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A proposal from the Consumer Financial Protection Bureau could spark a fight about what should happen to consumers’ old debt, the Washington Post reported. Debt collectors lose the right in many states to sue consumers after their debt reaches its statute of limitations, typically three or more years. But there’s a loophole: If the consumer makes a payment or acknowledges the debt in writing, that can be used to try to revive the life of the debt, creating what some consumer advocates call “zombie debt.” The CFPB estimates millions of consumers are contacted about such time-barred debt every year. In a new proposal, the bureau says debt collectors could continue to try to collect on those old debts but would have to tell consumers upfront they are outside their statutes of limitations and the consumer can no longer be sued to recoup the money. The collection of time-barred debt “can pose consumer protection concerns,” the CFPB says in its most recent proposal. Reached by a debt collector, a consumer may prioritize that old debt, leaving them with “less money to pay another debt.” The proposal is part of a broad revision of debt collection rules the CFPB implemented last year that include allowing debt collectors to call consumers seven times a week and to send unlimited texts and emails. It would also prohibit companies from suing to collect on debt they knew or should have known is past their statutes of limitations. Those proposed rules, which haven’t been finalized, have received more than 14,000 public comments, many of which raised the issue of zombie debt.

Facing an existential threat at the U.S. Supreme Court, which will hear oral arguments on March 3 in a constitutional challenge to the unusual structure of the Consumer Financial Protection Bureau, the CFPB has found an unlikely champion. The Trump administration believes that the bureau's lone director is unconstitutionally shielded from accountability to the president, yet the Justice Department’s final brief before oral argument urged the Supreme Court not to issue a ruling that will halt the CFPB’s “critical work," Reuters reported. “The bureau,” DOJ argued in a reply brief filed on Friday, “is the federal government’s only agency solely dedicated to consumer financial protection.” Invalidating the entire statute that created the CFPB, DOJ said, will wreak havoc not just for consumers but for the banks, mortgage lenders, credit card companies, and other financial institutions regulated by the CFPB. The government even cited the billions of dollars CFPB has recovered in enforcement actions as proof of its crucial mission. The California debt relief firm that brought the CFPB case to the Supreme Court, meanwhile, continued to argue in its final brief that if the Supreme Court deems the CFPB’s structure to be a violation of separation of powers doctrine, the justices must either strike down the entire Consumer Financial Protection Act or else leave it to Congress to fix the problem. The case is Seila Law v. CFPB, 19-7.

Rep. Maxine Waters (D-Calif.), the chairwoman of the House Financial Services Committee, said that she plans to advance a bipartisan bill to impose a strict limit on interest rates when Congress reconvenes next year, The Hill reported. Waters said that her committee will take up the Veterans and Consumers Fair Credit Act, which would impose a national cap on interest rates at 36 percent. Under federal law, lenders are banned from offering loans to active-duty military members with interest rates higher than 36 percent. But the bill, spearheaded by 16 Democrats and one Republican, would expand that protection to all Americans. Waters and dozens of Democrats have been fiercely critical of the “payday” loan industry, which offers loans at high interest rates and repayment deadlines as short as two weeks. The Consumer Financial Protection Bureau (CFPB) issued a rule in 2017 to impose strict limits on payday loans, but the regulation was gutted under Trump-appointed officials in 2019. It’s unlikely that a hard limit on payday loan interest rates would clear a Republican-controlled Senate. GOP lawmakers have been critical of Democratic efforts to curb payday lending through regulation and insist short-term, high-interest loans are a crucial financial lifeline for low-income Americans. But Waters, her Democratic colleagues and consumer advocates argue that payday loans are often used to trap vulnerable customers in cyclical debt that could decimate their financial health and credit.

A group of lawmakers wants to limit interest rates on consumer loans nationally at 36 percent, a move that worries the payday and online-lending industries, the Wall Street Journal reported. The legislation introduced yesterday in both chambers of Congress aims to extend to all consumers an interest-rate limit already in place for the military, its sponsors said. A rate cap of 36 percent would effectively eliminate traditional payday loans, which often charge interest rates exceeding 300 percent, as well as many installment loans offered online. While Democratic lawmakers are the primary supporters of the legislation, Rep. Glenn Grothman (R-Wis.), is backing the House bill. “It’s too hard to imagine in any way this business practice should be allowed,” he said. Grothman said that he expects the bill to soon get a vote in the House Financial Services Committee, but it isn’t clear what chances the measure has in clearing Congress. More than a dozen states have banned payday loans, and the ranks of states with tough limits on high-cost loans are growing. California last month enacted a law imposing a 36 percent cap on loans between $2,500 and $9,999. Voters in Colorado approved a 36 percent limit last year, following similar moves in South Dakota and Montana in recent years. For active members of the military, the Military Lending Act of 2006 placed a 36 percent limit on most loans and it was extended to credit card loans in 2017.

A New York City official who earned millions of dollars collecting debts for predatory lenders has agreed to resign, Bloomberg News reported. The city’s Department of Investigation said yesterday that Marshal Vadim Barbarovich would step down after the agency concluded he had violated debt-collection rules and was “untruthful” with investigators. Rather than defend himself in a removal proceeding, Barbarovich agreed to begin winding down his operation and to resign completely by March. Barbarovich made $1.7 million in 2017 and $1.9 million in 2018, making him the top earner not just among New York’s 35 marshals but across all of city government. Marshals are appointed by the mayor but don’t draw a salary. They work for landlords and creditors and compete with each other for business, collecting fees for towing cars, evicting tenants and enforcing civil judgments. It’s a system that dates to Dutch colonial days. Barbarovich operates from a third-floor office in Brooklyn’s Sheepshead Bay neighborhood, overseeing a roomful of clerks. Although the marshals’ jurisdiction ends at the city’s limits, a loophole has allowed Barbarovich and a few of his peers to collect cash-advance debts nationwide. To grab money from a small business in Florida or Texas, they simply demand the funds from the business’s bank account by serving one of the bank’s New York locations. It’s unclear if such requests for out-of-state cash have any legal authority, but banks typically comply without question.

The Consumer Financial Protection Bureau won a $59 million judgment against a pair of shuttered mortgage relief law firms that the bureau alleged scammed consumers seeking to escape underwater home loans, Bloomberg Law reported. The bankruptcy estates of the Mortgage Law Group and the Consumer First Legal Group, along with the firms’ principle members, will pay a combined $59 million in restitution and civil money penalties, according to a Nov. 4 post-trial order by Judge William Conley of the U.S. District Court for the Western District of Washington. The two firms had argued that some district court orders and the U.S. Supreme Court’s 2017 decision in Kokesh v. SEC limited the CFPB’s ability to collect restitution from companies and individuals that violate federal consumer financial protection laws. Conley found that those rulings did not stop the CFPB from ordering disgorgement of ill-gotten gains, with Kokesh only applying to the statute of limitations for such penalties. The CFPB sued Mortgage Law Group and the Consumer First Legal Group in July 2014, alleging that they had collected more around $22 million in improper advance fees from clients, misrepresenting the types of relief services they provided consumers and other violations. The two law firms and their principles were found liable for most of those claims in a July 2016 summary judgment order. The Mortgage Law Group filed for bankruptcy protection in April 2014, while Consumer First Legal Group stopped operations in 2013.

The Consumer Financial Protection Bureau (CFPB), along with the Minnesota Attorney General’s Office, North Carolina Department of Justice and the Los Angeles City Attorney, announced an action yesterday to halt a student loan debt-relief operation engaged in allegedly unlawful conduct and consisting of several related companies: Consumer Advocacy Center Inc., which does business as Premier Student Loan Center; True Count Staffing Inc., also known as SL Account Management; and Prime Consulting LLC, which is known as Financial Preparation Services. Defendants also include Albert Kim, Kaine Wen and Tuong Nguyen, whom the Bureau alleges substantially assisted the student loan debt-relief companies. The CFPB alleges that since at least 2015, the debt-relief companies operated as a common enterprise, deceived thousands of federal student loan borrowers, and charged over $71 million in unlawful advance fees in connection with the marketing and sale of student loan debt-relief services to consumers. The CFPB alleges that Premier, along with its company co-defendants, violated the Consumer Financial Protection Act of 2010 (CFPA) and the Telemarketing Sales Rule (TSR) by making deceptive representations about the companies’ student loan debt-relief and modification services. Specifically, the complaint alleges that Premier charged and collected improper advance fees before consumers had received any adjustment of their student loans or made any payment toward such adjusted loan.

Billing himself as one of President Trump’s top fundraisers, Michael Hodges told fellow payday lenders recently that industry contributions to the president’s reelection campaign could be leveraged to gain access to the Trump administration. “Every dollar amount, no matter how small or large it is” is important, Hodges, founder of Advance Financial, one of the country’s largest payday lenders, said during a 48-minute webcast, obtained by the Washington Post. “For example, I’ve gone to Ronna McDaniel and said, ‘Ronna, I need help on something,’ ” Hodges said, referring to the chair of the Republican National Committee. “She’s been able to call over to the White House and say, ‘Hey, we have one of our large givers. They need an audience. … They need to be heard and you need to listen to them.’ So that’s why it’s important.” The Sept. 24 webinar sponsored by Borrow Smart Compliance, an industry consultant, gives surprisingly frank insight into the payday lending industry’s strategy to push for weaker government regulations by forging a tight relationship with the Trump administration and the president’s campaign. The payday lending industry, made up of businesses that make short-term loans to consumers at high interest rates, is awaiting new rules that could weaken Obama administration requirements. Those rules include a requirement that the companies must ensure consumers can afford to repay the money they borrow.