The Consumer Financial Protection Bureau (CFPB), under Director Rohit Chopra's leadership, has taken the first step toward regulating what the CFPB describes as "employer-driven debt," which refers to a range of employment arrangements and practices that could result in an employee owing money to an employer (or other third party), such as requiring employees to make up-front purchases of equipment and supplies or to repay their employer for training if the employee leaves before a certain time frame.
This past June, with little fanfare, the CFPB issued a Request for Information (RFI) about such practices from the public. The RFI includes 77 individual questions, broken down into the following categories: pre-origination; origination; serving and collections; disputes; and credit reporting. The purpose of the RFI is to collect information "in the service of better understanding the relationship between labor practices and the market for consumer financial products or services and identifying priority areas for future action."
Director Chopra cited the risk such arrangements pose to consumers—overextension of household finances, errors in servicing and collection, default, and inaccurate credit reporting—as the reason for this undertaking. He also identified risks specific to the employment context, such as whether default on the debt threatens continued or future employment, or whether the status of the debt is impacted by a decision to seek alternative employment.
Whether these arrangements can be considered financial products or services as defined in the Consumer Financial Protection Act will depend largely on the specific action the CFPB ultimately takes. That said, whatever action it does take, its authority to regulate such arrangements undoubtedly will be controversial and subject to a challenge.
The CFPB's foray into employment relationships and labor markets is part of a larger initiative by the federal government to use its full authority to protect workers and ensure competition in the labor market, as directed by President Biden's July 2021 executive order encouraging federal agencies to implement a "whole-of-government approach" to address overconcentration, monopolization, and unfair competition in the U.S. economy.
Comments in response to the RFI are due to the CFPB by September 6, 2022.
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