FOR IMMEDIATE RELEASE: OCTOBER 24, 2017 || Contacts: Jan Kruse (jkruse@nclc.org) or Chi Chi Wu (cwu@nclc.org); (617) 542-8010

How a Culture of Impunity Led to One of the Worst Data Breaches in U.S. History and Needed Industry Reforms

Full testimony of NCLC attorney Wu available before or by 2PM EDT on October 25, 2017: https://financialservices.house.gov/calendar/eventsingle.aspx?EventID=402472

To interview Ms. Wu, please contact Jan Kruse at jkruse@nclc.org or (617) 542-8010.

BOSTON – On Wednesday, October 25, National Consumer Law Center attorney Chi Chi Wu will testify before the U.S. House Financial Services Committee during the hearing Examining the Equifax Data Breach on the reforms that Congress should adopt to protect the 145.5 million American consumers harmed by this massive breach of sensitive personal data, including Social Security numbers and dates of birth. Ms. Wu will also discuss how the Equifax hack relates to the issues of errors in credit reports that she has worked to address for many years and the vote Congress may take any day now on the Consumer Financial Protection Bureau’s arbitration rule.

“The Equifax data breach stems from the same corporate culture of impunity that is responsible for unacceptable error rates in credit reports and the travesty of a dispute system,” explained Wu. “This is a data company that underinvested in quality control for accuracy, and apparently it did the same with respect to data information security.”

Ms. Wu will discuss the reforms that are necessary to protect consumers in light of the Equifax data breach:

• A federal right to free security freezes. Ms. Wu will also testify as to why the credit “locks” being voluntarily offered by two of the three credit reporting agencies are not sufficient to substitute for federal requirement for free freezes.
• A mandate for the Consumer Financial Protection Bureau to supervise for data security. Ms. Wu will discuss the Consumer Bureau’s progress in reforming accuracy and dispute handling systems at the credit reporting agencies; the Bureau’s lack of authority over the data security standards under the Gramm Leach-Bliley Act; and why Congress should transfer that authority to the Consumer Bureau.
• The need for comprehensive reform of the credit reporting industry. The Equifax data breach has highlighted the problems with and abuses by credit reporting agencies. H.R. 3755, the Comprehensive Consumer Credit Reporting Reform Act of 2017, introduced by Congresswoman Maxine Waters, would address these problems in a comprehensive manner.

Ms. Wu will also discuss why Congress should not repeal the Consumer Financial Protection Bureau’s arbitration rule, which restores accountability when credit reporting agencies violate the law.

FOR IMMEDIATE RELEASE: OCTOBER 25, 2017 || CONTACTS: Lauren Saunders (lsaunders@nclc.org) or Jan Kruse (jkruse@nclc.org); (617) 542-8010

WASHINGTON, D.C. – Last night, the Senate voted 51-50, with Vice President Pence breaking the tie, to repeal the Consumer Financial Protection Bureau’s arbitration rule, which prevented financial giants from using fine print clauses to prohibit people from banding together in court when companies violate the law.

National Consumer Law Center Associate Director Lauren Saunders made the following statement:

“Last night, 50 United States Senators and the Vice President of the United States showed their disregard for the American system of justice and the Seventh Amendment of the Constitution by voting to take away everyday Americans’ right to take widespread financial disputes to court. Having our day in court does not mean that we always win. It means that when big banks or payday lenders abuse thousands of people, we have the right to a hearing in a public setting by a neutral judge who must listen to the evidence on both sides, and make a decision consistent with the facts and the law that can hold up to review.

“Instead, today fine print contracts take away our constitutional rights and put justice in the hands of Wall Street banks, credit reporting companies, and predatory lenders. They get to funnel cases to a secretive forum they control and prevent people from teaming up to confront a financial giant. America’s military, veterans, older consumers, student loan borrowers, and regular families will all suffer having now lost this critical legal right.

“In 2010, Congress recognized the harm of forced arbitration and gave the Consumer Financial Protection Bureau the power to limit it. The Consumer Bureau did its job after a voluminous study that proved conclusively that forced arbitration blocks relief when a company has harmed large numbers of people.

“The Senators who voted to strip this critical legal remedy should be ashamed of siding with wealthy Wall Street interests against not only the American people but our Founders, who believed strongly in the judicial branch of our government and enshrined the right to trial by jury in two constitutional amendments.”

FOR IMMEDIATE RELEASE: OCTOBER 24, 2017 ||  Contacts: Alys Cohen (acohen@nclc.org) or Jan Kruse (jkruse@nclc.org); 617.542.8010

WASHINGTON, D.C. – The National Consumer Law Center applauded the decision of the Federal Housing Finance Agency (FHFA) announced last Friday to add a preferred language question to the redesigned Uniform Residential Loan Application. The uniform application is used by all originators of loans to be sold to Fannie Mae or Freddie Mac, and sets an industry standard that is followed by most lenders. Consumer advocates have pushed for the addition of a question regarding preferred language on the application as a means of ensuring that borrowers who have limited English proficiency can self-identify and obtain access to available in-language services, both in the loan application process and when a borrower encounters a hardship at a later point and needs help to avoid foreclosure.

“This decision by FHFA represents a huge step forward in improving language access for individuals with limited English proficiency,” said Alys Cohen, staff attorney with the National Consumer Law Center. “Obtaining information about language preference up front, along with other measures FHFA is considering, goes a long way toward unlocking the doors to homeownership for a segment of the population that has been locked out for far too long.”

FHFA considered this issue and other language access measures in a Request for Information announced earlier this year. Americans for Financial Reform’s Language Access Task Force, a coalition of consumer advocates including NCLC, filed comments with the FHFA. The coalition’s comments urged the FHFA to include language preference on the application and to expand access to translated documents and oral interpretation for mortgage loan applicants and borrowers.

FHFA’s announcement: https://www.fhfa.gov/Media/PublicAffairs/Pages/Preferred-Language-Question-to-be-Added-to-the-Redesigned-Uniform-Residential-Loan-Application.aspx 

URLA Language Preference Question: https://www.fhfa.gov/PolicyProgramsResearch/Policy/Documents/Preferred_Language_Question.pdf 

AFR’s Comments on FHFA’s Language Access Proposals:

https://www.nclc.org/images/pdf/foreclosure_mortgage/mortgage_servicing/comments-afr-task-force-fhfa-rfi-language-access.pdf 

AFR’s Supplemental Comments on FHFA’s Language Access Proposals:

https://www.nclc.org/images/pdf/foreclosure_mortgage/mortgage_servicing/letter-fhfa-lep-2nd-submission.pdf 

Letter from AFR and 86 Organizations to FHFA Regarding Language Access: http://ourfinancialsecurity.org/2017/08/afr-86-organizations-call-for-fhfa-to-make-mortgages-more-accessible-to-people-with-limited-english-proficiency/ 

AFR Issue Brief on Language Access (May 2016): http://ourfinancialsecurity.org/2016/05/language-access-press-release/

Maggie Westberg provides research and litigation support for NCLC’s attorneys. She is a graduate of Dickinson College, previously worked at the Alliance for Children’s Rights in Los Angeles, and came to NCLC as a communications intern before starting her current position.

FOR IMMEDIATE RELEASE: OCTOBER 11, 2017 || Contacts: John Van Alst (jvanalst@nclc.org) or Jan Kruse (jkruse@nclc.org); (617-542-8010)

Nota de Prensa en Español

A Groundbreaking First Look, Based Upon a National Data Set, Reveals What Dealers Pay for Add-ons and What They Charge Customers; Advocates Urge Federal and State Action

Download the report, 19 charts, and tips for consumers at: http://bit.ly/2kmubox 

BOSTON – Most consumers would be surprised to learn how car dealers prey on them with sucker pricing of add-on products, such as service contracts and window etching, which can add thousands of dollars to the price of a car. For example, one customer in Kentucky who paid $299 for window etching never knew that another customer at the same dealership paid $1 for the same product. But now, for the first time, NCLC unlocks the door on this hidden market in Auto Add-Ons Add Up: How Dealer Discretion Drives Excessive, Arbitrary, and Discriminatory Pricing, an analysis of a national data set of three million add-on products sold from September 2009 through June 2015. Key findings: add-ons lead to unreasonably high and inconsistent pricing, and Hispanics pay higher prices than non-Hispanic customers for the same product.

”Our analysis demonstrates the negative consequences of opaque and inconsistent pricing of auto add-on products and the urgent need to bring transparency and consistency to this market,” said John W. Van Alst, director of the National Consumer Law Center’s Working Cars for Working Families Project and the report’s primary author. “Our findings also reveal the troubling practice of dealers charging Hispanic customers more for the same product.”

Key Findings

• Add-on products are sold at prices far higher than dealer costs and marked up much more than similar products. For example, the average markup for service contracts was 83 percent and for window etching 325 percent, while independent auto insurance agents’ commissions average 11- to-18 percent.
• Dealers are inconsistent in the pricing of add-on products, with even individual dealerships charging some consumers many times more than other consumers for the same product with the same dealer cost. For example, during May 2013 one dealer in Michigan charged customers from $349 to $5,000 for the same window etching product, while the dealer’s cost was $50 (chart 6).
• This inconstant pricing for the same add-on products leads to pricing discrimination, with Hispanics charged higher markups than non-Hispanics. For example, the average percentage markup for a service contract was higher for Hispanics than non-Hispanics in 44 states. While demographics and sample sizes limited the number of states where differences were statistically significant, there were14 states for which the differences in both percentage and absolute markups were statistically significant. In each of those 14 states, Hispanics were marked up more on a percentage basis, and in all but one state. Hispanics were marked up more on an absolute basis. These states were: Massachusetts, Virginia, New York, Florida (percentage only), Kentucky, Minnesota, New Jersey, Connecticut, Missouri, Nebraska, Arizona, California, Oklahoma, and Texas (chart 13).
• Companies that provide car financing play an important role in allowing excessive and discriminatory markups of add-on products. About 80 percent of car buyers obtain financing at the dealership. Potential creditors give dealers conditions about what sort of transactions they will accept. In order to get more business from dealers, some creditors allow higher markups for add-on products. For example, in Ohio, Ally Bank financed just 10 percent of GAP insurance where the dealer cost was $150 to $250 (chart 18) but it financed 74 percent of these same deals where the customer price exceeded $900 (chart 19).

These excessive markups on add-on products set in place a chain of negative consequences for the entire auto market. The expensive add-ons increase the price of cars and also increase the loan to value (LTV) ratio for cars. This increases the amount that consumers finance without providing any real increase to the value of the car, resulting in more negative equity and higher default rates.

“The National Consumer Law Center findings are incredibly troubling,” said Marisabel Torres, senior policy analyst at UnidosUs. “The fact that Latino consumers were charged in excess for unnecessary add-ons in the car buying process demonstrates a need for increased oversight in this sector of the market. It is entirely unacceptable that corporations use race and ethnicity as a factor in determining what they charge customers for the same product. We urge state and federal authorities to further investigate and bring enforcement actions against those found to be engaging in these discriminatory practices.”

Key Recommendations

• Dealers should be required to post the available add-ons and their prices on each car in the lot, along with the price of the car. To prevent the dealer from reintroducing non-transparency by offering discounts to some customers but not others, the prices for the add-on products must be non-negotiable.
• To root out pricing discrimination, the federal Equal Credit Opportunity Act regulations should be amended to require documentation of the customer by race or national origin for non-mortgage credit transactions, as is currently required for home mortgage transactions. If discrimination remains hidden, it will not be possible to end it.
• State and federal enforcement authorities should investigate discrimination in pricing of add-on products and bring enforcement actions against a dealer if discrimination is shown. The Consumer Financial Protection Bureau, the Federal Trade Commission, the Federal Reserve Board, and state attorneys general all have authority in this area.

“These predatory practices bury consumers deep in debt before they even leave the lot, and trap people in older, less-safe, higher-polluting vehicles,” said Rosemary Shahan, president of Consumers for Auto Reliability and Safety. “For the amount of money millions of consumers are being charged for worthless add-ons, they could buy a much newer, safer, more fuel-efficient car. For the sake of consumers, their families, their communities, and the environment, state attorneys general, as well as the CFPB, FTC, and Federal Reserve need to step up their game and put a stop to the discrimination and abuse.”

FOR IMMEDIATE RELEASE: OCTOBER 5, 2017 || NCLC CONTACTS: Lauren Saunders (lsaunders@nclc.org) or Jan Kruse (jkruse@nclc.org); (617) 542-8010

State interest rate caps remain the strongest and most important consumer protection

WASHINGTON, D.C. – The Consumer Financial Protection Bureau (CFPB) today issued a final payday loan rule that takes a significant step to limit lenders from making unaffordable loans and should disrupt the heinous payday loan debt trap. But state interest rate caps remain critical, advocates at the National Consumer Law Center (NCLC) emphasized.

The CFPB rule limits payday lenders’ ability to put families into a vicious cycle of debt by adopting the common sense requirement that lenders consider a borrower’s ability to repay and by restricting the number of unaffordable back-to-back loans,” said Lauren Saunders, associate director of the National Consumer Law Center. “These protections are an important step forward and should mean fewer families will face financial devastation,” she added.

The key protection in the rule requires lenders to verify a borrower’s income and key expenses to ensure that the borrower can afford to repay the payday loan in full when due. Importantly, the rule applies to payday and auto title lenders as well as to bank payday loans (also known as “deposit advance products”) previously made by several large banks. But the rule doesn’t apply to loans made more than 30 days after a previous loan or to the first three back-to-back loans if those loans step down in size. (Auto title loans are not eligible for this “principal payoff” option.) “In combination, these exceptions allow some unaffordable loans, but the rule breaks the strings of nine or more payday loans that are common today,” Saunders explained.

The ability-to-pay rules apply to loans of 45 days or less and to longer-term loans with a balloon payment. The CFPB’s proposed rule had included high-cost longer-term payday loans, but the CFPB is conducting further study of the best way to address concerns in that market. “Payday lenders are moving into long-term payday loans that are an even deeper and longer debt trap than short-term loans, so the CFPB must move quickly to address these predatory loans,” said Saunders.

Additional protections limit successive attempts to debit an account that has insufficient fund, for both short-term loans as well as longer-term loans over 36 percent. “Unaffordable short-term and long-term payday loans not only carry high fees but expose struggling families to bank nonsufficient funds fees and overdraft fees,” Saunders said.

“The new payday loan rule will work together with the CFPB’s new arbitration rule to provide tools to fight abusive payday lender practices,” Saunders added.

NCLC’s recent report Predatory Installment Lending in 2017: States Battle to Restrain High-Cost Loans details that 20 jurisdictions (19 states plus Washington, D.C.) cap interest rates at 36 percent or less for a 6-month, $500 loan, and 33 states and D.C. impose that limit on a $2,000, 2-year loan. In addition, 15 states and D.C. impose a similar cap or otherwise prohibit short-term payday loans.

Learn more about NCLC’s body of work on high-cost short term loans.

Read the CFPB press release and factsheet summarizing the rule on payday loans and the full CFPB rule on payday loans.

How Dealer Discretion Drives Excessive, Inconsistent, and Discriminatory Pricing

This groundbreaking National Consumer Law Center analysis of a large national data set unlocks the door on what car dealers pay for auto add-on products and what they charge consumers. Pricing of these optional products involves large mark-ups and arbitrary and discriminatory pricing for consumers.

Published: October 11, 2017

Report (PDF) Executive Summary Key Findings Key Recommendations Charts & Graphics (PDF) Consumer Tips  Press Release (Leer en Español)

Executive Summary 

Add-on products sold by car dealers, such as service contracts, Guaranteed Asset Protection (GAP) insurance, and window etching, make up a large share of dealers’ profits. They also significantly increase car buyers’ costs. While many have questioned the value of these products for consumers, the pricing of these products has received less attention, largely because pricing is not transparent. Even regulators lack information about what car buyers pay for these products. Dealers decide what to charge each consumer and generally only the dealer, the finance company, and the third party provider of the add-on ever know what other consumers are paying. This National Consumer Law Center analysis of a large national data set is a revealing first look at what dealers pay for auto add-on products and what they charge consumers.

Key Findings

• Add-on products are sold at prices far higher than dealer costs. Dealers mark up add-on products more than other similar products are marked up. They mark up add-on products by a far higher percentage than they mark up cars. One dealer sold over 1,000 window etching products, each with a dealer cost of $16 and a charge to the consumer of $189, for a markup of $173 or 1,081%. For Guaranteed Asset Protection (GAP) insurance products, 38 dealers had average markups of 300% or more, and 38 dealers marked up service contracts by an average of more than 300%.
• Dealers are inconsistent in the pricing of add-on products. Individual dealerships charge some consumers many times more than other consumers for the same product with the same dealer cost.

Dealers and Window Etching Pricing

• This inconstant pricing for the same add-ons leads to pricing discrimination, with Hispanics charged higher markups than non-Hispanics.

• Companies that provide car financing play an important role in allowing excessive and discriminatory markups of auto add-ons.

These abuses, damaging enough in themselves, set in place a chain of other consequences for consumers. The expensive add-ons increase the price of cars, putting them out of reach for some consumers.

They also increase the loan to value (LTV) ratio for cars, as they increase the amount that consumers finance without providing any real increase to the value of the car. These higher LTVs result in more negative equity, which hurts consumers and other players in the auto sales and finance market because a consumer who owes more than his or her existing car is worth will have a hard time trading it in and buying a new car. High LTVs have also been associated with higher default rates, again harming consumers and the industry as a whole.

Recommendations

• Dealers should be required to post the available add-ons and their prices on each car in the lot, along with the price of the car. To prevent the dealer from reintroducing non-transparency by offering discounts to some customers but not others, the prices for the add-on products must be non-negotiable.
• To root out pricing discrimination, the federal Equal Credit Opportunity Act regulations should be amended to require documentation of the customer’s race or national origin for non-mortgage credit transactions, as is currently required for home mortgage transactions. If discrimination remains hidden, it will not be possible to end it.
• State and federal enforcement authorities should investigate discrimination in pricing of add-on products and bring enforcement actions against a dealer if discrimination is shown. The Consumer Financial Protection Bureau, the Federal Trade Commission, the Federal Reserve Board, and state attorneys general all have authority in this area.

Learn more about the National Consumer Law Center’s work on consumer auto sales and financing and NCLC’s Working Cars for Working Families project.

Consumer Credit Regulation

Consumer Warranty Law

Unfair and Deceptive Acts and Practices

Automobile Fraud