[Senate Hearing 112-374]
[From the U.S. Government Publishing Office]
S. Hrg. 112-374
FINANCIAL SECURITY ISSUES FACING OLDER AMERICANS
=======================================================================
HEARING
before the
SUBCOMMITTEE ON
FINANCIAL INSTITUTIONS AND CONSUMER PROTECTION
of the
COMMITTEE ON
BANKING,HOUSING,AND URBAN AFFAIRS
UNITED STATES SENATE
ONE HUNDRED TWELFTH CONGRESS
FIRST SESSION
ON
CONSIDERING THE FINANCIAL SECURITY AND HEALTH SECURITY OF AMERICA'S
SENIOR CITIZENS
__________
NOVEMBER 15, 2011
__________
Printed for the use of the Committee on Banking, Housing, and Urban
Affairs
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COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS
TIM JOHNSON, South Dakota, Chairman
JACK REED, Rhode Island RICHARD C. SHELBY, Alabama
CHARLES E. SCHUMER, New York MIKE CRAPO, Idaho
ROBERT MENENDEZ, New Jersey BOB CORKER, Tennessee
DANIEL K. AKAKA, Hawaii JIM DeMINT, South Carolina
SHERROD BROWN, Ohio DAVID VITTER, Louisiana
JON TESTER, Montana MIKE JOHANNS, Nebraska
HERB KOHL, Wisconsin PATRICK J. TOOMEY, Pennsylvania
MARK R. WARNER, Virginia MARK KIRK, Illinois
JEFF MERKLEY, Oregon JERRY MORAN, Kansas
MICHAEL F. BENNET, Colorado ROGER F. WICKER, Mississippi
KAY HAGAN, North Carolina
Dwight Fettig, Staff Director
William D. Duhnke, Republican Staff Director
Catherine Galicia, Counsel
Dawn Ratliff, Chief Clerk
Riker Vermilye, Hearing Clerk
Shelvin Simmons, IT Director
Jim Crowell, Editor
______
Subcommittee on Financial Institutions and Consumer Protection
SHERROD BROWN, Ohio, Chairman
BOB CORKER, Tennessee, Ranking Republican Member
JACK REED, Rhode Island JERRY MORAN, Kansas
CHARLES E. SCHUMER, New York MIKE CRAPO, Idaho
ROBERT MENENDEZ, New Jersey MIKE JOHANNS, Nebraska
DANIEL K. AKAKA, Hawaii PATRICK J. TOOMEY, Pennsylvania
JON TESTER, Montana JIM DeMINT, South Carolina
HERB KOHL, Wisconsin DAVID VITTER, Louisiana
JEFF MERKLEY, Oregon
KAY HAGAN, North Carolina
Graham Steele, Subcommittee Staff Director
Michael Bright, Republican Subcommittee Staff Director
(ii)
C O N T E N T S
----------
TUESDAY, NOVEMBER 15, 2011
Page
Opening statement of Chairman Brown.............................. 1
WITNESSES
Hubert H. ``Skip'' Humphrey III, Assistant Director, Office of
Financial Protection for Older Americans, Consumer Finance
Protection Bureau.............................................. 3
Prepared statement........................................... 18
Julie Nepveu, Senior Attorney, AARP.............................. 5
Prepared statement........................................... 20
(iii)
FINANCIAL SECURITY ISSUES FACING OLDER AMERICANS
----------
TUESDAY, NOVEMBER 15, 2011
U.S. Senate,
Subcommittee on Financial Institutions and Consumer
Protection,
Committee on Banking, Housing, and Urban Affairs,
Washington, DC.
The Subcommittee convened at 3:07 p.m., in room 538,
Dirksen Senate Office Building, Hon. Sherrod Brown, Chairman of
the Subcommittee, presiding.
OPENING STATEMENT OF CHAIRMAN SHERROD BROWN
Senator Brown. The Subcommittee on Financial Institutions
and Consumer Protection will come to order of the Senate
Banking Committee.
Thank you for joining us today as we consider the financial
security and the health security of America's senior citizens
in this age of widening inequality. I want to thank our
witnesses for being here today, Ms. Nepveu and Mr. Humphrey,
whom I will introduce in a moment, and to thank Senator Corker,
who has worked on these issues in his role as Ranking Member of
the Special Committee on Aging, a committee chaired by Senator
Kohl of Wisconsin. He has done significant work in the area of
fighting against senior scams.
Earlier this year, I attended a seniors financial education
workshop in the city of East Cleveland, a generally low-income
area where it seems financial institutions, especially
nonbanks, have preyed on seniors, perhaps more than most places
in my State. I heard firsthand how institutions like KeyBank
are partnering with nonprofits to help elderly Americans avoid
mail and telemarketing and Internet fraud. And I heard
firsthand how the financial security of our seniors is
threatened by a number of financial predators.
This Subcommittee in October examined the state of
household wealth for middle class Americans. We learned more
about how middle class wages and household wealth have remained
relatively stagnant over the past decade while household debt
more than doubled. Too many seniors have seen retirement
savings vanish in the financial crisis and the ensuing
recession. Many seniors are living on fixed incomes, relying
principally on Social Security, and literally cannot afford to
pay these outsize fees and interest associated with credit
cards and mortgages.
In Cuyahoga County, where Cleveland and East Cleveland are
located, a senior living on Social Security Disability had her
first trial mortgage modification payment double-billed,
causing the bank to tack on $150 in overdraft fees. That is
simply too much money for a senior living on a modest Social
Security check and living from one modest check to another.
Other seniors suffer from health issues exacerbated
obviously by the stress of struggling to meet their
obligations, or so often just to hold on to the family home. A
recent study by the University of Maryland found that seniors
who fall behind on their mortgages reported in far too many
cases symptoms of depression, more food insecurity, all of the
things that afflict people in their later years with that kind
of anxiety and pressures on them. They are more likely to
respond they were not taking their prescription medicines as
prescribed because of the cost.
I received a letter yesterday from an elderly couple in
Geauga County, Ohio, who had worked to obtain a mortgage
modification from their lender. Let me just quote from the
letter. ``How does one measure,'' they wrote, ``two years of
waiting for a resolution, the cost of mental anguish, the
health issues revealed in the loss of the ability to sleep,
depression, and anxiety over the worry of losing a spot on this
earth we have called home for 40 years. All this in search for
a lower interest rate.''
As Ms. Nepveu will attest to today, this is an unfortunate
story that too many Americans face daily. In addition to the
housing crisis, too many seniors struggle to meet the unfair
terms of unscrupulous lenders looking to take advantage of
their vulnerable state. Congress created the Consumer Financial
Protection Bureau with the sole mission of protecting consumers
from these bad actors. Unfortunately, many of these activities,
as we have heard many times here in this Subcommittee and
elsewhere, are perpetrated by nonbanks and the Consumer
Financial Protection Bureau does not have authority over these
nonbank lenders until a full-time lender is confirmed. So I
again urge my colleagues to confirm Rich Cordray, a former
colleague of Attorney General Humphrey and an Ohioan and former
Attorney General of Ohio, so that the Bureau can use its full
authority over nonbank lenders.
Yesterday, the other Senator Brown, Scott Brown from
Massachusetts, told the Boston Globe that he supports Rich
Cordray and believes he deserves an up or down vote. I am
confident on an up or down vote he will be confirmed. No one
has expressed any real doubt about his qualifications. It is a
political statement made by some 40 Republicans in this body.
Never in the history of the Senate, the Senate Historian told
me, has one party blocked someone's nomination simply because
they do not like the agency or they want to rewrite the rules
governing the agency.
I look forward to hearing from Mr. Humphrey, who will share
his plans for the CFPB's new Office of Older Americans. Mr.
Humphrey comes from a distinguished family of public servants,
one of my heroes, Hubert Humphrey, who may have been, I would
say with Senator Kennedy, perhaps the two best Senators of the
last century. I was proud to have met your father a couple of
times, of course, never had the opportunity to serve with him,
but was an admirer from afar for many years.
As our seniors increasingly become targets of more and more
financial predators, we must empower the CFPB with all the
tools necessary to protect our seniors. We look forward to
hearing from you today and I will introduce the two panelists.
Hubert Humphrey III, Skip, joined the Consumer Financial
Protection Bureau as the Assistant Director of its newly
established Office of Older Americans in October, just a month
or two ago. Mr. Humphrey has spent much of his professional
life working to protect consumers, serving as a Minnesota State
Senator for 10 years and as Minnesota's Attorney General for 16
years. He then initiated broad-ranging educational initiatives
that helped reduce crime targeting consumers, especially those
who are older and more vulnerable. He worked on behalf of
seniors as President of the Minnesota AARP and until recently
served on that organization's national board.
Julie Nepveu is testifying on behalf of that organization,
the AARP, a nonprofit, nonpartisan organization that helps
people age 50 and older. I do not quite get this 50 thing. I
was even more amazed by how you found me, like, every third day
after my 50th birthday----
[Laughter.]
Senator Brown.----and I will not ask you about that, but--
well, I was not that amused, but that is OK.
[Laughter.]
Senator Brown. She focuses on consumer protection, housing,
disability, and low-income issues as Senior Attorney, AARP
Foundation Litigation. She formerly practiced law with the
Lawyers' Committee, a great organization for civil rights under
law, and Legal Services of Northern Virginia on fair housing,
race discrimination, Federal housing, predatory lending, and
community accountability.
I want to welcome both of you. Mr. Humphrey, if you would
begin.
STATEMENT OF HUBERT H. ``SKIP'' HUMPHREY III, ASSISTANT
DIRECTOR, OFFICE OF FINANCIAL PROTECTION FOR OLDER AMERICANS,
CONSUMER FINANCE PROTECTION BUREAU
Mr. Humphrey. Thank you very much, Chairman Brown. I also
want to thank Ranking Member Corker and the other distinguished
Members of your Committee for the opportunity to speak----
Senator Brown. Let me interrupt for a moment. Mr. Corker
will be here shortly. He is on a call with his leadership. Just
sorry I did not mention that. Please proceed.
Mr. Humphrey. All right. As you mentioned, my name is
Hubert Humphrey and I joined the Consumer Financial Protection
last month to serve as its Assistant Director of the Office of
Older Americans. The CFPB was created by the Dodd-Frank Act and
launched in July of this year. The mission of the Bureau is
important to all Americans to ensure that markets for consumer
financial products or services are fair, transparent, and
competitive, and that all consumers have access to those
markets. We will fulfill this statutory charge by making rules
more effective, by consistently and fairly enforcing those
rules, and by empowering consumers to take more control over
their economic lives.
The Dodd-Frank Act specified certain populations that
needed focused attention. Among them, students, service
members, and older Americans. Older Americans have been hit
hard by the economic crisis, Mr. Chairman, as you mentioned.
Many over 62 are not financially prepared for retirement, and
financial exploitation of senior citizens is growing.
When our Office for Older Americans at the CFPB launched
last month, it did so with a focus on ensuring that seniors
have the information that they need to make sound financial
decisions, and it launched with an emphasis on helping seniors
identify and avoid unfair, deceptive, and abusive practices
targeted at them. Both of these focus areas were mandated by
the Act.
The need to help older Americans is great. As seniors top
50 million and soon will make up 20 percent or more of the
population, they will face more challenges to maintaining
economic security, supporting long anticipated retirement
plans, and exerting control over financial decisionmaking.
Though I have been on the job for less than a month, I have
already seen the critical need for the CFPB when it comes to
older Americans. Take, for example, Mr. Chairman, Suzanne of
Kentucky. The CFPB helped Suzanne. Now, she is 81 years old.
They helped her to reach an agreement with her credit card
company after she had been trying to do so for herself for more
than 6 months. After losing her job in 2010, Suzanne realized
that she could not keep up the minimum payments on her
longstanding credit card debts. She asked the credit card
companies to cut the minimum monthly payments. One issuer did
not agree.
After repeated appeals after the many phone calls, she
simply could not keep up the payments. She said that she was at
a point of tears. The company started to charge her $25 in late
fees and her interest rates spiked. She said that she had hit a
wall and just did not know what to do. Well, eventually, she
wrote her Congressman and he advised her to contact the CFPB.
Ten days after the CFPB contacted the credit issuer, the
company credited back all of the interest charges and late
fees. Suzanne told the CFPB that she was elated with the
results. Her balance now is zero. So while the Bureau has much
work to do, we are already starting going forward.
I have spent my first few weeks with the Bureau listening
and learning from older Americans like Suzanne. I traveled to
California, Florida, Massachusetts, where I met with seniors,
State law enforcement officials, and other concerned groups.
They asked me to help build awareness about one of the biggest
financial issues facing seniors, elder financial abuse and
exploitation. It has been called a hidden epidemic, the crime
of the 21st century, and it is a serious growing problem that
we need to address. According to one survey and study,
Americans over the age of 65 lost more than $2.9 billion in
financial abuse and exploitation in 2010. That is a 12 percent
increase from the $2.6 billion estimated in 2008.
Now, as I listened, many talked about the shame and
embarrassment people feel when they are tricked or taken
advantage of. People need to feel comfortable speaking about
these issues. At the CFPB, we want to raise public awareness.
We want to give people a forum and to help them have the
courage to speak up about this underreported problem. We do not
want them to hide anymore.
I am honored to have this opportunity to help older
consumers navigate their way to better financial decisions and
a more secure financial future.
Thank you, Mr. Chairman. I look forward to your questions
and the Committee's questions.
Senator Brown. Thank you, Mr. Humphrey. I should add, I was
a great admirer of your mother, too, and not just talk about
your father. Thank you.
Mr. Humphrey. Thank you.
Senator Brown. I am and was. Thank you.
Ms. Nepveu.
STATEMENT OF JULIE NEPVEU, SENIOR ATTORNEY, AARP
Ms. Nepveu. Chairman Brown, Ranking Member Corker, and
distinguished Members of the Subcommittee, good afternoon. I
appreciate this opportunity to offer the views of AARP on
financial security issues facing older Americans. AARP would
like to thank Chairman Brown and Ranking Member Corker for
holding this hearing.
Financial fraud is becoming increasingly sophisticated and
harder to combat. Older consumers, as Mr. Humphrey has
mentioned, lose billions of dollars every year to fraudulent,
abusive, or deceptive practices. Consumer fraud is listed by
every State as the major nonviolent crime perpetrated against
older people. Many consumers do not know how or where to
complain to seek a remedy for fraud. Embarrassment, fear of
being deemed competent and losing control and independence of
their financial abilities may make them reluctant to pursue a
remedy when an abuse occurs. Reduced capacity to make financial
decisions is a significant problem for many older people.
Therefore, we must commit to increasing consumer protections to
prevent harmful financial services and practices.
AARP has identified numerous practices that continue to
threaten the financial security of older people. These include
mortgage lending fraud and deception regarding fees and
interest rates and disclosures, leading to higher payments when
borrowers would qualify for more favorable terms. Such mortgage
lending practices ultimately lead to foreclosure, an area
itself rife with fraud and abuse, and they make people
vulnerable to mortgage rescue scams that cost older homeowners
millions of dollars in fees but do not save their homes.
Practices of the credit card industry using complicated
terms and hidden fees that hide the true cost of credit make
comparison shopping impossible. Prepaid debit cards that do not
provide protection against theft, loss, or unauthorized use and
that charge high fees to access funds, check balances, or even
to decline a transaction. Other high-cost loans, with interest
rates that can exceed 400 percent, seriously threaten the
financial security of the most vulnerable borrowers. These
include bank overdraft fees, live loan checks, auto financing,
payday loans, auto title loans, and tax refund anticipation
loans.
AARP would like to thank Senators Merkley and Brown for
introducing the Deceptive Loan Check Elimination Act.
Older consumers, in particular, are highly vulnerable to
the increasingly aggressive and often illegal debt collection
tactics used to collect disputed or stale debts or debts caused
by identity theft. Complaints about debt collection abuse have
topped the charts of the State AGs and the FTC for over a
decade. Rampant fraud by debt collectors is taxing the
resources of State courts and State Attorney Generals and must
be addressed comprehensively.
Forced arbitration makes it impossible for consumers to
obtain a remedy for violations of the law, essentially giving
businesses a ``get out of jail free'' card and allowing them to
keep their ill-gotten gains. The Federal preemption of State
law that would protect a consumer's access to meaningful,
effective court remedies places an unsustainable burden on
cash-strapped public enforcement systems to monitor harmful and
deceptive action practices.
Additional examples are provided in my written testimony,
and I would be happy to supply you with real-life examples of
some of these problems if you would prefer.
Now, Chairman Brown asked me to address the role of the
Consumer Financial Protection Bureau in restoring consumer
financial protection. AARP supports an independent CFPB that
has the sole mission to ensure that American families can trust
the financial products they use to help them achieve their
goals and to avoid traps that lead to financial distress.
Surveys conducted by AARP demonstrate that Americans age 50-
plus, regardless of their party affiliation, want Congress to
act to hold financial institutions accountable.
The full potential for the CFPB to be an effective cop on
the beat, protecting Americans from deceptive and unfair
financial practices, will not be realized until there is a
leader in place and the agency can use all the powers it has
been granted. We appreciate that the Senate Banking Committee
has moved forward to fill this critical leadership position and
we urge the full Senate to move quickly to continue this
confirmation process.
Of particular interest to AARP has been the creation of the
Office for the Financial Protection of Older Americans. This
office is tasked with improving the financial decisionmaking of
older people and preventing unfair, deceptive, and abusive
practices that are targeted at them. AARP is particularly
pleased that former AARP board member, Hubert Humphrey, has
been selected as the head of this office. As the former
Attorney General for Minnesota and an ardent and successful
consumer advocate, we are assured that the financial security
needs of our members will be identified and addressed.
AARP looks forward to continuing to contribute to the
effort of protecting older consumers from financial fraud and
abuse. Thank you for the opportunity to share AARP's views with
you today.
Senator Brown. Thank you, Ms. Nepveu.
We hear about a lot of financial products, some newly
created, some that have been around for a while, some slightly
changed, that are used in these scams. One, the product of
reverse mortgages, which is not by definition or by nature
necessarily an abusive kind of product or one that can create
scams necessarily, but we hear banks that have typically
offered these, some of these banks are exiting this whole idea
of doing reverse mortgages. We also hear reports about
alternative nonbank lenders gaining access to seniors' Social
Security and other Government benefits.
What do you make of this, that nonbank lenders, if you
will, have gotten into the reverse mortgage and have access to
this Social Security information? Ms. Nepveu, why do you not
start. What do you make of this, where this is going?
Ms. Nepveu. Well, the reverse mortgage market has long been
problematic for seniors. It provides an amazingly lucrative
field for scammers and for high fees to be sucked away from
people's homes. But it is also a source of equity for folks to
tap when they are retiring and they do not have income but they
have their home asset. So it is a very important area that
needs to be available for seniors to use, but it also needs to
have special protections because of the serious harm that can
affect seniors.
Now, the alternative finance markets and the mainstream
banks both are in the same boat in that they each can charge
high fees for this process. They both can cause seniors to lose
their homes. They can both make the value of the property that
would be available to seniors to tap for their equity less than
they otherwise would have available to them.
And so we are very concerned with the reverse mortgage
market and----
Senator Brown. And concerned, too, about banks, not just
nonbanks----
Ms. Nepveu. Banks and nonbanks, that is right.
Senator Brown. And some of the abuses have also been--if
not abuses, the lack of perhaps financial literacy has played a
significant role in making these more attractive to seniors
than maybe in reality they are, even with banks?
Ms. Nepveu. Well, you know, the financial literacy problem
with reverse mortgages is somewhat different because in a
reverse mortgage situation, each person who gets one of these
mortgages is required to have counseling. And in the counseling
process, they are given quite a lot of information, and these
counselors are usually HUD-certified counselors. The problem is
that sometimes the game changes in the middle. They are told
for many years that people will be protected, and then at the
end of the day, they are not protected.
So there is more to be done on that score and I think that
even with the counseling, there are still a lot of very high-
cost loans out there. At the moment, I am not sure that there
are many loans being made in the reverse mortgage area because
the lending markets are so poor, the home values are dropping,
and that makes it more difficult for people to tap any equity.
Senator Brown. OK. Thank you, Ms. Nepveu.
Mr. Humphrey, the Wall Street Journal a couple of years ago
reported there are no publicly available statistics on the
proportion of payday loans that are backed by Social Security
and other Government benefits. Treasury is charged, as you
know, with ensuring that Social Security payments reach
beneficiaries, but Treasury will say that there is a long,
proud history in this country of never being late and these
benefits always being whole and all. But privacy rules prevent
Treasury, they will tell you, from monitoring recipients' bank
accounts without cause.
The Social Security Administration says it is not
responsible once benefits have been paid out. Of course, they
say that, and I understand that.
How do you envision--I know you have only been there a
month, but how do you envision CFPB and specifically the Office
of Older Americans filling these information gaps for seniors
as this moves forward?
Mr. Humphrey. Mr. Chairman and Members of the Committee,
thank you for that question. I think it is a very important
point. As I receive my Social Security checks, I want to make
sure that they are safe and secure and that the information is
not shared with anyone that I do not want it shared with.
But may I just say that, obviously, Members of Congress
have learned that this is a very important area, particularly
in the area of the reverse mortgages. That is why there is a
study that has been requested and we are in the process of that
review. Part of some of the things that you are talking about,
I am sure will be taken up in that review, and I look forward
to the results because the Bureau is really operating on the
basis of facts, on data, on the research that is available and
will be available in order to come forward with rules,
regulations, and proposals which we have been charged to give
in the future to Congress.
Senator Brown. Thank you.
Senator Merkley.
Senator Merkley. Thank you very much, Mr. Chair, and thank
you for convening this gathering. I appreciate the testimony
from both of you and the work you are doing to protect older
Americans, senior Americans.
I wanted to start by asking, if I could, Ms. Nepveu, if you
could expand a little bit on the issue involving live loan
checks. Obviously, it is something the Chair and I are very
concerned about, but you bring a national perspective to this,
and if you could fill us in a bit, that would be helpful.
Ms. Nepveu. Certainly. Thank you for the question, sir.
AARP supports the bill that you and Mr. Brown have both--the
Deceptive Loan Check Elimination Act. Essentially, what this is
is that banking entities will send a check to a person
unsolicited and tell them that they have access to this money.
What they do not necessarily tell the people is that they have
access to a loan at a very high interest rate, that once they
cash that check will cause them to be on the hook for the full
amount.
It is a growing problem. In the 1970s, when credit cards
started sending out credit cards to folks and saying, this is
now your credit card, that practice was stopped because it is
so dangerous. People's checks get lost. They get charges sent
against them. They do not necessarily want the money. They are
not necessarily capable of using the money wisely. But most
importantly, it is deceptive. People do not understand what it
is.
So this bill will go a long way to helping to prevent that
kind of problem.
Senator Merkley. Thank you, and I will tell you, some of
the things that I have noticed on these, sometimes there is a
statement in very small print on the back that many seniors
would be unable to read. I have seen it in light gray print
that makes it difficult to read. And even if you could read it,
a lot of folks assume that this is a refund of some sort if it
is coming from anyone they might have had a business
relationship in the past with. Do you see those kinds of issues
around the country?
Ms. Nepveu. We have been seeing them, and this is not
unlike a few years ago when people were sending checks for
$2.50 and cramming their cell phone bills with all kinds of
membership fees for a variety of things. This is not unlike
that practice except we are talking about enormous amounts of
money and we are talking about very high interest rates and the
harm to people is much greater. It is not just a couple of
dollars and they can get out of it. This is once they are on
the hook for it, they are on the hook for it forever.
Senator Merkley. You know, as you all were doing your
initial presentation, you were mentioning things such as
mortgage rescue scams, credit card deception, prepaid credit
cards with high and unexpected fees, the live loan checks, and
so forth. I was wondering if there is any sort of estimate of
these type of amount of resources we are talking about around
the country.
Right now, we are having this discussion in Congress in the
supercommittee and in the appropriating committees about
resources for safety net, resources for this program or that
program. But it seems much better to help people have strong
financial lives so that they never have to resort to a safety
net in the first place.
Ms. Nepveu. Right.
Senator Merkley. And so do we have a sense of the scale?
And I realize maybe you are just looking at it from the
viewpoint of the seniors, but that is fine, too, kind of the
scale of the impact of predatory practices in shifting funds
out of the pockets of seniors.
Ms. Nepveu. I think Mr. Humphrey mentioned $2.9 billion in
2010, but I have--the Lawyers' Committee recently did a
mortgage scam study, and as of July 2011 found that about $40
million had been taken out of the pockets of consumers in
mortgage rescue scam fees, where the folks think they are going
to save their homes and, of course, they are not. About 41
percent of that was for older folks, $16 million. And that is
only the tip of the iceberg because most people would not know
to report these kinds of activities.
We also know that the bank overdraft fees are taking
enormous, millions of dollars of people's Social Security
benefits every year, tens of millions of dollars. It is not a
small problem at all. It is significant, and that is why AARP
is working on these issues.
Senator Merkley. Mr. Humphrey.
Mr. Humphrey. Senator, let me just mention, the $2.9
billion, I think, is referencing the abuse and exploitation,
which the point that you are talking about goes beyond that.
And I have to tell you, I have only recently moved here, but I
am waiting for that nice new mail to come in, and I guarantee
you, I guarantee you, Mr. Chairman and Senator, there will be
at least four letters telling me about all the money that is
available, with checks already printed out ready to go, just as
you have mentioned, and it is a tragedy because it is the same
thing as you have mentioned, Senator, in the gray, small print,
legal terms. Those are the kind of things that confuse seniors,
that we need to have provide helpful information.
And what I would like to do is, as charged by the Act, I
want to help bring together, to collaborate together with other
State and Federal agencies as well as private and nonprofit
organizations to see that we are able to provide the
information for a very active and robust literacy, financial
literacy. That is really what is important.
And then if when you combine that, Senator, if you combine
that literacy so that individuals can make these crucial
decisions in a well informed way, if you combine that with good
supervision and strong enforcement, then I think you have the
kind of impact that will allow good and honest businesses to
compete in the marketplace with a fair set of rules and
regulations and laws and will remove those that are causing the
trouble, because they cause trouble not only for seniors and
for the consumer, they cause trouble for honest businesses.
Senator Merkley. Robust competition within fair rules
sounds tremendous. Thank you for dedicating yourself to that.
Thank you.
Senator Brown. Thank you, Senator Merkley.
Mr. Humphrey, I mentioned in my remarks I attended a senior
financial education conference in East Cleveland some months
ago. You noted in your testimony that consumer education is one
of the tools that the Bureau would be able to use to protect
consumers and especially your Office of Older Americans will
have a focus on ensuring that seniors have the financial
information they need prospectively.
What is the role for financial education? Would you just
talk about sort of your philosophy there, including
collaboration by banks, not-for-profits, working with them and
not always in some sense working against their practices,
particularly for the nonbanks but for anybody, but how you work
with them to sort of promote financial literacy for their
customers and for the people you work for.
Mr. Humphrey. Well, Mr. Chairman, thank you. I think we
have to recognize that there are many very good actors out
there that are doing good work. They are trying to provide the
information, the training, the advice, the good work that needs
to be done to help seniors really have the tools to make
important decisions as they age.
So the first and most important thing of our office is to
help bring that together, and that is one of the charges that
the Act calls for, is for us to help coordinate and collaborate
together to find the best practices, to inform those so that we
can work together. And I see that as something that I have
tried to do all of my public career. When I was Attorney
General, I can tell you that, for the most part, it was very
helpful to have a Federal presence as we were taking
enforcement actions and as we were taking preventive actions
and working with other organizations.
I see that as somewhat the same role. You asked my own
personal view. I think it is very important that we have the
combination, as I mentioned to the Senator, that you have the
combination of education for prevention and for proper
individual decisionmaking and enforcement that provides then
for an honest marketplace where these financial transactions
can take place and be helpful, not only to the businesses but
to the customer.
Senator Brown. Where does the not yet confirmation of
Attorney General Cordray--how does the fact that he has not yet
been confirmed hamper your efforts to do that?
Mr. Humphrey. Well, I think that, obviously, having a
Director will help us in the nonbank area. That will allow for
greater supervision. In order to take on these whole questions
along the framework of deceptions and scams and others, you
need to have that fullness of supervision and enforcement, and
I think that would be helpful.
There are a lot of things we could do. As I said, we have a
lot of work to do with colleagues and with the partners that we
have around the country. As I spoke and I visited with friends
in California and Florida and Massachusetts, I asked them the
question, what will a Federal presence--what do you see as the
Federal partner act in your role, and I asked them to share
that with me as they have an opportunity to think about that,
and I am getting information back. We have not gotten all of it
yet. We are going to look and find out what that role and
relationship, that partnership, that strong partnership will
be.
Senator Brown. Thank you.
Ms. Nepveu, I mentioned two elderly Ohioans who had such
trouble navigating the whole mortgage modification process.
What do you hear from your members about their experiences with
mortgage modification, and include in your answer
recommendations on how this Committee, this Subcommittee, this
full Government, the Government generally, can help in this
process.
Ms. Nepveu. The mortgage modification process has been a
disaster, frankly. The approximately 40 to 50 percent of the
folks who seek modifications are deterred even before they get
in the door because they are not yet in default. They cannot
change anything until they step over that cliff. And then once
they are in that cliff, 30 percent find that their paperwork
gets lost, or they get it sent back because they filled it out
in the wrong language, or they get it sent back because the
people have decided their home is not worth enough money
anymore, or it is sent back because they are in default, of all
things.
We also see problems with dual tracking. People's homes are
being foreclosed at the same time that their mortgage
modifications are going through.
There have been a number of cases in litigation recently
where the homeowners have been led to believe that they are
getting a modification, they have met all the terms of the
trial modification, and then the bank says, no, never mind. We
are not going to do it.
Senator Brown. Led to believe by whom, by the banks----
Ms. Nepveu. By the banker. By the servicers.
Senator Brown. By the servicer?
Ms. Nepveu. So the servicer says, OK, if you will follow
this, make these payments at this rate for 3, 6 months, that is
your trial modification period. They meet all those terms, and
then at the end of that time, they said, well, we are going to
foreclose on you anyway.
Senator Brown. Would the servicer know that was what he or
she was going to do 3 or 4 months before the foreclosure, in
your mind?
Ms. Nepveu. It is difficult to know what the servicers know
and do not know. We know that they earn money by servicing
these loans and they earn money by having--some of them earn
money having these properties go into foreclosure.
Senator Brown. Then they are not----
Ms. Nepveu. So the incentives are not in the--they are not
aligned with the interests of the homeowners. The incentives of
the servicers are not the same as the incentives----
Senator Brown. The servicers in these cases where they say
to the homeowner, if you pay this amount for the next 6 months,
then we will work this out, the servicer is not violating a
contract when they still send--the servicer is not violating
the law----
Ms. Nepveu. Well----
Senator Brown.----or are they when they foreclose at the
end of the 6 months?
Ms. Nepveu. That is an open question at this point. There
have been some cases where courts have held they are in
violation. They are allowing those cases to go forward in
saying that the banks do have some kind of obligation----
Senator Brown. Who is able to put it in a court of law to
bring suit in that case?
Ms. Nepveu. The person seeking the modification.
Senator Brown. Can----
Ms. Nepveu. So they say, here is a contract claim. You made
us a promise and we are challenging----
Senator Brown. Who has the financial wherewithal to do that
if they are about to be foreclosed on?
Ms. Nepveu. Well, a lot of times, these are done by
attorneys who are seeking to protect homeowners. They are legal
services attorneys. They are consumer law attorneys. They will
only get paid at the end of the day if they win the case.
Senator Brown. And it is a relatively small percentage of
these cases, I assume, that they end up in court like that.
Ms. Nepveu. Very few. Very few cases end up in court. And
right now, as I said, there is a big problem with courts
saying, just because there was a HAMP program protecting you
does not mean that you have a right to enforce that. So they
are saying that the fact that there is a HAMP program does not
provide any protection to these folks, and there is no contract
claims above that. There are several cases in several of the
circuits at this point where that is a huge problem and we are
watching those cases very carefully.
Senator Brown. Thank you, Ms. Nepveu.
Senator Merkley.
Senator Merkley. Thank you, Mr. Chair.
I want to continue on this because I just want to affirm
that these are the stories we hear every day, and so many
people feel the modification program was turned into an
additional scam. That is, they were told to stop making their
payments so they would qualify. Then huge fees were run up
which diverted their funds. And then they were told, you have
not made your payments, so you do not qualify. That is--it is
just obscene that Americans should be subjected to that by the
one major program designed to assist them escape from the
predatory mortgages they already had or other impacts of the
economy on working families.
Ms. Nepveu. That is right, sir. And in addition, what we
are doing is kicking the can down the road because we are going
to have--even where we have some kinds of modifications, the
kinds of modifications that are being made are going to
explode. Again, they are entering into more adjustable rate
mortgages or ending up with balloon payments at the end of the
day that people will not be able to pay.
Senator Merkley. I wanted to ask you all about a completely
different form of problem, and this is one that came to light,
because I remember my family experienced it, in which a
grandchild called, only it was not really the grandchild, it
was a scammer calling the member of the family and putting a
young man, or at least a young male voice on the line saying,
``It is me, Grandma. I have been stopped at the border with
illegal drugs. They are holding me and they are not going to
allow me out of here until I post bail.''
And then the police get on the line--in this case, it was
Canadian police--saying, ``well, you know how rough the
treatment is of folks who are detained in this type of
situation with drugs at the border, and, of course, I know you
do not want your grandson submitted to that sort of rough
treatment and so you need to go down and immediately, as soon
as you post bail, we will release him.'' Meanwhile, the young
man gets back on and is sobbingly asking the grandmother not to
tell the parent because he is so embarrassed by the situation.
Terrible, terrible, stressful situation.
After this happened within my family, I heard about it
happening often. Is this type of telephone scam something you
see a growing amount of? What tools do we have to counter it?
What should we be doing to protect our retired Americans,
especially now that so much information about family
relationships is available on the Web? There are genealogical
sites that tell you who is who. There is all kinds of
information the scammers can bring to bear to make it seem very
real.
Mr. Humphrey. Senator, if I could just respond, you
describe very aptly the tragic situation that happens all too
often. And now with the detailed information that seems to be
available on the Internet, it becomes very convincing over the
phone to a person who may be isolated, who has strong feelings
about family, is concerned, and so this is the exact kind of
situation we hope in working together with partners and
bringing together and figuring out the best practices for
financial education to help give seniors the tools, the courage
to give a call and say, I will get back to you. Let me get hold
of someone that I can find out how we can go ahead with this so
that they can make the call to the proper authorities and find
a way to stop that kind of a scam. That is absolutely crucial.
And unfortunately, it happens all too often, and it happens
to all of us. I was sitting in a meeting in Florida and I
received an email that said that, unfortunately, there had been
a delay in payment that was supposed to be made from a bank in
London and that all I had to do was give the authority to go
forward with someone in South Africa to get all this money. I
mean, the scams are unbelievable that are out there and we have
to do something to not only provide the education and the
effort of good knowledge about the marketplace, but we also
need to follow up with the enforcement to see that these things
do not happen.
Senator Merkley. Thank you.
Mr. Humphrey. It is tragic. It is tragic.
Ms. Nepveu. I agree, sir, and one of the problems is the
enforcement side of it, and when Grandma gets the call, she is
going to call her bank and try to create a remotely--create a
check. She is going to use the banking process to get the money
to this scammer. The banks need to be partners with consumers
in these scams, not to allow this to happen, because the bank
should know that this is bizarre. The bank should know that
Grandma never sends money to Joe Scammer in Canada or in
Nigeria or anywhere else. The bank should be alert to these and
help the consumers avoid these, because Grandma may be
isolated. She may also have limited capacity to understand what
is going on. She also may be bullied into doing some of this
stuff.
You know, sometimes the family members are the ones
creating the problem. Sometimes Grandson is calling Grandma and
getting her to send money. Whether it is really Grandson or not
really is not the point. The point is, she is being abused
financially and the banks need to do more to protect, and there
are some regulations. Regulation CC was amended several years
ago to improve the ability of banks to stop these practices,
but more needs to be done in this.
Senator Merkley. Thank you. Well, all we can do to help
folks on that, it is a terrible situation. They prey on every
good instinct of our senior citizens to back up their family
and help someone in trouble.
You mentioned remotely created checks, and it is my
understanding that these played a more important role before
credit cards. But now, often, are utilized--my understanding is
they are being utilized to bypass. We have in Oregon State
something that I was involved in when I was Speaker there, a
protocol that puts a 36 percent interest rate cap, not just on
payday loans but all consumer loans to avoid the payday loans
kind of finding a way to bypass the payday loan legislation
under consumer loans. And we also had Internet legislation to
close that loophole.
It appears that the way that folks are getting around that,
because the legislation essentially makes it so people cannot
legally collect on Internet payday loans, is remotely generated
checks done in advance. Is there still a legitimate role for
remotely generated checks that outweighs their use in a number
of predatory situations?
Ms. Nepveu. Did you want to--I think there is still a
legitimate reason to use those. For example, if my credit card
bill is due this afternoon, I am, like, oh no, I forgot to pay
it. I would like to be able to pay it and avoid the $35 late
fee. But banks need to be alert to who is--you know, if
Discover calls up and says, I have got this remotely created
check and I want to process it, that is one thing. If the
``telemarketers are us'' call up and say it, then the bank
should be a little bit more suspicious.
For example, Wachovia got in trouble with this several
years ago because they were allowing telemarketers to take
money out of older persons' accounts and the OCC entered into a
settlement with them to stop this practice.
We can be a little more selective. We do not have to get
rid of remotely created checks altogether to solve this. We do
not have to get rid of prepaid debit cards altogether to solve
these problems. But we have to be careful about how we allow
these different programs to go forward and whether or not
appropriate protections are in place before they get out there
and do harm.
Mr. Humphrey. Senator, I would like to just add on to say
that I think, also, that there are some legitimate uses. I can
tell you that when I pay electronically my property taxes back
in Minnesota, I usually do it by giving the information or the
routing number and the rest. I have been asked other times to
not do that, or to give it out, and I have absolutely refused.
In fact, just 2 days ago, I was asked and I said, I am sorry. I
do not give that information out.
Now, we need to make sure that it is used properly, and I
think your point is very well taken. One of the things that the
Bureau has is a good research component, and I would hope that
they will be looking at these kinds of uses, the proper uses,
the improper uses. One of the challenges and one of the charges
that we have in the Office for Older Americans is to make sure
that when rules and regulations, when research is done
throughout the Bureau, that there is a sensitivity to the
senior concerns and needs so that these kinds of situations are
taken into account, not just for a person who is 40-, 50-, 60-
years old, but for someone is 75 to 80 years old. So I would
hope that we would be looking carefully at those things and
obviously respond to your concerns on that.
Senator Merkley. Thank you. If we have time, I will ask one
more question.
Senator Brown. Proceed.
Senator Merkley. This goes back really to where Senator
Brown started in talking about reverse mortgages. One feature
that I had not previously been familiar with is that sometimes
loan originators really push to have a younger spouse deed over
their share of the house to the older spouse in order to
provide larger draws, and then if the older spouse dies, the
younger spouse does not own the house and would have to pay off
that reverse mortgage in order to stay in the house. I had not
heard about this before and was wondering if either of you had
any insight on that particular strategy.
Ms. Nepveu. Yes, sir. There are two parts of that. The
first thing is that the reverse mortgage statute provides
protection for spouses so that they are not supposed to be
kicked out of their homes at the end of the--at the death of
the spouse who took out the mortgage. That particular provision
is not being enforced by HUD and AARP currently is involved in
litigation against lenders and HUD to make that actually
happen.
But AARP also recently settled a lawsuit against HUD to
require that when the surviving spouse--because for 17 years,
people were told, if your spouse dies, you will still be
protected. You will still be able to stay in the home. You will
never have to pay more than that house is worth. It was fine
until the mortgage market, the bottom dropped out, and now
homes are not worth what the mortgages were paying. Now these
spouses, surviving spouses, usually older women, are being told
they have to pay back the entire amount of the loan when the
house is only worth a fraction of what it used to be worth.
So AARP filed a lawsuit to get them to reverse course,
again, to go back to where they were for 17 years, and say they
never have to pay more than 95 percent of the value of the home
because it is a non-recourse loan.
Senator Merkley. Mm-hmm.
Ms. Nepveu. And people were promised that if the one spouse
was not on the deed, they still would get to stay in the home
and they still would not have to pay back more than that 95
percent, because the lender could pay the 95 percent. The
neighbor could pay the 95 percent. But the person who has been
living in that home for 40 years is being required to pay 150
percent if that is what the value of the home was and it has
fallen that much and that is just not fair.
Senator Merkley. Mm-hmm.
Ms. Nepveu. It is not what the legislation required,
either.
Senator Merkley. Thank you.
Mr. Humphrey. Senator, I would just add that this, I think,
makes it clear how important it is to have good advice given,
to have a counselor that you can trust. One of the challenges
and charges of the Act is for our office to monitor the
certifications and the designations of senior advisors and we
are working with States who already have some model legislation
in this area to make sure that when these complicated
situations are explained, that it is really coming from a
person that has the certification, that knows the information
and can provide the proper advice to seniors.
So it is terribly important in these rather complex
situations, particularly as they are aggravated by the current
market. You know, I am sure that most of your constituents,
their primary asset, as mine is, is my home. And so we are
talking about the absolutely vital interest of the people in
this country and of older Americans.
Senator Brown. Thank you, and Senator Merkley----
Senator Merkley. Thank you, Mr. Chairman.
Senator Brown.----thank you very much. I wanted to add on
to something sort of precipitated by your comments, Ms. Nepveu,
and then I will wrap the hearing up.
In your written statement, Mr. Humphrey, you had said the
CFPB Office for Older Americans will pay special attention to
the problems facing older women.
Mr. Humphrey. Yes.
Senator Brown. Women live longer, as we know, and according
to one estimate, nearly half of women over 62 outlive their
savings, and that makes, obviously, what you do and what you
both do, really, about these reverse mortgages especially
important.
So thank you. Senator Merkley, thank you for joining us.
Thanks to both witnesses.
I wanted to enter one thing in the record. I just got
notice that, as you know, one of the provisions in Dodd-Frank
is that there be aggressive oversight of this Consumer
Financial Protection Bureau, partly because some Members of the
Senate and House are not so supportive of this agency and this
bureau and want to make sure that we do the right oversight. In
this result, the law required--Dodd-Frank required the GAO to
do an annual financial audit.
The GAO released its annual financial audit recently, and I
would like to read three points that were made. The GAO's
financial audit released this week found three things--
primarily three things: That CFPB's financial statements were,
quote, ``presented fairly in all material respects in
conformity with U.S. Generally Accepted Accounting Practices;''
two, that CFPB, again, I quote, ``maintained in all material
respects effective internal control over financial reporting as
of September 30 of 2011;'' and three, and I quote again, ``CFPB
had no reportable noncompliance with laws and regulations.''
That tells me a lot. That is not always the case in a GAO
audit. Congratulations to that bureau. More importantly, it
speaks to me of the importance of finally confirming a
Director.
Senator Brown. Thank you both again. If any Members of the
Committee, Senator Merkley or others who were not here, have
questions they submit to you, we would appreciate an answer. We
will submit them to you, if there are any, in the next 5 days,
say, and if you would, get an answer to us as quickly as
possible.
Thank you for testifying. Thank you especially for your
public service, both of you, and your good work.
The hearing is adjourned.
[Whereupon, at 4 p.m., the hearing was adjourned.]
[Prepared statements supplied for the record follow:]
PREPARED STATEMENT OF HUBERT H. ``SKIP'' HUMPHREY III
Assistant Director of the Office for Older Americans
Consumer Financial Protection Bureau
November 15, 2011
Financial Security Issues Facing Older Americans
Thank you Chairman Brown, Ranking Member Corker, and distinguished
Members of the Subcommittee for the opportunity to speak with you today
about the Office for Older Americans at the Consumer Financial
Protection Bureau (CFPB).
My name is Hubert Humphrey and I joined the Bureau last month to
serve as its Assistant Director of the Office for Older Americans. As
an Attorney General and State Senator in Minnesota, I became keenly
aware of the many financial challenges that consumers face. Then, as a
national board member of the AARP, I learned about the hardships of
older Americans. Now I look forward to putting these past experiences
to good use in helping our Nation's senior consumers in the financial
marketplace.
The mission of the Bureau is important for all Americans: To ensure
that markets for consumer financial products or services are fair,
transparent, and competitive, and that all consumers have access to
those markets. We will fulfill this statutory charge by making rules
more effective, by consistently and fairly enforcing those rules, and
by empowering consumers to take more control over their economic lives.
The CFPB was created by the Dodd-Frank Wall Street Reform and
Consumer Protection Act. The law created the CFPB as a point of
accountability for consumer financial protection. The statute also
provided the Bureau with a wide range of tools to do this--research,
supervision, rulemaking, enforcement, and consumer education. Having
this full range of tools means that the Bureau can use the appropriate
one in the smartest way possible--matching problems to solutions.
Since launching the Bureau in July of this year, Bureau staff have
been traveling across the country to meet and listen to consumers,
consumer and civil rights organizations, big banks, community banks,
investors, and trade organizations. The Bureau has also begun many
important projects and programs, including taking and resolving
consumer credit card complaints, supervising large banks, streamlining
two federally required mortgage disclosure forms, and establishing a
private education loan ombudsman to help students and their families
with student debt problems. And, importantly, the Bureau launched its
efforts to help older American consumers--well before the statutory
deadline of January 21, 2012 to set up this office.
When the Dodd-Frank Act created the CFPB, it specified certain
populations that Congress felt needed focused attention--students, the
underserved, servicemembers, and older Americans. Through the Consumer
Education and Engagement Division, the Bureau is working on serving all
these groups. In the Division's Office for Older Americans, we are
hiring a highly experienced and competent staff. Our work and planning
is underway. We have an Older Americans home page on the CFPB Web site,
www.consumerfinance.gov, where people can go to find information and
resources. And most critically, we are engaging with older consumers
and already helping them.
Take, for example, Suzanne, of Lawrenceburg, Kentucky. The CFPB
helped Suzanne, 81, reach an agreement with a credit card company that
saved her more than $7,000 and put her on firmer financial footing. She
lost her job in 2010 and has not been able to find work since. After
being unemployed for 9 months, she realized she could not keep up the
minimum payments on her longstanding credit card debts that she had
been steadily paying off for years. She asked the card issuers to cut
the minimum monthly payments. One issuer agreed but the other only
offered a modest reduction. After repeated appeals over many months and
many phone calls, she sent what she was able to afford anyway. The
issuer started to charge her late fees and her interest rate spiked.
Eventually, she wrote a local Congressman who advised her to contact
the CFPB. Ten days after the CFPB contacted the credit card issuer, the
company credited all of the extra interest charges and late fees. ``I
was elated,'' she said. Suzanne's balance is now zero.
This is just one of the CFPB's success stories helping older
Americans in the first several months of operations. As the Bureau
moves forward, it hopes to help more people like Suzanne.
Older Americans have been hit hard by the economic crisis. Many of
those in the 62-plus population are not financially prepared for
retirement, and financial exploitation of older Americans is growing.
When the Office for Older Americans launched last month, it did so with
a focus on ensuring seniors have the financial information they need to
make sound financial decisions, and it launched with an emphasis on
helping seniors identify and avoid unfair, deceptive, and abusive
practices targeted at them. Both of these focus areas were mandated by
the Dodd-Frank Act.
The need to help older Americans is great. As seniors top 50
million in number and soon will make up 20 percent of our population,
they will face more and more challenges to maintaining economic
security, supporting long-anticipated retirement plans, and exerting
control over financial decisionmaking.
One of the tools that the CFPB has to help older Americans is the
unique opportunity to enhance, help coordinate, and promote efforts of
senior groups and community organizations, faith-based groups,
financial services providers, adult protective services agencies, and
State and Federal regulators. There is great work being done by many of
these groups right now--the CFPB can coordinate and streamline those
efforts and help amplify them where needed.
Under the Dodd-Frank statute, the CFPB's Office for Older Americans
is specifically tasked with several functions, including addressing the
concerns of seniors being misled by deceptive certifications or
designations of financial advisors. The CFPB will fulfill this mandate
by monitoring certifications and designations and alerting Federal and
State regulators about those that are unfair, deceptive, or abusive. In
addition, the Office will submit to Congress and the Securities and
Exchange Commission legislative and regulatory recommendations on best
practices for disseminating relevant information and enabling seniors
to identify those advisors that best meet their needs and to verify a
financial advisor's credentials.
The Dodd-Frank Act also mandates that the CFPB promote sound
financial management and decisionmaking of seniors, with a particular
focus on the areas of long-term savings and planning for retirement and
long-term care. To this end, the Office for Older Americans will work
with the other divisions within the CFPB to conduct research and
identify best practices and effective methods and tools to educate and
counsel seniors. This is a common approach we take at the CFPB--because
research and market analytics is an important component to what we do.
Indeed, throughout the Bureau--not just with our Office for Older
Americans--we are fact-based, pragmatic, and deliberative. The CFPB
will diagnose problems carefully and intelligently after examining all
the evidence. Because we have different tools to choose from when we
address a problem, we can be strategic in how we deal with problems.
Maybe a problem is best addressed through education. Maybe it is best
addressed through rule writing. Or maybe it is best addressed by
examining relevant market actors and shining a brighter light on the
issue.
I would like to add that the CFPB Office for Older Americans will
pay special attention to the problems facing older women. Women live
longer and, according to one estimate, nearly half of women over 62
will outlive their savings. They are more likely to be living in
poverty than men, and are more likely than men to be victims of
financial abuse and exploitation. Congress understood this need and
directed the Office for Older Americans to work with a center run by
the Women's Institute for a Secure Retirement, which provides financial
education and retirement planning for low-income women, women of color,
and women with limited English-speaking proficiency. We look forward to
that work.
Though I have been on the job less than 1 month, I have already
seen the critical need for an office tasked with looking out for and
educating older Americans in their financial decisions. While the
Office for Older Americans has much work to do, I want to draw
attention to one of the biggest financial issues facing seniors and
this country today--elder financial abuse and exploitation. Whether you
call it a hidden epidemic or the Crime of the 21st Century, as some
have, it is a serious problem that we need to address.
The numbers paint a sobering picture. According to a study by the
MetLife Mature Market Institute, Americans over the age of 65 lost more
than $2.9 billion to financial abuse and exploitation in 2010, a 12
percent increase from the $2.6 billion estimated in 2008. Seniors are a
highly targeted group for financial fraud in part because they tend to
be wealthier. The most recent available data from the Survey of
Consumer Finances show that the median net worth of families headed by
somebody 55 or older is about three and a half times the median for
other families.
More disturbing is the $2.9 billion the MetLife study estimated
represents only a fraction of all instances of financial exploitation
against older Americans because elder financial abuse and exploitation
is underreported. By its nature, it is difficult to measure how much
financial fraud is not reported. Although estimates vary widely,
studies suggest that only a small fraction of elder financial
exploitation is reported. One of the reasons for underreporting is that
many times, financial exploitation occurs in a person's home. Indeed,
studies typically find that elder financial abuse or exploitation is
sometimes committed by family members, caregivers, and trusted
advisors.
These numbers are shocking, but when I hear from real victims I
become even more convinced of the need in America for an office like
the CFPB. I have spent my first few weeks with the Bureau listening and
learning from seniors and those who serve them. I travelled to cities
in California, Florida, and Massachusetts where I met with seniors,
State law enforcement officials, adult protective services workers, and
groups that work with seniors. They all said the same thing--we need
help building awareness about elder financial abuse and exploitation.
Some of the specific problems they raised include the underreporting of
fraudulent and other abusive practices, the need for more robust
centralized reporting of such practices, the guardianship process, and
the need for more training on elder abuse and exploitation for law
enforcement, financial institutions, and others.
While I was in Ft. Lauderdale, I listened to a heartbreaking story
from a daughter about how her mother was placed into a guardianship
without her knowledge. The guardian had virtually no qualifications to
act as a fiduciary and it was months before the daughter even knew that
her mother's finances were being administered by a court-appointed
guardian. During the guardianship, her mother was moved to a nursing
home, unbeknownst to her daughter, where she died 78 days later. Over
$375,000 of the mother's estate was gone, most of it to guardianship
``fees.'' The daughter spent 6 years in litigation to try to remedy the
wrongs suffered by her mother. She now fights to help prevent this from
happening to others.
Many talked about the shame people feel when they are tricked or
taken advantage of, especially when it is done by family members.
People need to feel comfortable speaking about these issues. At the
CFPB's Office for Older Americans, we want to raise public awareness
and give people a forum to speak up about their experiences and speak
out to help prevent them.
I spent my public service career in State government and having the
Federal Government as a partner was a great asset. I joined the CFPB
because I have been struck by the response from outside the Beltway to
this Bureau and specifically the Office for Older Americans. We do not
yet know all the specifics of how the CFPB will address the issue of
elder abuse, but the Office for Older Americans will work with other
agencies such as the Administration on Aging, and it will work with
elder abuse groups that have been working on these issues. We want to
help stop this growing and horrible epidemic.
As Marie-Therese Connolly, a recent recipient of the MacArthur
Foundation ``genius'' grant for her work on elder abuse, said in
testimony before the Senate Special Committee on Aging earlier this
year, citing a case of abuse where the son had worn ear plugs to mute
his mother's cries: ``We as a Nation also have been wearing earplugs.
It is time that we remove them.'' I, along with the CFPB, will help to
make the voices of seniors heard.
As a former State attorney general, I know the importance of laws
and the enforcement of those laws to protect consumers and to weed out
bad practices and players. But until consumers have the information,
skills, and confidence to make decisions that make financial sense for
them--including the courage to say no--we cannot move this country
forward and we may be doomed to repeat the mistakes of the past decade.
In the end, the best defense against deceptive practices and elder
financial abuse and exploitation is not only tough enforcement, but
also effective prevention through good education and training of all
our consumers, not just older Americans.
I am honored to have this opportunity at the Bureau to help older
consumers navigate their way to better financial decisions and a more
economically secure financial future. I, speaking on behalf of the
Office for Older Americans, look forward to working with you in the
years ahead to help serve our Nation's seniors.
Thank you and I look forward to your questions.
______
PREPARED STATEMENT OF JULIE NEPVEU
Senior Attorney, AARP
November 15, 2011
Chairman Brown, Ranking Member Corker and distinguished Members of
the Subcommittee, good afternoon.
As the largest nonprofit, nonpartisan organization representing the
interests of Americans age 50 and older and their families, AARP would
like to thank to Chairman Brown and Ranking Member Corker for holding
this hearing. AARP appreciates this opportunity to appear before the
Committee to offer our views on financial security issues facing older
Americans.
CONSUMER FINANCIAL PROTECTION AND OLDER AMERICANS
A major priority for AARP is to assist Americans in accumulating
and effectively managing adequate retirement assets. A key to achieving
this goal is helping individuals better manage financial decisions and
protecting consumers from financial fraud and abuse that can erode
retirement savings and financial assets.
Although older households have long been considered among the most
frugal and resistant to consumer debt, changing economic conditions--
particularly declining pension and investment income and rising costs
for basic expenses such as prescription drugs, health care, housing,
food, and utilities--have forced many older people to rely increasingly
on credit to make ends meet.\1\
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\1\ Deborah Thorne, Elizabeth Warren, Teresa A. Sullivan,
``Generations of Struggle'' (June 2008). Available at http://
www.aarp.org/money/budgeting-saving/info-06-2008/2008_11
_debt.html.
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To meet the challenges of this dynamic marketplace and ensure the
economic security of older persons, AARP has recommended that the
quality of consumer information in the marketplace be improved. We must
increase the level of consumers' financial literacy, particularly among
baby boomers, minorities and low-income people.
But education alone is not enough. The terms and conditions that
govern credit products are often obscured because the required legal
documents and consumer disclosures are beyond the understanding of a
large portion of the population. When coupled with bad advice, abusive
practices, or fraud, the variety and complexity of credit products can
be intimidating and confusing for even the most well informed
consumers. As such, we must also commit to increasing consumer
protections to prevent harmful financial services and practices that--
as the recent economic turmoil clearly demonstrates--threaten not only
individual financial security, but also that of the Nation.
The scope and extent of the harm perpetrated against consumers by
fraudulent, abusive or deceptive practices is astounding. Billions of
dollars are lost every year through these practices and older Americans
are disproportionately affected. Although older people make up just 12
percent of the population, they constitute a full 30 percent of the
victims of consumer fraud crime. Women, who make up an increasingly
larger percentage of the older population by virtue of a longer life
expectancy, are the majority of the victims.
Consequently, consumer fraud is listed by every State as the major
non-violent crime perpetrated against older citizens.\2\
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\2\ See ``Top 10 List of Consumer Complaints of 2008 Resource List
(March 2010), available at http://naag.org/top-10-list-of-consumer-
complaints-of-2008-resource-list.php.
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Not only are older people more likely targets of consumer fraud,
they are also different from younger consumers in the intensity of the
overall impact of such abuse on their lives. Having lower or fixed
income and fewer years of work to recover from a financial setback
makes older people particularly vulnerable. Many consumers do not know
how or to whom to complain even if they do want to seek a remedy. Fear
of being deemed incompetent and losing independence and control over
their finances may contribute to their reluctance to pursue a remedy
when an abuse occurs.
AARP has identified the following practices that continue to
threaten the financial security of older people:
Mortgages
The mortgage marketplace must be safe and fair for all borrowers.
Practices that steer consumers into higher priced loans than they
qualify for, that strip equity from their homes through higher fees and
interest rates, and that result in foreclosure when a borrower has the
ability to retain a home must be prevented and the harm rectified.
Lenders should be required to apply consistent rules that consider the
borrower's ability to repay a loan and provide them access to the best
priced product for which they qualify. To remedy the unfair practices
of the mortgage marketplace that significantly contributed to the
foreclosure crisis, borrowers should have access to fair servicing and
loan modifications where they have the ability to pay. Force placed
insurance and unwarranted servicing fees should be prohibited. Nonbank
mortgage lenders also must be supervised.
It has long been understood that older homeowners were all too
often the targets of the predatory lending practices that began in the
early 1990s. Older homeowners were key targets because they often were
``house rich and cash poor.'' Older homeowners typically had equity in
homes they had owned for decades but because they lived on fixed
incomes, raising money for maintenance, repair and property tax bills
could be difficult. Others suffered from some diminished capacities
making it difficult to resist predatory offers.
Experience with countless older homeowners over the years
repeatedly demonstrated that despite good--often sterling--credit
ratings, these borrowers were steered to subprime lenders whose
unscrupulous practices are now well documented.\3\ Despite legal and
legislative advocacy by AARP and countless others, far too many older
Americans who entered into questionable mortgages currently face
foreclosure and eviction from the homes they have lived in for decades.
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\3\ See Alison Shelton, AARP Insight on the Issues 9 (September
2009). Available at http://www.aarp.org/money/credit-loans-debt/info-
09-2008/i9_mortgage.html.
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Credit Cards
Despite enacting important protections in 2009, more must be done
to protect consumers from unfair or predatory practices, hidden fees,
and complicated terms and conditions in credit card agreements.
Consumers need protection from efforts to evade the protections of the
CARD Act, as well as the marketing of expensive and predatory credit
card products, and complex fee structures that hide the true cost of
credit and make it difficult for consumers to shop for the lowest
priced credit card products that meet their needs.
Overdraft Fees
Despite new rules requiring consumers to ``opt in'' before being
charged overdraft fees on their ATM and debit cards, many consumers
continue to be charged abusive and unfair overdraft fees by banks. The
most vulnerable consumers--those with the least amount of money--are
often hardest hit by practices such as aggressive or deceptive
inducement to opt in to overdraft protection, reordering of
transactions to increase fees, and steering consumers into accounts or
fee structures that maximize imposition of fees without informing them
of less expensive overdraft protection options. Consumers must be
protected from banking practices that unfairly siphon off their limited
income.
Prepaid Debit Cards
Consumers increasingly use prepaid debit cards for purchases. In
part this has resulted from Government benefit administrators utilizing
prepaid debit cards to help reduce the cost of benefits disbursement.
Despite the convenience provided by such cards, they can be very costly
to consumers. Many charge high fees for periodic statements or
transaction information, to check balances, decline transactions, to
access funds at an ATM, or to load funds onto the card. Moreover,
consumers do not understand that prepaid debit cards carry less
protection than other payment instruments such as ATM or credit cards.
Prepaid cards do not give consumers full protection from loss, theft or
unauthorized charges. They may also open unbanked consumers to the risk
that payday lenders may seek to secure loans with the receipt of public
benefits deposited onto prepaid cards. In light of the increasing use
of such cards, protections should be enhanced to ensure that consumers
are not harmed by high fees, inappropriate assignment of exempt public
benefits, and misrepresentations of the terms and conditions for use of
such cards. In particular, Government benefits administrators must take
additional steps to protect beneficiaries against high costs and fees.
Other Abusive Loans
High cost lending practices by both mainstream and alternative
financial services providers that charge fees and interest costs that
can exceed 400 percent seriously threaten the financial security of the
most vulnerable borrowers.\4\ Borrowers who cannot meet their most
basic needs of food, shelter, or healthcare are most often the targets.
Deceptive practices include those by payday, auto and auto title
lenders who often exact high tolls on those who can least afford it. At
tax time, many consumers are targeted by tax preparation companies to
get a quick or instant refund--really a loan--for which consumers are
unknowingly charged hefty tax preparation and loan fees. Billions of
dollars of Earned Income Tax Credits, intended to keep hard working
families out of poverty, are siphoned off in high fees and tax
preparation charges. Sadly, most of the borrowers are eligible to have
their taxes prepared for free, with quick refunds through electronic
deposit, without paying all the fees. Federal preemption of State
consumer protection laws has opened the door to increased abuse,
leaving consumers further exposed to unregulated and often deceptive
lending practices.
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\4\ See Ann McLarty Jackson, Donna V.S. Ortega, Elizabeth Costle,
George Gaberlavage, Naomi Karp, Neal Walters, Vivian Vasallo, A
Portrait of Older Underbanked and Unbanked Consumers: Findings from a
National Survey (September 2010). Available at http://www.aarp.org/
money/credit-loans-debt/info-09-2010/D19394.html.
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Credit Reports
Fair and accurate credit reporting is essential to protecting the
financial security of consumers. A consumer's credit report impacts not
only the price and availability of credit but also of auto and
homeowner's insurance, access to housing, and opportunities for
employment. Unfortunately, consumers have difficulty correcting their
credit reports when they contain significant inaccuracies that result
from mistakes, incorrect and outdated information, fraudulent accounts
due to identity theft, and mixed up files of different consumers.
Consumers also need better guidance on how to check and correct their
credit reports. Because so few consumers understand what will cause a
decrease or increase in their scores, or the magnitude of the impact of
particular actions such as closing a credit card account, making a late
payment or filing for bankruptcy, more consumer education is needed to
give consumers the tools they need to improve their financial outlook.
Lack of information and the wide variety of credit scores in the
marketplace makes consumers more vulnerable to predatory lending,
credit repair scams or higher priced lending and insurance than that
for which they should qualify. Much more needs to be done to ensure
credit reporting is fair, accurate, and transparent.
Debt Collection
The Federal Trade Commission and State attorneys general, for
longer than a decade, have received more complaints about the debt
collection industry than any other industry, and the number of
complaints is on the rise. As more and more consumers carry even higher
levels of debt, the debt collection industry, assisted by technological
advances in data storage and communications capabilities, has been
transformed into a trillion dollar debt buying industry over the span
of a decade.
Debt once considered to be uncollectible is charged off by
creditors and sold at auction for pennies on the dollar. Using
increasingly aggressive and often illegal collection tactics,
collectors pursue alleged debtors well after the statute of limitations
has run, often with little or no documentation to prove the ownership
or amount of a debt. Unrepresented debtors who do not understand how to
protect their interests or assert valid defenses have little, if any,
ability to protect themselves. Some may unknowingly agree to extend the
time a debt may be collected by making a minimal payment in an attempt
to end harassing collection attempts.
Abusive collection tactics have caused significant harm and
suffering to consumers, as well as taxed the resources of State
attorneys general. The high level of fraud inherent in the current
collection environment must be addressed comprehensively.
Forced Arbitration
Consumers who purchase financial products or services routinely are
required to give up their access to justice if the company violates the
law. By inserting a forced arbitration agreement in a standard
contract, a business can exempt itself from legal avenues to hold it
accountable for violations of the law. Forced arbitration clauses are
already ubiquitous in contracts of adhesion for every type of consumer
service and product. The recent Supreme Court decision in AT&T v
Concepcion \5\ undermines consumer challenges to forced arbitration
clauses because the Supreme Court has held that Federal law preempts
such State contract law defenses. Forced arbitration creates an unlevel
playing field for consumers and causes further erosion of consumer
protections. The ability of corporations to include a forced
arbitration clause in a standard form contract places an even higher
burden on already cash strapped public enforcement systems to monitor
harmful and deceptive acts and practices.
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\5\ AT&T Mobility, LLC v. Concepion, 131 S. Ct. 1740 (2011).
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THE ROLE OF THE CFPB IN RESTORING CONSUMER FINANCIAL PROTECTION
It is well established that the failure of the regulatory system to
rein in abusive types of consumer loans in areas where Federal
regulators had clear authority to act, and either chose not to do so or
acted too late to stem serious problems in the credit markets, was a
major factor in the recent financial crisis. As such, a key goal for
AARP in the Wall Street Reform and Consumer Financial Protection Act
(``Dodd-Frank Act'') was strengthened consumer protection to restore
market accountability and responsibility, rebuild confidence, and
ensure the stability of the financial markets. Surveys conducted by
AARP demonstrate that Americans age 50+, regardless of party
affiliation, want Congress to act to hold financial institutions
accountable.
AARP supports an independent Consumer Financial Protection Bureau
(CFPB) that has as its sole mission the development and effective
implementation of standards that help protect the financial security of
Americans so that they can get the information necessary to make
responsible, informed financial choices. Congress created the Bureau to
ensure that American families can trust the financial products they use
to help them achieve their goals and avoid traps that lead to financial
distress. The full potential for the CFPB to be an effective ``cop on
the beat,'' protecting Americans from deceptive and unfair financial
practices, will not be realized until there is a leader in place and
the agency can use all the powers it has been granted. We appreciate
that the Senate Banking Committee has moved forward to fill this
critical position, and urge the full Senate to move quickly to expedite
the process.
Office of Financial Protection for Older Americans
Of particular interest to AARP has been the creation of an Office
for Financial Protection for Older Americans within the structure of
the CFPB. This office is tasked with improving the financial
decisionmaking of seniors and preventing unfair, deceptive, and abusive
practices targeted at seniors.
Seniors have been hit hard by the economic crisis. Even if they
planned well, they have seen their retirement savings and home equity
shrink. The growing epidemic of elder financial abuse has exacerbated
these problems,
The Office of Financial Protection for Older Americans will help
seniors navigate these financial challenges by:
Educating and engaging seniors about their financial
choices;
Reaching out to and coordinating with senior groups, law
enforcement, financial institutions, and Federal and State
agencies to identify and prevent scams targeted at seniors;
Using all available information to identify trends and bad
practices; and
Protecting seniors from fraud and deception in financial
counseling service.
AARP is particularly excited that a former AARP Board member,
Hubert H. (Skip) Humphrey III--a former Attorney General of Minnesota,
and an ardent and successful consumer advocate--has been selected to
head up this office. AARP has provided input into the broad range of
initiatives that the Bureau will pursue, and we look forward to
continuing this effort on an ongoing basis to serve the needs of our
members.
CONCLUSION
It is clear that consumers need help to protect themselves in an
increasingly complex financial marketplace. As was so painfully
demonstrated just a few short years ago, the threats to personal
financial security are threats to the Nation's financial stability and
security. The CFPB creates a centralized forum for addressing recent
wrongdoing and protecting current and future generations from a re-
occurrence of these financial woes.
Thank you for this opportunity to share AARP's views.