WASHINGTON–A broad coalition of nearly 80 organizations is calling on the CFPB to examine fintech credit products and fee models that they allege are “evading consumer protection laws and creating debt traps for consumers.”
The Consumer Federation of America, the Center for Responsible Lending, the National Consumer Law Center, and the Student Borrower Protection Center joined with 75 additional organizations in calling for the Consumer Financial Protection Bureau Director Rohit Chopra to “carefully examine” the offerings being made by fintechs.
The groups praised the CFPB for its recent inquiry into five large buy now, pay later providers, and further expressed that “they remain alarmed by the explosion of new, underregulated consumer credit products,” including but not limited to buy now, pay later loans, income share agreements, cash advances, “fintech” overdraft or overdraft avoidance products, and earned wage access products or look-alike products.
The groups said they believe innovation should be consistent with and enhance consumer protections, and it should not shield new products from consumer protection laws and oversight.
As CUToday.info reported, last week, U.S. Senator Jack Reed (D-RI) and several members of the Senate Banking Committee sent a letter to the CFPB about buy now, pay later (BNPL) products and providers, calling for a review of these products to ensure transparency and oversight of this growing market.
Statements Issued
Among the statements issued by some of the organizations are:
- “Although innovation plays an important role in expanding access to financial services, regulators must keep careful watch of rapidly growing products and fee models that share many similarities with age-old predatory products. We should be especially wary of products that claim to be promoting financial inclusion but, in reality, do quite the opposite.”
– Rachel Gittleman, financial services outreach manager, Consumer Federation of America
- “Many fintechs are coming up with clever arguments about how they are not offering ‘credit’ subject to consumer protection laws, but if it walks like a duck and quacks like a duck, it’s a duck. The CFPB needs to act quickly to stamp out evasions of consumer protection laws before they spread.”
– Lauren Saunders, associate director, National Consumer Law Center
‘Deceptive Means’
The group noted their letter discusses various products and fee models that share similarities in how they operate and how they use “innovation” to claim that they do not fit within the existing regulatory framework.
“Some also use deceptive means to disguise the cost of credit. The groups argue that regardless of their structure, each of these products is credit—they provide funding today and are repaid later,” the organization said. “Given that, these products should be subject to the host of state and federal consumer protection laws that regulate credit products.
“At a minimum, these products need to be covered by basic consumer protections and be examined for unfair, deceptive or abusive practices and unlawful discrimination independently of compliance with credit laws,” the organizations continued. “Each of these products discussed in the letter should be regulated as the financial services products that they are.”