Another Day Older and Deeper in Debt

In a recent publication reminiscent of the musical stylings of Tennessee Ernie Ford, the CFPB issued a Request for Information (RFI) related to employer-driven debt.  This request seeks public input from the regarding debt obligations incurred in the context of an employment or independent contractor relationship.  The CFPB has posed upward of seventy-five questions and is interested in hearing from among others: consumers, employers, consumer rights groups, small businesses, financial institutions, and state and local government officials. Comments must be received by September 7, 2022.

Although these employer-driven debts may take various forms, the CFPB identified in this RFI two particular debt products: repayment agreements related to training and debt incurred to purchase required equipment.

The first of these products identified by the CFPB are training repayment agreements that require workers to pay their employers or third parties for previously taken training, either provided by an employer or an associated entity if the worker separates from the company either voluntarily or involuntarily within a certain time period.  For example, an employer who requires certain training that is paid for by the employer, but if the worker leaves within six months of the training, the worker is required by the employer to reimburse the employer for the cost of the training.  These trainings may be required in order to obtain or retain a job or to gain a promotion and may be of limited value outside of the specific company setting. These agreements generally require payment when workers leave their employment arrangements, either in a demand by the employer or money being withheld from an worker’s final payment.

The second of these products identified by the CFPB are debts owed to an employer or third party for the up-front purchase of equipment and supplies essential to the worker’s job or required by the employer, but not paid for by the employer. These products are more common in relationships in which workers are outsourced or classified as 1099-independent contractors, rather than W-2 employees. Workers may also owe deferred payments related to maintenance of equipment and supplies.

The CFPB is concerned that employer-driven debt could pose risks to consumers, such as by overextending household finances, through errors in servicing and collection, in cases of default, and with inaccurate credit reporting. Errors and incorrect information can heighten common risks of consumer harm at each stage of the debt life cycle. In addition to these general risks, employer-driven debt may also pose additional risks to consumers, as consumers may not understand whether these products are actually extensions of credit, whether the consumer has the ability to shop around, or whether the agreed upon debt is a condition of employment.

Additional risks specific to this kind of debt may include whether default threatens current or future employment, or whether the status of the debt is affected by the decision to seek employment elsewhere. These risks have the potential to limit competition and transparency for consumer financial products and services, which is of concern to the Consumer Financial Protection Bureau.