Opinion

Excess CFPB Civil Penalty Fund Money Can Be a Lifeline

Even before the COVID-19 pandemic, millions of families lived life in the financial shadows. For these hardworking, but financially invisible people, life is full of closed doors. It’s nearly impossible for them to get approved for an apartment, a credit card and sometimes even a job. 45 million people, many now deemed “essential workers,” are without access to affordable credit and 14 million people don’t have access to bank accounts.

Now the coronavirus pandemic has turned this dire situation into a full-blown crisis that threatens these vulnerable families and our nation’s economy. Millions of low and middle-income people are out of work, experiencing extraordinary difficulty paying for utility charges, rent payments and food.

From the need to prioritize which creditors should be paid first, to understanding the emergency resources newly available to them, it’s critical that families have access to an impartial financial advocate that can help them navigate this difficult time. Most of Credit Builder Alliance’s 560 nonprofit members provide free or low-cost individual financial counseling and coaching for these families. The Mission Asset Fund, for example, works on the ground to reach roughly 30,000 people yearly through their financial education programs and credit-building loans.

CBA members are experiencing an unprecedented surge in demand for their services but many of their traditional funding sources, that serve as a critical lifeline to sustain operations, are now under severe strain.

Without an immediate infusion of money, many of these vital nonprofits will not survive.

There’s a clear solution: use a small percentage of the Consumer Financial Protection Bureau’s Civil Penalty Fund to contract with nonprofits, enabling them to deliver outstanding financial counseling and guidance to individuals and families suffering through this crisis.

The CFPB’s $1.2 billion Civil Penalty Fund, as of fiscal 2019 audit, comes from fines companies pay after the CFPB penalizes them for defrauding consumers. According to the Civil Penalty Fund rule, if victims cannot be located or it is otherwise not practicable to pay victims, the bureau may keep the money in the fund for victims in future cases, or the bureau may use money in the fund for consumer education and financial literacy programs. The CFPB can enter into contracts for the purpose of financial education. There has been precedent for this with past successful contracts.

Community-based, not-for-profit financial counseling organizations in addition to nonprofit small dollar lenders (i.e. CDFIs) have a history of providing financial education and one-on-one counseling to families in financial crisis. They have taught countless classes and worked one-on-one with millions of consumers to help them understand budgeting, use of credit, banking, insurance, and much more. These organizations have helped millions of families become financially ready for homeownership as well as fought to keep them in their homes when faced with foreclosure. Dedicated counselors and educators have worked to help people avoid bankruptcy, getting them on track while building savings and a positive credit history.

The individual financial counseling work that the nonprofits do cannot be replicated at the CFPB. It serves to augment the excellent financial education materials that the CFPB has createdBut without supporting the infrastructure that interacts with consumers on a daily basis, materials alone will not solve the immediate financial crisis.

There is precedent for this type of innovative use of money collected from fines. The state of California is kicking off the CalMoneySmart program which provides $4 million to nonprofit organizations that deliver financial education and empowerment tools to help consumers improve their financial well-being. This program is funded by a similar state mechanism as CFPB’s Federal Civil Penalty Fund. The CalMoneySmart program is a good start, but we need solutions like this at the national level to address the growing need arising from this crisis.

Some say that the money in the Civil Penalty Fund is only intended for victims of financial fraud and that the CFPB is still tracking down victims for payment who could benefit from it. If you use some of that money for financial education, the argument goes, what happens when there’s no money left over for victims? Plus, while financial literacy work is important, shouldn’t it be funded by the federal, state or local government?

Historically, it’s been very hard to track down every single intended recipient of CPFB funds, meaning there is always a large sum of money sitting in the fund. Could offender companies go bankrupt before paying penalties, further straining the fund? Sure. But even in that hypothetical scenario, it’s highly unlikely it would drain the fund. It’s not a convincing reason to leave money sitting in a government bank account that could be used today to help desperate, struggling families and our nation’s economy.

Meanwhile, federal paycheck protection loans, which can include nonprofits, simply can’t cover the increased demand for services and the simultaneous decrease in funder support. State and local governments are in financial crisis with plummeting tax revenue.

Yet, a small percentage of the approximately $2 billion that has likely now built up in the fund since the last audit, could be a lifeline for these financial nonprofits, the consumers they serve, and our economy itself.

That’s why we recently sent a letter to CFPB Director Kathy Kraninger formally asking to put the Civil Penalty Fund’s excess money to work, signed by 234 nonprofit organizations. While we wait for a response, many of our members are on the brink.

Why not use a small percentage of the overall fund, for one of its intended purposes?

The time to put this excess money to use is now. Families, the nonprofits who help pull them out of poverty, and our nation’s economy can’t wait.

 

Dara Duguay is the CEO of Credit Builders Alliance. José A. Quiñonez is the CEO and founder of Mission Asset Fund.

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