we are doing on building blocks to develop something we call a “personal finance pedagogy” for use by teachers. That is a fancy-sounding name for what essentially is a teaching tool. The pedagogy has been condensed into what is called a personal finance wheel for use by teachers and practitioners. Divided among the three building blocks that we just discussed, the wheel directs teachers to the kinds of techniques and learning strategies that are appropriate to help youth gain these skills during different phases of their development.
The Consumer Bureau also offers a curriculum review tool for youth financial education. It offers criteria to help teachers and financial educators analyze and select appropriate financial education material for their students.
We face serious challenges in achieving our goal of financial capability for young people. These challenges are varied and complex. But as more public, private, and nonprofit organizations join in making the commitment to advance youth financial capability, we can and will make progress together.
One of our most promising partnerships has us engaging with a large and growing number of libraries across the country, including the Texas Library Association with whom we have strong ties. And we are working with social service providers, community groups, state and local policymakers – anyone, really – who may be interested in pursuing these same goals. We also are well aware that many credit unions share this interest and are willing to find ways to partner with us, including the Cornerstone Credit Union League, the Credit Union of Texas, and the National Credit Union Foundation.
We have a great opportunity today to discuss how we can give young people the foundation, the information, and the experience they need to make responsible financial decisions. Together we are striving to see that every young American can gain the knowledge, skills, and resources they need to build a healthy financial future. We will remain focused on this important way to strengthen our economy and our country, and I look forward to our conversation. Thank you.
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Thursday, May 5, 2016

CFPB Proposes Banning Mandatory Arbitration Clauses That Deny Groups of Consumers Their Day in Court (May 5, 2016 press-release re-post)

FOR IMMEDIATE RELEASE: May 5, 2016
CONTACT: Office of Communications Tel: (202) 435-7170

CONSUMER FINANCIAL PROTECTION BUREAU PROPOSES PROHIBITING MANDATORY ARBITRATION CLAUSES THAT DENY GROUPS OF CONSUMERS THEIR DAY IN COURT 

Bureau Seeks Comment on Proposal to Ban a Contract Gotcha that Prevents Groups of Consumers from Suing Consumer Financial Companies 
WASHINGTON, D.C. — Today the Consumer Financial Protection Bureau (CFPB) is seeking comments on proposed rules that would prohibit mandatory arbitration clauses that deny groups of consumers their day in court. Many consumer financial products like credit cards and bank accounts have contract gotchas that generally prevent consumers from joining together to sue their bank or financial company for wrongdoing. These widely used clauses leave consumers with no choice but to seek relief on their own – usually over small amounts. With this contract gotcha, companies can sidestep the legal system, avoid accountability, and continue to pursue profitable practices that may violate the law and harm countless consumers. The CFPB’s proposal is designed to protect consumers’ right to pursue justice and relief, and deter companies from violating the law.
“Signing up for a credit card or opening a bank account can often mean signing away your right to take the company to court if things go wrong,” said CFPB Director Richard Cordray. “Many banks and financial companies avoid accountability by putting arbitration clauses in their contracts that block groups of their customers from suing them. Our proposal seeks comment on whether to ban this contract gotcha that effectively denies groups of consumers the right to seek justice and relief for wrongdoing.”
In recent years, many contracts for consumer financial products and services – from bank accounts to credit cards – have included mandatory arbitration clauses. They affect hundreds of millions of consumer contracts. These clauses typically state that either the company or the consumer can require that disputes between them be resolved by privately appointed individuals (arbitrators) except for cases brought in small claims court. Where these clauses exist, either side can generally block lawsuits from proceeding in court. These clauses also typically bar consumers from bringing group claims through the arbitration process. As a result, no matter how many consumers are injured by the same conduct, consumers must proceed to resolve their claims individually against the company.
Through the Dodd-Frank Wall Street Reform and Consumer Protection Act, Congress required the CFPB to study the use of mandatory arbitration clauses in consumer financial markets. Congress also gave the Bureau the power to issue regulations that are in the public interest, for the protection of consumers, and consistent with the study.
Released in March 2015, the CFPB’s study showed that very few consumers ever bring – or think about bringing – individual actions against their financial service providers either in court or in arbitration. The study found that class actions provide a more effective means for consumers to challenge problematic practices by these companies. According to the study, class actions succeed in bringing hundreds of millions of dollars in relief to millions of consumers each year and cause companies to alter their legally questionable conduct. The study showed that at least 160 million class members were eligible for relief over the five-year period studied. Those settlements totaled $2.7 billion in cash, in-kind relief, and attorney’s fees and expenses. In addition, these figures do not include the potential value to consumers of class action settlements requiring companies to change their behavior. However, where mandatory arbitration clauses are in place, companies are able to use those clauses to block class actions.
The CFPB proposal is seeking comment on a proposal to prohibit companies from putting mandatory arbitration clauses in new contracts that prevent class action lawsuits. The proposal would open up the legal system to consumers so they could file a class action or join a class action when someone else files it. Under the proposal, companies would still be able to include arbitration clauses in their contracts. However, for contracts subject to the proposal, the clauses would have to say explicitly that they cannot be used to stop consumers from being part of a class action in court. The proposal would provide the specific language that companies must use.
The proposal would also require companies with arbitration clauses to submit to the CFPB claims, awards, and certain related materials that are filed in arbitration cases. This would allow the Bureau to monitor consumer finance arbitrations to ensure that the arbitration process is fair for consumers. The Bureau is also considering publishing information it would collect in some form so the public can monitor the arbitration process as well. 
The benefits to the CFPB proposal would include:
  • A day in court for consumers: The proposed rules would allow groups of consumers to obtain relief when companies skirt the law. Most consumers do not even realize when their rights have been violated. Often the harm may be too small to make it practical for a single consumer to pursue an individual dispute, even when the cumulative harm to all affected consumers is significant. The CFPB study found that only around 2 percent of consumers with credit cards who were surveyed would consult an attorney or otherwise pursue legal action as a means of resolving a small-dollar dispute. With class action lawsuits, consumers have opportunities to obtain relief from the legal system that, in practice, they otherwise would not receive.
  • Deterrent effect: The proposed rules would incentivize companies to comply with the law to avoid group lawsuits. Arbitration clauses enable companies to avoid being held accountable for their conduct. When companies know they can be called to account for their misconduct, they are less likely to engage in unlawful practices that can harm consumers. Further, public attention on the practices of one company can affect or influence their business practices and the business practices of other companies more broadly.
  • Increased transparency: The proposed rules would make the individual arbitration process more transparent by requiring companies that use arbitration clauses to submit any claims filed and awards issued in arbitration to the CFPB. The Bureau would also collect correspondence from arbitration administrators regarding a company’s non-payment of arbitration fees and its failure to adhere to the arbitration forum’s standards of conduct. The collection of these materials would enable the CFPB to better understand and monitor arbitration. It would also provide insight into whether companies are abusing arbitration or whether the process itself is fair.
The proposed rules which the CFPB is seeking comment on would apply to most consumer financial products and services that the CFPB oversees, including those related to the core consumer financial markets that involve lending money, storing money, and moving or exchanging money. Congress already prohibited arbitration agreements in the largest market that the Bureau oversees – the residential mortgage market.
In October 2015, the Bureau published an outline of the proposals under consideration and convened a Small Business Review Panel to gather feedback from small companies. In addition to consulting with small business representatives, the Bureau sought input from the public, consumer groups, industry, and other stakeholders before continuing with the rulemaking. That process concluded in December 2015 with a written report to the Bureau’s director, which is also being released today. 
The public is invited to comment on these proposed regulations when they are published in the Federal Register. Written comments will be carefully considered before final regulations are issued.
The March 2015 CFPB report on arbitration is available at: http://www.consumerfinance.gov/reports/arbitration-study-report-to-congress-2015/
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Prepared Remarks of Richard CordrayDirector of the Consumer Financial Protection Bureau 
Field Hearing on Arbitration Clauses 
Albuquerque, N.M.May 5, 2016
Thank you to Albuquerque for the warm welcome you have given us.  This is our 34th field hearing since the Consumer Financial Protection Bureau first opened its doors and started traveling the country to listen to the everyday concerns of American consumers.  Each one of these field hearings has been valuable for us.  They give us insight and substance to inform our work, and they humanize the challenges posed in the financial marketplace.  So we thank you all for joining us today.  Hearing people’s stories, as told by them, sometimes in voices of steely determination, other times through tears as they recount their difficulties and frustrations, leaves an indelible mark on us as we turn back to analyze and address the issues they raise.  Let there be no doubt that these sessions motivate us to keep moving forward in our efforts to help make consumer finance markets work better for consumers.
Today we are proposing a new regulation for public comment and further consideration.  If finalized in its current form, the proposal would ban consumer financial companies from using mandatory pre-dispute arbitration clauses to deny their customers the right to band together to seek justice and meaningful relief from wrongdoing.  This practice has evolved to the point where it effectively functions as a kind of legal lockout.  Companies simply insert these clauses into their contracts for consumer financial products or services and literally “with the stroke of a pen” are able to block any group of consumers from filing joint lawsuits known as class actions.  That is so even though class actions are widely recognized to be valid avenues to secure legal relief under federal and state law.
We have investigated arbitration, and our research found that very few consumers know anything about these “gotcha” clauses.  Even fewer consumers know how they actually work.  Based on our research, we believe that any prospect of meaningful relief for groups of consumers is effectively extinguished by forcing them to fight their legal disputes as lone individuals.  These battles – frequently over small amounts of money – would often have to be fought against some of the largest financial companies in the world.  When faced with the daunting prospect of spending considerable time and effort to recoup a $35 fee or even a $100 overcharge, it is not hard to see why few people would even bother to try.
The fact is that certain corporate policies and practices can be lucrative to businesses but harm large numbers of individuals only on a minor basis.  There was a long time in the history of this country where the legal system struggled for a solution to this problem.  Courts and legislative bodies sought to develop a workable mechanism whereby people could band together and aggregate their claims into a single action that could provide accountability and justice within the legal system.  Some of these efforts go back hundreds of years, but about a half-century ago, the concept of the modern class action came to fruition in the American civil justice system.  As this procedure was refined to allow the courts to handle and process such cases efficiently and fairly, both Congress and the federal courts embraced and approved this approach.  So did legislatures and courts in nearly every state.  It has proved particularly meaningful in the arena of consumer finance, where companies that violate the law may do small amounts of harm to thousands or even millions of consumers.
It is important to recognize that the legislative and judicial branches of government not only have recognized and validated this mechanism for group lawsuits, but they also tightly control its use in particular cases.  Congress and state legislatures have the authority to determine whether any violation of law can give rise to a private lawsuit in the first place, under what conditions, and for what types of relief.  If a class action lawsuit is filed, the courts have specific processes for determining whether the claims can proceed in that format or not.
This is notable because for some provisions of the consumer financial laws, Congress has in fact authorized private lawsuits.  Thus, over many years of enacting federal consumer financial laws (all of which post-date the adoption of the modern class action procedures in the federal courts), Congress has explicitly determined that such actions further the purposes of those particular statutes.  And in so doing, Congress has permitted consumers to bring lawsuits (including class actions) to seek meaningful relief for the harm done them by such violations of law.
These provisions of the consumer financial laws thus provide a right to sue for relief, with one consumer representing the interests of a group who have all been harmed in the same way.  If the lawsuit is successful, the company can be made to rectify the problem for all affected customers.  It also can be required to clean up its practices moving forward.  Yet a mandatory arbitration clause can negate all of this, leaving consumers with few practical avenues to secure adequate relief when they are harmed by violations of the law.
***
The justification for this approach is found in the Federal Arbitration Act, a statute that dates from 1925 and whose application has evolved over time.  At the outset, its primary and virtually sole focus was on business-to-business disputes, in cases where the parties negotiated and agreed that it was in their mutual interest to have their disputes resolved by an arbitrator rather than by the courts.  Over the years, arbitration came to be used in other types of disputes as well, such as those between unions and employers.  It is generally recognized as one of several methods of “alternative dispute resolution.”
More recently, many businesses have sought to use arbitration clauses not simply as an alternative means of resolving disputes, but effectively to insulate themselves from accountability by blocking group claims.  For many years, courts wrestled with the question of whether to allow arbitration clauses to be used in this way.  Several years ago the Supreme Court concluded that arbitration clauses could in fact block class actions even though the state courts in that case had deemed that result to be unconscionable under state law.
In the past decade, however, Congress has expressed growing concern about whether mandatory arbitration is appropriate in the realm of consumer finance.  First in the Military Lending Act, passed in 2007, Congress barred arbitration clauses in connection with certain loans made to servicemembers.  In 2010, in the Dodd-Frank Wall Street Reform and Consumer Protection Act, Congress went further by barring arbitration clauses in mortgages, which make up the largest consumer finance market.  In so doing, Congress expanded on a ban that Fannie Mae and Freddie Mac had imposed several years earlier on mortgage contracts they purchased.
Similarly, in the Dodd-Frank Act Congress authorized the Securities and Exchange Commission (SEC) to regulate the use of arbitration clauses in contracts between investors and brokers and dealers.  Here Congress was building on work by the Financial Industry Regulatory Authority (FINRA), which has long required that arbitration clauses adopted by its broker-dealer members cannot be used to block class actions by customers.  Each of these measures reflects concern about how mandatory arbitration clauses may undermine the welfare of individual consumers (or, in the case of the SEC, investors) in the financial marketplace.
Congress also spoke to our subject today by directing the Consumer Bureau to conduct a study and provide a report to Congress on the use of mandatory arbitration clauses in other consumer financial contracts.  Once this work was completed, Congress stated that “[t]he Bureau, by regulation, may prohibit or impose conditions or limitations on the use of” such arbitration clauses in consumer financial contracts if the Bureau finds that such measure “is in the public interest and for the protection of consumers,” and such findings are “consistent with the study” we performed.  We finished that work a year ago and heard from stakeholders about our findings and analysis.  We then put forward an initial framework, subject to further review through our small business review panel process and with others as well.  All of this leads up to our proposal today for a potential new rule that would address this issue.
***
To explain what we are proposing, it is useful to recap the results of our extensive study and report to Congress, which spans 728 pages of findings and analysis.  Perhaps the most striking finding from our study is that consumers rarely file individual disputes involving financial products or services in any forum.  We believe in part this is because consumers often do not recognize when their rights have been violated.  It can be difficult for consumers to know, for example, when they have received inadequate or even misleading information or when they have been subject to discrimination.  Even when consumers do feel aggrieved by something their financial service provider has done – for example, by charging an unwanted back-end fee – consumers rarely know whether the company’s conduct is unlawful.  And for the overwhelming majority of consumers, we believe it simply does not make sense to try to find a lawyer to take issue with a small fee or other such practices.
Our study further found that when individual consumers choose to step forward and bring a class action on behalf of all similarly-situated consumers, such group lawsuits can be an effective way to provide relief when they are allowed to proceed.  This includes those who may not realize that their rights have been violated or those who may have felt they simply had to resign themselves to the way they were treated.  Indeed, by examining five years of data on several distinct markets, the study found that group lawsuits delivered, on average, about $220 million in payments to 6.8 million consumers per year in consumer financial services cases.  Customers were also able to obtain substantial prospective relief by forcing companies to improve compliance and adopt more consumer-friendly practices.  Of course, the class action lawsuit is by no means a perfect mechanism for addressing such issues.  But class actions do happen to be the most practical solution that has been worked out to date.  And the precise parameters of class action procedures have remained constantly subject to further critique, reform, and improvement over time.
The study showed that many companies use mandatory arbitration clauses to block consumers from ever securing any meaningful relief from violations of the law.  Tens of millions of consumers use financial products or services that are subject to arbitration clauses.  Those clauses deter class action lawsuits from being filed and often prevent those that are filed from moving forward.  Yet without group lawsuits, those consumers who feel they may have been wronged are often left with very limited options.  They can pursue their dispute with the company individually in arbitration, in small claims court, or sometimes in state or federal court, yet our study showed they rarely do so.  They can simply accept the unlawful terms and absorb the harmful treatment, as is too often the case for many consumers.  They can pursue some type of informal dispute resolution with the company through complaint lines, which will lead to relief in some instances as a matter of good customer service, but falls far short of any systematic resolution that eradicates unlawful practices.  Or they can “vote with their feet” by moving on to another provider, though this is not always possible.  Even when it is, there may be less incentive to do so if other companies have also inserted arbitration clauses in their own contracts.
So our study indicated that simply by inserting the magic words of an arbitration clause, financial companies can avoid being held directly accountable for their actions affecting their customers.  Of course, the laws may empower certain government officials, such as those of us at the Consumer Bureau, to bring actions to enforce their terms.  Yet public resources devoted to this purpose are limited, to the point where we cannot hope to cover the waterfront of consumer financial harm by such means.  Indeed, the study found that class actions supplement government enforcement actions and seldom overlap with them.  And several state attorneys general have told us they favor limitations on arbitration clauses because their enforcement resources are also limited.
Under the proposed regulation we are releasing today for public comment, companies could still include arbitration clauses in their contracts.  For new contracts, however, these clauses would have to say explicitly that they cannot be used to stop consumers from grouping together in a class action.  As noted previously, this is the same approach FINRA has taken in regulating similar provisions in certain investor contracts and it does not go as far as Congress did for mortgage contracts or certain credit contracts for servicemembers.  In our study, we found that individual arbitrations are not commonly filed in consumer finance matters, and we do not believe we have enough data to justify restricting them further at this time.
If arbitration truly offers the benefits that its proponents claim, such as providing a less costly and more efficient means of dispute resolution, then it stands to reason that companies will continue to make it available.  If they do, then companies which retain these more limited arbitration clauses would have to submit claims, awards, and other information to the Bureau.  This would enable better monitoring of consumer finance arbitrations to ensure that the process is fair for individual consumers.  It would also enable further review of the substantive allegations raised in these arbitration processes to see if they warrant action by the Bureau.  Finally, we are considering publishing these materials on our website to promote transparency and enable the public to learn more about the arbitration process.
***
So the essence of the proposal issued today is that it would prevent mandatory arbitration clauses from imposing legal lockouts to deny groups of customers the right to pursue justice and secure meaningful relief from wrongdoing.  From the results of our study, we believe that doing so would produce three general benefits, about which we seek further comment.
First, consumers would have a more effective means to pursue meaningful relief after they have been hurt by violations of consumer financial laws.  At the same time, it would stop the same prohibited practices from harming consumers in the future.  Many of these laws confer the right to an effective remedy to redress harms consumers suffer from violations of the law.  This reflects an important element of personal liberty, that people should have the ability to protect themselves by acting to pursue their rights.  But as we have already noted, it may not be practical or worthwhile for consumers to undertake the burden and cost of bringing an individual case just to challenge small fees and charges.  Without the opportunity to pursue group claims, they may be effectively cut off from having their grievances addressed.
Second, another important benefit that would potentially flow from our proposal is that it would deter wrongdoing on a broader scale.  Although many consumer financial violations impose only small costs on each individual consumer, taken as a whole these unlawful practices can yield millions or even billions of dollars in aggregate harm.  Mandatory arbitration clauses that bar group actions protect companies from being held accountable for their misdeeds.  Thus, companies have less reason to ensure that their conduct complies with the law.  We plainly recognize that this may cause financial companies to incur higher compliance costs and forgo some revenue from engaging in risky behaviors.  But we believe that is exactly how accountability should change company behavior.
Put differently, it matters if companies are aware that group lawsuits can lead to relief to thousands or even millions of victims of unlawful practices.  The likely result is to create a safer market for current and future customers of that company.  That is because the potential for a substantial monetary award often leads a company to rethink its practices by reassessing its bottom line.  And the public spotlight on these cases can influence business practices at other companies as well.
Third, by requiring companies to provide the Bureau with arbitration filings and written awards, which we might end up making public in some form, the proposal would enable the Bureau to monitor and assess the pros and cons of how arbitration clauses affect resolutions for individuals who do not pursue group claims.  We believe this would improve our understanding and enable policymaking that is better informed.  The Bureau would also collect correspondence from administrators about a company’s non-payment of arbitration fees and its failure to adhere to the arbitration forum’s fairness principles.  The purpose here would be to provide insight into whether companies are abusing arbitration or whether the process itself is unfair.
In short, we believe our proposal would promote consumers’ ability to pursue claims, bring greater accountability, and enhance the transparency and fairness of arbitrations.
***
Our democracy allows, encourages, and indeed depends on citizens who band together to demand political or legislative change.  Many consumer financial laws likewise presuppose that groups of customers can join together in our legal system to demand changes in unlawful practices that affect them all in common.  But our study shows that an important avenue for reform can be cut off by mandatory arbitration clauses that affect millions of consumers.  Our proposal would reopen that avenue by ensuring that consumers can take action together if they have been hurt together.
Under our proposed rule, companies would not be able to deny consumers their day in court.  Companies would not be able to evade responsibility by blocking groups of consumers from the legal system and reaping the favorable consequences.  Everyone benefits from a marketplace where companies are held accountable for treating their customers fairly and in accordance with the law.
Our proposal will be open for public comment for the next three months.  We will carefully consider the comments we receive before issuing a final rule.  We have found this process is always instructive and enables us to reach sounder conclusions in the end.  We look forward to the public comments as well as the initial feedback we will hear today.  Thank you.
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The Consumer Financial Protection Bureau is a 21st century agency that helps consumer finance markets work by making rules more effective, by consistently and fairly enforcing those rules, and by empowering consumers to take more control over their economic lives. For more information, visit consumerfinance.gov