Recently, the federal government reinforced the old adage, cautioning not to throw stones from a glass house. While the Consumer Financial Protection Bureau (CFPB) is targeting lenders deemed non grata–a new report suggests the federal government is making its own predatory loans to borrowers in a classic case of government overreach.
A Capitol Hill publication reports that Parent PLUS, a federal student loan program, has become a debt trap for many people. The program currently serves 3.2 million borrowers, who have racked up a total of $65 billion in debt. This amounts to an average debt of over $20,000 per borrower.
So why is this federal program harming many of its borrowers? The loans charge above-market interest rates, without adequately assessing a person’s ability to repay them. These loose lending standards can lock borrowers into extreme amounts of debt. Worse, unlike other student loan programs, Parent PLUS requires a parent co-signee. This means when the student is no longer in school, any debt is on the backs of parents who may be already looking toward retirement or other use of their income.
Additionally, the federal government is an extremely effective debt collector. Unlike most lenders, the government can garnish wages and other funds without a court order to get back student loan payments.
As the article points out, the government issues loans people can’t afford. Ironically, this is the same thing the government accuses many private sector lenders of doing. The CFPB has been going after banks and auto lenders alleging predatory lending practices, meanwhile, the federal government does essentially the same thing by charging high interest rates on some student loans.
The government’s do as I say, not as I do attitude is troubling when considering the enormous power that the CFPB wields. The CFPB has been given a near-blank check of power due to the extreme lack of oversight that currently exists. Unlike almost every other federal agency, the CFPB gets its funding directly from the Federal Reserve, which makes the organization less accountable to the American people.
Some have found the CFPB’s lack of oversight troubling due to civil liberty concerns. Watchdog.org recently questioned if the CFPB was nosier than the NSA, and warned readers that the CFPB has “quietly gone about the business of collecting nearly 1 billion U.S. credit card records without consumer consent.” Shouldn’t Congress have power of the purse over a bureaucracy that is churning out costly new regulations, while collecting massive amounts of data?
As the CFPB looks for American businesses to hit with punitive fees, it should examine the consumer abuse that is taking place in its own backyard. If the Consumer Financial Protection Bureau is really “protecting consumers,” it cannot turn a blind eye to the government’s predatory lending practices.
Alfredo Ortiz is CEO and President of Job Creators Network.