A&B Abstract

The CFPB’s statutory authority to issue a recent request for information (RFI) regarding employer-driven debt is in doubt, which may affect the utility of any comments submitted in response to its request.

Background

On June 9, the CFPB issued an RFI Regarding Employer-Driven Debt. The RFI seeks comment on several areas of inquiry relating to “employer-driven debts,” including prevalence, pricing and other terms of the obligations, disclosures, dispute resolution, and the servicing and collection of these debts.

The CFPB defines employer-driven debts as “debt obligations incurred by consumers in the context of an employment or independent contractor arrangement.” The CFPB further states that these debts “appear to involve deferred payment to the employer or an associated entity for employer-mandated training, equipment, and other expenses.” The CFPB provides two examples of such debts:

• Training Repayment Agreements that require workers to pay their employers or third-party entities for previously undertaken training provided by an employer or an associated entity if they separate voluntarily or involuntarily within a set time period.
• Debt owed to an employer or third-party entity for the up-front purchase of equipment and supplies essential to their work or required by the employer, but not paid for by the employer.

The CFPB states that it is seeking input from the public as part of its mandate to “monitor[] markets for consumer financial products and services to ensure that they are fair, transparent, and competitive.” This statement is an amalgamation of two separate statutory provisions. The first, found in Section 1021(a) of the Dodd-Frank Act states that the CFPB shall use its authorities consistently for the purpose of ensuring that “markets for consumer financial products and services are fair, transparent, and competitive.” The second, found in Section 1022(c), states that in order to support its rulemaking and other functions, the CFPB shall “monitor for risks to consumers in the offering or provision of consumer financial products or services, including developments in markets for such products or services.” Note that both provisions refer to consumer financial products and/or services. Sections 1002(5) and (15) define a “consumer financial product or service” in the context of extending credit as a loan that is “offered or provided for use by consumers primarily for personal, family, or household purposes.”

The CFPB’s RFI does not explain how debts incurred by employees for the purchase of essential work training or equipment constitute consumer credit. However, the CFPB’s own rules are illustrative. For instance, Regulation Z, which implements the Truth In Lending Act, defines consumer credit as credit “offered or extended to a consumer primarily for personal, family, or household purposes.” 12 C.F.R. 1026.2(a)(12). Regulation Z further sets forth factors for distinguishing business-purpose loans from consumer-purpose loans. 12 C.F.R. 1026.3(a) and Official Interpretation 3(a)-3. For example, one factor to be considered is the relationship of the borrower’s primary occupation to a financed acquisition. According to the CFPB, “the more closely related, the more likely it is to be business purpose.” Also, according to another factor, credit extensions by a company to its employees constitute consumer-purpose credit only “if the loans are used for personal purposes.”

As described by the CFPB, debts incurred by employees to defer payment to employers for employer-mandated training, equipment, and other expenses do not appear to be consumer-purpose loans because they finance acquisitions that are directly related to the employees’ jobs and are not used for personal purposes. Accordingly, employer-driven debt does not appear to be either consumer credit or a consumer financial product or service. Because the CFPB’s statutory purpose and market monitoring authority are limited to “consumer financial products and services,” and because the CFPB referred to no other legal authority in its RFI, the CFPB does not appear to have articulated an adequate statutory basis for its issuance.

If the CFPB lacks jurisdiction over the subject matter of the RFI, then it is also prohibited from expending funds to issue the RFI. Section 1017(c) provides that CFPB funds can only be used to pay for expenses incurred in “carrying out its duties and responsibilities.” If employer-driven debt is not a consumer financial product or service, then monitoring such debt is not within the duties or responsibilities of the CFPB, and the CFPB may not expend funds in issuing its RFI.

Takeaway

Monitoring the operation of labor markets or the effects of the emergence of employer-driven debt may be useful. However, Congress appears not to have assigned the CFPB this task, which raises questions about the legality of the CFPB’s RFI and the utility of any comments submitted in response.

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