An Overview of Consumer Finance and Policy Issues

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An Overview of Consumer Finance and
January 14, 2021 January 14, 2021
Policy Issues
Cheryl R. Cooper
Consumer finance refers to the saving, borrowing, and investment choices that households make Consumer finance refers to the saving, borrowing, and investment choices that households make
Analyst in Financial Analyst in Financial
over time. These financial decisions can be complex and can affect households’ financial well- over time. These financial decisions can be complex and can affect households’ financial well-
Economics Economics
being both now and in the future. Safe and affordable financial services are an important tool for being both now and in the future. Safe and affordable financial services are an important tool for

most American households as they avoid financial hardship, build assets, and work to achieve most American households as they avoid financial hardship, build assets, and work to achieve
financial security over the course of their lives. Understanding why and how consumers make financial security over the course of their lives. Understanding why and how consumers make

financial decisions is important when considering policy issues in consumer financial markets. financial decisions is important when considering policy issues in consumer financial markets.
Households borrow money for the following common reasons: investments—such as a home or education—to build future Households borrow money for the following common reasons: investments—such as a home or education—to build future
wealth, consumption smoothing (i.e., paying later to consume things n ow), and emergency expenses. Most households rely wealth, consumption smoothing (i.e., paying later to consume things n ow), and emergency expenses. Most households rely
on credit to finance some of these expenses, because they do not have enough money saved to pay for them. According to the on credit to finance some of these expenses, because they do not have enough money saved to pay for them. According to the
Federal Reserve Bank of New York, mortgage debt is by far the largest type of debt for households, accounting for Federal Reserve Bank of New York, mortgage debt is by far the largest type of debt for households, accounting for
approximately 69% of household debt. Student debt is the second -largest household debt, followed by auto loans and credit approximately 69% of household debt. Student debt is the second -largest household debt, followed by auto loans and credit
cards. cards.
Consumer financial markets generally share similar market dynamics. In all of these markets, consumers often act in similar Consumer financial markets generally share similar market dynamics. In all of these markets, consumers often act in similar
ways when making financial decisions and firms tend to act in comparable ways to attract consumers. Therefore, the ways when making financial decisions and firms tend to act in comparable ways to attract consumers. Therefore, the
government tends to consider similar policy interventions when regulating in these markets. government tends to consider similar policy interventions when regulating in these markets.
Competitive free markets generally lead to efficient distributions of goods and services to maximize value for society. Yet Competitive free markets generally lead to efficient distributions of goods and services to maximize value for society. Yet
sometimes, free markets are inefficient when particular issues arise. Common issues in consumer financial markets include sometimes, free markets are inefficient when particular issues arise. Common issues in consumer financial markets include
(1) information asymmetries between financial firms and consumers and (2) behavioral biases that predictably bias (1) information asymmetries between financial firms and consumers and (2) behavioral biases that predictably bias
consumers when making financial decisions. In these cases, government policy can potentially correct market failures to consumers when making financial decisions. In these cases, government policy can potentially correct market failures to
bring the market to a more efficient outcome, maximizing social welfare. In consumer finance, three types of policy bring the market to a more efficient outcome, maximizing social welfare. In consumer finance, three types of policy
interventions are common: (1) standardized consumer disclosures; (2) regulation to prevent deceptive, unfair, or abusive interventions are common: (1) standardized consumer disclosures; (2) regulation to prevent deceptive, unfair, or abusive
financial institution practices; and (3) regulation to prevent discrimin ation in consumer-lending markets. Yet, policymakers financial institution practices; and (3) regulation to prevent discrimin ation in consumer-lending markets. Yet, policymakers
need to be aware of unintended consequences of proposed policies, and often find it challenging to determine whether a need to be aware of unintended consequences of proposed policies, and often find it challenging to determine whether a
policy intervention will help or harm a particular market from reaching its efficien t outcome. policy intervention will help or harm a particular market from reaching its efficien t outcome.
In response to the 2007-2009 financial crisis, the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd- In response to the 2007-2009 financial crisis, the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-
Frank; P.L. 111-203) established the Consumer Financial Protection Bureau (CFPB) to implement and enforce federal Frank; P.L. 111-203) established the Consumer Financial Protection Bureau (CFPB) to implement and enforce federal
consumer financial law while ensuring consumers can access financial products and services. The CFPB’s authorities fall consumer financial law while ensuring consumers can access financial products and services. The CFPB’s authorities fall
into three broad categories: into three broad categories: rulemaking, writing regulations to implement laws under its jurisdiction;, writing regulations to implement laws under its jurisdiction; supervision, the power , the power
to examine and impose reporting requirements on financial institutions; and to examine and impose reporting requirements on financial institutions; and enforcement of various consumer protection laws of various consumer protection laws
and regulations. The CFPB generally has regulatory authority over providers of an array of consumer financial products and and regulations. The CFPB generally has regulatory authority over providers of an array of consumer financial products and
services. services.
The major consumer financial markets include mortgage lending, student loans, automobile loans, credit cards and payments, The major consumer financial markets include mortgage lending, student loans, automobile loans, credit cards and payments,
payday loans and other credit alternative financial products, and checking accounts and substitutes. In addition, two payday loans and other credit alternative financial products, and checking accounts and substitutes. In addition, two
important market structures allow these consumer financial products to be offered: (1) the consumer credit reporting system important market structures allow these consumer financial products to be offered: (1) the consumer credit reporting system
and (2) the debt collection market. These aspects of the consumer credit system facilitate the pricing of credit offers and the and (2) the debt collection market. These aspects of the consumer credit system facilitate the pricing of credit offers and the
resolution of delinquent consumer credit products for most consumer credit markets. resolution of delinquent consumer credit products for most consumer credit markets.

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An Overview of Consumer Finance and Policy Issues

Introduction
Consumer finance encompasses the financial lives of individuals and households. Americans Consumer finance encompasses the financial lives of individuals and households. Americans
aspire for economic advancement and wealth building, a central part of the “American dream.” aspire for economic advancement and wealth building, a central part of the “American dream.”
Safe and affordable financial services are an important tool for most American households as they Safe and affordable financial services are an important tool for most American households as they
avoid financial hardship, build assets, and work to achieve financial security over the course of avoid financial hardship, build assets, and work to achieve financial security over the course of
their lives. Households use three types of financial products regularly: credit, insurance, and their lives. Households use three types of financial products regularly: credit, insurance, and
financial investments. This report wil focus on the first category—credit and deposit-taking financial investments. This report wil focus on the first category—credit and deposit-taking
financial products for personal, family, or household purposes.1 financial products for personal, family, or household purposes.1
Most households rely on credit to finance some expenses because they do not have enough assets Most households rely on credit to finance some expenses because they do not have enough assets
saved to pay for them. Mortgage debt is by far the largest type of household debt. According to saved to pay for them. Mortgage debt is by far the largest type of household debt. According to
data from the Federal Reserve Bank of New York, as shown idata from the Federal Reserve Bank of New York, as shown in Figure 1, mortgages account for , mortgages account for
approximately 69% of household debt. Student loans are the second-largest type of household approximately 69% of household debt. Student loans are the second-largest type of household
debt, followed by auto loans and credit cards. debt, followed by auto loans and credit cards.
These and other major consumer finance markets are discussed in more detail in this report under These and other major consumer finance markets are discussed in more detail in this report under
“Overview of Major Consumer Finance Markets,” which provides a brief overview of each ,” which provides a brief overview of each
financial product, recent market developments, and related policy issues. Major consumer finance financial product, recent market developments, and related policy issues. Major consumer finance
markets examined in this report include mortgage lending, student loans, automobile loans, credit markets examined in this report include mortgage lending, student loans, automobile loans, credit
cards and payments, payday loans and other credit alternative financial products, and checking cards and payments, payday loans and other credit alternative financial products, and checking
accounts and substitutes. In general, this report wil focus on the consumer and household accounts and substitutes. In general, this report wil focus on the consumer and household
perspective, and consumer protection policy issues in each market. perspective, and consumer protection policy issues in each market.
Figure 1. Household Debt Breakdown in Q3 2020

Source: Center for Microeconomic Data, Center for Microeconomic Data, Quarterly Report on Household Debt and Credit, Federal Reserve Bank of , Federal Reserve Bank of
New York, at https://www.newyorkfed.org/microeconomics/databank.html. New York, at https://www.newyorkfed.org/microeconomics/databank.html.
This report also discusses two important market structures that al ow these consumer financial This report also discusses two important market structures that al ow these consumer financial
products to be offered: (1) the consumer credit reporting system and (2) the debt collection products to be offered: (1) the consumer credit reporting system and (2) the debt collection
market. These aspects of the consumer credit system are important because they facilitate the market. These aspects of the consumer credit system are important because they facilitate the
pricing of credit offers and the resolution of delinquent consumer credit products for most pricing of credit offers and the resolution of delinquent consumer credit products for most
consumer credit markets. consumer credit markets.
The report begins with an overview of U.S. household finances, consumer finance markets, and The report begins with an overview of U.S. household finances, consumer finance markets, and
common policy issues in these markets. common policy issues in these markets.

1 For an introduction on this topic, see CRS In Focus IF11682, 1 For an introduction on this topic, see CRS In Focus IF11682, Introduction to Financial Services: Consumer Finance, ,
by Cheryl R. Cooper. by Cheryl R. Cooper.
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An Overview of Consumer Finance and Policy Issues

The COVID-19 Pandemic and Consumer Finance
The Coronavirus Disease 2019 (COVID-19) pandemic2 has had a large and persistent economic impact across the The Coronavirus Disease 2019 (COVID-19) pandemic2 has had a large and persistent economic impact across the
United States.3 Fear of infection, social distancing, and stay-at-home orders prompted business closures and a United States.3 Fear of infection, social distancing, and stay-at-home orders prompted business closures and a
severe decline in demand for restaurants and travel, among other industries. Consequently, many Americans have severe decline in demand for restaurants and travel, among other industries. Consequently, many Americans have
lost income and faced financial hardship. Survey results suggest that since March 2020, about half of al U.S. adults lost income and faced financial hardship. Survey results suggest that since March 2020, about half of al U.S. adults
live in a household that has lost some employment income.4 live in a household that has lost some employment income.4
The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) enacted on March 27, 2020, establishes The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) enacted on March 27, 2020, establishes
consumer rights to be granted forbearance for federal y backed mortgages for up to a year (§4022) and federal consumer rights to be granted forbearance for federal y backed mortgages for up to a year (§4022) and federal
student loans (§3513), administratively extended through the end of January 2021.5 The CARES Act also protects student loans (§3513), administratively extended through the end of January 2021.5 The CARES Act also protects
the credit histories of consumers with forbearance agreements (§4021).6 the credit histories of consumers with forbearance agreements (§4021).6
For more information on consumer loan forbearance during the COVID-19 pandemic, including CARES Act rights, For more information on consumer loan forbearance during the COVID-19 pandemic, including CARES Act rights,
regulatory guidance, and impacts on consumers and financial institutions, see CRS Report R46356, regulatory guidance, and impacts on consumers and financial institutions, see CRS Report R46356, COVID-19:
Consumer Loan Forbearance and Other Relief Options, coordinated by Cheryl R. Cooper. For more information about , coordinated by Cheryl R. Cooper. For more information about
consumer debt during the pandemic, see CRS Report R46578, consumer debt during the pandemic, see CRS Report R46578, COVID-19: Household Debt During the Pandemic, ,
coordinated by Cheryl R. Cooper. For resources for consumers having trouble paying their debts during the coordinated by Cheryl R. Cooper. For resources for consumers having trouble paying their debts during the
COVID-19 pandemic, see CRS Insight IN11359, COVID-19 pandemic, see CRS Insight IN11359, COVID-19: Financial Relief and Assistance Resources for Consumers, by , by
Maura Mul ins and Jennifer Teefy. Maura Mul ins and Jennifer Teefy.
Consumer Finance Policy Issues and Regulation
Consumer finance refers to the saving, borrowing, and investment choices that households make Consumer finance refers to the saving, borrowing, and investment choices that households make
over time. These financial decisions can be complex and can affect households’ financial wel -over time. These financial decisions can be complex and can affect households’ financial wel -
being both now and in the future. Understanding why and how consumers make financial being both now and in the future. Understanding why and how consumers make financial
decisions is important when considering policy issues in consumer financial markets. decisions is important when considering policy issues in consumer financial markets.
This section provides an introduction to U.S. households’ finances, including a breakdown of a This section provides an introduction to U.S. households’ finances, including a breakdown of a
household balance sheet and its components. It then provides background on how consumer household balance sheet and its components. It then provides background on how consumer
financial markets operate and general issues in these markets. The section also describes common financial markets operate and general issues in these markets. The section also describes common
policy interventions and considerations when using these policy tools. Lastly, this section policy interventions and considerations when using these policy tools. Lastly, this section
provides an overview of the Consumer Financial Protection Bureau (CFPB)—the main regulator provides an overview of the Consumer Financial Protection Bureau (CFPB)—the main regulator
responsible for consumer compliance of financial products and services. responsible for consumer compliance of financial products and services.
Household Balance Sheet Background
A household’s balance sheet7 is similar to a firm’s in that it presents a full financial picture, A household’s balance sheet7 is similar to a firm’s in that it presents a full financial picture,
including the household’s: including the household’s:

2 For background on the Coronavirus Disease 2019 (COVID-19), see CRS In Focus IF11421, 2 For background on the Coronavirus Disease 2019 (COVID-19), see CRS In Focus IF11421, COVID-19: Global
Im plications and Responses, by Sara M. T harakan et al. , by Sara M. T harakan et al.
3 For background on the economic effects of the COVID-19 pandemic in the United States, see CRS Report R46606, 3 For background on the economic effects of the COVID-19 pandemic in the United States, see CRS Report R46606,
COVID-19 and the U.S. Econom y, by Lida R. Weinstock. , by Lida R. Weinstock.
4 For more information on income losses during the COVID-19 pandemic, see CRS Insight IN11457, 4 For more information on income losses during the COVID-19 pandemic, see CRS Insight IN11457, COVID-19
Pandemic’s Impact on Household Employment and Income, by Gene Falk. , by Gene Falk.
5 P.L. 116-136. For more information on T itle IV of the Coronavirus Aid, Relief, and Economic Security Act (CARES 5 P.L. 116-136. For more information on T itle IV of the Coronavirus Aid, Relief, and Economic Security Act (CARES
Act), which contains a number of provisions aimed broadly at stabilizing the economy and helping affected households Act), which contains a number of provisions aimed broadly at stabilizing the economy and helping affected households
and businesses, see CRS Report R46301, and businesses, see CRS Report R46301, Title IV Provisions of the CARES Act (P.L. 116 -136), coordinated by Andrew , coordinated by Andrew
P. Scott . For more information about federal student loan debt relief in the context of COVID -19, see CRS Report P. Scott . For more information about federal student loan debt relief in the context of COVID -19, see CRS Report
R46314, R46314, Federal Student Loan Debt Relief in the Context of COVID-19, by Alexandra Hegji. , by Alexandra Hegji.
6 For more information on the credit reporting industry, see CRS Report R44125, 6 For more information on the credit reporting industry, see CRS Report R44125, Consumer Credit Reporting, Credit
Bureaus, Credit Scoring, and Related Policy Issues, by Cheryl R. Cooper and Darryl E. Getter. , by Cheryl R. Cooper and Darryl E. Getter.
7 Jack Kapoor et al., “Chapter 1,” in 7 Jack Kapoor et al., “Chapter 1,” in Personal Finance, 12th ed. (McGraw-Hill Education, 2017). , 12th ed. (McGraw-Hill Education, 2017).
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  Assets—A point-in-time value of what a household owes, can include —A point-in-time value of what a household owes, can include liquid
wealth, such as a savings account or other financial assets from which the , such as a savings account or other financial assets from which the
household can easily access funds, and household can easily access funds, and illiquid wealth, such as a car or home that , such as a car or home that
the household owns. the household owns.
  Debts—A point-in-time value of what a household owes, can include a home —A point-in-time value of what a household owes, can include a home
mortgage, a student loan, or other types of consumer loans. mortgage, a student loan, or other types of consumer loans.
  Net Worth—Equal to —Equal to assets minus minus debts, measures the wealth of a household, , measures the wealth of a household,
including home equity. including home equity.
  Income—Wages earned from a job or financial investment returns over a period —Wages earned from a job or financial investment returns over a period
of time (e.g., a year). of time (e.g., a year).
  Consumption—Household spending over a period of time, such as rent, food, —Household spending over a period of time, such as rent, food,
clothing, and entertainment. clothing, and entertainment.
  Savings—The difference between —The difference between income and and consumption over a period of over a period of
time. When a household’s income is greater than its consumption, it can save or time. When a household’s income is greater than its consumption, it can save or
invest this unconsumed income, increasing the household’s invest this unconsumed income, increasing the household’s assets or paying off or paying off
debt owed, reducing the household’s total debt owed, reducing the household’s total debts. .
  Borrowing—New —New debts taken out over a period of time. When a household’s taken out over a period of time. When a household’s
consumption is greater than its is greater than its income, it can either spend , it can either spend assets it owns or it owns or
borrow money, increasing the household’s borrow money, increasing the household’s debts. .
In general, research on household finance suggests that al of the components of a household In general, research on household finance suggests that al of the components of a household
balance sheet—assets, debts, net worth, income, consumption, savings, and borrowing—are balance sheet—assets, debts, net worth, income, consumption, savings, and borrowing—are
important to understanding a household’s financial experience over time. For example, in the important to understanding a household’s financial experience over time. For example, in the
event of a event of a financial shock—an unexpected expense such as a car or home repair, a medical —an unexpected expense such as a car or home repair, a medical
expense, or a pay cut—households with a lower income or little liquid savings are much more expense, or a pay cut—households with a lower income or little liquid savings are much more
likely to experience difficulty making ends meet.8 As this example suggests, al of the balance likely to experience difficulty making ends meet.8 As this example suggests, al of the balance
sheet’s components need to be accounted for when considering consumer decisionmaking. sheet’s components need to be accounted for when considering consumer decisionmaking.
As demonstrated in As demonstrated in Figures 2 and 3, household income and net worth in the United States are , household income and net worth in the United States are
both distributed unevenly. According to the Federal Reserve Board’s (Fed’s) Survey of Consumer both distributed unevenly. According to the Federal Reserve Board’s (Fed’s) Survey of Consumer
Finances, the bottom 20% of U.S. households ranked by income have an income below $28,400, Finances, the bottom 20% of U.S. households ranked by income have an income below $28,400,
whereas the top 10% have an income above $188,400.9 Likewise, the bottom 25% of U.S. whereas the top 10% have an income above $188,400.9 Likewise, the bottom 25% of U.S.
households ranked by net worth have a net worth below $12,400, whereas the top 10% have a net households ranked by net worth have a net worth below $12,400, whereas the top 10% have a net
worth above $1,220,200. These distributions reflect the variation of household balance sheets worth above $1,220,200. These distributions reflect the variation of household balance sheets
within the United States and are due to many factors such as age, size of household, and within the United States and are due to many factors such as age, size of household, and
household decisions about jobs, homeownership, and other factors. household decisions about jobs, homeownership, and other factors.

8 T he Pew Charitable T rusts, 8 T he Pew Charitable T rusts, How Do Families Cope with Financial Shocks? The Role of Emergency Savings in Family
Financial Security, October 2015, at https://www.pewtrusts.org/~/media/assets/2015/10/emergency-savings-report -, October 2015, at https://www.pewtrusts.org/~/media/assets/2015/10/emergency-savings-report -
1_artfinal.pdf; and Scott Fulford and Marie Rush, 1_artfinal.pdf; and Scott Fulford and Marie Rush, Insights from the Making Ends Meet Survey, Consumer Financial , Consumer Financial
Protection Bureau (CFPB), Research Brief No. 2020-1, July 2020, at https://files.consumerfinance.gov/f/documents/Protection Bureau (CFPB), Research Brief No. 2020-1, July 2020, at https://files.consumerfinance.gov/f/documents/
cfpb_making-ends-meet_survey-results_2020-07.pdf. cfpb_making-ends-meet_survey-results_2020-07.pdf.
9 Neil Bhutta et al., 9 Neil Bhutta et al., Changes in U.S. Family Finances from 2016 to 2019: Evidence from the Survey of Consumer
Finances, Board of Governors of the Federal Reserve System, Federal Reserve Bulletin vol. 106, no. 5, September , Board of Governors of the Federal Reserve System, Federal Reserve Bulletin vol. 106, no. 5, September
2020, p. 37, at https://www.federalreserve.gov/publications/files/scf20.pdf. 2020, p. 37, at https://www.federalreserve.gov/publications/files/scf20.pdf.
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Figure 2. U.S. Income Distribution in 2019

Source: Neil Bhutta et al., Neil Bhutta et al., Changes in U.S. Family Finances from 2016 to 2019: Evidence from the Survey of
Consumer Finances, Board of Governors of the Federal Reserve System, Federal Reserve Bul etin vol. 106, no. 5, , Board of Governors of the Federal Reserve System, Federal Reserve Bul etin vol. 106, no. 5,
September 2020, p. 37, at https://www.federalreserve.gov/publications/files/scf20.pdf. September 2020, p. 37, at https://www.federalreserve.gov/publications/files/scf20.pdf.
Notes: This report uses the income classifier from the Survey of Consumer Finances respondent-reported This report uses the income classifier from the Survey of Consumer Finances respondent-reported
measure of measure of usual income, which captures household income with transitory fluctuations smoothed away to income, which captures household income with transitory fluctuations smoothed away to
approximate the economic concept of approximate the economic concept of permanent income. income.
Figure 3. U.S. Net Worth Distribution (Assets – Debt) in 2019

Source: Neil Bhutta et al., Neil Bhutta et al., Changes in U.S. Family Finances from 2016 to 2019: Evidence from the Survey of
Consumer Finances, p. 37. , p. 37.
Consumer Finance Markets and Policy Considerations
This report examines household borrowing, with a particular focus on consumer financial This report examines household borrowing, with a particular focus on consumer financial
products, such as mortgages, credit cards, and auto loans, which al ow a household to borrow and products, such as mortgages, credit cards, and auto loans, which al ow a household to borrow and
make payments. As described in the previous section, consumer behavior in these markets may be make payments. As described in the previous section, consumer behavior in these markets may be
driven by other parts of the balance sheet, such as the need to build assets or withstand a financial driven by other parts of the balance sheet, such as the need to build assets or withstand a financial
shock. Three common reasons households use credit are as follows: shock. Three common reasons households use credit are as follows:
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  Asset Building—Using credit to make investments can al ow a household to —Using credit to make investments can al ow a household to
build wealth over time. For example, a household can use a mortgage to pay for build wealth over time. For example, a household can use a mortgage to pay for
an asset, such as a house, that may appreciate over time. A household also can an asset, such as a house, that may appreciate over time. A household also can
use student loans to fund education expenses to make a higher income in the use student loans to fund education expenses to make a higher income in the
future. In both cases, households are using credit to fund household investments future. In both cases, households are using credit to fund household investments
that may lead to greater wealth in the future. that may lead to greater wealth in the future.
  Consumption Smoothing—Using credit to move income across time periods —Using credit to move income across time periods
al ows a household to consume future income now. For example, recent college al ows a household to consume future income now. For example, recent college
graduates might use credit cards to pay for expenses before their new jobs begin. graduates might use credit cards to pay for expenses before their new jobs begin.
This money is more valuable to graduates now, before they have wages, than in This money is more valuable to graduates now, before they have wages, than in
the future, when they have enough income to meet living expenses. the future, when they have enough income to meet living expenses.
  Financial Shocks or Emergencies—Using credit to pay for unexpected —Using credit to pay for unexpected
expenses al ows a household to compensate for an emergency, such as a car or expenses al ows a household to compensate for an emergency, such as a car or
home repair, a medical expense, or a pay cut. For example, a consumer might home repair, a medical expense, or a pay cut. For example, a consumer might
take out a payday loan to repair a car and continue to go to work. This money is take out a payday loan to repair a car and continue to go to work. This money is
also more valuable to the consumer during the financial emergency, than in the also more valuable to the consumer during the financial emergency, than in the
future. future.
Each consumer financial market is unique and governed by various distinct laws and regulations. Each consumer financial market is unique and governed by various distinct laws and regulations.
However, consumer financial markets general y share similar market dynamics. In al of these However, consumer financial markets general y share similar market dynamics. In al of these
markets, consumers often act in similar ways when making financial decisions and firms tend to markets, consumers often act in similar ways when making financial decisions and firms tend to
act in comparable ways across markets to attract consumers and make profits.10 Therefore, the act in comparable ways across markets to attract consumers and make profits.10 Therefore, the
government tends to consider similar policy interventions and factors when regulating these government tends to consider similar policy interventions and factors when regulating these
markets. markets.
Mainstream economic theory asserts that competitive free markets general y lead to efficient Mainstream economic theory asserts that competitive free markets general y lead to efficient
distributions of goods and services to maximize value for society.11 Under this theory, each distributions of goods and services to maximize value for society.11 Under this theory, each
market moves toward an efficient price, at which the supply of goods produced by firms and market moves toward an efficient price, at which the supply of goods produced by firms and
amount of goods demanded by consumers equal one another. If consumers demand credit amount of goods demanded by consumers equal one another. If consumers demand credit
products, then banks or other lenders should want to provide these products to consumers if they products, then banks or other lenders should want to provide these products to consumers if they
can make a profit. Without major barriers for new lenders to enter the market, more lenders can make a profit. Without major barriers for new lenders to enter the market, more lenders
should start providing credit to consumers, until the price is no longer excessively profitable to should start providing credit to consumers, until the price is no longer excessively profitable to
lenders. At this point, the market is at equilibrium, at its efficient outcome for society. If these lenders. At this point, the market is at equilibrium, at its efficient outcome for society. If these
conditions hold, policy interventions cannot improve on the financial decisions that consumers conditions hold, policy interventions cannot improve on the financial decisions that consumers
make based on their unique situations and preferences. For this reason, some policymakers are make based on their unique situations and preferences. For this reason, some policymakers are
hesitant to disrupt free markets, on the theory that prices determined by market forces lead to hesitant to disrupt free markets, on the theory that prices determined by market forces lead to
efficient outcomes without intervention. efficient outcomes without intervention.
The life-cycle model is a prevalent economic hypothesis that assumes households usual y want to The life-cycle model is a prevalent economic hypothesis that assumes households usual y want to
keep consumption levels and their lifestyles stable over time.12 For example, severely reducing a keep consumption levels and their lifestyles stable over time.12 For example, severely reducing a
household’s consumption one month may be more painful for a household than the pleasure of a household’s consumption one month may be more painful for a household than the pleasure of a
much higher household consumption level in another month. Therefore, households save and much higher household consumption level in another month. Therefore, households save and
invest during their careers in order to afford a stable income across their lives, including invest during their careers in order to afford a stable income across their lives, including
retirement. This model suggests that wealth increases as households’ age, which general y fits retirement. This model suggests that wealth increases as households’ age, which general y fits

10 For more on how firms price consumer loans, see CRS In Focus IF10993, 10 For more on how firms price consumer loans, see CRS In Focus IF10993, Consumer Credit Markets and Loan
Pricing: The Basics, by Darryl E. Getter. , by Darryl E. Getter.
11 N. Gregory Mankiw, “Chapter 7,” in 11 N. Gregory Mankiw, “Chapter 7,” in Principles of Microeconomics, 7th ed. (South-Western College Pub, 2014). , 7th ed. (South-Western College Pub, 2014).
12 Franco Modigliani, “T he Life Cycle Hypothesis of Saving, the Demand for Wealth and the Supply of Capital ,” 12 Franco Modigliani, “T he Life Cycle Hypothesis of Saving, the Demand for Wealth and the Supply of Capital ,”
Social Research, vol. 33, no. 2 (Summer 1966), pp. 160 -217. , vol. 33, no. 2 (Summer 1966), pp. 160 -217.
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household data in the United States.13 However, income and wealth inequality continues to exist household data in the United States.13 However, income and wealth inequality continues to exist
after controlling for household age, suggesting that age is not the only important factor.14 after controlling for household age, suggesting that age is not the only important factor.14
There are also circumstances where the life-cycle model fails to correspond to household There are also circumstances where the life-cycle model fails to correspond to household
behavior in the United States. A recent National Bureau of Economic Research (NBER) working behavior in the United States. A recent National Bureau of Economic Research (NBER) working
paper on behavioral household finance identifies three facts about U.S. household balance paper on behavioral household finance identifies three facts about U.S. household balance
sheets.15 First, income and consumption move together very closely, unlike the stable sheets.15 First, income and consumption move together very closely, unlike the stable
consumption that the life-cycle would predict. Second, U.S. households on average tend to have consumption that the life-cycle would predict. Second, U.S. households on average tend to have
low levels of low levels of liquid wealth, such as money in a savings account, and a high incidence of credit wealth, such as money in a savings account, and a high incidence of credit
card borrowing. Third, most U.S. households have much of their wealth in card borrowing. Third, most U.S. households have much of their wealth in illiquid assets, such as assets, such as
home equity. These patterns might fit the life-cycle model if borrowing money is inexpensive and home equity. These patterns might fit the life-cycle model if borrowing money is inexpensive and
illiquid assets have higher returns than assets have higher returns than liquid assets. However, these assumptions might not apply assets. However, these assumptions might not apply
to al households and other explanations might fit these patterns better.16 General y, these three to al households and other explanations might fit these patterns better.16 General y, these three
facts are important background to better understand consumer behavior in financial markets. facts are important background to better understand consumer behavior in financial markets.
These facts suggest why many U.S. households depend on access to affordable credit and robust These facts suggest why many U.S. households depend on access to affordable credit and robust
consumer financial markets, both for short-term needs and for building wealth over time. consumer financial markets, both for short-term needs and for building wealth over time.
In these theoretical frameworks, “market failures” occur when a free market is inefficient due to In these theoretical frameworks, “market failures” occur when a free market is inefficient due to
departures from the standard economic framework, which includes assumptions about perfect departures from the standard economic framework, which includes assumptions about perfect
information and perfect competition. Market failures can reduce economic efficiency and information and perfect competition. Market failures can reduce economic efficiency and
consumer welfare. In these cases, government policy can potential y correct market failures to consumer welfare. In these cases, government policy can potential y correct market failures to
bring the market to a more efficient outcome, maximizing social welfare. Yet, policymakers often bring the market to a more efficient outcome, maximizing social welfare. Yet, policymakers often
find it chal enging to determine whether a policy intervention wil help or harm a particular find it chal enging to determine whether a policy intervention wil help or harm a particular
market from reaching its efficient outcome. market from reaching its efficient outcome.
The following sections discuss two specific departures from the conditions associated with The following sections discuss two specific departures from the conditions associated with
economic efficiency—imperfect information and behavioral biases. These market failures are economic efficiency—imperfect information and behavioral biases. These market failures are
important to understand consumer credit markets. important to understand consumer credit markets.
Imperfect Information
Imperfect information, or information asymmetry, is when one party in a transaction (e.g., a firm) Imperfect information, or information asymmetry, is when one party in a transaction (e.g., a firm)
has more accurate or more detailed information than the other party (e.g., a consumer). This has more accurate or more detailed information than the other party (e.g., a consumer). This
imbalance can result in inefficient outcomes.17 For example, ideal y consumers in a mortgage imbalance can result in inefficient outcomes.17 For example, ideal y consumers in a mortgage
market wil shop around among lenders for the best interest rate, fees, and other terms for their market wil shop around among lenders for the best interest rate, fees, and other terms for their
own personal situations. Yet, it can be time-consuming to acquire better information, for example, own personal situations. Yet, it can be time-consuming to acquire better information, for example,
to seek out information from a variety of different lenders to compare loan terms. Consumers to seek out information from a variety of different lenders to compare loan terms. Consumers
might also be wil ing to spend more to save time or to have a better experience closing their might also be wil ing to spend more to save time or to have a better experience closing their

13 Neil Bhutta et al., 13 Neil Bhutta et al., Changes in U.S. Family Finances from 2016 to 2019: Evidence from the Survey of Consumer
Finances, Board of Governors of the Federal Reserve System, Federal Reserve Bulletin, vol. 106, no. 5, September , Board of Governors of the Federal Reserve System, Federal Reserve Bulletin, vol. 106, no. 5, September
2020, p. 11, at https://www.federalreserve.gov/publications/files/scf20.pdf. 2020, p. 11, at https://www.federalreserve.gov/publications/files/scf20.pdf.
14 For more information on income and wealth inequality, see Neil Bhutta et al., 14 For more information on income and wealth inequality, see Neil Bhutta et al., Changes in U.S. Family Finances from
2016 to 2019: Evidence from the Survey of Consum er Finances. .
15 John Beshears et al., 15 John Beshears et al., Behavioral Household Finance, National Bureau of Economic Research (NBER), Working , National Bureau of Economic Research (NBER), Working
Paper no. 24854, July 2018, p. 4. Paper no. 24854, July 2018, p. 4.
16 For example, behavioral science research suggests that human decisionmakers tend to have biases in rather 16 For example, behavioral science research suggests that human decisionmakers tend to have biases in rather
predictable patterns, which could explain some of these patterns. For more information, see thepredictable patterns, which could explain some of these patterns. For more information, see the “ Behavioral Biases in
Consumer Decisionmaking” section of this report. section of this report.
17 George Akerlof, “T he Market for Lemons: Quality Uncertainty and the Market Mechanism,” 17 George Akerlof, “T he Market for Lemons: Quality Uncertainty and the Market Mechanism,” Quarterly Journal of
Econom ics, vol. 84, no. 3 (1970), pp. 488-500; and Michael Rothschild and Joseph Stiglitz, “ Equilibrium in , vol. 84, no. 3 (1970), pp. 488-500; and Michael Rothschild and Joseph Stiglitz, “ Equilibrium in
Competitive Insurance Markets: An Essay on the Economics of Imperfect Information,” Competitive Insurance Markets: An Essay on the Economics of Imperfect Information,” Quarterly Journal of
Econom ics, vol. 90, no. 4 (November 1976), pp. 629 -649. , vol. 90, no. 4 (November 1976), pp. 629 -649.
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mortgage. However, if information asymmetry exists—for example, if interest and fee costs are mortgage. However, if information asymmetry exists—for example, if interest and fee costs are
hidden, confusing, or difficult to obtain—some consumers might choose a mortgage loan that is hidden, confusing, or difficult to obtain—some consumers might choose a mortgage loan that is
not optimal based on the criteria they deem to be important. In this case, the mortgage market wil not optimal based on the criteria they deem to be important. In this case, the mortgage market wil
not lead to efficient societal outcomes, possibly costing some consumers more for a loan than is not lead to efficient societal outcomes, possibly costing some consumers more for a loan than is
necessary and dissuading some consumers who otherwise would from entering the market. necessary and dissuading some consumers who otherwise would from entering the market.
Information asymmetries occur in the opposite way as wel . Often, lenders might not have Information asymmetries occur in the opposite way as wel . Often, lenders might not have
accurate or detailed information about a consumer, making it hard for them to estimate a accurate or detailed information about a consumer, making it hard for them to estimate a
consumer’s likelihood of default on a loan. For this reason, systems like the credit reporting consumer’s likelihood of default on a loan. For this reason, systems like the credit reporting
industry developed, to give lenders more information about a consumer and make the markets for industry developed, to give lenders more information about a consumer and make the markets for
consumer credit more efficient. For more information on the credit reporting industry, see the consumer credit more efficient. For more information on the credit reporting industry, see the
section of this report titled “Credit Reporting, Credit Bureaus, and Credit Scoring.” section of this report titled “Credit Reporting, Credit Bureaus, and Credit Scoring.”
Behavioral Biases in Consumer Decisionmaking
Behavioral research suggests that humans tend to have biases in rather predictable patterns.18 This Behavioral research suggests that humans tend to have biases in rather predictable patterns.18 This
research suggests that the human brain has evolved to quickly make judgments in bounded research suggests that the human brain has evolved to quickly make judgments in bounded
rational ways, using heuristics—or mental shortcuts—to make decisions. These heuristics rational ways, using heuristics—or mental shortcuts—to make decisions. These heuristics
general y help people make appropriate decisions quickly and easily, but sometimes, they can general y help people make appropriate decisions quickly and easily, but sometimes, they can
result in choices that make the decisionmaker worse off financial y. Within consumer finance result in choices that make the decisionmaker worse off financial y. Within consumer finance
markets, a few of these biases tend to be particularly important: markets, a few of these biases tend to be particularly important:
  Choice Architecture—Research suggests that how financial decisions are —Research suggests that how financial decisions are
framed can affect consumer decisionmaking. Framing can affect consumer framed can affect consumer decisionmaking. Framing can affect consumer
decisions in many ways. For example, people can be decisions in many ways. For example, people can be anchored by an initial by an initial
number, even if it is different from their next choice.19 In one il ustration of this number, even if it is different from their next choice.19 In one il ustration of this
concept, researchers had subjects spin a wheel of fortune with numbers between concept, researchers had subjects spin a wheel of fortune with numbers between
zero and 100, then asked them the percentage of African countries in the United zero and 100, then asked them the percentage of African countries in the United
Nations. The random number generated in the first stage subconsciously affected Nations. The random number generated in the first stage subconsciously affected
subjects’ guesses in the second stage, even though they were not related. Another subjects’ guesses in the second stage, even though they were not related. Another
example of a decisionmaking bias is example of a decisionmaking bias is defaults.20 For example, employees are more .20 For example, employees are more
likely to be enrolled in a 401(K) plan by employer defaults than if they actively likely to be enrolled in a 401(K) plan by employer defaults than if they actively
need to make a choice.21 A third example of a framing bias is need to make a choice.21 A third example of a framing bias is loss aversion, the , the
idea that people tend to respond more strongly to potential losses than gains.22 idea that people tend to respond more strongly to potential losses than gains.22
Therefore, when choices are framed as a potential loss, such as “an opportunity Therefore, when choices are framed as a potential loss, such as “an opportunity
you don’t want to miss,” consumers respond more strongly than they do to you don’t want to miss,” consumers respond more strongly than they do to
potential benefits. potential benefits.

18 Daniel Kahneman, 18 Daniel Kahneman, Thinking Fast and Slow (Location: Farrar, Straus and Giroux, 2011); and Dan Ariely, (Location: Farrar, Straus and Giroux, 2011); and Dan Ariely, Predictably
Irrational: The Hidden Forces that Shape our Decisions (Location: Harper, 2008). (Location: Harper, 2008).
19 Amos T versky and Daniel Kahneman, “Judgment under Uncertainty: Heuristics and Biases,” 19 Amos T versky and Daniel Kahneman, “Judgment under Uncertainty: Heuristics and Biases,” Science, vol. 185, no. , vol. 185, no.
4157 (September 27, 1974), pp. 1124 -1131. 4157 (September 27, 1974), pp. 1124 -1131.
20 Richard T haler and Cass Sunstein, 20 Richard T haler and Cass Sunstein, Nudge: Improving Decisions about Health, Wealth, and Happiness (Location: (Location:
Penguin Books, 2008). Penguin Books, 2008).
21 Brigitte C. Madrian and Dennis F. Shea, “T he Power of Suggestion: Inertia in 401(K) Participation and Savings 21 Brigitte C. Madrian and Dennis F. Shea, “T he Power of Suggestion: Inertia in 401(K) Participation and Savings
Behavior,” Behavior,” Quarterly Journal of Economics, vol. 116, no. 4 (November 2001), pp. 1149-1187. , vol. 116, no. 4 (November 2001), pp. 1149-1187.
22 Amos T versky and Daniel Kahneman, “Loss Aversion in Riskless Choice: A Reference-Dependent Model,” 22 Amos T versky and Daniel Kahneman, “Loss Aversion in Riskless Choice: A Reference-Dependent Model,” The
Quarterly Journal of Econom ics, vol. 106, no. 4 (November 1991), pp. 1039 -1061; Kungl. Vetenskapsakademien: T he , vol. 106, no. 4 (November 1991), pp. 1039 -1061; Kungl. Vetenskapsakademien: T he
Royal Swedish Academy of Sciences, Royal Swedish Academy of Sciences, Foundations of Behavioral and Experim ental Economics: Daniel Kahnem an and
Vernon Sm ith, Advanced Information on the Prize in Economic Sciences 2002, December 17, 2002, pp. 15 -19, at , Advanced Information on the Prize in Economic Sciences 2002, December 17, 2002, pp. 15 -19, at
https://www.nobelprize.org/uploads/2018/06/advanced-economicsciences2002.pdf. https://www.nobelprize.org/uploads/2018/06/advanced-economicsciences2002.pdf.
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  Present Bias and Scarcity—When people tend to put more value on having —When people tend to put more value on having
something now, rather than in the future, even when there is a large benefit for something now, rather than in the future, even when there is a large benefit for
waiting, this behavior is cal ed waiting, this behavior is cal ed present bias.23 In addition, even when people .23 In addition, even when people
decide they should do something difficult, such as saving for the future or decide they should do something difficult, such as saving for the future or
choosing a retirement plan, self-control and procrastination may prevent them choosing a retirement plan, self-control and procrastination may prevent them
from following through on their intentions.24 These human biases might lead from following through on their intentions.24 These human biases might lead
consumers to make financial decisions that are not optimal.25 Furthermore, a consumers to make financial decisions that are not optimal.25 Furthermore, a
scarcity mindset can make optimal decisionmaking more difficult.26 Difficult can make optimal decisionmaking more difficult.26 Difficult
decisions, such as managing finances, require cognitive bandwidth. When under decisions, such as managing finances, require cognitive bandwidth. When under
extreme stress, such as living in poverty, people may tunnelextreme stress, such as living in poverty, people may tunnel their vision, focusing their vision, focusing
on immediate needs (e.g., paying current bil s), rather than prioritizing based on on immediate needs (e.g., paying current bil s), rather than prioritizing based on
the big picture (e.g., increasing ones’ future income). Self-control might also be a the big picture (e.g., increasing ones’ future income). Self-control might also be a
limited resource for humans, where the more self-control a person needs to exert limited resource for humans, where the more self-control a person needs to exert
over a day, the harder it is to maintain.27 These limitations to human cognitive over a day, the harder it is to maintain.27 These limitations to human cognitive
functioning can sometimes lead consumers to make flawed financial decisions. functioning can sometimes lead consumers to make flawed financial decisions.
  Budgeting Biases (Mental accounting)—Often, households use mental —Often, households use mental
accounts, amounts of money mental y al ocated in advance for different accounts, amounts of money mental y al ocated in advance for different
purposes, to make consumption decisions.28 For example, a household may have purposes, to make consumption decisions.28 For example, a household may have
a monthly budget for food, clothing, and entertainment. Even though money is a monthly budget for food, clothing, and entertainment. Even though money is
fungible, many households act as if spending in one category does not affect fungible, many households act as if spending in one category does not affect
spending in another category.29 This categorization is an intuitive and simple way spending in another category.29 This categorization is an intuitive and simple way
of thinking about a budget. Although this thinking reduces cognitive effort, it can of thinking about a budget. Although this thinking reduces cognitive effort, it can
also lead to predictable biases. For example, research suggests that people have also lead to predictable biases. For example, research suggests that people have
trouble forecasting unusual or infrequent expenses.30 For this reason, these trouble forecasting unusual or infrequent expenses.30 For this reason, these
expenses are general y not fully accounted for in the mental budget, leading to expenses are general y not fully accounted for in the mental budget, leading to
overspending. overspending.
Although consumers might not be aware of these biases when making financial decisions, Although consumers might not be aware of these biases when making financial decisions,
they are important because firms can take advantage of them to attract consumers. For they are important because firms can take advantage of them to attract consumers. For

23 Richard T haler, “Some Empirical Evidence on Dynamic Inconsistency,” 23 Richard T haler, “Some Empirical Evidence on Dynamic Inconsistency,” Economic Letters, vol. 8 (1981), pp. 201-, vol. 8 (1981), pp. 201-
207. 207.
24 Kungl. Vetenskapsakademien: T he Royal Swedish Academy of Sciences, 24 Kungl. Vetenskapsakademien: T he Royal Swedish Academy of Sciences, Richard H. Thaler: Integrating Economics
with Psychology, Scientific Background on the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred , Scientific Background on the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred
Nobel 2017, October 3, 2017, pp. 10-14, at https://www.nobelprize.org/uploads/2018/06/advanced-Nobel 2017, October 3, 2017, pp. 10-14, at https://www.nobelprize.org/uploads/2018/06/advanced-
economicsciences2017-1.pdf. economicsciences2017-1.pdf.
25 H.M. Shefrin and Richard T haler, “An Economic T heory of Self-Control,” 25 H.M. Shefrin and Richard T haler, “An Economic T heory of Self-Control,” Journal of Political Economy, vol. 89, no. , vol. 89, no.
2 (April 1981), pp. 392-406. 2 (April 1981), pp. 392-406.
26 Sendhil Mullainathan and Eldar Shafir, 26 Sendhil Mullainathan and Eldar Shafir, Scarcity: Why Having Too Little Means So Much (Henry Holt and Company, (Henry Holt and Company,
2013). 2013).
27 Mark Muraven and Roy F. Baumeister, “Self-Regulation and Depletion of Limited Resources: Does Self-Control 27 Mark Muraven and Roy F. Baumeister, “Self-Regulation and Depletion of Limited Resources: Does Self-Control
Resemble a Muscle?” Resemble a Muscle?” Psychological Bulletin, vol. 126, no. 2 (2000), pp. 247-259. , vol. 126, no. 2 (2000), pp. 247-259.
28 Richard T haler, “Mental Accounting and Consumer Choice,” 28 Richard T haler, “Mental Accounting and Consumer Choice,” Marketing Science, vol. 4, no. 3, Summer, 1985, pp. , Summer, 1985, pp.
199-214; Richard T haler, “ Mental Accounting Matters,” 199-214; Richard T haler, “ Mental Accounting Matters,” Journal of Behavioral Decision Making, July 19, 1999; C. , July 19, 1999; C.
Yiwei Zhang and Abigail B. Sussman, “Perspectives on Mental Accounting: An Exploration of Budgeting and Yiwei Zhang and Abigail B. Sussman, “Perspectives on Mental Accounting: An Exploration of Budgeting and
Investing,” Investing,” Financial Planning Review, vol. 1, no. 1011 (2018). , vol. 1, no. 1011 (2018).
29 Kungl. Vetenskapsakademien: T he Royal Swedish Academy of Sciences, 29 Kungl. Vetenskapsakademien: T he Royal Swedish Academy of Sciences, Richard H. Thaler: Integrating Economics
with Psychology, Scientific Background on the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred , Scientific Background on the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred
Nobel 2017, October 3, 2017, pp. 7-10, at https://www.nobelprize.org/uploads/2018/06/advanced-Nobel 2017, October 3, 2017, pp. 7-10, at https://www.nobelprize.org/uploads/2018/06/advanced-
economicsciences2017-1.pdf. economicsciences2017-1.pdf.
30 Abigail B. Sussman and Adam L. Alter, “T he Exception Is the Rule: Underestimating and Overspending on 30 Abigail B. Sussman and Adam L. Alter, “T he Exception Is the Rule: Underestimating and Overspending on
Exceptional Expenses,” Exceptional Expenses,” Journal of Consumer Research, December 2012. , December 2012.
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example, choice architecture biases might influence how marketing materials are example, choice architecture biases might influence how marketing materials are
developed, emphasizing certain terms to make a financial product seem more desirable to developed, emphasizing certain terms to make a financial product seem more desirable to
consumers. In addition, product features may be developed to take advantage of people’s consumers. In addition, product features may be developed to take advantage of people’s
present bias, scarcity mindset, or mental accounting mistakes. present bias, scarcity mindset, or mental accounting mistakes.
Common Policy Interventions and Considerations
In response to market failures, such as information asymmetry and behavioral biases, the In response to market failures, such as information asymmetry and behavioral biases, the
government uses policy interventions ideal y to bring consumer markets to a more government uses policy interventions ideal y to bring consumer markets to a more
efficient market outcome. Three types of policy interventions are common in consumer efficient market outcome. Three types of policy interventions are common in consumer
finance: finance:
  Standardized Consumer Disclosures—Financial products can be complex and —Financial products can be complex and
difficult for consumers to fully understand. Mandated consumer disclosures are a difficult for consumers to fully understand. Mandated consumer disclosures are a
common policy intervention in consumer financial markets, general y intended to common policy intervention in consumer financial markets, general y intended to
give consumers more information about the costs and terms before they take out give consumers more information about the costs and terms before they take out
a new financial product, thus reducing asymmetric information market failures. a new financial product, thus reducing asymmetric information market failures.
Standardized disclosures can also help consumers shop for the best terms, Standardized disclosures can also help consumers shop for the best terms,
because al financial product terms are required to be disclosed in the same way. because al financial product terms are required to be disclosed in the same way.
Lastly, because disclosure structure and formatting are often standardized, Lastly, because disclosure structure and formatting are often standardized,
mandated consumer disclosures also can take into account choice architecture mandated consumer disclosures also can take into account choice architecture
biases. Laws that mandate consumer disclosures in financial markets include the biases. Laws that mandate consumer disclosures in financial markets include the
Truth in Lending Act (TILA),31 which requires standardized disclosures for Truth in Lending Act (TILA),31 which requires standardized disclosures for
certain consumer credit products, and the Truth in Savings Act,32 which requires certain consumer credit products, and the Truth in Savings Act,32 which requires
standardized disclosures for certain bank accounts. standardized disclosures for certain bank accounts.
  Unfair, Deceptive, or Abusive Practices or Acts—Consumers seeking loans or —Consumers seeking loans or
financial services could be vulnerable because some consumers may lack financial services could be vulnerable because some consumers may lack
financial knowledge or be susceptible to biases described in the above section. financial knowledge or be susceptible to biases described in the above section.
For this reason, certain consumer protection laws prohibit unfair, deceptive, or For this reason, certain consumer protection laws prohibit unfair, deceptive, or
abusive acts or practices in consumer financial markets.33 These acts and abusive acts or practices in consumer financial markets.33 These acts and
practices can include both individual firm conduct and product features.34 practices can include both individual firm conduct and product features.34
  Fair Lending—Fair lending laws prohibit discrimination in credit transactions —Fair lending laws prohibit discrimination in credit transactions
based upon certain borrower characteristics, such as sex, race, religion, and age. based upon certain borrower characteristics, such as sex, race, religion, and age.
These laws historical y have been interpreted to prohibit both intentional These laws historical y have been interpreted to prohibit both intentional
discrimination and discrimination and disparate impact discrimination, in which a facial y neutral discrimination, in which a facial y neutral
business decision has a discriminatory effect on a protected class.35 Federal fair business decision has a discriminatory effect on a protected class.35 Federal fair

31 P.L. 90-321; 15 U.S.C. §1601. 31 P.L. 90-321; 15 U.S.C. §1601.
32 P.L. 102-242; 12 U.S.C. §4301. 32 P.L. 102-242; 12 U.S.C. §4301.
33 P.L. 111-203, §1031; CFPB, “ Prohibition of Unfair, Deceptive, or Abusive Acts or Practices in the Collection of 33 P.L. 111-203, §1031; CFPB, “ Prohibition of Unfair, Deceptive, or Abusive Acts or Practices in the Collection of
Consumer Debts,” bulletin 2013-07, July 10, 2013, at https://www.consumerfinance.gov/policy-compliance/guidance/Consumer Debts,” bulletin 2013-07, July 10, 2013, at https://www.consumerfinance.gov/policy-compliance/guidance/
supervisory-guidance/bulletin-prohibition-practices-collection-consumer-debts/. supervisory-guidance/bulletin-prohibition-practices-collection-consumer-debts/.
34 For more information on the trade-offs relating to product feature regulation, see John Campbell, 34 For more information on the trade-offs relating to product feature regulation, see John Campbell, Restoring Rational
Choice: The Challenge of Consum er Financial Regulation , NBER, Working Paper no. 22025, February 2016, pp. 29-, NBER, Working Paper no. 22025, February 2016, pp. 29-
37. 37.
35 T he Supreme Court’s reasoning in a June 2015 decision involving the Fair Housing Act, another federal 35 T he Supreme Court’s reasoning in a June 2015 decision involving the Fair Housing Act, another federal
antidiscrimination law, has sparked debate about whether disparate impact claims are permissible under the Equal antidiscrimination law, has sparked debate about whether disparate impact claims are permissible under the Equal
Credit Opportunity Act . For background on disparate impact claims, see CRS Report R44203, Credit Opportunity Act . For background on disparate impact claims, see CRS Report R44203, Disparate Im pact
Claim s Under the Fair Housing Act, by David H. Carpenter. For more information on the Fair Housing Act, see CRS , by David H. Carpenter. For more information on the Fair Housing Act, see CRS
Report 95-710, Report 95-710, The Fair Housing Act (FHA): A Legal Overview, by David H. Carpenter. , by David H. Carpenter.
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lending laws in consumer financial markets include the Equal Credit Opportunity lending laws in consumer financial markets include the Equal Credit Opportunity
Act (ECOA),36 the Fair Housing Act (FHA),37 and the Home Mortgage Act (ECOA),36 the Fair Housing Act (FHA),37 and the Home Mortgage
Disclosure Act (HMDA).38 Disclosure Act (HMDA).38
Policy Considerations
The market effects of new laws or regulations are important considerations. Does the policy on The market effects of new laws or regulations are important considerations. Does the policy on
average lead the market closer or further from its efficient market outcome? In consumer average lead the market closer or further from its efficient market outcome? In consumer
financial markets, both households and firms may react to new policy. Without thinking through financial markets, both households and firms may react to new policy. Without thinking through
al of its potential impacts, a policy can also have unintended effects, and perhaps fail to reach al of its potential impacts, a policy can also have unintended effects, and perhaps fail to reach
policymakers’ objectives. policymakers’ objectives.
From a consumer perspective, new policy formulations should consider the polic y’s effect on From a consumer perspective, new policy formulations should consider the polic y’s effect on
consumer decisionmaking, the impact on household wel -being over time, and whether these consumer decisionmaking, the impact on household wel -being over time, and whether these
effects might vary across the population. For example, a new disclosure policy might improve effects might vary across the population. For example, a new disclosure policy might improve
consumer comprehension, but not consumer decisionmaking, thus failing to affect the market as consumer comprehension, but not consumer decisionmaking, thus failing to affect the market as
intended. In other cases, a subset of consumers may be susceptible to a deceptive practice. If a intended. In other cases, a subset of consumers may be susceptible to a deceptive practice. If a
new policy eliminates that deceptive practice in the market, the policy may only affect that subset new policy eliminates that deceptive practice in the market, the policy may only affect that subset
of consumers who were susceptible, rather than the whole consumer population. of consumers who were susceptible, rather than the whole consumer population.
From a firm’s perspective, new policy formulation should consider both the cost for firms to From a firm’s perspective, new policy formulation should consider both the cost for firms to
implement the policy as wel as its impact on the competitiveness of the market, both within and implement the policy as wel as its impact on the competitiveness of the market, both within and
outside of the regulated market. Another important consideration is the policy’s impact on outside of the regulated market. Another important consideration is the policy’s impact on
consumer prices and financial product availability. For example, complying with a new regulation consumer prices and financial product availability. For example, complying with a new regulation
might require a firm to bear costs. This might force lenders to raise prices or lenders who cannot might require a firm to bear costs. This might force lenders to raise prices or lenders who cannot
bear the additional costs may leave the market. Higher prices and less choice may result in bear the additional costs may leave the market. Higher prices and less choice may result in
consumers seeking other credit products outside of the market, or reduce consumers’ ability to consumers seeking other credit products outside of the market, or reduce consumers’ ability to
access credit. access credit.
Consumer Financial Protection Bureau (CFPB)
Most experts agree that an important factor in the 2008 financial crisis was a housing bubble, Most experts agree that an important factor in the 2008 financial crisis was a housing bubble,
which led lenders to relax their underwriting standards (or the process by which a lender which led lenders to relax their underwriting standards (or the process by which a lender
determines whether a borrower is creditworthy), which in some cases, led to consumer protection determines whether a borrower is creditworthy), which in some cases, led to consumer protection
abuses.39 In response, the 2010 Dodd-Frank Wal Street Reform and Consumer Protection Act abuses.39 In response, the 2010 Dodd-Frank Wal Street Reform and Consumer Protection Act
(Dodd-Frank) established the CFPB to implement and enforce federal consumer financial law (Dodd-Frank) established the CFPB to implement and enforce federal consumer financial law
while ensuring consumers can access financial products and services.40 The CFPB’s statutory while ensuring consumers can access financial products and services.40 The CFPB’s statutory
purpose is to enable markets for consumer financial services and products to be fair, transparent, purpose is to enable markets for consumer financial services and products to be fair, transparent,
and competitive.41 Dodd-Frank consolidated certain consumer finance-related responsibilities in and competitive.41 Dodd-Frank consolidated certain consumer finance-related responsibilities in
the CFPB previously held by other regulators and created new authorities unique to the CFPB.42 the CFPB previously held by other regulators and created new authorities unique to the CFPB.42

36 15 U.S.C. §1691. 36 15 U.S.C. §1691.
37 42 U.S.C. §3601. For more information, see CRS Report R44557, 37 42 U.S.C. §3601. For more information, see CRS Report R44557, The Fair Housing Act: HUD Oversight,
Program s, and Activities, by Libby Perl. , by Libby Perl.
38 12 U.S.C. §2801. 38 12 U.S.C. §2801.
39 Financial Crisis Inquiry Commission, Financial Crisis Inquiry Report: Final Report of the Nation Commission on the 39 Financial Crisis Inquiry Commission, Financial Crisis Inquiry Report: Final Report of the Nation Commission on the
Causes of the Financial and Economic Crisis in the United States, January 2011, p. xxiii & 418, at http://fcic-Causes of the Financial and Economic Crisis in the United States, January 2011, p. xxiii & 418, at http://fcic-
static.law.stanford.edu/cdn_media/fcic-reports/fcic_final_report_full.pdf. static.law.stanford.edu/cdn_media/fcic-reports/fcic_final_report_full.pdf.
40 P.L. 111-203. 40 P.L. 111-203.
41 12 U.S.C. §5511. 41 12 U.S.C. §5511.
42 For more information on the CFPB, see CRS In Focus IF10031, 42 For more information on the CFPB, see CRS In Focus IF10031, Introduction to Financial Services: The Consumer
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The act also directed the CFPB to develop and implement financial education initiatives, collect The act also directed the CFPB to develop and implement financial education initiatives, collect
consumer complaints, and conduct consumer finance research. consumer complaints, and conduct consumer finance research.
The CFPB general y has regulatory authority over providers of an array of consumer financial The CFPB general y has regulatory authority over providers of an array of consumer financial
products and services, including deposit taking, mortgages, credit cards and other extensions of products and services, including deposit taking, mortgages, credit cards and other extensions of
credit, loan servicing, consumer reporting data collection, and consumer debt collection. The credit, loan servicing, consumer reporting data collection, and consumer debt collection. The
authorities that the CFPB may exercise and the breadth of products, services, and entities that fal authorities that the CFPB may exercise and the breadth of products, services, and entities that fal
within its jurisdiction are considerable, but Dodd-Frank imposes some important exceptions to within its jurisdiction are considerable, but Dodd-Frank imposes some important exceptions to
and limitations on those powers.43 The CFPB’s authorities fal into three broad categories: and limitations on those powers.43 The CFPB’s authorities fal into three broad categories:
rulemaking, writing regulations to implement laws under its jurisdiction;, writing regulations to implement laws under its jurisdiction; supervision, the power , the power
to examine and impose reporting requirements on financial institutions; and to examine and impose reporting requirements on financial institutions; and enforcement of of
various consumer protection laws and regulations. various consumer protection laws and regulations.
The CFPB is authorized to prescribe regulations to implement 19 federal consumer protection The CFPB is authorized to prescribe regulations to implement 19 federal consumer protection
laws that largely predated Dodd-Frank.44 These laws that largely predated Dodd-Frank.44 These enumerated consumer laws govern a broad and govern a broad and
diverse set of consumer financial services and general y apply to any entity engaged in the diverse set of consumer financial services and general y apply to any entity engaged in the
business of offering those services. Dodd-Frank also provided CFPB new power to issue rules business of offering those services. Dodd-Frank also provided CFPB new power to issue rules
declaring certain acts or practices associated with consumer financial products and services to be declaring certain acts or practices associated with consumer financial products and services to be
unlawful because they are unfair, deceptive, or abusive. Other aspects of the CFPB’s regulatory unlawful because they are unfair, deceptive, or abusive. Other aspects of the CFPB’s regulatory
power—particularly the scope of its supervisory and enforcement authority—vary depending on a power—particularly the scope of its supervisory and enforcement authority—vary depending on a
number of factors, including an institution’s size and whether it holds a bank charter. number of factors, including an institution’s size and whether it holds a bank charter.
The CFPB is headed by a director appointed by the President with the advice and consent of the The CFPB is headed by a director appointed by the President with the advice and consent of the
Senate for a five-year term. It is located within the Federal Reserve System (Fed), although the Senate for a five-year term. It is located within the Federal Reserve System (Fed), although the
Fed does not influence the CFPB’s budget or personnel decisions. The Fed also cannot veto a rule Fed does not influence the CFPB’s budget or personnel decisions. The Fed also cannot veto a rule
issued by the CFPB, but the Financial Stability Oversight Council, of which the Fed Chairman is issued by the CFPB, but the Financial Stability Oversight Council, of which the Fed Chairman is
a member, can overturn a CFPB rule with the vote of two-thirds of its members.45 The CFPB is a member, can overturn a CFPB rule with the vote of two-thirds of its members.45 The CFPB is
funded through the earnings of the Fed, rather than through the typical appropriations process. funded through the earnings of the Fed, rather than through the typical appropriations process.
The CFPB requests monetary transfers from the Fed with a cap on the amount of these transfers The CFPB requests monetary transfers from the Fed with a cap on the amount of these transfers

Financial Protection Bureau (CFPB), by Cheryl R. Cooper and David H. Carpenter. , by Cheryl R. Cooper and David H. Carpenter.
43 Dodd-Frank exempts some industries from the CFPB’s regulatory jurisdiction. T he CFPB generally does not have 43 Dodd-Frank exempts some industries from the CFPB’s regulatory jurisdiction. T he CFPB generally does not have
rulemaking, supervisory, or enforcement authority over automobile dealers; merchants, retailers, and sellers of rulemaking, supervisory, or enforcement authority over automobile dealers; merchants, retailers, and sellers of
nonfinancial goods and services; real estate brokers; real estate agents; sellers of manufactured and mobile homes; nonfinancial goods and services; real estate brokers; real estate agents; sellers of manufactured and mobile homes;
income tax preparers; insurance companies; or accountants. Certain business practices of these entities, however, could income tax preparers; insurance companies; or accountants. Certain business practices of these entities, however, could
trigger CFPB regulatory authority, such as if they engage in an activity governed by an enumerated consumer law. trigger CFPB regulatory authority, such as if they engage in an activity governed by an enumerated consumer law.
44 T he enumerated consumer laws are: the Alternative Mortgage T ransaction Parity Act, 12 U.S.C. §§3801 et seq44 T he enumerated consumer laws are: the Alternative Mortgage T ransaction Parity Act, 12 U.S.C. §§3801 et seq.; the ; the
Consumer Leasing Act of 1976, 15 U.S.C. §§1667 et seqConsumer Leasing Act of 1976, 15 U.S.C. §§1667 et seq.; the Electronic Funds T ransfer Act, 15 U.S.C. §§1693 et seq., ; the Electronic Funds T ransfer Act, 15 U.S.C. §§1693 et seq.,
except with respect to section 920; the Equal Credit Opportunity Act , 15 U.S.C. §§1691 et seq.; the Fair Credit Billing except with respect to section 920; the Equal Credit Opportunity Act , 15 U.S.C. §§1691 et seq.; the Fair Credit Billing
Act, 15 U.S.C. §§1666 et seq.; the Fair Credit Reporting Act, 15 U.S.C. §§1681 et seq., except with respect to sections Act, 15 U.S.C. §§1666 et seq.; the Fair Credit Reporting Act, 15 U.S.C. §§1681 et seq., except with respect to sections
1681m(e) and 1681w; the Homeowners Protectio n Act of 1998, 12 U.S.C. §§4901 et seq1681m(e) and 1681w; the Homeowners Protectio n Act of 1998, 12 U.S.C. §§4901 et seq.; the Fair Debt Collection ; the Fair Debt Collection
Practices Act, 15 U.S.C. §§1692 et seqPractices Act, 15 U.S.C. §§1692 et seq.; subsections (b) through (f) of section 43 of the Federal Deposit Insurance Act, ; subsections (b) through (f) of section 43 of the Federal Deposit Insurance Act,
12 U.S.C. §§ 1831t(c)-(f); sections 502 through 509 of the Gramm-Leach-Bliley Act, 15 U.S.C. §§6802-6809, except 12 U.S.C. §§ 1831t(c)-(f); sections 502 through 509 of the Gramm-Leach-Bliley Act, 15 U.S.C. §§6802-6809, except
for section 6805 as it applies to section 6801(b); the Home Mortgage Disclosur e Act of 1975, 12 U.S.C. §§2801 et seq.; for section 6805 as it applies to section 6801(b); the Home Mortgage Disclosur e Act of 1975, 12 U.S.C. §§2801 et seq.;
the Home Ownership and Equity Protection Act of 1994, 15 U.S.C. §1639; the Real Estate Settlement Procedures Act the Home Ownership and Equity Protection Act of 1994, 15 U.S.C. §1639; the Real Estate Settlement Procedures Act
of 1974, 12 U.S.C. §§2601 et seq.; the S.A.F.E. Mortgage Licensing Act of 2008, 12 U.S.C. §§5101 et seq.; the T ruth of 1974, 12 U.S.C. §§2601 et seq.; the S.A.F.E. Mortgage Licensing Act of 2008, 12 U.S.C. §§5101 et seq.; the T ruth
in Lending Act (T ILA), 15 U.S.C. §§1601 et seq.; the T ruth in Savings Act, 12 U.S.C. §§4301 et seqin Lending Act (T ILA), 15 U.S.C. §§1601 et seq.; the T ruth in Savings Act, 12 U.S.C. §§4301 et seq.; section 626 of ; section 626 of
the Omnibus Appropriations Act, 2009, P.L. 111-8 §626; the Interstate Land Sales Full Disclosure Act, 15 U.S.C. the Omnibus Appropriations Act, 2009, P.L. 111-8 §626; the Interstate Land Sales Full Disclosure Act, 15 U.S.C.
§§1701 et seq.; and many provisions of the Mortgage Reform and Anti-Predatory Lending Act, Dodd-Frank Act T itle §§1701 et seq.; and many provisions of the Mortgage Reform and Anti-Predatory Lending Act, Dodd-Frank Act T itle
XIV, Subtitles A, B, C, and E, and §§1471, 1472, 1475, and 1476. XIV, Subtitles A, B, C, and E, and §§1471, 1472, 1475, and 1476.
45 T he Financial Stability Oversight Council (FSOC) is a collaborative body that brings together the expertise of federal 45 T he Financial Stability Oversight Council (FSOC) is a collaborative body that brings together the expertise of federal
financial regulators, a presidentially appointed independent insurance expert, and representatives of state financial financial regulators, a presidentially appointed independent insurance expert, and representatives of state financial
regulators. For more information on FSOC, see CRS Report R45052, regulators. For more information on FSOC, see CRS Report R45052, Financial Stability Oversight Council (FSOC):
Structure and Activities, by Marc Labonte. , by Marc Labonte.
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based on a formula set in statute. For FY2020, the CFPB’s $580 mil ion budget was below its based on a formula set in statute. For FY2020, the CFPB’s $580 mil ion budget was below its
$696 mil ion cap.46 $696 mil ion cap.46
Overview of Major Consumer Finance Markets
The following sections examine specific issues within major consumer debt markets: mortgage The following sections examine specific issues within major consumer debt markets: mortgage
lending, student loans, automobile loans, credit cards and payments, payday loans and other lending, student loans, automobile loans, credit cards and payments, payday loans and other
credit alternative financial products, and checking accounts and substitutes. The markets credit alternative financial products, and checking accounts and substitutes. The markets
discussed are under the jurisdiction of the CFPB, and sometimes other regulators as wel . Each discussed are under the jurisdiction of the CFPB, and sometimes other regulators as wel . Each
section briefly describes the financial product, recent market developments, and selected policy section briefly describes the financial product, recent market developments, and selected policy
issues that may lead each market away from its efficient price or outcomes. These sections focus issues that may lead each market away from its efficient price or outcomes. These sections focus
on the consumer and household perspective as wel as consumer protection policy issues in each on the consumer and household perspective as wel as consumer protection policy issues in each
market. market.
Mortgage Lending Market
A mortgage loan is a loan collateralized by a house and its land.47 General y, consumers use these A mortgage loan is a loan collateralized by a house and its land.47 General y, consumers use these
loans to purchase a new home or refinance an existing one. These types of mortgages are often loans to purchase a new home or refinance an existing one. These types of mortgages are often
cal ed first liens, because if a consumer defaults on the loan, the lender is typical y the first in line cal ed first liens, because if a consumer defaults on the loan, the lender is typical y the first in line
to be compensated through the proceeds of a home foreclosure. First-lien mortgage loans are to be compensated through the proceeds of a home foreclosure. First-lien mortgage loans are
usual y instal ment loans, in which the consumer pays off the loan in monthly instal ments over usual y instal ment loans, in which the consumer pays off the loan in monthly instal ments over
15 years or 30 years. Most mortgage loans in the United States have a fixed interest rate and fixed 15 years or 30 years. Most mortgage loans in the United States have a fixed interest rate and fixed
instal ment amount over the course of the loan, affected by the consumer’s credit score and instal ment amount over the course of the loan, affected by the consumer’s credit score and
market conditions.48 market conditions.48
Households buying a new home and taking out a mortgage loan to purchase it general y cannot Households buying a new home and taking out a mortgage loan to purchase it general y cannot
borrow for the full cost of the house’s value. To limit the risk to the lender, borrowers are borrow for the full cost of the house’s value. To limit the risk to the lender, borrowers are
typical y required to make a down payment, the difference between the house’s value and the typical y required to make a down payment, the difference between the house’s value and the
mortgage loan. If the down payment is less than 20% of the home’s value, the borrower is often mortgage loan. If the down payment is less than 20% of the home’s value, the borrower is often
required to pay for additional insurance. required to pay for additional insurance.
In addition to first-lien purchase mortgages, a consumer may choose to take out a home equity In addition to first-lien purchase mortgages, a consumer may choose to take out a home equity
line of credit (often referred to as HELOC) or a smal er instal ment mortgage loan, which often is line of credit (often referred to as HELOC) or a smal er instal ment mortgage loan, which often is
a second lien. A second lien means that the lender is second in line, after the first lien holder, to be a second lien. A second lien means that the lender is second in line, after the first lien holder, to be
compensated if the consumer defaults and the home is foreclosed upon. These loans are compensated if the consumer defaults and the home is foreclosed upon. These loans are
underwritten using the value of the home, but can be used for a variety of different purposes underwritten using the value of the home, but can be used for a variety of different purposes
either related to the home or not. For example, second mortgages can be used to renovate the either related to the home or not. For example, second mortgages can be used to renovate the
home, pay for college, or consolidate credit card debts. home, pay for college, or consolidate credit card debts.
Mortgage loans are by far the largest consumer credit market in the United States, and homes are Mortgage loans are by far the largest consumer credit market in the United States, and homes are
a large part of most households’ wealth. According to the Fed, more than $9 tril ion of mortgage a large part of most households’ wealth. According to the Fed, more than $9 tril ion of mortgage
debt is currently outstanding,49 and more than $20 tril ion in real estate equity is owned by debt is currently outstanding,49 and more than $20 tril ion in real estate equity is owned by

46 CFPB, 46 CFPB, Fiscal Year 2020: Annual Performance Plan and Report, and Bu dget Overview, February 2020, pp. 7, 15, at , February 2020, pp. 7, 15, at
https://files.consumerfinance.gov/f/documents/cfpb_performance-plan-and-report_fy20.pdf. https://files.consumerfinance.gov/f/documents/cfpb_performance-plan-and-report_fy20.pdf.
47 For more information on the U.S. mortgage market, see CRS Report R42995, 47 For more information on the U.S. mortgage market, see CRS Report R42995, An Overview of the Housing Finance
System in the United States, by N. Eric Weiss and Katie Jones; and CRS Report R45710, , by N. Eric Weiss and Katie Jones; and CRS Report R45710, Housing Issues in the 116th
Congress, coordinated by Katie Jones. , coordinated by Katie Jones.
48 Some mortgages have variable interest rates and installments that are not fixed, such as balloon payments. 48 Some mortgages have variable interest rates and installments that are not fixed, such as balloon payments.
49 Federal Reserve Bank of New York, Center for Microeconomic Data, 49 Federal Reserve Bank of New York, Center for Microeconomic Data, Quarterly Report on Household Debt and
Credit, at https://www.newyorkfed.org/microeconomics/databank.html. , at https://www.newyorkfed.org/microeconomics/databank.html.
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households.50 As of the third quarter of 2020, 67.4% of U.S. households owned their home.51 households.50 As of the third quarter of 2020, 67.4% of U.S. households owned their home.51
Many people view homeownership as an important way to build wealth over time, both through Many people view homeownership as an important way to build wealth over time, both through
price appreciation and home equity by paying down their mortgage. Nevertheless, because home price appreciation and home equity by paying down their mortgage. Nevertheless, because home
prices can fluctuate over time, this investment can be risky, especial y if the home owner only prices can fluctuate over time, this investment can be risky, especial y if the home owner only
stays in the home for a short time. Although homeownership has certain benefits, such as tax stays in the home for a short time. Although homeownership has certain benefits, such as tax
benefits like the mortgage interest tax deduction,52 it also imposes costs on the household, such as benefits like the mortgage interest tax deduction,52 it also imposes costs on the household, such as
mortgage loan closing costs and home maintenance. mortgage loan closing costs and home maintenance.
As noted above, most experts believe that a housing price bubble was a central cause of the 2008 As noted above, most experts believe that a housing price bubble was a central cause of the 2008
financial crisis. In response, Dodd-Frank reformed the mortgage market by attempting to financial crisis. In response, Dodd-Frank reformed the mortgage market by attempting to
strengthen mortgage underwriting standards, to reduce the risk that consumers’ default on their strengthen mortgage underwriting standards, to reduce the risk that consumers’ default on their
mortgages, even if house prices fluctuated in the future. Dodd-Frank also directed the CFPB to mortgages, even if house prices fluctuated in the future. Dodd-Frank also directed the CFPB to
update federal mortgage disclosure forms (cal ed the combined TILA/RESPA form)53 and update federal mortgage disclosure forms (cal ed the combined TILA/RESPA form)53 and
improve standards for mortgage servicing (a company who manages mortgage loans after the improve standards for mortgage servicing (a company who manages mortgage loans after the
loan is originated).54 loan is originated).54
During and after the financial crisis, mortgage lenders tightened underwriting standards, making During and after the financial crisis, mortgage lenders tightened underwriting standards, making
it harder for consumers to qualify for a loan.55 Although most borrowers with good credit scores it harder for consumers to qualify for a loan.55 Although most borrowers with good credit scores
continued to qualify for mortgage credit, other borrowers in weaker financial positions found it continued to qualify for mortgage credit, other borrowers in weaker financial positions found it
more difficult to obtain a mortgage.56 As the economy has recovered from the Great Recession, more difficult to obtain a mortgage.56 As the economy has recovered from the Great Recession,
concerns exist about whether new consumer compliance regulation in the mortgage market has concerns exist about whether new consumer compliance regulation in the mortgage market has
struck the right balance between prudent mortgage underwriting and access to credit for potential struck the right balance between prudent mortgage underwriting and access to credit for potential
borrowers to build wealth.57 Certain features of mortgages during the mortgage boom that were borrowers to build wealth.57 Certain features of mortgages during the mortgage boom that were
considered to be particularly risky, such as teaser interest rates and loans with little or no income considered to be particularly risky, such as teaser interest rates and loans with little or no income
verification, are now uncommon in the mortgage market.58 However, research suggests that the verification, are now uncommon in the mortgage market.58 However, research suggests that the
regulation of underwriting standards may have caused lenders to prefer certain borrowers, such as regulation of underwriting standards may have caused lenders to prefer certain borrowers, such as
those with lower debt-to-income ratios.59 those with lower debt-to-income ratios.59
Mortgage shopping is another policy issue in this market. Consumers do not tend to shop among Mortgage shopping is another policy issue in this market. Consumers do not tend to shop among
lenders for more advantageous mortgage interest rates, even though large price differences exist lenders for more advantageous mortgage interest rates, even though large price differences exist

50 Federal Reserve Board50 Federal Reserve Board, B.101: Balance Sheet of Households and Nonprofit Organizations: Households; Owners’
Equity in Real Estate, Q2 2020, at https://www.federalreserve.gov/apps/fof/DisplayT able.aspx?t=b.101. , Q2 2020, at https://www.federalreserve.gov/apps/fof/DisplayT able.aspx?t=b.101.
51 Census Bureau, 51 Census Bureau, Quarterly Residential Vacancies and Homeownership, Third Quarter 2020 , CB20-153, October 27, , CB20-153, October 27,
2020, p. 1, at https://www.census.gov/housing/hvs/files/currenthvspress.pdf. 2020, p. 1, at https://www.census.gov/housing/hvs/files/currenthvspress.pdf.
52 For more information, see CRS Report R46429, 52 For more information, see CRS Report R46429, An Economic Analysis of the Mortgage Interest Deduction , by Mark , by Mark
P. Keightley. P. Keightley.
53 RESPA stands for Real Estate Settlement Procedures Act (12 U.S.C. §§2601-2617). 53 RESPA stands for Real Estate Settlement Procedures Act (12 U.S.C. §§2601-2617).
54 Mortgage servicing activities may include collecting consumer mortgage payments, payment of taxes and insurance 54 Mortgage servicing activities may include collecting consumer mortgage payments, payment of taxes and insurance
from borrower escrow accounts, and modifying or supporting the foreclosure process on mortgages when they default. from borrower escrow accounts, and modifying or supporting the foreclosure process on mortgages when they default.
For more information, see CRS Insight IN11377, For more information, see CRS Insight IN11377, Mortgage Servicing Rights and Selected Market Developm ents, by , by
Darryl E. Getter. Darryl E. Getter.
55 Bing Bai, Laurie Goodman, and Jun Zhu, 55 Bing Bai, Laurie Goodman, and Jun Zhu, Housing and Housing Finance, Urban Institute, Urban Wire: T he Blog of , Urban Institute, Urban Wire: T he Blog of
the Urban Institute, January 27, 2016, at https://www.urban.org/urban-wire/tight -credit-standards-prevented-52-the Urban Institute, January 27, 2016, at https://www.urban.org/urban-wire/tight -credit-standards-prevented-52-
million-mortgages-between-2009-and-2014. million-mortgages-between-2009-and-2014.
56 Bing Bai, Laurie Goodman, and Jun Zhu, 56 Bing Bai, Laurie Goodman, and Jun Zhu, Housing and Housing Finance.
57 For example, one notable mortgage underwriting regulation implemented after the f inancial crisis is the Qualified 57 For example, one notable mortgage underwriting regulation implemented after the f inancial crisis is the Qualified
Mortgage (QM) rule. For more information, CRS In Focus IF11413, Mortgage (QM) rule. For more information, CRS In Focus IF11413, The Qualified Mortgage (QM) Rule and the QM
Patch, by Darryl E. Getter. , by Darryl E. Getter.
58 CFPB, 58 CFPB, Ability-to-Repay and Qualified Mortgage Rule Assessment Report, January 2019, p. 9, at , January 2019, p. 9, at
https://files.consumerfinance.gov/f/documents/cfpb_ability-to-repay-qualified-mortgage_assessment -report.pdf. https://files.consumerfinance.gov/f/documents/cfpb_ability-to-repay-qualified-mortgage_assessment -report.pdf.
59 CFPB, 59 CFPB, Ability-to-Repay and Qualified Mortgage Rule Assessment Report, p. 10. , p. 10.
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in the market. According to the CFPB, nearly half of al borrowers only seriously consider one in the market. According to the CFPB, nearly half of al borrowers only seriously consider one
lender or broker before taking out a mortgage.60 Given the range of interest rates available to a lender or broker before taking out a mortgage.60 Given the range of interest rates available to a
consumer at any given time, the CFPB estimates that a consumer could save thousands of dollars consumer at any given time, the CFPB estimates that a consumer could save thousands of dollars
on a mortgage by shopping for the best interest rates.61 on a mortgage by shopping for the best interest rates.61
More recently, the COVID-19 pandemic has impacted the mortgage market. Many consumers More recently, the COVID-19 pandemic has impacted the mortgage market. Many consumers
who would likely have experienced difficulty repaying their mortgage loans received who would likely have experienced difficulty repaying their mortgage loans received loan
forbearance.62.62 Loan forbearance plans can prevent a consumer from becoming delinquent, giving Loan forbearance plans can prevent a consumer from becoming delinquent, giving
the consumer time to repay the debts owed rather than potential y experiencing adverse the consumer time to repay the debts owed rather than potential y experiencing adverse
consequences, such as credit score declines or foreclosure.63 As previously mentioned, the consequences, such as credit score declines or foreclosure.63 As previously mentioned, the
CARES Act established consumer rights to be granted forbearance for federal y backed CARES Act established consumer rights to be granted forbearance for federal y backed
mortgages for up to a year. The CARES Act’s consumer protections and financial institutions’ mortgages for up to a year. The CARES Act’s consumer protections and financial institutions’
loan forbearance programs arguably helped avoid sharp increases in loan delinquencies by loan forbearance programs arguably helped avoid sharp increases in loan delinquencies by
making it possible for many loans to receive forbearance during the spring and summer of 2020.64 making it possible for many loans to receive forbearance during the spring and summer of 2020.64
However, when these programs expire, some consumers may fal delinquent on their loans, However, when these programs expire, some consumers may fal delinquent on their loans,
impacting the mortgage market. In addition, during the second and third quarters of 2020, impacting the mortgage market. In addition, during the second and third quarters of 2020,
mortgage debt balances increased as interest rates reached historic lows, causing more mortgage mortgage debt balances increased as interest rates reached historic lows, causing more mortgage
refinances and other mortgage finance activity.65 refinances and other mortgage finance activity.65
Student Loans
Student loans al ow students and their families to pay for postsecondary education expenses while Student loans al ow students and their families to pay for postsecondary education expenses while
they are enrolled in school.66 Education is an investment intended to al ow students to earn higher they are enrolled in school.66 Education is an investment intended to al ow students to earn higher
incomes after they complete school and throughout the rest of their careers. In general, student incomes after they complete school and throughout the rest of their careers. In general, student
loans are paid back in instal ments—for example, a fixed payment every month for 10 years. loans are paid back in instal ments—for example, a fixed payment every month for 10 years.
Student loan debt has doubled in the past decade.67 Since 2010, student loan debt has been the Student loan debt has doubled in the past decade.67 Since 2010, student loan debt has been the
second-largest category of consumer debt, after mortgage debt.68 In academic year 2018-2019, the second-largest category of consumer debt, after mortgage debt.68 In academic year 2018-2019, the

60 CFPB, 60 CFPB, Consumers’ Mortgage Shopping Experience: A First Look at Results from the National Survey of Mortgage
Borrowers, January 2015, p. 10, at https://files.consumerfinance.gov/f/201501_cfpb_consumers-mortgage-shopping-, January 2015, p. 10, at https://files.consumerfinance.gov/f/201501_cfpb_consumers-mortgage-shopping-
experience.pdf. experience.pdf.
61 CFPB, 61 CFPB, Consumers’ Mortgage Shopping Experiences, p. 8. , p. 8.
62 For more information on consumer loan forbearance during the COVID-19 pandemic, including CARES Act rights 62 For more information on consumer loan forbearance during the COVID-19 pandemic, including CARES Act rights
to forbearance, regulatory guidance, and impacts on consumers and financial institutions, see CRS Report R46356, to forbearance, regulatory guidance, and impacts on consumers and financial institutions, see CRS Report R46356,
COVID-19: Consum er Loan Forbearance and Other Relief Options, coordinated by Cheryl R. Cooper; and CRS , coordinated by Cheryl R. Cooper; and CRS
Insight IN11359, Insight IN11359, COVID-19: Financial Relief and Assistance Resources for Consum ers, by Maura Mullins and , by Maura Mullins and
Jennifer T eefy. Jennifer T eefy.
63 Loans in forbearance are not classified as delinquent, although they may be driven by similar underlying 63 Loans in forbearance are not classified as delinquent, although they may be driven by similar underlying
circumstances for the borrower. circumstances for the borrower.
64 For more information about consumer debt during t he pandemic, see CRS Report R46578, 64 For more information about consumer debt during t he pandemic, see CRS Report R46578, COVID-19: Household
Debt During the Pandem ic, coordinated by Cheryl R. Cooper. , coordinated by Cheryl R. Cooper.
65 Andrew F. Haughwout et al., 65 Andrew F. Haughwout et al., A Monthly Peek into Americans’ Credit During the COVID-19 Pandemic, Federal , Federal
Reserve Bank of New York, Liberty Street Economics, August 6, 2020, at Reserve Bank of New York, Liberty Street Economics, August 6, 2020, at
https://libertystreeteconomics.newyorkfed.org/2020/08/a-monthly-peek-into-americans-credit-during-the-covid-19-https://libertystreeteconomics.newyorkfed.org/2020/08/a-monthly-peek-into-americans-credit-during-the-covid-19-
pandemic.html. pandemic.html.
66 For more information on federal student loan debt, see CRS In Focus IF10158, 66 For more information on federal student loan debt, see CRS In Focus IF10158, A Snapshot of Federal Student Loan
Debt, by David P. Smole. , by David P. Smole.
67 Federal Reserve Bank of New York, 67 Federal Reserve Bank of New York, Quarterly Report on Household Debt and Credit. .
68 Federal Reserve Bank of New York, 68 Federal Reserve Bank of New York, Quarterly Report on Household Debt and Credit. .
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average amount of student loan debt for a bachelor’s degree recipient who borrowed funds to average amount of student loan debt for a bachelor’s degree recipient who borrowed funds to
complete her degree was $28,800.69 complete her degree was $28,800.69
Unlike other consumer financial markets, most student loans are originated and owned by the Unlike other consumer financial markets, most student loans are originated and owned by the
federal government. In general, these federal loans are accessible to large portions of the federal government. In general, these federal loans are accessible to large portions of the
postsecondary student population and their families with limited underwriting of their postsecondary student population and their families with limited underwriting of their
creditworthiness, estimated future income, or other estimates of their ability to repay the loan. creditworthiness, estimated future income, or other estimates of their ability to repay the loan.
The Department of Education (ED) manages most of the federal student loan programs.70 The Department of Education (ED) manages most of the federal student loan programs.70
Congress sets interest rates and other loan terms and conditions in statute each year. ED contracts Congress sets interest rates and other loan terms and conditions in statute each year. ED contracts
out student loan servicing, sets servicing standards in these contracts, and enforces these servic ing out student loan servicing, sets servicing standards in these contracts, and enforces these servic ing
standards. The CFPB is the primary regulator for private student loan lending and servicing and standards. The CFPB is the primary regulator for private student loan lending and servicing and
has also asserted a role in ensuring compliance with consumer protection laws related to the has also asserted a role in ensuring compliance with consumer protection laws related to the
servicing of federal student loans.71 servicing of federal student loans.71
From a regulatory perspective, policymakers continue to debate what role the CFPB should play From a regulatory perspective, policymakers continue to debate what role the CFPB should play
in the federal student loan industry. Consumer groups advocate for more active CFPB in the federal student loan industry. Consumer groups advocate for more active CFPB
enforcement of consumer protection standards in federal student loan servicing. However, enforcement of consumer protection standards in federal student loan servicing. However,
because ED already assumes a significant role in how its contractors service federal student because ED already assumes a significant role in how its contractors service federal student
loans—and taxpayers are responsible for additional servicing costs and default risk for loans—and taxpayers are responsible for additional servicing costs and default risk for
nonpayment—some have questioned the need for the CFPB to regulate in the same space. nonpayment—some have questioned the need for the CFPB to regulate in the same space.
A major concern in the student loan market is whether students are able to manage their debt after A major concern in the student loan market is whether students are able to manage their debt after
graduation. Moreover, unlike other consumer debts, student loans are general y not dischargeable graduation. Moreover, unlike other consumer debts, student loans are general y not dischargeable
during a bankruptcy proceeding except in limited circumstances.72 These concerns have led to during a bankruptcy proceeding except in limited circumstances.72 These concerns have led to
efforts to make loan repayment terms more flexible. For example, some federal student loan efforts to make loan repayment terms more flexible. For example, some federal student loan
borrowers now have the option to choose income-driven repayment plans, under which a borrowers now have the option to choose income-driven repayment plans, under which a
borrower’s monthly loan payments are based on a percentage of the borrower’s discretionary borrower’s monthly loan payments are based on a percentage of the borrower’s discretionary
income. Loan forgiveness programs have also been developed and expanded in recent years, income. Loan forgiveness programs have also been developed and expanded in recent years,
especial y for borrowers in public service occupations. ED manages several of the student loan especial y for borrowers in public service occupations. ED manages several of the student loan
forgiveness and repayment loan programs.73 Reports suggest issues in the implementation of forgiveness and repayment loan programs.73 Reports suggest issues in the implementation of
these programs that make it difficult for borrowers to know their options, understand the process, these programs that make it difficult for borrowers to know their options, understand the process,
and qualify for forgiveness or repayment loan programs.74 and qualify for forgiveness or repayment loan programs.74
Questions have also arisen regarding student loan availability and whether loans should be Questions have also arisen regarding student loan availability and whether loans should be
limited to certain types of educational programs that enable their students to gain quality limited to certain types of educational programs that enable their students to gain quality
employment and successfully pay back their loans.75 Many students make school choice and employment and successfully pay back their loans.75 Many students make school choice and

69 College Board, 69 College Board, Trends in College Pricing and Student Aid 2020, T rends in Higher Education Series, 2020, p. 4, at , T rends in Higher Education Series, 2020, p. 4, at
https://trends.collegeboard.org/sites/default/files/2018-trends-in-student-aid.pdf. https://trends.collegeboard.org/sites/default/files/2018-trends-in-student-aid.pdf.
70 For more information on federal student loan programs, see CRS Report R44845, 70 For more information on federal student loan programs, see CRS Report R44845, Administration of the William D.
Ford Federal Direct Loan Program , by Alexandra Hegji. , by Alexandra Hegji.
71 12 C.F.R. §1090.106. 71 12 C.F.R. §1090.106.
72 For more information on student loans and bankruptcy, see CRS Report R45113, 72 For more information on student loans and bankruptcy, see CRS Report R45113, Bankruptcy and Student Loans, by , by
Kevin M. Lewis; and CRS Legal Sidebar LSB10192, Kevin M. Lewis; and CRS Legal Sidebar LSB10192, How Hard Should it be to Discharge a Student Loan in
Bankruptcy? by Kevin M. Lewis. by Kevin M. Lewis.
73 For more information, see CRS Report R43571, 73 For more information, see CRS Report R43571, Federal Student Loan Forgiveness and Loan Repayment Programs, ,
coordinated by Alexandra Hegji. coordinated by Alexandra Hegji.
74 For more information, see CRS Report R45389, 74 For more information, see CRS Report R45389, The Public Service Loan Forgiveness Program: Selected Issues, by , by
Alexandra Hegji; and CFPB, Alexandra Hegji; and CFPB, Annual Report of the CFPB Student Loan Om budsm an, October 2017, at , October 2017, at
https://files.consumerfinance.gov/f/documents/cfpb_annual-report_student -loan-ombudsman_2017.pdf. https://files.consumerfinance.gov/f/documents/cfpb_annual-report_student -loan-ombudsman_2017.pdf.
75 Stephanie Riegg Cellini and Nicholas T urner, “Gainfully Employed? Assessing the Employment and Earnings of 75 Stephanie Riegg Cellini and Nicholas T urner, “Gainfully Employed? Assessing the Employment and Earnings of
For-Profit College Students Using Administrative Data,” For-Profit College Students Using Administrative Data,” Journal of Hum an Resources, vol. 54, no. 2 (Spring 2019), , vol. 54, no. 2 (Spring 2019),
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curriculum decisions at a young age, when they might not have much experience making curriculum decisions at a young age, when they might not have much experience making
financial decisions.76 In addition, information on program quality and student employment financial decisions.76 In addition, information on program quality and student employment
outcomes after graduation is limited. These information asymmetry problems can make it difficult outcomes after graduation is limited. These information asymmetry problems can make it difficult
for students to make good financial decisions for their future career.77 Questions also exist about for students to make good financial decisions for their future career.77 Questions also exist about
the extent to which student loan access causes tuition prices to rise.78 For example, if access to the extent to which student loan access causes tuition prices to rise.78 For example, if access to
student loans makes it easier for schools to raise tuition, then it might lead to some students being student loans makes it easier for schools to raise tuition, then it might lead to some students being
worse off.79 Some question whether the availability of student loans might harm the larger worse off.79 Some question whether the availability of student loans might harm the larger
economy. For example, researchers debate the effect of student loan debt on future economy. For example, researchers debate the effect of student loan debt on future
macroeconomic performance, including effects on career choice, family formation, home macroeconomic performance, including effects on career choice, family formation, home
ownership, and retirement savings.80 ownership, and retirement savings.80
More recently, the COVID-19 pandemic has impacted the student loan market. As previously More recently, the COVID-19 pandemic has impacted the student loan market. As previously
mentioned, Section 3513 of the CARES Act suspended al payments due and interest accrual for mentioned, Section 3513 of the CARES Act suspended al payments due and interest accrual for
al loans made under the Direct Loan program and the Federal Family Education Loan program al loans made under the Direct Loan program and the Federal Family Education Loan program
held by the Department of Education through September 30, 2020. Since the expiration of this held by the Department of Education through September 30, 2020. Since the expiration of this
law, the Trump Administration has administratively set the federal student loan interest rate to law, the Trump Administration has administratively set the federal student loan interest rate to
zero, and borrowers have not been required to make payments due on their loans, currently zero, and borrowers have not been required to make payments due on their loans, currently
through January 2020.81 These policies have likely helped some consumers who might have had through January 2020.81 These policies have likely helped some consumers who might have had
trouble paying their federal student loans during the COVID-19 pandemic. However, when these trouble paying their federal student loans during the COVID-19 pandemic. However, when these
programs expire, some consumers may fal delinquent on their student loans. programs expire, some consumers may fal delinquent on their student loans.
Automobile Loans
An automobile (auto) loan al ows a consumer to finance the cost of a new or used car.82 Auto An automobile (auto) loan al ows a consumer to finance the cost of a new or used car.82 Auto
loans are usual y structured as instal ment loans, in which a consumer pays a fixed amount of loans are usual y structured as instal ment loans, in which a consumer pays a fixed amount of
money each month for a predetermined time period, frequently three to seven years. Lenders money each month for a predetermined time period, frequently three to seven years. Lenders

pp. 342-370; T iffany Chou, Adam Looney, and T ara Watson, pp. 342-370; T iffany Chou, Adam Looney, and T ara Watson, Measuring Loan Outcom es at Postsecondary Institutions:
Cohort Repaym ent Rates as an Indicator of Student Success and Institutional Accountability , NBER, Working Paper , NBER, Working Paper
no. 23118, February 2017. no. 23118, February 2017.
76 Student loan borrowers may face difficulties in understanding their loan terms and conditions. For more information 76 Student loan borrowers may face difficulties in understanding their loan terms and conditions. For more information
see U.S. Financial Literacy and Education Commission, see U.S. Financial Literacy and Education Commission, Best Practices for Financial Literacy and Education at
Institutions of Higher Education, 2019, at https://home.treasury.gov/system/files/136/Best-Practices-for-Financial-, 2019, at https://home.treasury.gov/system/files/136/Best-Practices-for-Financial-
Literacy-and-Education-at-Institutions-of-Higher-Education2019.pdf. Literacy-and-Education-at-Institutions-of-Higher-Education2019.pdf.
77 Justine Hastings, Christopher A. Neilson, and Seth D. Zimmerman, 77 Justine Hastings, Christopher A. Neilson, and Seth D. Zimmerman, The Effects of Earnings Disclosure on College
Enrollm ent Decisions, NBER, Working Paper no. 21300, February 2018. , NBER, Working Paper no. 21300, February 2018.
78 For more informat ion, see CRS Report R43692, 78 For more informat ion, see CRS Report R43692, Overview of the Relationship between Federal Student Aid and
Increases in College Prices, by Adam Stoll, David H. Bradley, and Shannon M. Mahan . , by Adam Stoll, David H. Bradley, and Shannon M. Mahan .
79 David O. Lucca, T aylor Nadauld, and Karen Shen, 79 David O. Lucca, T aylor Nadauld, and Karen Shen, Credit Supply and the Rise in College Tuition: Evidence from the
Expansion in Federal Student Aid Program s, Federal Reserve Bank of New York, Staff Report no. 733, February 2017; , Federal Reserve Bank of New York, Staff Report no. 733, February 2017;
Stephanie Riegg Cellini and Claudia Goldin, “Does Federal Student Aid Raise T uition? New Evidence on For-Profit Stephanie Riegg Cellini and Claudia Goldin, “Does Federal Student Aid Raise T uition? New Evidence on For-Profit
Colleges,” Colleges,” American Economic Journal: Economic Policy, vol. 6, no. 4 (November 2014), pp. 174-206. , vol. 6, no. 4 (November 2014), pp. 174-206.
80 Some examples of this literature include: Marco Di Maggio, Ankit Kalda, and Vincent Yao, 80 Some examples of this literature include: Marco Di Maggio, Ankit Kalda, and Vincent Yao, Second Chance: Life
without Student Debt, NBER, Working Paper no. 25810, May 2019; Katharine G. Abraham et al., , NBER, Working Paper no. 25810, May 2019; Katharine G. Abraham et al., Behavioral Effects of
Student Loan Repaym ent Plan Options on Borrowers’ Career Decisions: Theory and Experim ental Evidence, NBER, , NBER,
Working Paper no. 24804, July 2018; and Holger M. Mueller and Constantine Yannelis, Working Paper no. 24804, July 2018; and Holger M. Mueller and Constantine Yannelis, Students in Distress: Labor
Market Shocks, Student Loan Default, and Federal Insurance Program s, NBER, Working Paper no. 23284, March , NBER, Working Paper no. 23284, March
2017. 2017.
81 For more information about federal student loan debt relief in the context of COVID-19, see CRS Report R46314, 81 For more information about federal student loan debt relief in the context of COVID-19, see CRS Report R46314,
Federal Student Loan Debt Relief in the Context of COVID-19, by Alexandra Hegji. , by Alexandra Hegji.
82 For more information on the auto lending market, see CRS In Focus IF11192, 82 For more information on the auto lending market, see CRS In Focus IF11192, The Automobile Lending Market and
Policy Issues, by Cheryl R. Cooper. , by Cheryl R. Cooper.
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often require consumers to make a down payment to obtain the loan. Auto loans are secured by often require consumers to make a down payment to obtain the loan. Auto loans are secured by
the automobile, so if a consumer cannot pay the loan, the lender can repossess the car to recoup the automobile, so if a consumer cannot pay the loan, the lender can repossess the car to recoup
the loan’s cost. the loan’s cost.
Auto loans are the third-largest consumer credit market. At the end of 2020, 114 mil ion Auto loans are the third-largest consumer credit market. At the end of 2020, 114 mil ion
consumers—roughly 45% American adults—had an auto loan, and auto loan debt outstanding consumers—roughly 45% American adults—had an auto loan, and auto loan debt outstanding
totaled almost $1.4 tril ion.83 According to the CFPB, terms of auto loans have increased recently. totaled almost $1.4 tril ion.83 According to the CFPB, terms of auto loans have increased recently.
In 2009, 26% of auto loans originated were for six or more years, whereas in 2017, these loans In 2009, 26% of auto loans originated were for six or more years, whereas in 2017, these loans
constituted 42% of originations.84 This trend may be due in part to rising vehicle costs85 and constituted 42% of originations.84 This trend may be due in part to rising vehicle costs85 and
consumers keeping their cars longer.86 consumers keeping their cars longer.86
Reportedly, most auto loans are arranged at the auto dealership where the car is purchased, Reportedly, most auto loans are arranged at the auto dealership where the car is purchased,
referred to as the indirect auto financing market.87 Indirect auto financing involves the auto dealer referred to as the indirect auto financing market.87 Indirect auto financing involves the auto dealer
forwarding information about the prospective borrower to one or more lenders to solicit potential forwarding information about the prospective borrower to one or more lenders to solicit potential
financing offers.88 The dealer is often compensated for originating the loan through a financing offers.88 The dealer is often compensated for originating the loan through a
discretionary markup, which is the difference between the lender’s interest rate and the rate a discretionary markup, which is the difference between the lender’s interest rate and the rate a
consumer is charged. The lender may cap the possible size of the dealer markup (e.g., 2.5%) to consumer is charged. The lender may cap the possible size of the dealer markup (e.g., 2.5%) to
limit the loan from becoming too susceptible to default. Auto dealers and consumers can limit the loan from becoming too susceptible to default. Auto dealers and consumers can
negotiate the loan’s interest rate within this range, and therefore indirectly determine how much negotiate the loan’s interest rate within this range, and therefore indirectly determine how much
to compensate the auto dealer for the convenience of arranging the loan.89 to compensate the auto dealer for the convenience of arranging the loan.89
Alternatively, consumers can go directly to a bank, credit union, or other lender for an auto loan Alternatively, consumers can go directly to a bank, credit union, or other lender for an auto loan
before making their purchases, avoiding the dealer markup cost.90 Consumers may prefer before making their purchases, avoiding the dealer markup cost.90 Consumers may prefer
arranging auto financing through an auto dealer or directly through a lender, depending on their arranging auto financing through an auto dealer or directly through a lender, depending on their

83 Federal Reserve Bank of New York, Center for Microeconomic Data, 83 Federal Reserve Bank of New York, Center for Microeconomic Data, Quarterly Report of Household Debt and
Credit, 2020:Q3, November 2020, Underlying Data Appendix p.3 -4, at https://www.newyorkfed.org/microeconomics/, 2020:Q3, November 2020, Underlying Data Appendix p.3 -4, at https://www.newyorkfed.org/microeconomics/
databank.html. databank.html.
84 Kenneth P. Brevoort et al., “ Growth in Longer-T erm Auto,” CFPB, 84 Kenneth P. Brevoort et al., “ Growth in Longer-T erm Auto,” CFPB, Quarterly Consumer Credit Trends, November , November
2017, p. 4, at https://s3.amazonaws.com/files.consumerfinance.gov/f/documents/cfpb_consumer-credit-trends_longer-2017, p. 4, at https://s3.amazonaws.com/files.consumerfinance.gov/f/documents/cfpb_consumer-credit-trends_longer-
term-auto-loans_2017Q2.pdf. term-auto-loans_2017Q2.pdf.
85 David Pan, “Used-Car Prices Hit a 13-Year High as More Late-Model Cars Come Off Lease,” 85 David Pan, “Used-Car Prices Hit a 13-Year High as More Late-Model Cars Come Off Lease,” USA Today, June 19, , June 19,
2018, at https://www.usatoday.com/story/money/cars/2018/06/15/used-cars-price-hit-record-high/700362002/. 2018, at https://www.usatoday.com/story/money/cars/2018/06/15/used-cars-price-hit-record-high/700362002/.
Adrienne Roberts, “Used-Car Sales Boom as New Cars Get T oo Pricey for Many,” Adrienne Roberts, “Used-Car Sales Boom as New Cars Get T oo Pricey for Many,” Wall Street Journal, September 23, , September 23,
2018, at https://www.wsj.com/articles/used-car-sales-boom-as-new-cars-get-too-pricey-for-many-1537700401. 2018, at https://www.wsj.com/articles/used-car-sales-boom-as-new-cars-get-too-pricey-for-many-1537700401.
86 “Make Your Car Last 200,000 Miles; How to Go the Distance and Save T ens of T housands of Dollars,” 86 “Make Your Car Last 200,000 Miles; How to Go the Distance and Save T ens of T housands of Dollars,” Consumer
Reports, November 6, 2018, at https://www.consumerreports.org/car-repair-maintenance/make-your-car-last-200-000-, November 6, 2018, at https://www.consumerreports.org/car-repair-maintenance/make-your-car-last-200-000-
miles/. miles/.
87 CFPB, 87 CFPB, Consumer Voices on Automobile Financing, June 2016, p. 6, at https://s3.amazonaws.com/, June 2016, p. 6, at https://s3.amazonaws.com/
files.consumerfinance.gov/f/documents/201606_cfpb_consumer-voices-on-automobile-financing.pdf. files.consumerfinance.gov/f/documents/201606_cfpb_consumer-voices-on-automobile-financing.pdf.
88 CFPB, “ What is the Difference Between Dealer-Arranged and Bank Financing?” November 16, 2016, at 88 CFPB, “ What is the Difference Between Dealer-Arranged and Bank Financing?” November 16, 2016, at
https://www.consumerfinance.gov/ask-cfpb/what -is-the-difference-between-dealer-arranged-and-bank-financing-en-https://www.consumerfinance.gov/ask-cfpb/what -is-the-difference-between-dealer-arranged-and-bank-financing-en-
759/. 759/.
89 CFPB, “ What is the Difference Between Dealer-Arranged and Bank Financing?” 89 CFPB, “ What is the Difference Between Dealer-Arranged and Bank Financing?”
90 Some auto dealerships extend credit themselves, called “Buy Here, Pay Here,” commonly marketing to consumers 90 Some auto dealerships extend credit themselves, called “Buy Here, Pay Here,” commonly marketing to consumers
with subprime or no credit history. T hese dealers do not work on behalf of other lenders, but keep the loans on their with subprime or no credit history. T hese dealers do not work on behalf of other lenders, but keep the loans on their
books. T hese loans tend to have higher interest rates and be more expensive for consumers. For more information see books. T hese loans tend to have higher interest rates and be more expensive for consumers. For more information see
CFPB, “What is a “No Credit CheckCFPB, “What is a “No Credit Check” or “Buy Here, Pay Here” Auto Loan?” June 8, 2016, at Buy Here, Pay Here” Auto Loan?” June 8, 2016, at
https://www.consumerfinance.gov/ask-cfpb/what -is-a-no-credit-check-or-buy-here-pay-here-auto-loan-en-887/. https://www.consumerfinance.gov/ask-cfpb/what -is-a-no-credit-check-or-buy-here-pay-here-auto-loan-en-887/.
If a consumer cannot pay cash for a new or used car, the consumer also has the option to lease the car. In a leasing If a consumer cannot pay cash for a new or used car, the consumer also has the option to lease the car. In a leasing
arrangement, the consumer pays for the right to drive the car for a fixed period of time, often three years. Unlike an arrangement, the consumer pays for the right to drive the car for a fixed period of time, often three years. Unlike an
auto loan, the consumer does not own the car. Leasing arrangements are not considered consumer loans and, therefore, auto loan, the consumer does not own the car. Leasing arrangements are not considered consumer loans and, therefore,
are not regulated like auto loans. are not regulated like auto loans.
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preferences regarding convenience, cost, and other factors. In either case, the lender usual y owns preferences regarding convenience, cost, and other factors. In either case, the lender usual y owns
the loan and can service it itself or through a third-party company.91 the loan and can service it itself or through a third-party company.91
In the indirect auto financing market, the dealer markup arrangement can incentivize the auto In the indirect auto financing market, the dealer markup arrangement can incentivize the auto
dealer to negotiate—and profit from—a higher interest rate with the consumer. The auto dealer dealer to negotiate—and profit from—a higher interest rate with the consumer. The auto dealer
may also choose the lender who compensates it the most—for example, the lender that al ows the may also choose the lender who compensates it the most—for example, the lender that al ows the
largest markup, rather than the lender offering the best terms for the consumer. Although other largest markup, rather than the lender offering the best terms for the consumer. Although other
consumer credit markets include markups, it is less common for bank or credit union lenders to consumer credit markets include markups, it is less common for bank or credit union lenders to
al ow an outside broker in the transaction discretion as to the amount of the markup. For example, al ow an outside broker in the transaction discretion as to the amount of the markup. For example,
while the Real Estate Settlement Procedures Act92 restricts such practices in the mortgage market, while the Real Estate Settlement Procedures Act92 restricts such practices in the mortgage market,
after reports of mortgage brokers steering customers to more expensive loans due to after reports of mortgage brokers steering customers to more expensive loans due to
“kickbacks”—unearned fees for a referral—in the lead-up to the financial crisis, Congress in “kickbacks”—unearned fees for a referral—in the lead-up to the financial crisis, Congress in
2010 took actions to further restrict these practices.93 2010 took actions to further restrict these practices.93
The information asymmetry in the indirect auto finance market sometimes can lead to higher The information asymmetry in the indirect auto finance market sometimes can lead to higher
prices for consumers. Consumers are not always aware that they can negotiate on loan terms prices for consumers. Consumers are not always aware that they can negotiate on loan terms
when obtaining dealer-arranged financing.94 For this reason, many consumers do not shop for when obtaining dealer-arranged financing.94 For this reason, many consumers do not shop for
auto loans.95 Consumers’ lack of awareness—combined with auto dealers’ discretion on auto loans.95 Consumers’ lack of awareness—combined with auto dealers’ discretion on
markups—may leave them vulnerable to bad actors, making the auto loan market uncompetitive. markups—may leave them vulnerable to bad actors, making the auto loan market uncompetitive.
The CFPB oversees consumer protection compliance for auto lenders, but not for auto dealers’ The CFPB oversees consumer protection compliance for auto lenders, but not for auto dealers’
typical activities. Dodd-Frank states that “the Bureau may not exercise any [authority] over a typical activities. Dodd-Frank states that “the Bureau may not exercise any [authority] over a
motor vehicle dealer that is predominantly engaged in the sale and servicing of motor vehicles, motor vehicle dealer that is predominantly engaged in the sale and servicing of motor vehicles,
the leasing and servicing of motor vehicles, or both.”96 The scope of this exclusion continues to the leasing and servicing of motor vehicles, or both.”96 The scope of this exclusion continues to
be debated, given the key role auto dealers play in the auto lending market. be debated, given the key role auto dealers play in the auto lending market.
In 2013, the CFPB issued a controversial bulletin providing guidance to indirect auto lenders on In 2013, the CFPB issued a controversial bulletin providing guidance to indirect auto lenders on
how to comply with the Equal Credit Opportunity Act (ECOA).97 This guidance general y stated how to comply with the Equal Credit Opportunity Act (ECOA).97 This guidance general y stated
that indirect auto lenders should impose controls on or revise and monitor dealer markups to that indirect auto lenders should impose controls on or revise and monitor dealer markups to
ensure they do not result in disparate impact based on race or other protected classes. From 2013 ensure they do not result in disparate impact based on race or other protected classes. From 2013
to 2016, the CFPB, in coordination with the Department of Justice, issued consent orders to set le to 2016, the CFPB, in coordination with the Department of Justice, issued consent orders to set le
enforcement actions against American Honda Finance Corporation, Toyota Motor Credit enforcement actions against American Honda Finance Corporation, Toyota Motor Credit
Corporation, Fifth Third Bank, and Al y Financial & Al y Bank for ECOA violations in indirect Corporation, Fifth Third Bank, and Al y Financial & Al y Bank for ECOA violations in indirect
auto lending markets.98 The CFPB general y al eged that these institutions violated ECOA by auto lending markets.98 The CFPB general y al eged that these institutions violated ECOA by

91 CFPB, “ What is the Difference Between Dealer-Arranged and Bank Financing91 CFPB, “ What is the Difference Between Dealer-Arranged and Bank Financing?” at ” at
https://www.consumerfinance.gov/ask-cfpb/what -is-the-difference-between-dealer-arranged-and-bank-financing-en-https://www.consumerfinance.gov/ask-cfpb/what -is-the-difference-between-dealer-arranged-and-bank-financing-en-
759/. 759/.
92 12 U.S.C. §§2601-2617. 92 12 U.S.C. §§2601-2617.
93 P.L. 111-203, §1403. 93 P.L. 111-203, §1403.
94 CFPB, 94 CFPB, Consumer Voices on Automobile Financing, June 2016, p. 17, at https://s3.amazonaws.com/, June 2016, p. 17, at https://s3.amazonaws.com/
files.consumerfinance.gov/f/documents/201606_cfpb_consumer-voices-on-automobile-financing.pdf. files.consumerfinance.gov/f/documents/201606_cfpb_consumer-voices-on-automobile-financing.pdf.
95 CFPB, 95 CFPB, Consumer Voices on Automobile Financing, pp. 17, 22. , pp. 17, 22.
96 P.L. 111-203, §1029; 12 U.S.C. §5519. 96 P.L. 111-203, §1029; 12 U.S.C. §5519.
97 CFPB, 97 CFPB, Indirect Auto Lending and Compliance with the Equal Credit Opportunity Act, CFPB Bulletin 2013-02, , CFPB Bulletin 2013-02,
March 21, 2013, at https://files.consumerfinance.gov/f/201303_cfpb_march_-Auto-Finance-Bulletin.pdf. March 21, 2013, at https://files.consumerfinance.gov/f/201303_cfpb_march_-Auto-Finance-Bulletin.pdf.
98 CFPB, 98 CFPB, CFPB and DOJ Reach Resolution with Honda to Address Discriminatory Auto Loan Pricing , July 14, 2015, , July 14, 2015,
at https://www.consumerfinance.gov/about -us/newsroom/cfpb-and-doj-reach-resolution-with-honda-to-address-at https://www.consumerfinance.gov/about -us/newsroom/cfpb-and-doj-reach-resolution-with-honda-to-address-
discriminatory-auto-loan-pricing/; discriminatory-auto-loan-pricing/; CFPB and DOJ Reach Resolution With Toyota Motor Credit To Address Loan
Pricing Policies With Discrim inatory Effects, February 2, 2016, at https://www.consumerfinance.gov/about-us/, February 2, 2016, at https://www.consumerfinance.gov/about-us/
newsroom/cfpb-and-doj-reach-resolution-with-toyota-motor-credit-to-address-loan-pricing-policies-with-newsroom/cfpb-and-doj-reach-resolution-with-toyota-motor-credit-to-address-loan-pricing-policies-with-
discriminatory-effects/; CFPB, discriminatory-effects/; CFPB, CFPB Takes Action Against Fifth Third Bank for Auto -Lending Discrim ination and
Illegal Credit Card Practices, September 28, 2015, at https://www.consumerfinance.gov/about -us/newsroom/cfpb-, September 28, 2015, at https://www.consumerfinance.gov/about -us/newsroom/cfpb-
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permitting their dealers to charge markups that resulted in disparate impacts on the basis of race permitting their dealers to charge markups that resulted in disparate impacts on the basis of race
and ethnicity. Auto lenders general y do not collect information on the race or ethnicity of and ethnicity. Auto lenders general y do not collect information on the race or ethnicity of
borrowers. In the absence of direct evidence, the CFPB used a new proxy methodology, a borrowers. In the absence of direct evidence, the CFPB used a new proxy methodology, a
statistical method developed for estimating race and ethnicity using geography and surname-statistical method developed for estimating race and ethnicity using geography and surname-
based information.99 Although this method may not be able to flawlessly identify race or ethnicity based information.99 Although this method may not be able to flawlessly identify race or ethnicity
for an individual, aggregate, company-wide estimates of disparate impacts are much more for an individual, aggregate, company-wide estimates of disparate impacts are much more
precise. In general, these institutions did not admit or deny the al egations as part of the consent precise. In general, these institutions did not admit or deny the al egations as part of the consent
orders but, among other things, paid monetary penalties and agreed to limit their markups to orders but, among other things, paid monetary penalties and agreed to limit their markups to
reduce these al eged disparities. reduce these al eged disparities.
The CFPB’s indirect auto lender guidance and the resulting enforcement actions were the subject The CFPB’s indirect auto lender guidance and the resulting enforcement actions were the subject
of significant attention and debate. For example, some expressed the view that the guidance went of significant attention and debate. For example, some expressed the view that the guidance went
beyond what ECOA and the Dodd-Frank Act require of auto lenders, while others considered it an beyond what ECOA and the Dodd-Frank Act require of auto lenders, while others considered it an
important step toward addressing discrimination.100 In 2018, Congress rescinded the guidance important step toward addressing discrimination.100 In 2018, Congress rescinded the guidance
pursuant to the Congressional Review Act.101 Nevertheless, some observers argue that pursuant to the Congressional Review Act.101 Nevertheless, some observers argue that
discrimination in auto lending markups continues to be an area of concern.102 discrimination in auto lending markups continues to be an area of concern.102
More recently, the economic impacts of the COVID-19 pandemic have caused some consumers to More recently, the economic impacts of the COVID-19 pandemic have caused some consumers to
experience difficulty repaying their auto loans. In response, many financial institutions experience difficulty repaying their auto loans. In response, many financial institutions
voluntarily offered loan forbearance and other financial relief options for affected consumers. voluntarily offered loan forbearance and other financial relief options for affected consumers.
According to the CFPB, auto loans receiving payment assistance increased from about 1.5% in According to the CFPB, auto loans receiving payment assistance increased from about 1.5% in
February 2020 to about 3% in June 2020.103 During the pandemic, credit standards for auto loans February 2020 to about 3% in June 2020.103 During the pandemic, credit standards for auto loans
have tightened and demand for cars has gone down.104 Yet, despite these negative impacts on the have tightened and demand for cars has gone down.104 Yet, despite these negative impacts on the
auto lending market, some industry observers are optimistic about future industry growth after auto lending market, some industry observers are optimistic about future industry growth after
concerns about the COVID-19 pandemic dissipate and macroeconomic conditions improve.105 concerns about the COVID-19 pandemic dissipate and macroeconomic conditions improve.105

takes-action-against -fifth-third-bank-for-auto-lending-discrimination-and-illegal-credit-card-practices/; CFPB, takes-action-against -fifth-third-bank-for-auto-lending-discrimination-and-illegal-credit-card-practices/; CFPB, CFPB
and DOJ Order Ally to Pay $80 Million to Consum ers Harm ed by Discrim inatory Auto Loan Pricing , December 20, , December 20,
2013, at https://www.consumerfinance.gov/about-us/newsroom/cfpb-and-doj-order-ally-to-pay-80-million-to-2013, at https://www.consumerfinance.gov/about-us/newsroom/cfpb-and-doj-order-ally-to-pay-80-million-to-
consumers-harmed-by-discriminatory-auto-loan-pricing/. consumers-harmed-by-discriminatory-auto-loan-pricing/.
99 CFPB, 99 CFPB, Using Publicly Available Information to Proxy for Unidentified Race and Ethnicity: A Methodology and
Assessm ent, 2014, at https://files.consumerfinance.gov/f/201409_cfpb_report_proxy-methodology.pdf. , 2014, at https://files.consumerfinance.gov/f/201409_cfpb_report_proxy-methodology.pdf.
100 Neil Haggerty, “T rump Makes Repeal of CFPB Auto Lending Rule Official,” 100 Neil Haggerty, “T rump Makes Repeal of CFPB Auto Lending Rule Official,” American Banker, May 21, 2018. , May 21, 2018.
101 P.L. 104-121. 101 P.L. 104-121.
102 U.S. Congress, House Committee on Financial Services, Subcommittee on Oversight and Investigations, 102 U.S. Congress, House Committee on Financial Services, Subcommittee on Oversight and Investigations, Examining
Discrim ination in the Autom obile Loan and Insurance Industries, 116th Cong., 1st sess., May 1, 2019. , 116th Cong., 1st sess., May 1, 2019.
103 T he CFPB calculates payment assistance “as an account being reported with a zero scheduled payment due despite a 103 T he CFPB calculates payment assistance “as an account being reported with a zero scheduled payment due despite a
positive balance.” T he CFPB notes that “the variation in the incidence of consumer assistance reported ... may have as positive balance.” T he CFPB notes that “the variation in the incidence of consumer assistance reported ... may have as
much to do with how furnishers in each market report to the [credit bureaus] as it does with the incidence of actual much to do with how furnishers in each market report to the [credit bureaus] as it does with the incidence of actual
assistance.” Ryan Sandler and Judith Ricks, assistance.” Ryan Sandler and Judith Ricks, Household Debt and Credit, August 2020, pp. 13-15. Other sources , August 2020, pp. 13-15. Other sources
calculate estimates differently than the CFPB, and report different percentages. For example, T ransunion creates a calculate estimates differently than the CFPB, and report different percentages. For example, T ransunion creates a
broader metric called “accounts in hardship,” which includes loans “affected by natural/declared disaster, accounts broader metric called “accounts in hardship,” which includes loans “affected by natural/declared disaster, accounts
reported as in forbearance, accounts reported as deferred or payment due amount removal, or freezing of account status reported as in forbearance, accounts reported as deferred or payment due amount removal, or freezing of account status
and/or past due amount.” T ransunion reports 7.2% of auto accounts in hardship in June 2020. See T ransunion, and/or past due amount.” T ransunion reports 7.2% of auto accounts in hardship in June 2020. See T ransunion, Monthly
Industry Snapshot: Financial Services, at https://www.transunion.com/monthly-industry-snapshot-fs. , at https://www.transunion.com/monthly-industry-snapshot-fs.
104 According to the Federal Reserve’s senior loan officer survey in the summer and fall of 2020, banks tightened credit 104 According to the Federal Reserve’s senior loan officer survey in the summer and fall of 2020, banks tightened credit
standards for all types of household lending, including auto loans, see Board of Governor s of the Federal Reserve standards for all types of household lending, including auto loans, see Board of Governor s of the Federal Reserve
System, System, Senior Loan Officer Opinion Survey on Bank Lending Practices, July and October 2020, at , July and October 2020, at
https://www.federalreserve.gov/data/sloos.htm; Anthony Gambardella, https://www.federalreserve.gov/data/sloos.htm; Anthony Gambardella, Auto Leasing, Loans & Sales Financing in the
US, IBIS World, US Industry (NAICS) Report 52222, September 2020. , IBIS World, US Industry (NAICS) Report 52222, September 2020.
105 Anthony Gambardella, 105 Anthony Gambardella, Auto Leasing, Loans & Sales Financing in the US, IBIS World, US Industry (NAICS) , IBIS World, US Industry (NAICS)
Report 52222, September 2020. Report 52222, September 2020.
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Credit Cards and Payments
Retail payment services al ow consumers to pay merchants for goods and services without cash, Retail payment services al ow consumers to pay merchants for goods and services without cash,
sometimes cal ed a payment sometimes cal ed a payment transaction.106 Consumers can use these services to pay bil s, make .106 Consumers can use these services to pay bil s, make
person-to-person payments, or withdraw cash. These services can be found in many consumer person-to-person payments, or withdraw cash. These services can be found in many consumer
financial products, including credit, debit, and prepaid cards and checking accounts. Given the financial products, including credit, debit, and prepaid cards and checking accounts. Given the
rise of internet shopping, retail payment services have become especial y critical for consumers to rise of internet shopping, retail payment services have become especial y critical for consumers to
be able to make daily purchases. The most common methods of payment are debit cards, credit be able to make daily purchases. The most common methods of payment are debit cards, credit
cards, and cash, respectively.107 Debit and prepaid cards general y are associated with a funded cards, and cash, respectively.107 Debit and prepaid cards general y are associated with a funded
account from which the consumer draws money to pay for transactions. In contrast, credit cards account from which the consumer draws money to pay for transactions. In contrast, credit cards
al ow a consumer to pay for transactions using credit. al ow a consumer to pay for transactions using credit.
According to the CFPB, at the end of 2018, just under 170 mil ion consumers, roughly two-thirds According to the CFPB, at the end of 2018, just under 170 mil ion consumers, roughly two-thirds
of the U.S. adult population, had a credit card.108 Credit cards provide consumers with unsecured of the U.S. adult population, had a credit card.108 Credit cards provide consumers with unsecured
revolving credit, meaning the loan is not secured with any collateral if the consumer defaults (and revolving credit, meaning the loan is not secured with any collateral if the consumer defaults (and
thus, the lender has no recourse to seize any property connected to the loan in case of consumer thus, the lender has no recourse to seize any property connected to the loan in case of consumer
default). In some cases, credit cards are used for payment transaction convenience and paid in full default). In some cases, credit cards are used for payment transaction convenience and paid in full
each month without incurring interest. These types of users are sometimes cal ed each month without incurring interest. These types of users are sometimes cal ed transactors. In . In
other cases, credit card users borrow money up to a other cases, credit card users borrow money up to a credit limit and make only a and make only a minimum
payment (general y a small portion of the outstanding balance) on the debt each month, incurring (general y a small portion of the outstanding balance) on the debt each month, incurring
interest on the unpaid balance. These types of credit card users are cal ed interest on the unpaid balance. These types of credit card users are cal ed revolvers. In 2018, . In 2018,
average percentage rates for general purpose credit cards were just under 18%.109 Although a average percentage rates for general purpose credit cards were just under 18%.109 Although a
consumer can move between transacting and revolving, consumers tend to show persistent consumer can move between transacting and revolving, consumers tend to show persistent
payment behavior.110 According to a Fed survey, roughly half of consumers transact and half payment behavior.110 According to a Fed survey, roughly half of consumers transact and half
revolve.111 revolve.111
Credit cards are valuable to consumers in part because they are flexible—both the amount Credit cards are valuable to consumers in part because they are flexible—both the amount
borrowed and the amount paid can vary each month according to the consumer’s needs. For borrowed and the amount paid can vary each month according to the consumer’s needs. For
example, if a household experiences a financial shock, such as unemployment or a car or house example, if a household experiences a financial shock, such as unemployment or a car or house
repair, the household can use credit cards to borrow money quickly and easily, which the repair, the household can use credit cards to borrow money quickly and easily, which the
household can then pay back when it is able. Credit cards can also be used to smooth household can then pay back when it is able. Credit cards can also be used to smooth
consumption over time, which may be particularly valuable to households with tight budgets.112 consumption over time, which may be particularly valuable to households with tight budgets.112

106 For more information on consumer payment services, see CRS Report R43364, 106 For more information on consumer payment services, see CRS Report R43364, Recent Trends in Consumer Retail
Paym ent Services Delivered by Depository Institutions, by Darryl E. Getter; and CRS Report R45927, , by Darryl E. Getter; and CRS Report R45927, U.S. Paym ent
System Policy Issues: Faster Paym ents and Innovation , by Cheryl R. Cooper, Marc Labonte, and David W. Perkins. , by Cheryl R. Cooper, Marc Labonte, and David W. Perkins.
107 Kevin Foster, Claire Greene, and Joanna Stavins, 107 Kevin Foster, Claire Greene, and Joanna Stavins, The 2019 Survey of Consumer Payment Choice: Summary Results, ,
Federal Reserve Bank of Atlanta, Research Data Reports, No. 20 -3, 2020, p. 12, at https://www.frbatlanta.org/banking-Federal Reserve Bank of Atlanta, Research Data Reports, No. 20 -3, 2020, p. 12, at https://www.frbatlanta.org/banking-
and-payments/consumer-payments/survey-of-consumer-payment-choice/2019-survey. and-payments/consumer-payments/survey-of-consumer-payment-choice/2019-survey.
108 CFPB, 108 CFPB, The Consumer Credit Card Market, August 2019, p. 33, at https://www.consumerfinance.gov/data-research/, August 2019, p. 33, at https://www.consumerfinance.gov/data-research/
research-reports/the-consumer-credit-market-2019/. research-reports/the-consumer-credit-market-2019/.
109 CFPB, 109 CFPB, The Consumer Credit Card Market, August 2019, p. 55. , August 2019, p. 55.
110 Benjamin J. Keys and Jialan Wang, “Minimum Payments and Debt Paydown in Con sumer Credit Cards,” 110 Benjamin J. Keys and Jialan Wang, “Minimum Payments and Debt Paydown in Con sumer Credit Cards,” Journal of
Financial Econom ics, 2018, pp. 528-548; and Daniel Grodzicki and Sergei Kulaev, , 2018, pp. 528-548; and Daniel Grodzicki and Sergei Kulaev, Data Point: Credit Card Revolvers, ,
CFPB, Office of Research, July 2019, pp. 8 -10, at https://www.consumerfinance.gov/data-research/research-reports/CFPB, Office of Research, July 2019, pp. 8 -10, at https://www.consumerfinance.gov/data-research/research-reports/
data-point -credit-card-revolvers/. data-point -credit-card-revolvers/.
111 Federal Reserve Board, 111 Federal Reserve Board, Report on the Economic Well-Being of U.S. Households in 2019, Featuring Supplemental Featuring Supplemental
Data from April 2020, May 2020, p. 29, at https://www.federalreserve.gov/newsevents/pressreleases/Data from April 2020, May 2020, p. 29, at https://www.federalreserve.gov/newsevents/pressreleases/
other20200514a.htm. other20200514a.htm.
112 Daryl Collins et al., 112 Daryl Collins et al., Portfolios of the Poor: How the World’s Poor Live on $2 a Day (Princeton, NJ: Princeton (Princeton, NJ: Princeton
University Press, 2009), Chapter 3 & 7. University Press, 2009), Chapter 3 & 7.
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However, credit cards also are structured in a way that can take advantage of many consumer However, credit cards also are structured in a way that can take advantage of many consumer
decisionmaking biases, which can result in households incurring debt. For example, mental decisionmaking biases, which can result in households incurring debt. For example, mental
accounting biases can lead to overspending, and credit cards al ow households to overspend accounting biases can lead to overspending, and credit cards al ow households to overspend
easily, perhaps without even realizing it until their monthly bil is due. Research suggests that the easily, perhaps without even realizing it until their monthly bil is due. Research suggests that the
half of credit card holders who are persistently in credit card debt are likely to be present biased half of credit card holders who are persistently in credit card debt are likely to be present biased
and have little liquid savings.113 and have little liquid savings.113
The type of information disclosed in a typical credit card statement may play an important role in The type of information disclosed in a typical credit card statement may play an important role in
how revolving consumers repay credit card debt. Research suggests that many people are how revolving consumers repay credit card debt. Research suggests that many people are
anchored by the minimum payment amounts included in each statement, which bias their anchored by the minimum payment amounts included in each statement, which bias their
decisions about how much to pay each month.114 Specifical y, the research suggests these decisions about how much to pay each month.114 Specifical y, the research suggests these
consumers are either paying the minimum payment or employing heuristics to pay near the consumers are either paying the minimum payment or employing heuristics to pay near the
minimum (e.g., twice the minimum or $20 above the minimum).115 This cue may unconsciously minimum (e.g., twice the minimum or $20 above the minimum).115 This cue may unconsciously
influence consumers to make a lower payment than they otherwise would. influence consumers to make a lower payment than they otherwise would.
For these reasons, the Credit Card Accountability Responsibility and Disclosure Act of 2009 For these reasons, the Credit Card Accountability Responsibility and Disclosure Act of 2009
(CARD Act) established new disclosure requirements for credit cards.116 The CARD Act changed (CARD Act) established new disclosure requirements for credit cards.116 The CARD Act changed
the periodic disclosure credit card companies are required to make to consumers to include the periodic disclosure credit card companies are required to make to consumers to include
information on how long it wil take to pay off a consumer’s debt if the consumer makes only the information on how long it wil take to pay off a consumer’s debt if the consumer makes only the
minimum payment. The disclosure also now includes the amount a consumer would have to pay minimum payment. The disclosure also now includes the amount a consumer would have to pay
to repay the debt in three years and how much interest the consumer would save by paying the to repay the debt in three years and how much interest the consumer would save by paying the
debt off in three years compared with the minimum payment. These changes in the disclosure debt off in three years compared with the minimum payment. These changes in the disclosure
requirements were intended to nudge consumers to pay more on their credit cards each month, but requirements were intended to nudge consumers to pay more on their credit cards each month, but
research suggests that the changes did not have as big of an effect on consumer payment behavior research suggests that the changes did not have as big of an effect on consumer payment behavior
as intended, in part because online portals—which have become a popular method of credit card as intended, in part because online portals—which have become a popular method of credit card
payment—are not required to contain these disclosures.117 payment—are not required to contain these disclosures.117
More recently, the economic impacts of the COVID-19 pandemic have caused some consumers to More recently, the economic impacts of the COVID-19 pandemic have caused some consumers to
experience difficulty repaying their credit cards. In response, many financial institutions experience difficulty repaying their credit cards. In response, many financial institutions
voluntarily offered loan forbearance and other financial relief options for affected consumers. voluntarily offered loan forbearance and other financial relief options for affected consumers.
According to the CFPB, credit card loans in forbearance increased from about 1.5% in February According to the CFPB, credit card loans in forbearance increased from about 1.5% in February
2020 to about 3.5% in June 2020.118 In addition, evidence suggests that credit card markets may 2020 to about 3.5% in June 2020.118 In addition, evidence suggests that credit card markets may

113 Scott Fulford and Scott Schuh, 113 Scott Fulford and Scott Schuh, Credit Card Utilization and Consumption Over the Life Cycle and Business Cycle, ,
Federal Reserve Bank of Boston, Research Department Working Paper, no. 17-14 (2017), pp. 4-5. Federal Reserve Bank of Boston, Research Department Working Paper, no. 17-14 (2017), pp. 4-5.
114 Benjamin Keys and Jialan Wang, “Minimum Payments and Debt Paydown in Consumer Credit Cards,” 114 Benjamin Keys and Jialan Wang, “Minimum Payments and Debt Paydown in Consumer Credit Cards,” Journal of
Financial Econom ics, vol. 131, no. 3 (March 2019), pp. 528 -548. , vol. 131, no. 3 (March 2019), pp. 528 -548.
115 Benjamin Keys and Jialan Wang, “Minimum Payments and Debt Paydown in Consumer Credit Cards,” pp. 528 - 115 Benjamin Keys and Jialan Wang, “Minimum Payments and Debt Paydown in Consumer Credit Cards,” pp. 528 -
548. 548.
116 P.L. 111-24. For more information on the CARD Act, see CRS Report R43364, Recent T rends in Consumer Retail 116 P.L. 111-24. For more information on the CARD Act, see CRS Report R43364, Recent T rends in Consumer Retail
Payment Services Delivered by Depository Institutions, by Darryl E. Getter, p. 3. Payment Services Delivered by Depository Institutions, by Darryl E. Getter, p. 3.
117 CFPB, 117 CFPB, CARD Act Report: A Review of the Impact of the CARD Act on the Consumer Credit Card Market, October , October
1, 2013, pp. 66-68, at https://files.consumerfinance.gov/f/201309_cfpb_card-act-report.pdf; and Glenn B. Canner and 1, 2013, pp. 66-68, at https://files.consumerfinance.gov/f/201309_cfpb_card-act-report.pdf; and Glenn B. Canner and
Gregory Elliehausen, Gregory Elliehausen, Consum er Experiences with Credit Cards, Board of Governors of the Federal Reserve System, , Board of Governors of the Federal Reserve System,
Federal Reserve Bulletin, December 2013, p. 20, at https://www.federalreserve.gov/pubs/bulletin/2013/pdf/consumer-Federal Reserve Bulletin, December 2013, p. 20, at https://www.federalreserve.gov/pubs/bulletin/2013/pdf/consumer-
experiences-with-credit -cards-201312.pdf. experiences-with-credit -cards-201312.pdf.
118 T he CFPB calculates payment assistance “as an account being reported with a zero scheduled payment due despite a 118 T he CFPB calculates payment assistance “as an account being reported with a zero scheduled payment due despite a
positive balance.” T he CFPB notes that “the variation in the incidence of consumer assistance reported ... may have as positive balance.” T he CFPB notes that “the variation in the incidence of consumer assistance reported ... may have as
much to do with how furnishers in each market report to the [credit bureaus] as it does with the incidence of actual much to do with how furnishers in each market report to the [credit bureaus] as it does with the incidence of actual
assistance.” Ryan Sandler and Judith Ricks, assistance.” Ryan Sandler and Judith Ricks, Household Debt and Credit, August 2020, pp. 13-15. Other sources , August 2020, pp. 13-15. Other sources
calculate estimates differently than the CFPB, and report different percentages. For example, T ransunion creates a calculate estimates differently than the CFPB, and report different percentages. For example, T ransunion creates a
broader metric called “accounts in hardship,” which includes loans “affected by natural/declared disaster, accounts broader metric called “accounts in hardship,” which includes loans “affected by natural/declared disaster, accounts
reported as in forbearance, accounts reported as deferred or payment due amount removal, or freezing of account status reported as in forbearance, accounts reported as deferred or payment due amount removal, or freezing of account status
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have tightened during the pandemic. Notably, credit card balances declined sharply during the have tightened during the pandemic. Notably, credit card balances declined sharply during the
second quarter by about $76 bil ion, the largest quarterly decline on record.119 The CFPB finds second quarter by about $76 bil ion, the largest quarterly decline on record.119 The CFPB finds
credit card balance declines “across al groups, including consumers residing in both high- and credit card balance declines “across al groups, including consumers residing in both high- and
low-income census tracts,” possibly due to a decline in consumer spending.120 Although evidence low-income census tracts,” possibly due to a decline in consumer spending.120 Although evidence
suggests limited reductions in credit card limits, the COVID-19 pandemic has also likely led to suggests limited reductions in credit card limits, the COVID-19 pandemic has also likely led to
more credit card account closures and fewer credit-limit increases.121 If limited access to credit more credit card account closures and fewer credit-limit increases.121 If limited access to credit
continues, it could make it more difficult for consumers to make large purchases, harming the continues, it could make it more difficult for consumers to make large purchases, harming the
economic recovery. economic recovery.
Payday and Other Credit Alternative Financial Products122
When consumers face financial shocks, such as unemployment or a car repair, sometimes they When consumers face financial shocks, such as unemployment or a car repair, sometimes they
need credit to manage the unforeseen event. One option a consumer may access is a short-term, need credit to manage the unforeseen event. One option a consumer may access is a short-term,
smal -dollar loan, which tends to be outstanding for a short period of time and for a smal amount smal -dollar loan, which tends to be outstanding for a short period of time and for a smal amount
of money, general y less than $1,000. Banks and credit unions sometimes provide these types of of money, general y less than $1,000. Banks and credit unions sometimes provide these types of
loans through cash advances or checking account overdraft programs. Many consumers, often loans through cash advances or checking account overdraft programs. Many consumers, often
those with a low credit score or no credit history, also turn to alternative financial products from a those with a low credit score or no credit history, also turn to alternative financial products from a
nonbank institution to provide credit when needed. Alternative financial products include payday nonbank institution to provide credit when needed. Alternative financial products include payday
loans, pawn shop loans, auto title loans, and other types of products from nonbank providers. loans, pawn shop loans, auto title loans, and other types of products from nonbank providers.
According to the Federal Deposit Insurance Corporation (FDIC), in 2019, and 4.8% used a credit According to the Federal Deposit Insurance Corporation (FDIC), in 2019, and 4.8% used a credit
alternative financial service in the past year.123 Households that did not use bank credit in the past alternative financial service in the past year.123 Households that did not use bank credit in the past
year are more likely to be lower-income and a racial or ethnic minority compared to the general year are more likely to be lower-income and a racial or ethnic minority compared to the general
U.S. population.124 U.S. population.124
Perhaps the best known of these products are payday loans, which have been the subject of Perhaps the best known of these products are payday loans, which have been the subject of
significant regulatory, congressional, and media attention. Payday loans are structured as short-significant regulatory, congressional, and media attention. Payday loans are structured as short-
term advances that al ow consumers to access cash before they receive a paycheck. These loans term advances that al ow consumers to access cash before they receive a paycheck. These loans
are designed to be paid back on a consumer’s next payday. Payday loans are offered through are designed to be paid back on a consumer’s next payday. Payday loans are offered through
storefront locations or online for a set fee. The underwriting of these loans is minimal, with storefront locations or online for a set fee. The underwriting of these loans is minimal, with
consumers required to provide little more than a paystub and checking account information to consumers required to provide little more than a paystub and checking account information to
take out a loan. Rather than paying off the loan entirely when it is due, many consumers roll over take out a loan. Rather than paying off the loan entirely when it is due, many consumers roll over

and/or past due amount.” T ransunion reports 3.6% of credit card loans in hardship in June 2020. See T ransunion, and/or past due amount.” T ransunion reports 3.6% of credit card loans in hardship in June 2020. See T ransunion,
Monthly Industry Snapshot: Financial Services, at https://www.transunion.com/monthly-industry-snapshot -fs. , at https://www.transunion.com/monthly-industry-snapshot -fs.
119 Federal Reserve Bank of New York, 119 Federal Reserve Bank of New York, Household Debt and Credit (Based on New York Fed Consumer Credit Panel), ,
Center for Microeconomic Data, Q3 2020, at https://www.newyorkfed.org/microeconomics/hhdc/background.html. Center for Microeconomic Data, Q3 2020, at https://www.newyorkfed.org/microeconomics/hhdc/background.html.
120 Ryan Sandler and Judith Ricks, 120 Ryan Sandler and Judith Ricks, The Early Effects of the COVID-19 Pandemic on Consumer Credit, CFPB, CFPB , CFPB, CFPB
Office of Research Special Issue Brief, August 2020, p. 3, at https://www.consumerfinance.gov/data-research/research-Office of Research Special Issue Brief, August 2020, p. 3, at https://www.consumerfinance.gov/data-research/research-
reports/special-issue-brief-early-effects-covid-19-pandemic-on-consumer-credit/. reports/special-issue-brief-early-effects-covid-19-pandemic-on-consumer-credit/.
121 Ryan Sandler and Judith Ricks, “Household Debt and Credit,” August 2020, p. 3; and Larry Santucci, “How Has the 121 Ryan Sandler and Judith Ricks, “Household Debt and Credit,” August 2020, p. 3; and Larry Santucci, “How Has the
COVID-19 Pandemic Affected the Supply of Consumer Credit? A Preliminary Look at the U.S. Credit Card Market,” COVID-19 Pandemic Affected the Supply of Consumer Credit? A Preliminary Look at the U.S. Credit Card Market,”
Federal Reserve Bank of Philadelphia, Consumer Finance Institute Special Report, August 2020, p. 3, at Federal Reserve Bank of Philadelphia, Consumer Finance Institute Special Report, August 2020, p. 3, at
https://www.philadelphiafed.org/consumer-finance/consumer-credit/how-has-the-covid-19-pandemic-affected-the-https://www.philadelphiafed.org/consumer-finance/consumer-credit/how-has-the-covid-19-pandemic-affected-the-
supply-of-consumer-credit. supply-of-consumer-credit.
122 For more background on short -term, small-dollar loans, see CRS Report R44868, 122 For more background on short -term, small-dollar loans, see CRS Report R44868, Short-Term, Small-Dollar
Lending: Policy Issues and Im plications, by Darryl E. Getter. For more background on financial inclusion and credit , by Darryl E. Getter. For more background on financial inclusion and credit
access policy issues, see CRS Report R45979, access policy issues, see CRS Report R45979, Financial Inclusion and Credit Access Policy Issues, by Cheryl R. , by Cheryl R.
Cooper. Cooper.
123 Mark Kutzbach et al., 123 Mark Kutzbach et al., How America Banks: Household Use of Banking and Financial Services, 2019 FDIC Survey , ,
FDIC, October 2020, p. 8, at https://www.fdic.gov/analysis/household-survey/2019execsum.pdf. FDIC, October 2020, p. 8, at https://www.fdic.gov/analysis/household-survey/2019execsum.pdf.
124 Mark Kutzbach et al., 2019 124 Mark Kutzbach et al., 2019 FDIC Survey, p. 8. , p. 8.
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or renew these loans.125 Sequences of continuous roll overs may result in consumers being in debt or renew these loans.125 Sequences of continuous roll overs may result in consumers being in debt
for an extended period. Because consumers general y pay a fee for each new loan, payday loans for an extended period. Because consumers general y pay a fee for each new loan, payday loans
can become expensive. can become expensive.
In 2010, the Dodd-Frank Act authorized the CFPB to oversee payday lenders for the first time at In 2010, the Dodd-Frank Act authorized the CFPB to oversee payday lenders for the first time at
the federal level,126 but prohibited the CFPB from imposing an interest rate limit on any type of the federal level,126 but prohibited the CFPB from imposing an interest rate limit on any type of
credit, including payday loans.127 As of July 2020, 18 states and the District of Columbia either credit, including payday loans.127 As of July 2020, 18 states and the District of Columbia either
ban or limit the interest rates on these loans.128 ban or limit the interest rates on these loans.128
In the payday market, policy disagreements tend to center on balancing access to credit with In the payday market, policy disagreements tend to center on balancing access to credit with
consumer protection. The academic research is mixed in terms of payday loans’ effect on consumer protection. The academic research is mixed in terms of payday loans’ effect on
consumer wel -being.129 When consumers have emergencies, short-term, smal -dollar credit can consumer wel -being.129 When consumers have emergencies, short-term, smal -dollar credit can
help them make ends meet. Payday loans’ product features, such as the option to roll over, can help them make ends meet. Payday loans’ product features, such as the option to roll over, can
al ow consumers to pay back their loan flexibly, but also can play into cognitive biases, including al ow consumers to pay back their loan flexibly, but also can play into cognitive biases, including
present biases and scarcity tunnel vision. Some consumers pay off payday loans quickly, but a present biases and scarcity tunnel vision. Some consumers pay off payday loans quickly, but a
sizable minority are in debt for a long period of time—a CFPB study found 36% of new payday sizable minority are in debt for a long period of time—a CFPB study found 36% of new payday
loan sequences were repaid fully without rollovers, while 15% of sequences extended for 10 or loan sequences were repaid fully without rollovers, while 15% of sequences extended for 10 or
more loans.130 more loans.130
In October 2017, during the leadership of then-Director Richard Cordray,131 the CFPB finalized a In October 2017, during the leadership of then-Director Richard Cordray,131 the CFPB finalized a
rule covering payday and other smal -dollar, short-term loans.132 The 2017 rule asserts that it is rule covering payday and other smal -dollar, short-term loans.132 The 2017 rule asserts that it is
“an unfair and abusive practice” for a lender to make certain types of short-term, smal -dollar “an unfair and abusive practice” for a lender to make certain types of short-term, smal -dollar
loans “without reasonably determining that consumers have the ability to repay the loans.” The loans “without reasonably determining that consumers have the ability to repay the loans.” The
rule would have mandated underwriting provisions for short-term, smal -dollar loans unless made rule would have mandated underwriting provisions for short-term, smal -dollar loans unless made
with certain features. In July 2020, the CFPB under Trump-appointed Director Kathy Kraninger with certain features. In July 2020, the CFPB under Trump-appointed Director Kathy Kraninger
issued a final rule that rescinds the mandatory underwriting provisions before the 2017 final rule issued a final rule that rescinds the mandatory underwriting provisions before the 2017 final rule
went into effect.133 The 2020 rule would leave unchanged other parts of the 2017 rule, such as went into effect.133 The 2020 rule would leave unchanged other parts of the 2017 rule, such as
other payment provisions relating to protections for consumers paying back these loans. other payment provisions relating to protections for consumers paying back these loans.
Given the concerns about consumer harm from payday and other smal -dollar, short-term loans, Given the concerns about consumer harm from payday and other smal -dollar, short-term loans,
some financial institutions are interested in exploring other loan models that try to give some financial institutions are interested in exploring other loan models that try to give
consumers access to credit for short-term needs at a lower-cost and with an easier repayment consumers access to credit for short-term needs at a lower-cost and with an easier repayment
process. For this reason, prudential regulators, such as the Office of the Comptroller of the process. For this reason, prudential regulators, such as the Office of the Comptroller of the
Currency (OCC) and the FDIC, have encouraged banks to offer smal -dollar credit products to Currency (OCC) and the FDIC, have encouraged banks to offer smal -dollar credit products to

125 According to CFPB research, 64% of payday loans in their sample were rolled over after the initial loan. For more 125 According to CFPB research, 64% of payday loans in their sample were rolled over after the initial loan. For more
information, see Kathleen Burke et al., information, see Kathleen Burke et al., CFPB Data Point: Payday Lending , CFPB’s Office of Research, March 2014, , CFPB’s Office of Research, March 2014,
pp. 10-11, at https://files.consumerfinance.gov/f/201403_cfpb_report_payday-lending.pdf. pp. 10-11, at https://files.consumerfinance.gov/f/201403_cfpb_report_payday-lending.pdf.
126 P.L. 111-203, §1023. 126 P.L. 111-203, §1023.
127 P.L. 111-203, §1027. 127 P.L. 111-203, §1027.
128 According to CFPB, “Payday, Vehicle T itle, and Certain High -Cost Installment Loans,” 85 128 According to CFPB, “Payday, Vehicle T itle, and Certain High -Cost Installment Loans,” 85 Federal Register 44382, 44382,
July 22, 2020, p. 44383. July 22, 2020, p. 44383.
129 According to CFPB, “Payday, Vehicle T itle, and Certain High-Cost Installment Loans,” 84 129 According to CFPB, “Payday, Vehicle T itle, and Certain High-Cost Installment Loans,” 84 Federal Register 4252, 4252,
February 14, 2019, pp. 4292-4294; and CFPB, “ Payday, Vehicle T itle, and Certain High -Cost Installment Loans,” 82 February 14, 2019, pp. 4292-4294; and CFPB, “ Payday, Vehicle T itle, and Certain High -Cost Installment Loans,” 82
Federal Register 54472, November 17, 2017, pp. 54842-54846. 54472, November 17, 2017, pp. 54842-54846.
130 Kathleen Burke et al., 130 Kathleen Burke et al., CFPB Data Point: Payday Lending, CFPB’s Office of Research, March 2014, pp. 10-11, at , CFPB’s Office of Research, March 2014, pp. 10-11, at
https://files.consumerfinance.gov/f/201403_cfpb_report_payday-lending.pdf. https://files.consumerfinance.gov/f/201403_cfpb_report_payday-lending.pdf.
131 Director Cordray was appointed by President Obama. 131 Director Cordray was appointed by President Obama.
132 12 C.F.R. §§1041.1-1041.14. 132 12 C.F.R. §§1041.1-1041.14.
133 For more information, see CRS Insight IN11059, 133 For more information, see CRS Insight IN11059, CFPB Finalizes New Payday Lending Rule, Reversing Prior
Regulation, by Cheryl R. Cooper. , by Cheryl R. Cooper.
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consumers.134 However, it is unclear whether these different types of products can improve consumers.134 However, it is unclear whether these different types of products can improve
outcomes for consumers compared to payday loans, given that the population of consumers these outcomes for consumers compared to payday loans, given that the population of consumers these
products would target and those consumers’ biases concerning money management are likely products would target and those consumers’ biases concerning money management are likely
similar.135 similar.135
Checking Accounts and Substitutes
Checking accounts al ow consumers to deposit money and make payments, for example, using Checking accounts al ow consumers to deposit money and make payments, for example, using
bil pay and paper checks. Frequently, a checking account includes access to a debit card, to bil pay and paper checks. Frequently, a checking account includes access to a debit card, to
increase a consumer’s ability to make payment transactions through the account. Checking increase a consumer’s ability to make payment transactions through the account. Checking
accounts are general y provided by a bank or credit union, and consumers’ deposits are accounts are general y provided by a bank or credit union, and consumers’ deposits are
government insured (up to a certain amount) against the institution’s failure.136 government insured (up to a certain amount) against the institution’s failure.136
In the past decade or so, the availability of free or low-cost checking accounts has reportedly In the past decade or so, the availability of free or low-cost checking accounts has reportedly
diminished, and fees associated with checking accounts have grown.137 The most common fees diminished, and fees associated with checking accounts have grown.137 The most common fees
that checking account consumers incur are overdraft and non-sufficient fund fees.138 Consumers that checking account consumers incur are overdraft and non-sufficient fund fees.138 Consumers
can incur an overdraft when they transact below their account balance, and the bank or credit can incur an overdraft when they transact below their account balance, and the bank or credit
union covers the negative balance for the consumer for a fee. In general, negative balance union covers the negative balance for the consumer for a fee. In general, negative balance
episodes are short in duration. According to the CFPB, half of al episodes last three or fewer episodes are short in duration. According to the CFPB, half of al episodes last three or fewer
days, and more than three-quarters last a week or less.139 days, and more than three-quarters last a week or less.139
Overdraft services can help consumers pay bil s on time. However, overdraft fees can be costly, Overdraft services can help consumers pay bil s on time. However, overdraft fees can be costly,
particularly for consumers who are inattentive or tend to overspend due to tight budgets and particularly for consumers who are inattentive or tend to overspend due to tight budgets and
mental accounting biases.140 CFPB research suggests that a smal number of checking account mental accounting biases.140 CFPB research suggests that a smal number of checking account
holders incur most overdraft fees, with 8.3% of consumers overdrafting more than 10 times per holders incur most overdraft fees, with 8.3% of consumers overdrafting more than 10 times per
year and accounting for 73.7% of overdraft fees.141 According to the CFPB, these frequent year and accounting for 73.7% of overdraft fees.141 According to the CFPB, these frequent
overdrafters tend to be more credit constrained, have lower credit scores, and are less likely to overdrafters tend to be more credit constrained, have lower credit scores, and are less likely to
have a general-purpose credit card than the general U.S. population.142 have a general-purpose credit card than the general U.S. population.142
In 2009, a provision of the CARD Act required consumers to affirmatively opt in for overdraft In 2009, a provision of the CARD Act required consumers to affirmatively opt in for overdraft
coverage of ATM withdrawals and nonrecurring debit card transactions.143 Since this requirement coverage of ATM withdrawals and nonrecurring debit card transactions.143 Since this requirement

134 Board of Governors of the Federal Reserve System, FDIC, National Credit Union Administration, Office of the 134 Board of Governors of the Federal Reserve System, FDIC, National Credit Union Administration, Office of the
Comptroller of the Currency, Comptroller of the Currency, Interagency Lending Principles for Offering Responsible Sm all-Dollar Loans, May 2020, , May 2020,
at https://www.occ.gov/news-issuances/news-releases/2020/nr-ia-2020-65a.pdf. at https://www.occ.gov/news-issuances/news-releases/2020/nr-ia-2020-65a.pdf.
135 For example, deposit advance products, small-dollar loans that some banks used to provide with checking accounts, 135 For example, deposit advance products, small-dollar loans that some banks used to provide with checking accounts,
showed similar outcomes to payday loans. See CFPB, showed similar outcomes to payday loans. See CFPB, Payday Loans and Deposit Advance Products: A White Paper of
Initial Data Findings, April 24, 2013, pp. 43-45, at https://files.consumerfinance.gov/f/201304_cfpb_payday-dap-, April 24, 2013, pp. 43-45, at https://files.consumerfinance.gov/f/201304_cfpb_payday-dap-
whitepaper.pdf. whitepaper.pdf.
136 For more information on checking accounts, see CRS Report R43364, 136 For more information on checking accounts, see CRS Report R43364, Recent Trends in Consumer Retail Payment
Services Delivered by Depository Institutions, by Darryl E. Getter. , by Darryl E. Getter.
137 CFPB, 137 CFPB, Study of Overdraft Programs: A white paper of initial data findings, June 2013, pp. 15-17, at , June 2013, pp. 15-17, at
https://files.consumerfinance.gov/f/201306_cfpb_whitepaper_overdraft-practices.pdf. https://files.consumerfinance.gov/f/201306_cfpb_whitepaper_overdraft-practices.pdf.
138 T revor Bakker et al., 138 T revor Bakker et al., Data Point: Checking Account Overdraft, CFPB, July 2014, p. 5, at , CFPB, July 2014, p. 5, at
https://files.consumerfinance.gov/f/201407_cfpb_report_data-point_overdrafts.pdf. https://files.consumerfinance.gov/f/201407_cfpb_report_data-point_overdrafts.pdf.
139 T revor Bakker et al., 139 T revor Bakker et al., Data Point: Checking Account Overdraft, p. 22. , p. 22.
140 For more background on overdraft services, see CRS In Focus IF11460, 140 For more background on overdraft services, see CRS In Focus IF11460, Overdraft: Payment Service or Small-
Dollar Credit? by Andrew P. Scott . by Andrew P. Scott .
141 T revor Bakker et al., 141 T revor Bakker et al., Data Point: Checking Account Overdraft, p. 11. , p. 11.
142 David Low et al., 142 David Low et al., Data Point: Frequent Overdrafters, CFPB, August 2017, p. 5, at , CFPB, August 2017, p. 5, at
https://files.consumerfinance.gov/f/documents/201708_cfpb_data-point_frequent -overdrafters.pdf. https://files.consumerfinance.gov/f/documents/201708_cfpb_data-point_frequent -overdrafters.pdf.
143 T he opt-in rules do not cover checks or automatic bill payments. 143 T he opt-in rules do not cover checks or automatic bill payments.
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was implemented, opt-in rates have tended to vary by bank, from single-digit percentages to more was implemented, opt-in rates have tended to vary by bank, from single-digit percentages to more
than 40% within particular institutions.144 Frequent overdrafters who opt in to overdraft services than 40% within particular institutions.144 Frequent overdrafters who opt in to overdraft services
seem to have similar characteristics to those who do not opt in, but tend to pay more in fees.145 seem to have similar characteristics to those who do not opt in, but tend to pay more in fees.145
Given this research, consumer advocates have raised concerns about whether overdraft programs Given this research, consumer advocates have raised concerns about whether overdraft programs
are sufficiently transparent and whether consumers receive sufficient disclosures regarding these are sufficiently transparent and whether consumers receive sufficient disclosures regarding these
programs. Advocates have also questioned how financial institution practices influence the opt-in programs. Advocates have also questioned how financial institution practices influence the opt-in
decision.146 decision.146
Overdrafts may be caused by the lapse of time between payment authorization, account Overdrafts may be caused by the lapse of time between payment authorization, account
settlement, and when funds are available to the consumer.147 Because of these time lapses in the settlement, and when funds are available to the consumer.147 Because of these time lapses in the
payments system, some consumers may not realize no funds are available when they overdraft payments system, some consumers may not realize no funds are available when they overdraft
their account.148 For this reason, some argue that a faster payment system or other financial their account.148 For this reason, some argue that a faster payment system or other financial
planning products may help consumers keep better track of their balances, preventing planning products may help consumers keep better track of their balances, preventing
overdrafts.149 overdrafts.149
Overdraft fees may lead to involuntary checking account closures, leaving some households Overdraft fees may lead to involuntary checking account closures, leaving some households
without access to a bank account. According to the FDIC, in 2019, 5.4% of households were without access to a bank account. According to the FDIC, in 2019, 5.4% of households were
unbanked, meaning that no one in the household had a checking or savings account from an , meaning that no one in the household had a checking or savings account from an
insured institution.150 Unbanked households tend to have lower incomes and are more likely to be insured institution.150 Unbanked households tend to have lower incomes and are more likely to be
racial or ethnic minorities than the general U.S. population.151 The main reasons households cite racial or ethnic minorities than the general U.S. population.151 The main reasons households cite
for not having a bank account include insufficient account funds, not trusting banks, privacy for not having a bank account include insufficient account funds, not trusting banks, privacy
concerns, and high account fees.152 Moreover, in 2019, 17.2% households used nonbank financial concerns, and high account fees.152 Moreover, in 2019, 17.2% households used nonbank financial
transaction services outside of the banking system, such as money orders or check cashing transaction services outside of the banking system, such as money orders or check cashing
services.153 Certain observers contend that financial outcomes for the unbanked and underbanked services.153 Certain observers contend that financial outcomes for the unbanked and underbanked
would be improved if banks—which may be a more stable source of relatively inexpensive would be improved if banks—which may be a more stable source of relatively inexpensive
financial services relative to certain alternatives—were more active in serving these customers. financial services relative to certain alternatives—were more active in serving these customers.
For this reason, policymakers and observers wil likely continue to explore ways to make banking For this reason, policymakers and observers wil likely continue to explore ways to make banking
more accessible to a greater portion of the population.154 However, it may be expensive for banks more accessible to a greater portion of the population.154 However, it may be expensive for banks
to serve these customers—for example, they might have low balance accounts. At least some of to serve these customers—for example, they might have low balance accounts. At least some of
these consumers may be served better by alternative financial providers if their products are less these consumers may be served better by alternative financial providers if their products are less
expensive or if they provide more customer service than banks. expensive or if they provide more customer service than banks.

144 CFPB, 144 CFPB, Study of Overdraft Programs: A white paper of initial data findings, June 2013, p. 5, at , June 2013, p. 5, at
https://files.consumerfinance.gov/f/201306_cfpb_whitepaper_overdraft-practices.pdf. https://files.consumerfinance.gov/f/201306_cfpb_whitepaper_overdraft-practices.pdf.
145 David Low et al., 145 David Low et al., Data Point: Frequent Overdrafters, pp. 30-35. , pp. 30-35.
146 CFPB, 146 CFPB, Study of Overdraft Programs: A white paper of initial data findings, pp. 17-18. , pp. 17-18.
147 For more information on how the payment system can cause overdrafts, see 147 For more information on how the payment system can cause overdrafts, see CFPB Study of Overdraft Programs: A
white paper of initial data findings, pp. 42-48. , pp. 42-48.
148 CFPB, 148 CFPB, Study of Overdraft Programs: A white paper of initial data findings, pp. 42-48. , pp. 42-48.
149 CFPB, 149 CFPB, Consumer Insights on Managing Spending, February 2017, pp. 19-25, at https://www.consumerfinance.gov/, February 2017, pp. 19-25, at https://www.consumerfinance.gov/
documents/2664/201702_cfpb_Consumer-Insights-on-Managing-Spending.pdf. For more information on faster documents/2664/201702_cfpb_Consumer-Insights-on-Managing-Spending.pdf. For more information on faster
payment system policy issues, see CRS Report R45927, payment system policy issues, see CRS Report R45927, U.S. Paym ent System Policy Issues: Faster Paym ents and
Innovation, by Cheryl R. Cooper, Marc Labonte, and David W. Perkins. , by Cheryl R. Cooper, Marc Labonte, and David W. Perkins.
150 Mark Kutzbach et al., 150 Mark Kutzbach et al., How America Banks: Household Use of Banking and Financial Services, 2019 FDIC Survey , ,
FDIC, October 2020, p. 1, at https://www.fdic.gov/analysis/household-survey/2019execsum.pdf. FDIC, October 2020, p. 1, at https://www.fdic.gov/analysis/household-survey/2019execsum.pdf.
151 Mark Kutzbach et al., 2019 151 Mark Kutzbach et al., 2019 FDIC Survey, p. 1. , p. 1.
152 Mark Kutzbach et al., 2019 152 Mark Kutzbach et al., 2019 FDIC Survey, p. 3. , p. 3.
153 Mark Kutzbach et al., 2019 153 Mark Kutzbach et al., 2019 FDIC Survey, p. 6. , p. 6.
154 For more information on access to bank account policy issues, see CRS In Focus IF11631, 154 For more information on access to bank account policy issues, see CRS In Focus IF11631, Financial Inclusion:
Access to Bank Accounts, by Cheryl R. Cooper. , by Cheryl R. Cooper.
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General-purpose prepaid cards may be considered an alternative to a traditional checking account, General-purpose prepaid cards may be considered an alternative to a traditional checking account,
and they can be obtained through a bank, at retail stores, or online. These cards can be used in and they can be obtained through a bank, at retail stores, or online. These cards can be used in
payment networks, such as Visa and MasterCard. General purpose, reloadable prepaid cards payment networks, such as Visa and MasterCard. General purpose, reloadable prepaid cards
general y have features similar to debit and checking accounts, such as the ability to pay bil s general y have features similar to debit and checking accounts, such as the ability to pay bil s
electronical y, get cash at an ATM, make purchases at stores or online, and receive direct deposits. electronical y, get cash at an ATM, make purchases at stores or online, and receive direct deposits.
However, unlike checking accounts, prepaid card funds are not always federal y insured against However, unlike checking accounts, prepaid card funds are not always federal y insured against
an institution’s failure. Prepaid cards often have a monthly maintenance fee and other particular an institution’s failure. Prepaid cards often have a monthly maintenance fee and other particular
service fees, such as for using an ATM or reloading cash. Some banks offer prepaid cards, yet service fees, such as for using an ATM or reloading cash. Some banks offer prepaid cards, yet
unbanked consumers are much more likely to use a prepaid card from a store or website that is unbanked consumers are much more likely to use a prepaid card from a store or website that is
not a bank.155 not a bank.155
Overview of Consumer Finance Market Support
Systems
Although each consumer credit market is unique, certain common aspects of the consumer credit Although each consumer credit market is unique, certain common aspects of the consumer credit
system facilitate the pricing of credit offers and the resolution of delinquencies and defaults for system facilitate the pricing of credit offers and the resolution of delinquencies and defaults for
most consumer credit markets. This section discusses two of what this report wil refer to as most consumer credit markets. This section discusses two of what this report wil refer to as
market support systems: the consumer credit reporting system (which helps lenders price market support systems: the consumer credit reporting system (which helps lenders price
consumer loans) and the debt collection market (which helps lenders to collect upon consumer consumer loans) and the debt collection market (which helps lenders to collect upon consumer
default). Notably, in both these market support systems, consumers do not have the ability to default). Notably, in both these market support systems, consumers do not have the ability to
choose the financial institution or entity with whom they engage, and therefore are unable to take choose the financial institution or entity with whom they engage, and therefore are unable to take
their business elsewhere if issues arise. For this reason, when consumer abuses occur in these their business elsewhere if issues arise. For this reason, when consumer abuses occur in these
markets, consumer protection laws and regulations may be particularly important. According to markets, consumer protection laws and regulations may be particularly important. According to
the CFPB, credit reporting and debt collection are the consumer finance markets with by far the the CFPB, credit reporting and debt collection are the consumer finance markets with by far the
most complaints, together accounting for 65% of the total complaints the agency received in 2019 most complaints, together accounting for 65% of the total complaints the agency received in 2019
(44% and 21%, respectively).156 (44% and 21%, respectively).156
Credit Reporting, Credit Bureaus, and Credit Scoring157
The consumer data industry collects information on consumers, such as financial payment history The consumer data industry collects information on consumers, such as financial payment history
data, to predict their future financial product performance.158 This industry includes financial data, to predict their future financial product performance.158 This industry includes financial
firms who report on consumers’ payment behaviors, credit bureaus who collect and store this firms who report on consumers’ payment behaviors, credit bureaus who collect and store this
information, and credit scoring companies that use this data to develop algorithms to predict information, and credit scoring companies that use this data to develop algorithms to predict
consumers’ future payment behaviors. The three largest credit bureaus—Equifax, Experian, and consumers’ future payment behaviors. The three largest credit bureaus—Equifax, Experian, and
TransUnion—provide credit reports nationwide.159 The consumer data industry is important TransUnion—provide credit reports nationwide.159 The consumer data industry is important
because it significantly affects consumer access to financial products or opportunities. For because it significantly affects consumer access to financial products or opportunities. For

155 For more information on prepaid cards, see CRS Report R43364, 155 For more information on prepaid cards, see CRS Report R43364, Recent Trends in Consumer Retail Payment
Services Delivered by Depository Institutions, by Darryl E. Getter. , by Darryl E. Getter.
156 CFPB, 156 CFPB, Consumer Response Annual Report: January 1 – December 31, 2019, March 2020, p. 9, at , March 2020, p. 9, at
https://www.consumerfinance.gov/data-research/research-reports/2019-consumer-response-annual-report/. https://www.consumerfinance.gov/data-research/research-reports/2019-consumer-response-annual-report/.
157 For more information on the consumer data industry, see CRS Report R44125, 157 For more information on the consumer data industry, see CRS Report R44125, Consumer Credit Reporting, Credit
Bureaus, Credit Scoring, and Related Policy Issues, by Cheryl R. Cooper and Darryl E. Getter. , by Cheryl R. Cooper and Darryl E. Getter.
158 T he consumer data industry is also used outside of consumer credit markets, for example, for pricing insurance, 158 T he consumer data industry is also used outside of consumer credit markets, for example, for pricing insurance,
renting an apartment, and screening potential employees. renting an apartment, and screening potential employees.
159 For a list of consumer reporting agencies, see CFPB, “ List of Consumer Reporting Agencies,” at 159 For a list of consumer reporting agencies, see CFPB, “ List of Consumer Reporting Agencies,” at
https://www.consumerfinance.gov/consumer-tools/credit-reports-and-scores/consumer-reporting-companies/https://www.consumerfinance.gov/consumer-tools/credit-reports-and-scores/consumer-reporting-companies/
companies-list/. companies-list/.
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example, negative or derogatory information on a credit report, such as information stating that a example, negative or derogatory information on a credit report, such as information stating that a
consumer has paid late or defaulted on a loan, may influence a lender to deny a consumer access consumer has paid late or defaulted on a loan, may influence a lender to deny a consumer access
to credit. to credit.
The main statue regulating the credit reporting industry is the Fair Credit Reporting Act The main statue regulating the credit reporting industry is the Fair Credit Reporting Act
(FCRA),160 enacted in 1970. The FCRA requires “that consumer reporting agencies adopt (FCRA),160 enacted in 1970. The FCRA requires “that consumer reporting agencies adopt
reasonable procedures for meeting the needs of commerce for consumer credit ... in a manner reasonable procedures for meeting the needs of commerce for consumer credit ... in a manner
which is fair and equitable to the consumer, with regard to the confidentiality, accuracy, which is fair and equitable to the consumer, with regard to the confidentiality, accuracy,
relevancy, and proper utilization of such information.”161 Among other things, the FCRA relevancy, and proper utilization of such information.”161 Among other things, the FCRA
establishes permissible uses of credit reports and imposes certain responsibilities on those who establishes permissible uses of credit reports and imposes certain responsibilities on those who
collect, furnish, and use the information contained in consumers’ credit reports. collect, furnish, and use the information contained in consumers’ credit reports.
The FCRA also includes consumer protection provisions. Under the FCRA, a lender must advise The FCRA also includes consumer protection provisions. Under the FCRA, a lender must advise
a consumer when the lender has used their information from a credit reporting agency (CRA) in a consumer when the lender has used their information from a credit reporting agency (CRA) in
taking an adverse action (general y a denial of credit) against the consumer.162 That information taking an adverse action (general y a denial of credit) against the consumer.162 That information
must be disclosed free of charge. Consumers have a right to one free credit report every year must be disclosed free of charge. Consumers have a right to one free credit report every year
(from each of the three largest nationwide credit reporting providers) even in the absence of an (from each of the three largest nationwide credit reporting providers) even in the absence of an
adverse action (e.g., credit denial). Consumers also have the right to dispute inaccurate or adverse action (e.g., credit denial). Consumers also have the right to dispute inaccurate or
incomplete information in their reports. After a consumer alerts a CRA of such a discrepancy, the incomplete information in their reports. After a consumer alerts a CRA of such a discrepancy, the
CRA must investigate and correct errors, usual y within 30 days. The FCRA also limits the length CRA must investigate and correct errors, usual y within 30 days. The FCRA also limits the length
of time negative information may remain on credit reports. Negative debt collection information of time negative information may remain on credit reports. Negative debt collection information
typical y stays on credit reports for 7 years, even if the consumer pays in full for the item in typical y stays on credit reports for 7 years, even if the consumer pays in full for the item in
collection; information about a personal bankruptcy stays on a credit report for a maximum of 10 collection; information about a personal bankruptcy stays on a credit report for a maximum of 10
years.163 years.163
The CFPB has rulemaking and enforcement authorities over al CRAs in connection with certain The CFPB has rulemaking and enforcement authorities over al CRAs in connection with certain
consumer protection laws, including the FCRA; it also has supervisory authority, or the authority consumer protection laws, including the FCRA; it also has supervisory authority, or the authority
to conduct examinations, over the larger CRAs. In July 2012, the CFPB announced that it would to conduct examinations, over the larger CRAs. In July 2012, the CFPB announced that it would
supervise CRAs with $7 mil ion or more in annual receipts, which included 30 firms representing supervise CRAs with $7 mil ion or more in annual receipts, which included 30 firms representing
approximately 94% of the market.164 approximately 94% of the market.164
Inaccurate or disputed consumer data within the credit bureaus’ data reports is an ongoing Inaccurate or disputed consumer data within the credit bureaus’ data reports is an ongoing
concern in this market. Inaccurate information in a credit report may limit a consumer’s access to concern in this market. Inaccurate information in a credit report may limit a consumer’s access to
credit in some cases or increase the costs to the consumer of obtaining credit in others. In credit in some cases or increase the costs to the consumer of obtaining credit in others. In
response to this concern, the CFPB has encouraged credit bureaus and financial institutions to response to this concern, the CFPB has encouraged credit bureaus and financial institutions to
improve data accuracy in credit reporting. In 2017, the CFPB released a report of its supervisory improve data accuracy in credit reporting. In 2017, the CFPB released a report of its supervisory
work in the credit reporting system.165 The report discusses the CFPB’s efforts to work with credit work in the credit reporting system.165 The report discusses the CFPB’s efforts to work with credit
bureaus and financial institutions to improve credit reporting in three specific areas: data bureaus and financial institutions to improve credit reporting in three specific areas: data
accuracy, dispute handling and resolution, and furnisher reporting. As the report describes, credit accuracy, dispute handling and resolution, and furnisher reporting. As the report describes, credit
bureaus and financial firms have developed data governance and quality control programs to bureaus and financial firms have developed data governance and quality control programs to

160 15 U.S.C. §1681. 160 15 U.S.C. §1681.
161 15 U.S.C. §1681. 161 15 U.S.C. §1681.
162 See Federal T rade Commission (FT C), 162 See Federal T rade Commission (FT C), A Summary of your Rights Under the Fair Credit Reporting Act, at , at
https://www.consumer.ftc.gov/articles/pdf-0096-fair-credit-reporting-act.pdf. https://www.consumer.ftc.gov/articles/pdf-0096-fair-credit-reporting-act.pdf.
163 CFPB, “ How Long does Negative Information Remain on My Credit Report?”163 CFPB, “ How Long does Negative Information Remain on My Credit Report?” Ask CFPB, August 4, 2016, at Ask CFPB, August 4, 2016, at
https://www.consumerfinance.gov/ask-cfpb/how-long-does-negative-information-remain-on-my-credit-report-en-323/. https://www.consumerfinance.gov/ask-cfpb/how-long-does-negative-information-remain-on-my-credit-report-en-323/.
164 CFPB, “CFPB to Supervise Credit Reporting,” press release, July 16, 2012, at http://www.consumerfinance.gov/ 164 CFPB, “CFPB to Supervise Credit Reporting,” press release, July 16, 2012, at http://www.consumerfinance.gov/
newsroom/consumer-financial-protection-bureau-to-superivse-credit-reporting/. newsroom/consumer-financial-protection-bureau-to-superivse-credit-reporting/.
165 CFPB, 165 CFPB, Supervisory Highlights Consumer Reporting Special Edition , Issue 14, winter 2017, at , Issue 14, winter 2017, at
https://files.consumerfinance.gov/f/documents/201703_cfpb_Supervisory-Highlights-Consumer-Reporting-Special-https://files.consumerfinance.gov/f/documents/201703_cfpb_Supervisory-Highlights-Consumer-Reporting-Special-
Edition.pdf. Edition.pdf.
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monitor data accuracy through working with the CFPB. In addition, the CFPB has encouraged monitor data accuracy through working with the CFPB. In addition, the CFPB has encouraged
credit bureaus to improve their dispute and resolution processes, including making them easier credit bureaus to improve their dispute and resolution processes, including making them easier
and more informative for consumers.166 and more informative for consumers.166
When credit reporting disputes arise, consumers sometimes find it difficult to advocate for When credit reporting disputes arise, consumers sometimes find it difficult to advocate for
themselves because they are not aware of their rights and how to exercise them. According to a themselves because they are not aware of their rights and how to exercise them. According to a
CFPB report, some consumers are confused about what credit reports and scores are, find it CFPB report, some consumers are confused about what credit reports and scores are, find it
chal enging to obtain credit reports and scores, and struggle to understand the contents of their chal enging to obtain credit reports and scores, and struggle to understand the contents of their
credit reports.167 The CFPB provides financial education resources on its website to help educate credit reports.167 The CFPB provides financial education resources on its website to help educate
consumers about their rights regarding consumer reporting. The credit bureaus’ websites also consumers about their rights regarding consumer reporting. The credit bureaus’ websites also
provide information about how to dispute inaccurate information, and consumers can contact the provide information about how to dispute inaccurate information, and consumers can contact the
credit bureaus by phone or mail. However, debates continue regarding whether these efforts are credit bureaus by phone or mail. However, debates continue regarding whether these efforts are
enough to ensure that consumers can effectively advocate for themselves. enough to ensure that consumers can effectively advocate for themselves.
Some consumers may have trouble accessing the credit reporting system.168 The CFPB estimates Some consumers may have trouble accessing the credit reporting system.168 The CFPB estimates
that credit scores cannot be generated for approximately 20% of the U.S. population due to their that credit scores cannot be generated for approximately 20% of the U.S. population due to their
limited credit histories.169 Many of these consumers are young. For example, the CFPB estimated limited credit histories.169 Many of these consumers are young. For example, the CFPB estimated
that 40% of these consumers are under 25 years old.170 Moreover, a disproportionate share of that 40% of these consumers are under 25 years old.170 Moreover, a disproportionate share of
these consumers are black or Hispanic.171 Consumers without a credit record have trouble these consumers are black or Hispanic.171 Consumers without a credit record have trouble
accessing credit, but without access to credit, a consumer cannot establish a credit record. In accessing credit, but without access to credit, a consumer cannot establish a credit record. In
general, there are two ways that policymakers tend to consider approaching this issue; either by general, there are two ways that policymakers tend to consider approaching this issue; either by
(1) expanding uptake of financial products reported in the current system, or (2) expanding the (1) expanding uptake of financial products reported in the current system, or (2) expanding the
types of information in the credit reporting system using alternative data.172 types of information in the credit reporting system using alternative data.172
More recently, the economic impacts of the COVID-19 pandemic have caused some consumers to More recently, the economic impacts of the COVID-19 pandemic have caused some consumers to
experience difficulty repaying their loans, potential y impacting their credit reports. Section 4021 experience difficulty repaying their loans, potential y impacting their credit reports. Section 4021
of the CARES Act protects the credit histories of consumers with forbearance agreements. It of the CARES Act protects the credit histories of consumers with forbearance agreements. It
requires furnishers during the COVID-19 pandemic covered period to report to the credit bureaus requires furnishers during the COVID-19 pandemic covered period to report to the credit bureaus
that consumers are current on their credit obligations if they enter into an agreement to defer, that consumers are current on their credit obligations if they enter into an agreement to defer,
forbear, modify, make partial payments, or get any other assistance on their loan payments from a forbear, modify, make partial payments, or get any other assistance on their loan payments from a
financial institution and fulfill those requirements, provided they were current before this financial institution and fulfill those requirements, provided they were current before this

166 T he credit bureaus’ efforts to make disputes easier and more informative for consumers include (1) online porta ls to 166 T he credit bureaus’ efforts to make disputes easier and more informative for consumers include (1) online porta ls to
submit disputes and upload supporting documentation; (2) improvements to their call center scripts and training submit disputes and upload supporting documentation; (2) improvements to their call center scripts and training
regarding solicitation of relevant information from consumers with disputes; (3) no longer requiring that consumers regarding solicitation of relevant information from consumers with disputes; (3) no longer requiring that consumers
obtain or purchase a recent consumer report before investigations; and (4) notice to consumers of dispute results, obtain or purchase a recent consumer report before investigations; and (4) notice to consumers of dispute results,
including investigation results. CFPB, including investigation results. CFPB, Supervisory Highlights Consum er Reporting Special Edition , Winter 2017, pp. , Winter 2017, pp.
9-11. 9-11.
167 CFPB, 167 CFPB, Consumer Voices on Credit Reports and Scores, February 2015, at https://files.consumerfinance.gov/f/, February 2015, at https://files.consumerfinance.gov/f/
201502_cfpb_report_consumer-voices-on-credit-reports-and-scores.pdf. 201502_cfpb_report_consumer-voices-on-credit-reports-and-scores.pdf.
168 For more information on credit access policy issues, see CRS Report R45979, 168 For more information on credit access policy issues, see CRS Report R45979, Financial Inclusion and Credit
Access Policy Issues, by Cheryl R. Cooper. , by Cheryl R. Cooper.
169 See Kenneth P. Brevoort, Philipp Grimm, and Michelle Kambara, 169 See Kenneth P. Brevoort, Philipp Grimm, and Michelle Kambara, Data Point: Credit Invisibles, CFPB, May 2015, , CFPB, May 2015,
p. 6, at http://files.consumerfinance.gov/f/201505_cfpb_data-point -credit-invisibles.pdf. p. 6, at http://files.consumerfinance.gov/f/201505_cfpb_data-point -credit-invisibles.pdf.
170 Brevoort, Grimm, and Kambara, 170 Brevoort, Grimm, and Kambara, Data Point: Credit Invisibles, p. 14. , p. 14.
171 Brevoort, Grimm, and Kambara, 171 Brevoort, Grimm, and Kambara, Data Point: Credit Invisibles, pp. 16-23. , pp. 16-23.
172 Alternative date generally refers to information used to determine a consumer’s creditworthiness that the national 172 Alternative date generally refers to information used to determine a consumer’s creditworthiness that the national
consumer reporting agencies—Equifax, Experian, and T ransUnion—do not traditionally use to calculate a credit score. consumer reporting agencies—Equifax, Experian, and T ransUnion—do not traditionally use to calculate a credit score.
T hese reporting agencies generally create consumer reports containing historical information about repayment on credit T hese reporting agencies generally create consumer reports containing historical information about repayment on credit
products such as mortgages, student loans, credit cards, and auto loans. Credit applications, bankruptcies, and debts in products such as mortgages, student loans, credit cards, and auto loans. Credit applications, bankruptcies, and debts in
collection also are regularly included. For more information, see CRS In Focus IF11630, collection also are regularly included. For more information, see CRS In Focus IF11630, Alternative Data in Financial
Services, by Cheryl R. Cooper. , by Cheryl R. Cooper.
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period.173 Although the CARES Act protects the credit histories of consumers with forbearance period.173 Although the CARES Act protects the credit histories of consumers with forbearance
agreements, some consumers may stil experience harm to their credit record because lenders can agreements, some consumers may stil experience harm to their credit record because lenders can
choose whether to enter into an assistance agreement for many types of consumer loans. choose whether to enter into an assistance agreement for many types of consumer loans.
Debt Collection and Bankruptcy174
When a consumer defaults on a debt, a third-party debt collector often collects the debt obligation When a consumer defaults on a debt, a third-party debt collector often collects the debt obligation
rather than the lender to whom the debt is original y owed. These debt collectors by contract rather than the lender to whom the debt is original y owed. These debt collectors by contract
receive a share of the amount collected on behalf of the original lender or buy the debt obligation receive a share of the amount collected on behalf of the original lender or buy the debt obligation
in full.175 In general, a robust debt collection market al ows lenders to recoup their losses to the in full.175 In general, a robust debt collection market al ows lenders to recoup their losses to the
maximum extent possible after a consumer defaults on a loan, general y making consumer credit maximum extent possible after a consumer defaults on a loan, general y making consumer credit
and other related markets more efficient. When lenders can effectively recoup their losses, they and other related markets more efficient. When lenders can effectively recoup their losses, they
may be more wil ing to lend to consumers at lower initial loan costs, leading to more access to may be more wil ing to lend to consumers at lower initial loan costs, leading to more access to
credit for consumers. credit for consumers.
Many Americans experience debt collection. According to a CFPB survey, about one-third of Many Americans experience debt collection. According to a CFPB survey, about one-third of
consumers with a credit bureau file reported being contacted in the last year by at least one consumers with a credit bureau file reported being contacted in the last year by at least one
creditor or collector trying to collect on one or more debts.176 Consumers with lower incomes and creditor or collector trying to collect on one or more debts.176 Consumers with lower incomes and
non-prime credit scores were more likely to report experience with debt collection than non-prime credit scores were more likely to report experience with debt collection than
consumers with higher incomes and prime credit scores.177 In 2019, debt from unpaid loans or consumers with higher incomes and prime credit scores.177 In 2019, debt from unpaid loans or
other financial services accounted for close to 40% of debt collection revenue.178 The other over other financial services accounted for close to 40% of debt collection revenue.178 The other over
60% of debt collection revenue includes medical,179 telecom, utility and other retail debt. 60% of debt collection revenue includes medical,179 telecom, utility and other retail debt.

173 If the consumer was delinquent before the covered period, then the furnisher should maintain the delinquent status 173 If the consumer was delinquent before the covered period, then the furnisher should maintain the delinquent status
unless the consumer brings the account or obligation current. T he covered period starts on January 31, 2020, and unless the consumer brings the account or obligation current. T he covered period starts on January 31, 2020, and
extends to the later of 120 days after enactment or 120 days after the national emergency declared by the President on extends to the later of 120 days after enactment or 120 days after the national emergency declared by the President on
March 13, 2020, terminates. For more information, see CFPB, March 13, 2020, terminates. For more information, see CFPB, Statem ent on Supervisory and Enforcem ent Practices
Regarding the Fair Credit Reporting Act and Regulation V in Light of the CARES Act , April 1, 2020, at , April 1, 2020, at
https://files.consumerfinance.gov/f/documents/cfpb_credit -reporting-policy-statement_cares-act_2020-04.pdf. https://files.consumerfinance.gov/f/documents/cfpb_credit -reporting-policy-statement_cares-act_2020-04.pdf.
174 For more information on the debt collection market and related p olicy issues, see CRS Report R46477, 174 For more information on the debt collection market and related p olicy issues, see CRS Report R46477, The Debt
Collection Market and Selected Policy Issues, by Cheryl R. Cooper. , by Cheryl R. Cooper.
175 CFPB, 175 CFPB, Fair Debt Collection Practices Act, March 2020, pp. 8-10, at https://www.consumerfinance.gov/data-, March 2020, pp. 8-10, at https://www.consumerfinance.gov/data-
research/research-reports/fair-debt-collection-practices-act-annual-report-2020/. research/research-reports/fair-debt-collection-practices-act-annual-report-2020/.
176 CFPB, 176 CFPB, Consumer Experiences with Debt Collection: Findings from the CFPB’s Survey of Consumer Views on Debt, ,
January 2017, p. 5, at https://files.consumerfinance.gov/f/documents/201701_cfpb_Debt -Collection-Survey-Report.pdf. January 2017, p. 5, at https://files.consumerfinance.gov/f/documents/201701_cfpb_Debt -Collection-Survey-Report.pdf.
177 CFPB, 177 CFPB, Consumer Experiences with Debt Collection, pp. 15-16. , pp. 15-16.
178 Rohan Jaura, 178 Rohan Jaura, Debt Collection Agencies in the US, IBIS World, Industry Report 56144, December 2019, p. 16. , IBIS World, Industry Report 56144, December 2019, p. 16.
179 Medical debt collection raises specific policy issues related to inconsistent billing and reporting practices. According 179 Medical debt collection raises specific policy issues related to inconsistent billing and reporting practices. According
to the CFPB study, consumers are unlikely to know how much various medical services cost in advance, particularly to the CFPB study, consumers are unlikely to know how much various medical services cost in advance, particularly
those associated with accidents and emergencies. See CFPB, those associated with accidents and emergencies. See CFPB, Consum er Credit Reports: A Study of Medical and Non -
Medical Collections, December 2014, at http://files.consumerfinance.gov/f/201412_cfpb_reports_consumer-credit-, December 2014, at http://files.consumerfinance.gov/f/201412_cfpb_reports_consumer-credit-
medical-and-non-medical-collections.pdf. People often have difficulty understanding co-pays and health insurance medical-and-non-medical-collections.pdf. People often have difficulty understanding co-pays and health insurance
deductibles. T o address some of these concerns, on December 31, 2014, the Internal Revenue Service (IRS) announced deductibles. T o address some of these concerns, on December 31, 2014, the Internal Revenue Service (IRS) announced
a final rule requiring the separation of billing and collection policies of nonprofit hospitals. See Department of the a final rule requiring the separation of billing and collection policies of nonprofit hospitals. See Department of the
T reasury, Internal Revenue Service, T reasury, Internal Revenue Service, New Requirem ents for 501(c)(3) Hospitals Under the Affordable Care Act, at , at
https://www.irs.gov/charities-non-profits/charitable-organizations/requirements-for-501c3-hospitals-under-the-https://www.irs.gov/charities-non-profits/charitable-organizations/requirements-for-501c3-hospitals-under-the-
affordable-care-act-section-501r. Under the rule, hospitals that have or are pursuing tax -exempt status are required to affordable-care-act-section-501r. Under the rule, hospitals that have or are pursuing tax -exempt status are required to
make reasonable efforts to determine whether their patients are eligible for financial assistance before engaging in make reasonable efforts to determine whether their patients are eligible for financial assistance before engaging in
“extraordinary collection actions,” which may include turning a debt over to a collection agency, thus creating a “extraordinary collection actions,” which may include turning a debt over to a collection agency, thus creating a
medical tradeline, or garnishing wages. In short, tax -exempt hospitals must allow patients 120 days from the date of the medical tradeline, or garnishing wages. In short, tax -exempt hospitals must allow patients 120 days from the date of the
first billing statement to pay the obligation before initiating collection procedures. See Department of the Treasury, first billing statement to pay the obligation before initiating collection procedures. See Department of the Treasury,
Internal Revenue Service, Internal Revenue Service, New Requirem ents for 501(c)(3) Hospitals Under the Affordable Care Act, at , at
https://www.irs.gov/charities-non-profits/charitable-organizations/requirements-for-501c3-hospitals-under-the-https://www.irs.gov/charities-non-profits/charitable-organizations/requirements-for-501c3-hospitals-under-the-
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The Fair Debt Collection Practices Act (FDCPA) is the primary federal statute regulating the The Fair Debt Collection Practices Act (FDCPA) is the primary federal statute regulating the
consumer debt collection market.180 Congress passed the FDCPA in 1977 to “eliminate abusive consumer debt collection market.180 Congress passed the FDCPA in 1977 to “eliminate abusive
debt collection practices by debt collectors.”181 The law general y applies only to debt collectors, debt collection practices by debt collectors.”181 The law general y applies only to debt collectors,
not the original creditors.182 It prohibits debt collectors from engaging in certain types of conduct not the original creditors.182 It prohibits debt collectors from engaging in certain types of conduct
when seeking to collect certain debts from consumers, such as engaging in harassment or abuse183 when seeking to collect certain debts from consumers, such as engaging in harassment or abuse183
or making false or misleading representations.184 The FDCPA limits when and how a debt or making false or misleading representations.184 The FDCPA limits when and how a debt
collector communicates with a consumer, such as limits on communications at “unusual time[s] collector communicates with a consumer, such as limits on communications at “unusual time[s]
or place[s],”185 and grants consumers the right to dispute186 or stop certain communications about or place[s],”185 and grants consumers the right to dispute186 or stop certain communications about
an al eged debt.187 Moreover, the FDCPA requires that a debt collector must send a consumer a an al eged debt.187 Moreover, the FDCPA requires that a debt collector must send a consumer a
validation notice, which is to disclose certain information about the debt to the consumer, within validation notice, which is to disclose certain information about the debt to the consumer, within
five days of the initial communication.188 In 2010, the Dodd-Frank Act granted the CFPB five days of the initial communication.188 In 2010, the Dodd-Frank Act granted the CFPB
authority over the FDCPA and became the first federal agency to be able to write regulations to authority over the FDCPA and became the first federal agency to be able to write regulations to
implement the FDCPA.189 It also grants the CFPB authority over those who collect debt related to implement the FDCPA.189 It also grants the CFPB authority over those who collect debt related to
a consumer financial product service, as defined in the Dodd-Frank Act. a consumer financial product service, as defined in the Dodd-Frank Act.
In general, debt collectors expect that they wil collect only a fraction of the face value of any In general, debt collectors expect that they wil collect only a fraction of the face value of any
particular debt, knowing that some consumers wil never pay back their debt in full. Therefore, particular debt, knowing that some consumers wil never pay back their debt in full. Therefore,
when a third-party debt collector contacts a consumer, both parties can negotiate the amount and when a third-party debt collector contacts a consumer, both parties can negotiate the amount and
payment schedule of the debt.190 If a consumer does not settle her debt, the debt owner often has payment schedule of the debt.190 If a consumer does not settle her debt, the debt owner often has
several options, such as seizing the collateral for secured loans (e.g., car, home), 191 or garnishing several options, such as seizing the collateral for secured loans (e.g., car, home), 191 or garnishing
a consumer’s wages after obtaining a court order. According to CFPB research, “the cost of filing a consumer’s wages after obtaining a court order. According to CFPB research, “the cost of filing
a claim plays a large role in litigation decisions and varies significantly across jurisdictions based a claim plays a large role in litigation decisions and varies significantly across jurisdictions based
on differences in factors such as filing fees and what types of collections claims can be brought in on differences in factors such as filing fees and what types of collections claims can be brought in

affordable-care-act-section-501r. T he IRS rule only impacts nonprofit hospitals, but, on September 15, 2017, the three affordable-care-act-section-501r. T he IRS rule only impacts nonprofit hospitals, but, on September 15, 2017, the three
major credit reporting agencies—Experian, Equifax, and T ransUnion—established a 180-day (6 month) waiting period major credit reporting agencies—Experian, Equifax, and T ransUnion—established a 180-day (6 month) waiting period
before posting a medical collection of any type on a consumer credit report. See Experian, “ Medical Debt and Your before posting a medical collection of any type on a consumer credit report. See Experian, “ Medical Debt and Your
Credit Score: Here’s What You Need to Know,” press release, August 8, 2017, at https://www.experian.com/blogs/ask-Credit Score: Here’s What You Need to Know,” press release, August 8, 2017, at https://www.experian.com/blogs/ask-
experian/medical-debt-and-your-credit -score/. experian/medical-debt-and-your-credit -score/.
180 15 U.S.C. §1692a. T he law only includes consumer debts “primarily for personal, family, or household purposes.” 180 15 U.S.C. §1692a. T he law only includes consumer debts “primarily for personal, family, or household purposes.”
181 15 U.S.C. §1692. 181 15 U.S.C. §1692.
182 15 U.S.C. §1692a. T he FDCPA can apply to a creditor collecting its own debts using a different name. Some 182 15 U.S.C. §1692a. T he FDCPA can apply to a creditor collecting its own debts using a different name. Some
creditors audit t heir debt collectors in terms of compliance with federal and state law. For more information on auditing creditors audit t heir debt collectors in terms of compliance with federal and state law. For more information on auditing
practices of debt collectors, see CFPB, practices of debt collectors, see CFPB, Study of Third-Party Debt Collection Operations, pp. 20-21. , pp. 20-21.
183 15 U.S.C. §1692d. 183 15 U.S.C. §1692d.
184 15 U.S.C. §1692e. 184 15 U.S.C. §1692e.
185 15 U.S.C. §1692c(a)(1). 185 15 U.S.C. §1692c(a)(1).
186 15 U.S.C. §1692g(b). 186 15 U.S.C. §1692g(b).
187 15 U.S.C. §1692c(c). For exceptions to this rule, see 15 U.S.C. §1692c(c)(1)-(3). 187 15 U.S.C. §1692c(c). For exceptions to this rule, see 15 U.S.C. §1692c(c)(1)-(3).
188 15 U.S.C. §1692g(a). 188 15 U.S.C. §1692g(a).
189 See P.L. 111-203, §1002 and §1011. For more information on the CFPB’s authorities, see CRS In Focus IF10031, 189 See P.L. 111-203, §1002 and §1011. For more information on the CFPB’s authorities, see CRS In Focus IF10031,
Introduction to Financial Services: The Consum er Financial Protection Bureau (CFPB) , by Cheryl R. Cooper and , by Cheryl R. Cooper and
David H. Carpenter. David H. Carpenter.
190 CFPB, “ What is the Best Way to Negotiate a Settlement With a Debt Collector?” March 29, 2019, at 190 CFPB, “ What is the Best Way to Negotiate a Settlement With a Debt Collector?” March 29, 2019, at
https://www.consumerfinance.gov/ask-cfpb/what -is-the-best-way-to-negotiate-a-settlement-with-a-debt-collector-en-https://www.consumerfinance.gov/ask-cfpb/what -is-the-best-way-to-negotiate-a-settlement-with-a-debt-collector-en-
1447/. 1447/.
191 Legal processes are in place to seize collateral for secured loans, such as foreclosure or car repossession. 191 Legal processes are in place to seize collateral for secured loans, such as foreclosure or car repossession.
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smal claims court.”192 More than half of filed suits lead to default judgments in favor of the debt smal claims court.”192 More than half of filed suits lead to default judgments in favor of the debt
owner, often because consumers fail to appear in court.193 owner, often because consumers fail to appear in court.193
Consumers who cannot pay their debts may seek relief through the federal bankruptcy process, Consumers who cannot pay their debts may seek relief through the federal bankruptcy process,
which is general y governed by the Bankruptcy Code.194 In general, the bankruptcy process which is general y governed by the Bankruptcy Code.194 In general, the bankruptcy process
al ows a consumer to enter a court-administered proceeding by which the consumer can al ows a consumer to enter a court-administered proceeding by which the consumer can
“discharge” certain debts and thus obtain a “fresh start.” However, consumers may face negative “discharge” certain debts and thus obtain a “fresh start.” However, consumers may face negative
repercussions by choosing bankruptcy, for example, a lower credit score and reduced access to repercussions by choosing bankruptcy, for example, a lower credit score and reduced access to
credit for several years afterward. In 2005, Congress enacted the Bankruptcy Abuse Prevention credit for several years afterward. In 2005, Congress enacted the Bankruptcy Abuse Prevention
and Consumer Protection Act (BAPCPA), in response to what some perceived as a high number and Consumer Protection Act (BAPCPA), in response to what some perceived as a high number
of consumer bankruptcy filings.195 BAPCPA made numerous amendments to the Bankruptcy of consumer bankruptcy filings.195 BAPCPA made numerous amendments to the Bankruptcy
Code. One change was to impose a “means test” to determine when consumers have the financial Code. One change was to impose a “means test” to determine when consumers have the financial
ability to pay their debts in instal ments over several years, rather than receiving more immediate ability to pay their debts in instal ments over several years, rather than receiving more immediate
relief from their debts.196 relief from their debts.196
In late 2020, the CFPB announced two final rules intended to regulate the debt collection In late 2020, the CFPB announced two final rules intended to regulate the debt collection
market.197 These CFPB regulations, among other things, seek to clarify appropriate market.197 These CFPB regulations, among other things, seek to clarify appropriate
communication tactics for debt collectors and what information debt collectors should be required communication tactics for debt collectors and what information debt collectors should be required
to disclose to consumers. One of these regulations general y limits debt collector phone cal s to to disclose to consumers. One of these regulations general y limits debt collector phone cal s to
seven times in a seven-day period and would prohibit debt collectors from making cal s within a seven times in a seven-day period and would prohibit debt collectors from making cal s within a
week after speaking by phone to a consumer. It also al ows debt collectors to use newer week after speaking by phone to a consumer. It also al ows debt collectors to use newer
technologies, such as emails or text messages, to communicate with consumers, requiring a technologies, such as emails or text messages, to communicate with consumers, requiring a
reasonable and simple method for a consumer to opt out of these types of messages if they reasonable and simple method for a consumer to opt out of these types of messages if they
choose. Congress continues to debate whether these communication limits adequately protect choose. Congress continues to debate whether these communication limits adequately protect
consumers from predatory behavior.198 Other ongoing policy issues relating to debt collection consumers from predatory behavior.198 Other ongoing policy issues relating to debt collection
include the treatment of medical debt by debt collectors and debts incorrectly attributed to include the treatment of medical debt by debt collectors and debts incorrectly attributed to
consumers or for incorrect amounts. consumers or for incorrect amounts.

192 CFPB, 192 CFPB, Study of Third-Party Debt Collection Operations, p. 18. , p. 18.
193 CFPB, 193 CFPB, Study of Third-Party Debt Collection Operations, p. 18. , p. 18.
194 11 U.S.C. §§101-1532. For more information on the bankruptcy process, see CRS Report R45137, 194 11 U.S.C. §§101-1532. For more information on the bankruptcy process, see CRS Report R45137, Bankruptcy
Basics: A Prim er, by Kevin M. Lewis. , by Kevin M. Lewis.
195 P.L. 109-8. 195 P.L. 109-8.
196 11 U.S.C. §707(b) provides: 196 11 U.S.C. §707(b) provides:
After notice and a hearing, the court, on its own motion or on a motion by the United States After notice and a hearing, the court, on its own motion or on a motion by the United States
trustee, trustee (or bankruptcy administrator, if any), or any party in interest, may dismiss a case filed trustee, trustee (or bankruptcy administrator, if any), or any party in interest, may dismiss a case filed
by an individual debtor under this chapter whose debts are primarily consumer debts, or, with by an individual debtor under this chapter whose debts are primarily consumer debts, or, with
the debtor’s consent, convert such a case to a case under chapter 11 or 13 of this title, if it finds that the debtor’s consent, convert such a case to a case under chapter 11 or 13 of this title, if it finds that
the granting of relief would be an abuse of the provisions of this chapter. the granting of relief would be an abuse of the provisions of this chapter.
197 CFPB, “Debt Collection Practices (Regulation F),” 85 197 CFPB, “Debt Collection Practices (Regulation F),” 85 Federal Register 76734, November 30, 2020; and CFPB, 76734, November 30, 2020; and CFPB,
Consum er Financial Protection Bureau Issues Final Rule on Consum er Disclosures Related to Debt Collecti on, ,
December 18, 2020, at https://www.consumerfinance.gov/about-us/newsroom/consumer-financial-protection-bureau-December 18, 2020, at https://www.consumerfinance.gov/about-us/newsroom/consumer-financial-protection-bureau-
issues-final-rule-on-consumer-disclosures-related-to-debt-collection/. issues-final-rule-on-consumer-disclosures-related-to-debt-collection/.
198 Representative Maxine Waters, Chairwoman of the House Financial Services Committee, “Waters Statement on the 198 Representative Maxine Waters, Chairwoman of the House Financial Services Committee, “Waters Statement on the
CFPB’s Weak Debt Collection Proposal,” press release, May 7, 2019, at https://financialservices.house.gov/news/CFPB’s Weak Debt Collection Proposal,” press release, May 7, 2019, at https://financialservices.house.gov/news/
documentsingle.aspx?DocumentID=403726; and Representative Maxine Waters, Chairwoman o f the House Financial documentsingle.aspx?DocumentID=403726; and Representative Maxine Waters, Chairwoman o f the House Financial
Services Committee, “Waters Provides Recommendations to President -Elect Biden on T rump Actions to Reverse,” Services Committee, “Waters Provides Recommendations to President -Elect Biden on T rump Actions to Reverse,”
press release, December 4, 2020, at https://financialservices.house.gov/news/documentsingle.aspx?DocumentID=press release, December 4, 2020, at https://financialservices.house.gov/news/documentsingle.aspx?DocumentID=
403726. 403726.
Congressional Research Service Congressional Research Service
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An Overview of Consumer Finance and Policy Issues

Conclusion
For al of the consumer financial markets described in this report, the societal goal is that each For al of the consumer financial markets described in this report, the societal goal is that each
market wil create a transparent and competitive price that leads to an efficient market outcome. market wil create a transparent and competitive price that leads to an efficient market outcome.
As described earlier in the report, government policy can potential y correct market failures, such As described earlier in the report, government policy can potential y correct market failures, such
as information asymmetries or behavioral biases, to bring the market to a more efficient outcome, as information asymmetries or behavioral biases, to bring the market to a more efficient outcome,
maximizing social welfare. Yet, government policy can lead to unintended consequences as wel . maximizing social welfare. Yet, government policy can lead to unintended consequences as wel .
Policy changes wil typical y impose costs and benefits, but these effects can be difficult to Policy changes wil typical y impose costs and benefits, but these effects can be difficult to
calculate in advance of a new law or regulation. It is often chal enging to determine whether a calculate in advance of a new law or regulation. It is often chal enging to determine whether a
policy intervention wil help or harm the market from reaching a more efficient outcome. policy intervention wil help or harm the market from reaching a more efficient outcome.

Author Information

Cheryl R. Cooper Cheryl R. Cooper

Analyst in Financial Economics Analyst in Financial Economics

Disclaimer
This document was prepared by the Congressional Research Service (CRS). CRS serves as nonpartisan This document was prepared by the Congressional Research Service (CRS). CRS serves as nonpartisan
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