Fund Compensates Victims of Companies that Hide Assets After Breaking the Law
WASHINGTON – A proposal by the Consumer Financial Protection Bureau (CFPB) to limit the permissible uses of the Consumer Financial Civil Penalty Fund may signal a plan to stop compensating victims of companies that violate the law and then say they have no money to repay, and perpetuates a false narrative that the CFPB enforcement work is motivated by self-aggrandizement rather than helping consumers, consumer advocates said in a comment filed today.
The civil penalty fund was created to compensate people harmed by financial wrongdoers who go out of business or hide their assets after breaking the law. The proposed rule would remove the ability to allocate excess funds for consumer education and financial literacy programs, claiming that there were not sufficient “guardrails” in place for those programs. But the proposal also criticizes the fund more generally. The proposal comes as the CFPB dismisses dozens of lawsuits and cancels settlement agreements that would have given redress to thousands of victims.
“The CFPB just reversed its previous order requiring Navy Federal Credit Union to return $80 million to servicemembers and others who were charged an overdraft fee when there was no overdraft,” said Sarah Mancini, managing director of advocacy at the National Consumer Law Center (NCLC). “Actions like that, combined with a proposed rule attacking enforcement efforts that punish lawbreakers and make consumers whole, show that current CFPB leadership are not on the side of working people harmed by companies that illegally steal their money.”
A coalition of consumer, labor, racial justice, and community organizations submitted comments opposing the CFPB’s proposal to remove financial literacy and consumer education as potential secondary uses of the civil penalty fund but emphasized the important, primary use of the funds to compensate victims of wrongdoing .
Almost all of the money civil penalty funds are used to compensate consumers who have been harmed by companies that lack, or have spent or hidden, funds to repay them. In the 14 years the CFPB has existed, less than 1% of the amounts collected as civil penalties have been allocated to consumer education or financial literacy programs, and none since fiscal year 2016. But in its proposal, the Trump administration’s CFPB warns that allowing the penalties to be used for consumer education could contribute to enforcement actions being brought “for the purpose of aggrandizing the operational scope of the agency.”
“It’s a dangerous myth that the CFPB acts for its own benefit, when it has a long track record of directly helping working people who’ve been hurt by corporations acting illegally,” Mancini said. “The CFPB’s criticisms about the civil penalty fund go hand in hand with other efforts to reverse compensation to consumers and to stop assessing appropriate penalties against large companies that break the law. Such actions directly contradict the CFPB’s congressional purpose and mission.”
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