Employer

CFPB probes employer reimbursement requirements

The Consumer Financial Protection Bureau is investigating various financial practices and 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 obtain data and work experience on the practices, called “employer debt”.

The CFPB wants to see if employees have a meaningful choice in accepting debt products from their employers, and wants to know the terms and conditions of the debts and whether they would prevent someone from getting a better job.

Employer-focused debt products can potentially cover many things, including employees purchasing equipment or supplies essential to their jobs, and workers may have to accept debt products that need to be repaid if the employee leaves before a certain time.

“The labor market works best when workers can move freely in it,” said CFPB director Rohit Chopra. “Our investigation is investigating the effects of an emerging form of debt that may have the potential to trap employees on the spot.”

See also: CFPB: Credit refusals must have precise and precise explanations

PYMNTS wrote that the CFPB reminds customers that federal law requires companies to explain specific reasons for denying credit applications — even when the creditor used credit models with complex algorithms.

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

Chopra said companies still have legal responsibilities, even in these cases.

“The law gives each applicant the right to a specific explanation if their credit application has been denied, and that right is not diminished simply because a company uses a complex algorithm that it does not understand,” said he declared.

The ECOA protects applicants from discrimination when seeking credit, ensuring that creditors warn when they take “adverse action” against applicants.

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