Consumer choice? If you have a criminal record, maybe not so much, CFPB finds

A report that identifies ways in which financial service providers, often private for-profit firms, exploit individuals who have been incarcerated or otherwise come into contact with the criminal justice system was released Monday by the federal agency charged with consumer financial protection.

The report from the Consumer Financial Protection Bureau (CFPB), titled “Justice-Involved Individuals and the Consumer Finanical Marketplace,” looks at the ways in which persons who are incarcerated or are under community supervision (such as probation) are often forced to obtain needed services from specific providers at exorbitant costs. It looks at accounts maintained by prison systems, the use of third-party providers, collections, and, among other things, the impact of creditworthiness screening by banks on individuals leaving incarceration.

The report, in a section on access to consumer credit, briefly notes the need for further research “into the practices and standards banks and credit unions employ when evaluating the applications of people with criminal convictions, especially whether they use criminal records data to assess and manage credit risk, and if so, how.”

The bureau, in its release, noted the following highlights from the report:

  • Burdensome fees: Many local, state, and federal governments impose criminal justice debt on the people who interact with it in the form of fines, fees, and restitution. The consequences of failing to pay fines and fees can be severe, forcing people to choose between making payments they may struggle to afford and risking arrest, prosecution, detention, or reincarceration. States are also increasingly using third-party debt collectors to collect criminal justice debt. These debt collectors can tack on additional fines and fees that, if not paid, can result in incarceration.
  • Lack of consumer choice: For incarcerated people and their families, the choice of financial service providers is limited throughout the criminal justice system. In a normal functioning market, products compete on price and quality, but all too often, government contracts in the criminal justice system mean just one choice for consumers. For example, to transfer money into a loved one’s prison account, families typically have one option of a private firm, and that firm may charge steep prices. People exiting prison or jail also have little to no choice in how to receive owed funds upon release, can incur high fees to access their money, and may have difficulties resolving errors.
  • Shifting financial burdens: Increasingly, governments are shifting the cost of incarceration to people who are incarcerated and their families, forcing individuals to pay for charges related to court operations, a court-appointed public defender, drug testing, prison library use, and probation supervision. People are also charged “pay-to-stay” fees for expenses related to their custody and care, like room and board, or medical copayments. When services are outsourced to private companies, the prices set by those companies are often wildly inflated over typical market costs. For example, in 2018, an average 15-minute phone call from a jail cost $5.74. While incarcerated people may work for pay, the earnings are too low to cover their expenses; the average nominal daily wage paid to incarcerated workers was $0.86 in 2017. The burden to pay the steep prices of being in prison often falls on loved ones.

The bureau on Monday recalled its action last October against the prison financial service company JPay, which it said imposed fees on people transitioning out of the corrections system to access their own money on prepaid debit cards they were forced to use; and required consumers to sign up for a JPay debit card as a condition of receiving government benefits. In that case, the CFPB ordered JPay to pay $4 million in consumer redress and a $2 million civil money penalty.

In Monday’s release, it said it “will continue to use all its tools and authorities – including rulemaking, supervision, enforcement, research, and consumer engagement – to promote fairness for all people in the financial marketplace.”

Release: CFPB Report Shows Criminal Justice Financial Ecosystem Exploits Families at Every Stage

Report: “Justice-Involved Individuals and the Consumer Finanical Marketplace” (January 2022)