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CFPB reports on employer-driven debt

Federal Issues CFPB Consumer Finance Employer-Driven Debt Products

Federal Issues

On July 20, the CFPB released an Issue Spotlight covering findings from an inquiry into worker experiences with employer-driven debt. In June 2022, the Bureau launched a formal inquiry on practices and financial products that may cause an employee to owe a debt to their employer. (Covered by InfoBytes here.) The inquiry focused on debt obligations incurred by consumers in the context of an employment or independent contractor arrangement, including training repayment agreements where employees are required to repay the costs of job training should they voluntarily or involuntarily leave a job within a set time period. The inquiry sought information on “prevalence, pricing and other terms of the obligations, disclosures, dispute resolution, and the servicing and collection of these debts,” and asked consumers whether they felt they “have a meaningful choice” in agreeing to these products, what these agreements’ terms and conditions are, and whether the products might prevent individuals from seeking alternative employment.

The recent Issue Spotlight found that employer-driven debt presents several risks to consumers, including:

  • Workers experience unique harms related to employer-driven debts, as these debts are tied to their employment, and the issuer of the debt controls their ability to repay it.
  • Employees may be rushed into signing agreements that conceal debt details or employers may change terms and conditions after origination without a worker’s knowledge.
  • Workers’ focus on securing or advancing employment may lead them to overlook valuation, disclosures, and terms of credit or lease products.
  • Employer-driven debts may be imposed as a mandatory precondition of employment, potentially hindering workers’ ability to negotiate terms before accepting a job.
  • Employers may misrepresent the value and nature of employer-driven debt, work conditions, and potential job earnings, leading workers to expect career mobility and higher earnings.
  • Workers may suffer negative impacts on household financial stability, such as lower earnings, damaged credit scores, and additional debts, to meet repayment-related obligations.

The Bureau stated that it is committed to working with other federal, state, and local regulators to address potential workplace consumer harms and said it intends to evaluate the use of training repayment agreement provisions or other employer-driven debts for potential violations of consumer financial laws.