Consumer risks posed by employer-driven debt

Executive Summary

After hearing from a number of consumer and worker organizations concerned about the potential impacts of employer-driven debts, the CFPB launched a formal inquiry in June 2022 seeking data about, and worker experiences with, employer-driven debt. The CFPB sought comments from employers, researchers, and workers or other individuals with knowledge or personal experiences pertaining to employer-driven debt to better understand risks to consumers.

This issue spotlight showcases the findings from that inquiry. It presents highlights derived from workers’ individual experiences and examines what market-level research says about employer-driven debts. Key findings include:

• There are many ways workers experience unique harms related to employer-driven debts because employer-driven debts are inextricably linked to a worker’s employment, and the worker’s ability to repay the debt is controlled by the issuer of the debt itself.
• Based on workers’ reports, there is a risk that employees may be rushed into signing agreements that hide the details of the debt workers are agreeing to, or that employers may even unilaterally change the terms and conditions after origination without workers’ awareness or understanding.
• Because workers may be taking on employer-driven debt at times when they are primarily focused on securing or advancing employment, they may focus on questions of pay, hours, work conditions, and opportunities for career growth rather than questions of valuation, disclosures, and terms and conditions of the credit or lease product.
• Commenters report that debts are often imposed as a mandatory pre-condition for employment, suggesting employers may impede workers’ ability to consider and negotiate the terms and conditions of employer-driven debt before accepting the job.
• Some workers expect that employer-driven debts are structured to help them achieve career mobility and higher earnings, suggesting that employers may misrepresent the value and nature of the employer-driven debt, work conditions, or the earnings of the prospective jobs for which workers are considering incurring debt.
• Workers may experience negative impacts on their overall household financial stability as they face lower earnings, damaged credit scores, and additional debts incurred to meet repayment-related obligations.

The CFPB is committed to working with other federal, state, and local regulators with relevant jurisdiction, as appropriate, to ensure that the workplace is not a source of potential consumer harm. The CFPB intends to evaluate the use of training repayment agreement provisions (TRAPs) or other employer-driven debts for potential violations of consumer financial laws and is committed to using all its tools to address the risks they may cause for consumers.

Background

Employer-driven debts are arrangements where workers to become indebted to their employer¹ or an affiliate as a condition of employment through use of a financial product or service, such as an extension of credit or a lease², often purporting to cover the costs of training, equipment, supplies, guest worker visa recruitment, or other employment-related expenses. While there is some consistency in the worker experience of these products, they may take different forms in different industries. For example:

• In the nursing, retail, financial services, aviation, and trucking industries, new hires and candidates for promotion—even those who have already completed all training necessary to perform the job and required by licensing authorities—are often required to sign provisions requiring repayments for their employers’ or an affiliate’s mandatory training programs if they leave the job before a defined period of time.
• In the rideshare, trucking, and janitorial services industries, many workers in purported independent contractor arrangements must lease or take on credit to procure equipment or supplies from their employer or its affiliates.
• In industries that employ immigrants on guest work visa programs, such as agriculture and meat processing, many workers are required to sign provisions requiring payment to their employer or its affiliates of fees if they seek to leave their employer before their visa or employment contract expires.

Prevalence

Workers are incurring debts across a number of sectors of the economy. One common form of employer-driven debts are training repayment agreement provisions (TRAPs), through which companies require workers to agree to pay back the costs of training if they leave their jobs before the end of a contractual commitment period. Employers’ use of TRAPs began in the 1990s, predominantly for higher-skilled, higher-wage positions, such as engineers, securities brokers, and airline pilots .³ Still in use in those industries, they are now also common in lower- and moderate-wage industries where jobs are disproportionately held by women and minorities,⁴ such as in the healthcare, transportation, and retail industries.⁵ Commenters noted that other occupations that have been reported to use them are mechanics, hair stylists, bank workers, social workers, and pilots.⁶

While it’s difficult to estimate how common TRAPs are across the workforce, a study by the Cornell Survey Research Institute found that nearly 10% of American workers surveyed in 2020 were covered by a training repayment agreement⁷ and the Student Borrower Protection Center estimates that major employers rely upon TRAPs in segments of the U.S. labor market that collectively employ more than one in three private-sector workers.⁸ A survey of registered nurses conducted by National Nurses United (NNU) shows a dramatic increase in their use: 44.8% of nurses who have been working 5 years or less and 45.3% who have been working between 6-10 years reported having been subject to a TRAP, as compared to 24.3% of those who have been working between 11-20 years and 9.4% who have been working 21 years or more.⁹

Many businesses and business associations report that the practice of training workers in return for a defined period of service to the company is a mutually-beneficial arrangement, enabling companies to benefit from an improved workforce and workers to benefit from acquiring in-demand and transferable skills.¹⁰ But research suggests that the rise in prevalence is attributable to employers’ search for alternative means of discouraging employee turnover as non-compete agreements come under regulation and legal scrutiny, or to the rise in the use of independent contractors to carry out labor previously performed by company employees.¹¹ As described by researchers Mitchell Hoffman and Stephen V. Burks, “To discourage workers from quitting after training, firms often use training contracts: the firm pays for training and workers are fined for premature quitting.” Their study found that, “implementing a training contract reduced quitting by around 15%...These impacts appear to be driven by making employees less likely to quit, as opposed to selecting better employees.”¹² One business advice website echoed that justification, writing, “But in the wake of the Great Resignation, a tight labor market and recent ‘quick quitting’ trends, some employers around the U.S. have found a way to TRAP employees into staying with their organizations – by using training repayment agreement provisions (TRAPs).”¹³

Structure

Because employer-driven debt products are inextricably linked to a worker’s employment, there are many ways the worker’s experience of these products may be atypical as compared to a traditional debt product. For a more conventional credit transaction, consumers may experience a more defined and deliberate process that can include marketing, evaluation of ability to repay, provision of the purported valuation of the product, the terms and conditions for repayment, calculations of amounts to be paid, ways to make payments, and avenues for dispute resolution. In such credit transactions, a consumer might evaluate the impact of the financial product on their disposable income, their ability to make payments toward the debt, and the cost of exiting the financial product.

In the case of employer-driven debts, as discussed more fully in the Consumer Risks section below, workers’ experiences tend to be that of “take-it-or-leave-it” agreements, with no room to seek financing from alternative sources or to negotiate the terms and conditions. In some cases, the debts are held directly by the employer, while in other cases the workers’ debts are held by affiliate companies. Workers may be unaware that they will be required to take on a debt to their employer until after they have incurred expenses such as quitting a previous job or paying to travel to a training site. They may experience high-pressure tactics or have the details of the debt arrangements obscured. Their earnings—and therefore the ability to accrue the funds to repay the debt—are directly controlled by the issuer of the credit itself.

Consumer Risks

The CFPB launched an inquiry in June 2022 seeking data about, and worker experiences with, employer-driven debt. The inquiry sought comments from employers, researchers, workers, or other individuals with knowledge or personal experiences pertaining to employer-driven debt to better understand any risks to consumers.

The majority of the responses received were from individuals, academics, and advocacy organizations; far fewer responses were submitted by employers and industry associations. A full list of submissions is included as an appendix. This section summarizes findings from the comments received in response to the Request for Information.

Risks to workers from employer-driven debts include:

• Based on workers’ reports, there is a risk that employees may be rushed into signing agreements that hide the details of the debt workers are agreeing to, or that employers may even unilaterally change the terms and conditions after origination without workers’ awareness or understanding.
• Because workers may be taking on employer-driven debt at times when they are primarily focused on securing or advancing employment, they may focus on questions of pay, hours, work conditions, and opportunities for career growth rather than questions of valuation, disclosures, and terms and conditions of the debt product.
• Commenters report that debts are often imposed as a mandatory pre-condition for employment, suggesting employers may impede workers’ ability to consider and negotiate the terms and conditions of employer-driven debt before accepting the job.
• Some workers expect that employer-driven debts are structured to help them achieve career mobility and higher earnings, suggesting that employers may misrepresent the value and nature of the employer-driven debt, work conditions, or the earnings of the prospective jobs for which workers are considering incurring debt.
• Workers may experience negative impacts on their overall household financial stability as they face lower earnings, damaged credit scores, and additional debts incurred to meet repayment-related obligations.

Understanding Terms and Risks

Request for Information responses suggest that employers may be preventing workers from fully understanding the risks, costs, and terms and conditions of the employer-driven debt product to which they are agreeing – and workers may even be entirely unaware they have agreed to a debt product at all to secure their job.

Hidden Details

Request for Information submissions suggest that employers or their agents may not provide sufficient information about the terms and conditions of the credit or lease, with many workers left unsure of the exact amount they owe and the length of employment expected of them, without copies of their contracts, or unaware that their contracts even contained training-repayment provisions. Many respondents in the nursing industry reported that workers had not even received written copies of their contracts. For example, one nurse “believes the contract will be prorated based on the amount of time in the program [but] has never received documentation to confirm that the penalty is prorated for leaving before the end of the contract.”¹⁴ Or another who “does not recall receiving a paper copy of the contract. He recalls that terms of the contract were explained to him in passing, not a formal explanation.”¹⁵ And still another who “does not know if the contract they signed was a loan or a promissory note, and they do not know who they would have to repay.”¹⁶

Even when disclosed, the terms of the agreement may be hidden deep inside employment contracts or written in languages workers cannot comprehend. One respondent described the written agreements for one company’s training as using, “complicated, long run-on sentences phrased in the passive voice” to lay out withholdings and deductions to which the borrower must agree in exchange for the training, making it difficult for most potential pet groomers to recognize the full extent of their financial obligation.¹⁷ In many instances, the products do not disclose the total cost of the credit or lease—including any interest, finance charges, or origination costs—and as a result many borrowers are unaware of the total cost of the obligation they are taking on.¹⁸ In a 2021 U.S. District Court case against a truck-leasing company, the Magistrate found, “Not all [the drivers] fully understood all portions of the leasing agreement.”¹⁹

Changing Terms and Conditions

The terms and conditions may subsequently change after accepting a job, at times to even include the addition of a TRAP when no such requirement was previously disclosed prior to the employment offer. One respondent stated, the employer would “sometimes unilaterally lower the amount of tuition it would agree to cover, leaving the worker on the hook for the difference.”²⁰ Another commenter stated, “One nurse was explicitly told they were not required to be part of a nurse residency program and then two months after starting the job was told they were required to participate in a program with a repayment agreement for $4,000 for a program the nurse described as ‘busy work.’”²¹ In another case, a respondent reported being unaware a new job would require training which the worker would have to pay for if they left the job before two years, stating,

“[a]fter completing 4 years of schooling and passing technical interviews my first job seemed great. Once onboarding I discovered some ‘training’ was required, no problem at all. However the first day consisted of signing a long employment document in a room with all the other employees that required $10,000 to be paid by us if we leave the company within a year and $5,000 if within 2 years.”²²

Unequal Bargaining Power

Respondents reported that workers who understand the debt their employers offer may nevertheless feel that they are powerless to dispute it because they need the job. Even in relatively tight labor markets, but especially in times and places with high unemployment or that are dominated by relatively few employers, job applicants are generally understood to be at a disadvantage compared to the employer—typically needing the job more than the employer needs that particular applicant.²³ Responses suggest that employers may be leveraging their advantage to push the worker into taking on the debt, especially workers with limited experience in a new occupation and workers who are financially vulnerable.

Focus on Wages and Work Conditions

Because workers are often focused on the necessity of searching for and finding a new job, their deliberations may be focused on questions of pay, hours, work conditions, and opportunities for career growth, rather than questions of valuation, disclosures, and terms and conditions of the debt product. One respondent explained, “If the agreement is presented alongside reams of other employment paperwork, employers may depend on the ‘lack of salience’ to get workers to sign; unaware of the later ramifications for employment flexibility or wage negotiation power, workers don’t pay attention to these provisions or their terms.”²⁴ Another respondent stated, “Low-wage workers frequently sign their contracts as part of a rushed onboarding process that gives them little time to read the contract that they are signing, let alone actually understand its terms or give due consideration to whether they should sign it. Some workers with limited English proficiency are entirely unable to read the English-only terms.”²⁵ Reporting on the results of the survey of nurses, NNU stated, “When asked whether they knew they were taking on a debt before accepting or continuing employment with their employer, only half of the hospital RNs or APRNs/CCRNs who are or were in TRAPs responded ‘yes.’²⁶

Need for a Job

According to Request for Information submissions, some employers appear to be leveraging their bargaining power to present provisions imposing debt as “take-it-or-leave-it,” or giving workers insufficient time to review or negotiate the agreements before accepting a job. One respondent explained, “even if they had had the opportunity to understand the terms of the agreement, low-wage workers generally have little bargaining power with which to alter the terms set by their employers. Commonly, their only recourse is to turn down a job opportunity altogether when the terms are not favorable, a choice that for many Texas RioGrande Legal Aid clients is simply economically infeasible. And even if a worker does decline employment, there’s no guarantee that he will be able to find a position that does not bind him to similar terms.”²⁷ Similarly, another respondent stated, “Nurses mentioned in survey comments and interviews that they had limited employment options that did not require TRAPs. Some of the nurses who were purposefully avoiding TRAPs struggled to find the few non-TRAP positions available.”²⁸

Many respondents reported that employers or their agents used high-pressure tactics to coerce workers into signing on to employer-driven debt products such as leaving them with the impression the job opportunity would not be available if they took time to deliberate and giving them insufficient time to review the contract terms. One respondent described a situation where, “[t]he meeting with [redacted] in the [redacted] office was the first time [the worker] saw the contract. She felt ‘pressured’ because [redacted] told her that orientation for the fall would be starting soon. She signed the contract on the spot.”²⁹ When USA Today conducted a year-long investigation into the use of employer-driven debt in the trucking industry, they found truckers were given “take-it-or-leave-it” lease-to-own contracts for equipment.³⁰

Additionally, respondents suggest that companies may be recruiting vulnerable workers who may be more likely to accept debt products because of their need for work. As explained by one respondent, “Employers may specifically target immigrants and foreign workers because they know that they can use these workers’ immigration status as a debt-collection tactic.”³¹ In one example of a company targeting immigrants for employer-driven debt, the Washington State Attorney General filed a lawsuit against the company for deceptive practices, alleging the company unlawfully persuaded primarily immigrant workers to take on large debts to purchase a franchise in order to receive cleaning assignments.³² In another industry, one commenter stated, “I feel [redacted] purposely targets people who don’t have enough money in the first place by talking the position up and the contract down while not giving all the information about the job workers are truly applying for.”³³ In the trucking industry, one respondent reported, “Our CDL school students are typically unemployed or underemployed at the time of entry. We understand they have poor credit ratings and few options to access financing.”³⁴

Inability to Repay if Worker Leaves

Respondents also reported that employers restricted workers from leaving their jobs because of the high cost of repaying financial costs related to the employer-driven debt. Many commenters reported that employers invoked their debt as a retort to concerns about work conditions and a strategy to induce them to continue working. One commenter reported, “This contract is something that is constantly dangled over our heads any time we are getting treated like dogs,”³⁵ while another stated, “If I mention being unhappy, my boss replies that they’ll take me to court for the over $5,000 they say I owe since it hasn’t been two years.”³⁶ Still others reported that the threat of repayment had indeed worked to keep them in a job they otherwise intended to leave, with one Request for Information response stating,

“Shortly after they left, Nurse E received a collection letter notifying them that they either pay the hospital $18,000, which was what [company] said was the prorated cost of their training, or complete the two-year/4,000-hour requirement. Nurse E tried to negotiate the payment of the amount they owed, but the hospital refused…Nurse E decided to return to working at [redacted] because of the financial liability.”³⁷

Yet another reported, “The number was around $6500, and the thought of having to pay that back was terrifying…I wanted to quit after the first 2 months, but there was no way I could have ever paid it back.”³⁸

Even if the TRAP is not enforced, its presence has the power to accomplish the intended consequence of pressuring workers into staying. One respondent cited a blog written by a roofing industry association recommending the use of TRAPs, stating, “that while non-competes for workers in the field were likely to be unenforceable, requiring certification training with a reimbursement requirement could help employers get around the prohibition.”³⁹ Another respondent explained, “Because a [redacted] employee does not know whether or not [redacted] will enforce the TRAP until after they have left the company, the chilling effect of the TRAP on employee mobility is universal even when enforcement is inconsistent.”⁴⁰ One respondent explained that in the commercial trucking industry, “Several students snuck away in the middle of the night, as if escaping some kind of forced labor camp.” But for the remaining students, as University of Pennsylvania sociologist and expert in the American trucking industry Steve Viscelli noted, “…it became obvious that having to pay back the training was the only thing keeping [them] there.”⁴¹ Indeed, one study of truck drivers found that a TRAP reduced employee quitting by 15 percent.⁴² For migrant workers, employers and recruiters may threaten to sue workers for breach of contract fees or take collateral payments, like titles to workers’ homes, vehicles, or land to cover breach fees. In the case of one respondent, “An employer threatened a worker with immigration consequences if they failed to pay a $15,000 breach fee.” Even if these are not followed through, “the mere threat of enforcing them is sufficient to trap workers.”⁴³

Misleading Information about Return on Investment

Workers reported having been induced to sign on to employer-driven debts because employers had led them to believe they were structuring employer-driven debts to help them achieve career mobility and higher earnings. Yet Request for Information submissions seem to indicate that this often may not be the case, particularly with respect to dubious valuations of the credit obligation and misleading statements made when recruiting potential employees.

Inaccurate Recruitment

Companies may mislead potential workers about the nature, work conditions, or earnings of the prospective jobs for which they are considering incurring debt. As explained by one respondent, “Workers are often driven into debt to their employers on the assumption—and their employers’ assurances—that their investment in equipment or other resources will pay off. In reality, their profits are eaten by the debts initially incurred, or there were no meaningful profits to be had in the first place.”⁴⁴ Another stated that, “While employers tend to claim that such training, which is often required as a condition of employment, provides valuable transferable skills for workers to excel in their career no matter the employer, and that such TRA[P]s are necessary to allow employers to recoup the costs of training for employees who might otherwise seek to leave sooner than anticipated, a comprehensive study of TRAs concluded that (1) TRAs harm workers, and (2) TRAs are used primarily to restrict worker mobility, not to recoup training costs.⁴⁵

One respondent explained they felt misled about the pet groomer job for which they had incurred debt, stating, “I constantly heard from my managers while I was a bather that things would be better when I was a groomer. That all the mental and physical strain would be worth it when I was finally making commission. What is not told is how they will force more work on you and make you feel less than if you can’t physically or mentally handle the work.”⁴⁶ Researchers have also found that some truckers may receive fewer hours, and therefore lower earnings, than they were promised, such as a worker from Argentina who only received 25 hours instead of the 40 hours he was promised after going into debt to pay the $3,000 fee for his visa.⁴⁷

Dubious Valuation of the Training or Equipment

Many Request for Information respondents stated that during employment recruitment, companies also misled prospective workers about the value of the employer-driven debt to the worker. Firm-specific trainings and orientations often have purportedly substantial valuations:

“TRAPs have required a metal polisher to pay $20,000 to leave a metal furnishing company before three years, truck drivers to pay $8,000 for an early departure, and an information technology trainee on a $23,000 salary to pay $30,000 for leaving a job before two years.”⁴⁸

But some firm-specific trainings may have greatly inflated valuations, with little to no actual value for the worker despite the high costs charged. In the trucking industry, one company charged truckers over $6,000 to attend its Commercial Driver’s License school if they seek to separate from their employment, but the company only paid the truck driving schools $1,400 - $2,500 per trucker.⁴⁹ A comment submitted by the TRLA stated, “…some TRLA clients bound by repayment agreements report to us that they never received any training at all. Indeed, some TRLA clients’ training-repayment provisions actually specify that the ‘training’ is simply the on-the-job knowledge that the worker will gain through experience.”⁵⁰ In the case of truckers who take on debt by using a lease-purchase agreement to obtain a truck, the valuation of the trucks themselves may also be inflated, as one respondent stated, “There were not very many trucks to choose from. Most were broken down and had been leased and returned several times over. They were barely through the detail bay to throw out the previous driver’s stuff before they were available to lease again.”⁵¹

In the nursing industry, in which workers have already completed all significant education and certification requirements to practice as a nurse, one Request for Information respondent stated, “I was told that the $10,000 was the cost incurred to train a nurse, however, I had minimal and often unstructured orientation.”⁵² Another stated, “the trend of requiring new graduate nurses to sign predatory 2-3 year contracts has been increasing and becoming the norm … New grad nurses have not dropped in standard and are getting the same amount (or less depending on staffing) of training as I did 8 years ago. The cost of training hasn’t gone up, it’s just hospitals attempting to be predatory.”⁵³ At a hospital in Dallas, Texas, some new graduate nurses reported that, “outside vendors provided mostly useless training content, or that the training did not include classroom components and seemed no more robust than what would be offered during a routine orientation and preceptorship.”⁵⁴ Yet these trainings put these nurses between $5,000 - $50,000 in debt if they wished to leave their jobs.⁵⁵

Risks to Household Financial Well-Being

Workers may face significant financial harms as a result of entering into employer-driven debts. These include harms experienced because of staying in their jobs as well as harms experienced after leaving their jobs.

Lower Earnings

Employers may shift the cost of training onto workers through lower pay for the duration of their contract, a phenomenon first described by University of Chicago economist Gary Becker who stated, “employee pay for general on-the-job training by receiving wages below what they could receive elsewhere.”⁵⁶ In the nursing industry, anecdotal evidence suggests that hospitals that are unable or unwilling to compete on wages and other benefits more frequently utilize TRAPs to limit worker mobility.⁵⁷ Companies using employer-driven debt may withhold earnings from workers’ paychecks to cover the debt, such as one food services company which, “may deduct any amount due from any paycheck(s) including but not limited to your final paycheck,”⁵⁸ and a hospital whose Nurse Residency Agreement has a provision that states the hospital can withhold any amounts owed to the hospital as repayment for the training from an employee’s paycheck, including payment from accrued but unused PTO [paid time off].⁵⁹

Request for Information responses suggest many workers receive exceptionally meager paychecks because deductions are taken to cover debt payments throughout the course of their work or to cover additional significant employment-related expenses. Truck drivers may take home as little as $0.67 a week and $20,000 a year on accounts that brought in $95,000 to the company as a result of the significant cost of lease-purchase agreements on their trucks as well as out-of-pocket expenses. They may even be fired when they cannot afford to repair their trucks.⁶⁰ Of 300 drivers interviewed by USA Today, many not only paid for their trucks, but also for insurance, fuel, parking in the company lot, and in one case even for office toilet paper and supplies.⁶¹ In the case of workers on guest worker visas, “While employers are required to provide H-2A workers housing at no cost, TRLA clients report that employers often charge them for housing-related expenses, including hiring an exterminator to spray for bugs, completing repairs, or covering utilities…Employers have even charged TRLA clients for work-related equipment, including gloves and hats.”⁶² As reported by the Franchise Times, immigrant workers in Massachusetts filed a class action lawsuit against a janitorial company that deducted the cost of its $14,000 franchising fee from franchisees’ earnings, of which the plaintiffs’ attorney stated,

“It’s heartbreaking to meet immigrants who have put their entire life savings to these franchises thinking they have businesses to support themselves and their families. Instead, they are buying jobs that are terrible, that pay less than minimum wage. When they do get a check, the franchisor has taken out so many deductions, for royalties, supplies, management fees, and bogus insurance policies, that they receive very little. I’ve seen pay stubs that say the franchisee owes the company money.”⁶³

Impact on Other Household Expenses

Employer-driven debt may also be putting workers’ abilities to meet their overall household expenses at risk as they face lower earnings, damaged credit scores, and additional debts incurred to meet repayment obligations. One Request for Information commenter stated, “After leaving [redacted], Nurse C received a letter from a third-party collections company demanding that they pay $6,000. They paid the $6,000 in full at one time. Paying that debt to [redacted] at the same time as they lost their job was hard on their family. It made it harder to pay bills and made them worry about making rent.”⁶⁴ Another respondent stated, “I ended up leaving for a different company [redacted] only a couple months after driving solo. That meant that despite having gone through with training and putting on some miles, nothing is prorated (we had to sign a contract) and we owe the full $7k...We had to take out a loan against my husband’s TSP to pay off my [redacted] training because I didn’t want to roll it into another company.”⁶⁵

Pressure Tactics to Collect on Debts

For workers who decide to leave their jobs, Request for Information submissions suggest that employers may attempt to pressure the former employee into making payments, even when it appears the debt may have been found illegal if challenged in the courts or state law clearly prohibits the debt. In three class action lawsuits against one trucking company, the company was found to have violated state usury laws by charging 18 percent interest rates and to have violated state and federal wage laws. Nonetheless, the company had attempted and succeeded in collecting on some of these debts.⁶⁶ One respondent stated, “they were sending me demand letters trying to get me to pay it back. Ultimately, they admitted it was unenforceable, but they were attempting to scare me into paying them back.”⁶⁷ Another commenter stated, “Letters received by TRLA clients often demand that the worker respond to the employer’s attorney within a matter of days, creating a feeling of urgency and fear and discouraging the worker from seeking legal assistance to determine whether their former employers’ demands are legitimate and legal.”⁶⁸ Yet another stated, “The collection company is called [redacted]and they call once a month to say I owe like over $300,000 on this truck. It isn’t on my credit report or anything. I’m sure they have other drivers out there thinking they have to pay this collection company for a truck that is probably junk and worth less than $50k on one of these so-called ‘walk away lease’ truck programs.”⁶⁹

When pressured to pay an alleged debt, the presence of a mandatory arbitration agreement or waiver of class arbitration for employment disputes may further cause a worker to be apprehensive about raising a legal challenge even when the debt is ultimately unenforceable.⁷⁰ In one case, a worker observed that it cost her more than $137,000 to sue the company because of the mandate to go through expensive arbitration. After her successful case, the worker wrote in a press statement, “Yet when [redacted] doesn’t get the ruling in their favor, they file endless appeals hoping franchisees will eventually run out of money and give up on the lawsuit.”⁷¹

Erroneous Record Keeping and Improper Dispute Resolution Processes

Employers may not be equipped to handle the servicing of employer-driven debt payments and workers may have little recourse to dispute improper calculations of the debt owed; even when the debts are sent to third-party debt collectors, those firms may be collecting on files that lacked contract and payment tracking and compliance systems when held by the employer.

One commenter reported,

“I had a hard time believing I was that far past due since I had been making the payment and a half for a while, so I asked for an accounting of all the payments I made to them. They initially ignored me until I asked a lawyer to write a letter. The document they produced was an excel spreadsheet that didn’t have payments broken out and many errors. When I compared what I paid to what they had noted there was a huge discrepancy. Then they sent another notice saying I owed even more money, but they could never provide proof.” ⁷²

Another commenter explained that in the case of a nurse who had received a stipend for relocation costs,

“After [Registered Nurse] quit, the hospital pursued his debt in an irregular and unfair fashion. The first successful contact with [Registered Nurse] pertaining to the debt, a letter, claimed the debt was the full amount of the two bonuses minus a credit, but did not explain how the credit was calculated. It gave unclear and conflicting information about how to make contact to resolve the debt. [Registered Nurse], to the best of his ability and in good faith trying to repay the debt, made and executed a payment plan, but the debt collector [redacted] made it difficult for him to make payments and receive confirmation.” ⁷³

Impact on Credit Report and Ability to Find New Employment

Employer-driven debts may have a derogatory effect on workers’ credit reports and, in turn, impede their ability to obtain other financial products that require credit checks, or a new job with a company that requires a credit check as a precondition to employment.⁷⁴ Some employers refer their former workers to collection agencies if they do not pay back the debt, such as one trucking company that referred unpaid debts to multiple debt collectors and to credit reporting agencies.⁷⁵

In a study of truck drivers, researchers found that many of the drivers already had subprime credit scores before being referred to a collection agency by their former employer, “making them even more vulnerable to the long-term effects of failing to pay off their debt.”⁷⁶ One commenter reported the impact employer-driven debt had on a nurse’s ability to find new employment, stating, “Nurse F faced difficult working conditions and left the position without knowing that they would be required to repay the $3,000. The hospital reported the debt to credit reporting agencies and it went on Nurse F’s credit report, which future potential employers raised in job interviews.”⁷⁷ Another respondent described a worker in the pet grooming industry who, “reportedly learned of her debt to her former employer only when she did a routine check of her credit report. She owed them $5,000 for her training, and an additional $500 for tools she received to do her job. The debt had been referred to collection, and her credit score had dropped from the high 600s to the low 600s as a result.”⁷⁸

Additionally, if litigation follows the debt, the time spent in court poses challenges to employability. One commenter reported their ability to find new employment has been harmed after leaving their contracts, stating, “These jobs—they’re very hard to come by. And if I quit, I owe the company 40 percent of my salary, plus a percentage of the [redacted] years remaining on my contract, plus any bonuses that they’ve paid to me and any reimbursements that they’ve paid to me. And they’re going to take me to court for it. And in the time that I’m in court, I’m not employable.”⁷⁹

Conclusion

The apparent rise in employer-driven debts and increasing use of TRAPs may pose substantial risks to consumers, particularly when employers use unequal bargaining power to require workers to become indebted to the employer or an affiliate as a condition of employment. Analysis of employer-driven debt arrangements identified the following areas of concern:

• Workers may experience unique harms related to employer-driven debts because employer-driven debts are inextricably linked to a worker’s employment, so the worker’s ability to repay the debt is controlled by the issuer of the debt itself.
• Based on workers’ reports, there is a risk that employees may be rushed into signing agreements that hide the details of the debt workers are agreeing to, or that employers may even unilaterally change the terms and conditions after origination without workers’ awareness or understanding.
• Commenters report that debts are often imposed as a mandatory pre-condition for employment, suggesting employers may impede workers’ ability to consider and negotiate the terms and conditions of employer-driven debt before accepting the job.
• Workers may experience negative impacts on their overall household financial stability as they face lower earnings, damaged credit scores, and additional debts incurred to meet repayment-related obligations.

As indicated in the comments submitted in response to the Request for Information, these issues raise significant concerns regarding the use of TRAPs and the negative impacts of employer-driven debts. The CFPB is committed to working with other federal, state, and local regulators with relevant jurisdiction, as appropriate, to ensure that the workplace is not a source of potential consumer harm. The CFPB will continue to evaluate the use of TRAPs or other employer-driven debts for potential violations of consumer financial laws and is committed to using all its tools to address the risks they may cause for consumers.