Brown: We need to protect consumers’ hard-earned money

WASHINGTON, DC – U.S. Senator Sherrod Brown (D-OH), chairman of the U.S. Senate Banking, Housing, and Urban Affairs Committee, delivered the following opening statement during today’s hearing titled “New consumer financial products and impacts on workers.”

Senator Brown’s remarks, as prepared for delivery, follow:

Hard work should pay off for everyone.

It’s the American dream.

That’s what the dignity of labor is – it’s a concept that Pope Leo XIII spoke of in the 19th century and popularized by Dr. King.

And when work has dignity, you can support yourself, your family and your future.

But we all know what has happened over the past four decades.

Corporate profits have increased. The stock market soared. Executive compensation has skyrocketed.

But wages have not kept up with the cost of living. Millions of full-time workers who aspire to the middle class cannot be part of it, even if they work hard. And even the people we can define as middle class don’t feel much security and stability.

And when workers are forced to find ways to bridge the gap between what they are paid and what they should be earning, what are they left with?

Debt.

Sometimes people will need to borrow money. Well-designed, transparent, and regulated products can help workers pay for an unexpected car repair, pay the grocery bill, or cover medical expenses.

But as we heard in our listening session with workers last week, too often these products are not well designed, they are rarely transparent, and they are not well regulated.

For too many workers, the only credit products available lead to more debt and more financial instability.

We have discussed in this committee the impact of predatory payday lenders on working families.

Today we look at the impact of some new consumer financial products on workers.

Companies tell us that these new products are innovative, easy to use, and will give people more options.

But so often “innovation” is just another way for companies to make money – while trapping people in debt.

New credit products, such as “buy now, pay later,” could help consumers pay for products in installments, with strong consumer protections.

Yet many of these products have hidden fees, they lack transparency, and they are not underwritten properly. The ads encourage consumers to use these plans for multiple purchases, across multiple online stores, racking up debt they can’t afford to repay.

Consumers like Briana Gordley.

As a student, Briana started with one of these loans. First one BNPL company, then two, then three. A company told her they were increasing her credit limit from $100 to $1,000.

At first, 18-year-old Briana wasn’t too worried. As she put it, if companies “believed in my ability to repay my debt, so do I.”

With more and more credit approved, Briana was juggling $1,500 in loans with different payment dates throughout the month, and her account kept getting overdrawn.

Briana’s story gets to the heart of the matter. With little or no underwriting, buy now, pay later companies don’t know if they are the only ones a consumer has credit with. And without disclosure of the proper terms, a consumer is left in the dark.

To make this model work for consumers, we need real rules for companies to follow and proper disclosures.

Then there are new consumer products that use a so-called “tipping model” – structuring themselves to deliberately avoid disclosing their terms, in particular avoiding material disclosures required by Truth in Lending law.

Products such as cash advances, overdraft coverage and earned payday advances, which are not offered in conjunction with employers, use a model in which consumers are asked to pay a “tip” to the lender, instead fee or interest rate to use the products. .

The companies say that because a tip is not presented as a finance charge or interest rate, Truth About Lending and other consumer protection laws, such as the Military Loans Act, do not apply. do not apply.

Tipping is simply “voluntary”, they say.

But these tips are not at all voluntary.

It’s just a way to trick the system and hide the true cost to workers.

Employer-based earned payday advances with strong consumer protections can help workers cover unexpected expenses or emergencies — although the best alternative would simply be for companies to pay their workers enough to live on.

And then there are debt products that are so predatory, so offensive, that they should have no place in our financial system – programs like the training repayment agreement provisions, aptly called “TRAP”.

I will say this for this term – it is truth in advertising.

These provisions of employment contracts allow employers to recover the cost of training employees who leave their jobs.

It’s an offensive concept.

It is up to the employer to train his workers. On-the-job training is not a special perk for workers, it’s a smart investment for companies.

TRAPs require workers to reimburse their employers for training if they leave their jobs within a certain period of time, putting them in debt.

It’s just a modern version of the certificate that has left coal miners exhausted, destitute and trapped by their employers.

Remember what Tennessee Ernie Ford sang about his soul to the company store: “You load 16 tons, what do you get? A day older and more in debt.

Employers use traps to prevent workers from seeking higher paying or better opportunities. They decide the supposed cost of training on the market and go after their workers – threatening their credit and their economic mobility.

Last week, Cassie Pennings from Colorado told Committee members about her experience with the traps.

Ms Pennings has pursued her calling as a nurse during the COVID-19 pandemic.

At the start of her job, her employer made Ms Pennings sign an employment contract, and buried in the fine print, he said that if she left before two years, she would owe her employer $ 7,500 for training assumed they provided. .

When Ms Pennings decided to quit her job as a nurse after a year due to a poor working environment, her employer took $1,000 from her penultimate pay check to pay for her ‘training’. It was half his salary.

His former employer told him that they would send the rest of the amount to collections.

Last time I checked, indentured servitude was illegal in the United States.

But it seems that some enterprising companies are renaming it, with these new employment contracts.

And that is the aim of today’s hearing: to ensure that so-called ‘innovation’ is not a substitute for good pay and does not come at the expense of the dignity of workers’ work .

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Boyd S. Abbott