Nov. 22: CFPB Recent Updates
CFPB Finalizes Rule on Federal Oversight of Popular Digital Payment Apps to Protect Personal Data, Reduce Fraud, and Stop Illegal “Debanking”
The Consumer Financial Protection Bureau (CFPB) today finalized a rule to supervise the largest nonbank companies offering digital funds transfer and payment wallet apps. The rule will help the CFPB to ensure that these companies – specifically those handling more than 50 million transactions per year – follow federal law just like large banks, credit unions, and other financial institutions already supervised by the CFPB. The CFPB estimates that the most widely used apps covered by the rule collectively process over 13 billion consumer payment transactions annually.
While banks and credit unions offering consumer payment services are subject to CFPB supervisory examinations, many of these very large technology firms handling billions of transactions are not. The CFPB has closely observed developments in this emerging market, including by monitoring consumer complaints and launching an inquiry into Big Tech and peer-to-peer platforms offering popular payment apps. The final rule will enable to the CFPB to supervise companies in key areas including:
- Privacy and Surveillance: Large technology companies are collecting vast quantities of data about an individual’s transactions. Federal law allows consumers to opt-out of certain data collection and sharing practices, and also prohibits misrepresentations about data protection practices.
- Errors and Fraud: Under longstanding federal law, consumers have the right to dispute transactions that are incorrect or fraudulent, and financial institutions must take steps to look into them. The CFPB is particularly concerned about how digital payment apps can be used to defraud older adults and active duty servicemembers. Some popular payment apps appear to design their systems to shift disputes to banks, credit unions, and credit card companies, rather than managing them on their own.
- Debanking: Given the volume of payments consumers make through many popular payment apps, consumers can face serious harms when they lose access to their app without notice or when their ability to make or receive payments is disrupted. Consumers have reported concerns to the CFPB about disruptions to their lives due to closures or freezes.
In the final rule, the CFPB made several significant changes from its initial proposal. The transaction threshold determining which companies require supervision is now substantially higher, at 50 million annual transactions. Given the evolving market for digital currencies, the CFPB also limited the rule’s scope to count only transactions conducted in U.S. dollars.
CFPB Supervision has also created a supervision technology program which assesses, among other things, technology and technology controls and its impact on compliance with Federal consumer financial law.
Today’s final rule is the sixth rulemaking by the CFPB to define larger participants operating in markets for consumer financial products and services. The first five rules covered larger participants in consumer reporting, consumer debt collection, student loan servicing, international money transfers, and automobile financing.
The rule will be effective 30 days after publication in the Federal Register. Read the final rule.
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CFPB Finalizes Rule on Federal Oversight of Popular Digital Payment Apps to Protect Personal Data, Reduce Fraud, and Stop Illegal “Debanking”
The Consumer Financial Protection Bureau (CFPB) today released the annual report of the CFPB Student Loan Ombudsman, highlighting the severe difficulties reported by student borrowers due to persistent loan servicing failures and program disruptions. The report details how millions of student borrowers have received relief through new income-driven repayment plans, cancellation programs, and various adjustments and program automation processes. However, borrowers tell the CFPB how servicing breakdowns, including inaccurate information provided by servicers, improperly processed payments, and delayed income driven payment applications have stymied their return to repayment.
Today’s report focuses on the 2023-2024 Award Year (July 1, 2023 – June 30, 2024) and analyzes more than 18,000 student borrower complaints—the highest complaint volume the CFPB has received since it began collecting student borrower complaints in March 2012. Many of the servicer failures detailed in these complaints are persistent problems that have been well-documented by the CFPB, including errors with billing and auto pay, servicers providing incorrect information about accounts and repayment options, and months-long delays in the processing of income-driven repayment applications.
During the past year, 28 million federal student loan borrowers returned to repayment following the end of the COVID-19 payment pause. To assist struggling borrowers, the Department of Education implemented reforms resulting in billions of dollars in loan cancellation for almost 5 million borrowers and restored eligibility for 3 million formerly defaulted borrowers. However, servicing failures and legal challenges have hampered the implementation of critical loan relief efforts, including the Saving on a Valuable Education (SAVE) plan. Today’s report details challenges facing student borrowers, including:
- Servicer failures are causing borrowers to pay inflated amounts that jeopardize their financial well-being: Borrowers described problems with billing, including inaccurate or late statements; errors with auto pay, including thousands of dollars incorrectly debited from accounts; and payments that were not properly applied to their balances. They also said servicers failed to give accurate guidance about income-driven repayment plans and imposed costly delays in processing refunds and applications for loan relief. For example, borrowers reported delays of nine months or more in receiving large refunds of up to $60,000. Among the dozens of individual consumer disputes highlighted in the report, there was an average of more than $14,000 disputed per borrower. These servicing issues are resulting in borrowers having difficulty meeting their other financial obligations like rent and car payments, being shut out of mortgages and homeownership, and forgoing saving for retirement, among other financial difficulties.
- Legal challenges to the SAVE program are delaying loan relief: Because of ongoing litigation, enrollment in and implementation of SAVE is on hold. The eight million borrowers already enrolled in SAVE are no longer able to make payments, enroll in most other income-driven repayment plans, or gain credit towards cancellation while the litigation is ongoing. The hundreds of thousands of additional borrowers waiting to enroll in income-driven repayment plans are similarly left with few options.
- Customer service “doom loops” and inaccurate communications are harming borrowers: Student borrowers reported encountering customer service problems such as website access issues. Borrowers reported being shuffled between servicers repeatedly without receiving help, waiting months for responses, and receiving inaccurate or misleading communications, such as miscalculated payment amounts and inaccurate due dates. Across the consumer complaint narratives highlighted in the report, borrowers waited an average of eight months for servicers to resolve their issues. Read more