CFPB Probes Employer Repayment Requirements for Training, Supplies

The Consumer Financial Protection Bureau is looking into various practices and financial products that could leave employees indebted to employers, a press release said Thursday (June 9).

The CFPB, in a new Request for Information, says it wants to get data and work experiences about the practices, which are called “employer-driven debt.”

The CFPB wants to see whether employees have a meaningful choice in taking up debt products from their employers, and wants to know about the terms and conditions for the debts and whether they’d stop someone from getting a better job.

The employer-driven debt products can potentially cover numerous things, including employees’ buying of equipment or supplies that are essential for their jobs, and workers might have to agree to debt products that have to be repaid if the employee leaves before a certain time.

“The labor market operates at its best when workers are able to move freely within it,” said CFPB Director Rohit Chopra. “Our inquiry is about studying the effects of an emerging form of debt that may have the potential to trap employees in place.”

See also: CFPB: Credit Denials Must Have Specific, Accurate Explanations

PYMNTS wrote that the CFPB was reminding customers that the federal law made it so companies have to explain specific reasons for denying credit applications — even when the creditor was using credit models with complex algorithms.

The agency cited the Equal Credit Opportunity Act (ECOA) and said the law applies whether or not the firm uses a “black box model” to make the decisions.

Chopra said companies still have legal responsibilities even in those cases.

“The law gives every applicant the right to a specific explanation if their application for credit was denied, and that right is not diminished simply because a company uses a complex algorithm that it doesn’t understand,” he said.

The ECOA protects applicants against discrimination as they seek credit, making sure creditors provide notice when taking “adverse action” against applicants.