We recently reported on a bill introduced in the House of Representatives by Congressman Dan Kildee (D-Michigan) that would amend the Military Lending Act (“MLA”) to require that creditors provide additional disclosures to covered members of the armed forces and their families. The text of H.R. 2697 is now available.

Titled the “Transparency in Military Lending Act of 2017,” the bill would add the following items to the list of mandatory disclosures required under the MLA:

  • A statement that the Department of Defense (“DoD”) and each service branch offers a variety of financial counseling services.
  • A statement that other, lower interest rate loans, including potentially 0 percent interest loans, may be available through other financial institutions and military relief societies.
  • Contact information for the nearest Department of Defense financial counseling office.
  • A statement of the actual cost of the extension of credit, prepared as an amortization table showing what the cost to the member or dependent will be if the extension of credit is paid off at different points over time.

H.R. 2697 would require the disclosures to be provided on a single sheet of paper and be in a bold, 14-point font.  In addition, the bill would require creditors to (1) obtain separate, signed acknowledgments for each of the four disclosures and (2) compile and make publicly available a list of Department of Defense financial counseling offices. As the bill is drafted, the additional disclosures appear to be required for any consumer credit covered by the MLA, as currently implemented by the DoD.  Nevertheless, in a subsection titled “TRANSPARENCY FOR PAYDAY LOANS AND VEHICLE LOANS,” the bill separately provides that “the term ‘consumer credit’ shall include ‘payday loans’ and ‘vehicle title loans’ as those terms were defined” by the MLA regulations in effect on July 1, 2015.  Perhaps Congressman Kildee expects the scope of the bill to be narrowed during the negotiation process to reach only payday and vehicle title loans.  Or perhaps he was uncertain whether the new regulations, which went into effect on October 1, 2015, still cover payday and vehicle title loans (they do).

If unedited, H.R. 2697 would represent a significant expansion of the MLA’s already onerous disclosure requirements.   While the bill does not expressly call for promulgation of new rules, the DoD would likely have to prescribe additional regulations if it becomes law.  For instance, the bill is bereft of details concerning the cost of credit disclosure other than to say it must be prepared as an amortization table showing the cost of credit if the credit is paid off “at different points over time.”

The bill has been referred to the House Armed Services Committee, and we will provide updates as developments occur.

On May 25, Congressman Dan Kildee (D-Michigan) referred a bill to the House Committee on Armed Services titled the “Transparency in Military Lending Act of 2017.” The proposed bill, H.R. 2697, would amend Title 10 of the United States Code, requiring creditors to provide active servicemembers (and their dependents) applying for loans with additional disclosures regarding the potential availability of lower-cost credit, as well as information about financial counseling services. The proposed act is part of a larger package of legislation introduced by Rep. Kildee aimed at assisting service members, veterans, and their dependents.  We will provide additional details on the bill when the text is publicly available.

The CFPB has issued its fourth Financial Literacy Annual Report to Congress.  The report covers the CFPB’s activities to improve consumer financial literacy during the period from October 2015 through September 2016.  The report discusses the CFPB’s financial literacy strategy, its financial education initiatives (which include consumer tools and information and collaborations with community institutions and other government agencies), and its research initiatives (which include identifying effective financial education approaches).

An Appendix to the report lists and describes the CFPB’s currently available financial education resources, which include web-based tools, CFPB brochures and other publications, CFPB reports, and consumer advisories.

 

 

On October 5th, the CFPB published a notice announcing the CFPB Office of Financial Education’s intent to compile a list of companies offering existing customers free access to their credit score.  The CFPB’s stated intent in compiling this list is to educate consumers and help them make better informed financial decisions.  Comments must be submitted to the CFPB by November 4, 2016.

The initial list will cover only credit card issuers.  However, the CFPB may consider expanding the list or creating a separate future list to include non-credit card issuers in other markets.  To be included in this list, these companies must meet certain specified criteria, including offering existing customers (at least some, but not necessarily all) the ability to obtain a free credit score that the company or other lenders use for account origination, portfolio management, or for other business purposes.  The free credit score must be offered to existing customers on a continuous basis, as opposed to a time-limited or promotional basis.  The free credit score made available to existing customers must also periodically be updated.

Financial institutions should carefully assess whether they wish to voluntarily seek inclusion on this list.  The CFPB clearly states that inclusion on the list is not an endorsement, but the CFPB has noted in the past that making free credit scores available to customers is a best practice.  Companies must consider the potential impact of being excluded from the list and what that choice may communicate to the CFPB and customers.  On the other hand, the CFPB suggests that it “could” leverage this list to bring consumer attention to the topic of credit scores, and follow up with content to educate, inform, and empower consumers on the availability of credit scores and credit reports and how consumers can use this information.  However, nothing in the notice limits the ability of the CFPB to use the information submitted by companies seeking inclusion on the list for other purposes.  For example, the CFPB states that inclusion on this list will have no impact on the CFPB’s supervisory activity, but the CFPB reserves the right to conduct due diligence on a company’s assertions about free credit scores.

The CFPB released a report, “Tools for saving: Using prepaid accounts to set aside funds,” that presents the results of a research project involving a pilot program offering an incentive to prepaid card users to use a savings feature.

In December 2014, as part of its Project Catalyst, the CFPB’s initiative for facilitating innovation in consumer-friendly financial products and services, the CFPB announced a new research pilot program using insights from behavioral economics and an American Express pilot program to evaluate the effectiveness of certain practices to encourage prepaid card users to develop regular saving behavior.

From January to March 2015, American Express launched a pilot program to encourage prepaid card users to use a feature that allows users to set money aside dedicated for savings and keep it separate from funds in their main prepaid account. The trial program included about 540,000 prepaid card users, with certain of such users receiving various forms of encouragement to sign up for the savings feature. The company used four strategies consisting of emails highlighting the benefits of savings, direct mail sending a refrigerator magnet highlighting the benefits of savings, an offer of $10 if an individual saved $150 by March 31, and encouragement to use an automatic transfer feature they could sign up for.

The project findings included the following:

  • The  $10 incentive was highly effective in encouraging card users to enroll in the savings feature.
  • Usage of the savings feature was tracked for nine months after the three-month pilot program ended.  The study found that for customers still using the savings feature, savings balances generally did not decrease after the pilot ended.
  • Users who were offered the $10 incentive reported significantly less payday loan use than those who were not offered the incentive.

The CFPB has issued a report that describes a new “developmentally informed, skills-based model” for helping youth achieve financial capability.  Entitled “Building blocks to help youth achieve financial capability,” the report highlights key milestones from early childhood through young adulthood that support the development of adult financial capability, and makes recommendations “for delivering evidence-based, age-appropriate, and developmentally appropriate financial education policies and programs.”  The CFPB also issued a “Report brief” that discusses the research presented in the report and a teaching tool to enhance personal financial education in schools that the CFPB refers to as “a personal finance pedagogy.”  The report, brief, and teaching tool were issued in conjunction with a “Youth Financial Capability Town Hall” held in Dallas, Texas at which Director Cordray delivered prepared remarks.

The CFPB defines financial capability as “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.”  The CFPB’s initiatives to build financial capability are based on its view that individuals 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 CFPB’s research found that adult financial capability most likely stems from three “building blocks” of youth financial capability:

  • Executive functions: a set of cognitive processes used to plan, focus attention, remember information, and juggle multiple tasks successfully
  • Financial habits and norms: the values, standards, routine practices, and rules of thumb used to routinely navigate day-to-day financial life
  • Financial knowledge and decision-making skills: familiarity with financial facts and concepts, and the ability to do financial research and make conscious and intentional financial choices

In the report, the CFPB discusses how and when children and youth acquire these building blocks and details the specific competencies that children and youth develop during early childhood, middle childhood and adolescence.  Based on this “developmental model,” the CFPB makes the following recommendations for helping children and youth acquire the three building blocks:

  • For children in early childhood, focus on developing executive function
  • Help parents and caregivers to more actively influence their child’s financial socialization
  • Provide children and youth with financial experiential learning opportunities
  • Teach youth financial research skills  (e.g. skills to find and evaluate financial information)

For each recommendation, the CFPB explains why the recommendation helps build financial capability and provides examples from the field and potential strategies for putting the recommendations into place.  The CFPB deserves to be commended for its innovative efforts towards helping children and youth achieve financial capability.

 

 

On September 15th, the FTC will hold a workshop to examine the testing and evaluation of disclosures that companies make to consumers about advertising claims, privacy practices, and other information.  The FTC’s workshop will explore how to test the effectiveness of these disclosures to ensure consumers notice them, understand them, and can use them in their decision-making.  Companies should incorporate the principles articulated during the workshop by federal regulators such as the FTC and the CFPB into the development of their own consumer disclosures, especially relating to e-commerce and mobile initiatives.

The “Putting Disclosures to the Test” workshop will explore ways to improve the evaluation and testing of consumer disclosures by industry, academics, and the FTC related to:

  • Disclosures in advertising  designed to prevent ads from being deceptive;
  • Privacy-related disclosures, including privacy policies and other mechanisms to inform consumers that they are being tracked; and
  • Disclosures in specific industries designed to prevent deceptive claims.

Among the participants at the workshop will be Heidi Johnson, a research analyst from the CFPB Office of Research, who will present a case study entitled, “Disclosure Research in the Lab and Online.” The CFPB’s Decision Making and Behavioral Studies team is engaged in a strategic initiative to invest in research that explores the factors that influence a disclosure’s efficacy, how to use different methodologies to study disclosure, and the market effects of disclosure. Ms. Johnson’s work as a part of this team has included consumer research on overdraft and other financial products.

The CFPB has released an “issue brief” entitled “Financial Education Programs Serving Immigrant Populations.”  The report is intended “to raise visibility about the financial education challenges that many immigrants face.”

The report shares the results of a “field scan” in which the CFPB identified financial education programs and providers and spoke with experts in the field.  In an appendix to the report, the CFPB lists financial education programs or resources that serve immigrant populations and provides a description of each program or resource.

In the report, the CFPB discusses the money management challenges faced by immigrant consumers, the challenges faced by financial educators in helping immigrant communities improve their financial capability, and different approaches to helping immigrants build financial well-being.

The report includes a section devoted to actions taken by the CFPB to assist limited English proficiency (LEP) consumers, such as assisting consumers with complaints in multiple languages and making consumer education resources available in multiple languages.  The CFPB has previously indicated that LEP consumers are a priority and suggested that financial institutions should be able to take steps similar to those taken by the CFPB to support LEP customers.  However, as we have observed, the CFPB’s expectations for serving LEP customers present numerous challenges for financial institutions, including UDAAP and fair lending risks, and the CFPB has not yet provided financial institutions with guidance about how to serve LEP consumers without taking such risks.  In November 2015, we conducted a webinar on the issues that institutions should consider when taking steps to serve LEP consumers.

 

The CFPB recently issued an advisory for older consumers about asset recovery companies that target older consumers who are past victims of fraud, such as bogus timeshare investments and in-home business opportunities.

The advisory describes a typical asset recovery scam as one in which the  asset recovery company contacts a defrauded older consumer claiming it can get the consumer’s money back for an upfront fee of several hundred to thousands of dollars.  Once the consumer pays the upfront fee, the company fails to perform any service that the consumer could not have done on his or her own.

The advisory provides warning signs to help consumers avoid becoming a victim of an asset recovery scam, such as requests for upfront fees to  recover money and claims of insider information and connections (when the company will do no more than submit complaints to free consumer complaint resources.)  It also provides advice about steps a consumer who believes he or she has been a victim of fraud can take, such as alerting the consumer’s bank or credit card company immediately, reporting the scam to the consumer’s local law enforcement office, and submitting a complaint to the FTC.

The CFPB indicated that it issued the advisory because its review of complaints submitted by consumers indicated that older consumer were being targeted by asset recovery scams.  Unlike the CFPB’s use of complaint data to publish misleading statistics, the advisory can play a helpful role in protecting older consumers from financial exploitation.

The CFPB has issued a guide that is intended to assist near-retirees with private sector payment plans in deciding whether to choose monthly payments or a lump-sum payout.  The guide includes a series of questions for consumers to consider before accepting a lump sum.  For consumers who plan to take a lump-sum payout, the guide also provides advice on detecting errors in the payment calculation, consideration of future needs, planning for tax consequences, and avoiding frauds and scams.

In November 2015, the CFPB released a new online tool is intended to assist consumers in deciding when to claim social security benefits.  The tool allows consumers to estimate how much they can expect to receive in benefits at different ages.