[Senate Hearing 117-668]
[From the U.S. Government Publishing Office]
S. Hrg. 117-668
NEW ERA FOR CONSUMER PROTECTION: THE CONSUMER FINANCIAL PROTECTION
BUREAU'S SEMIANNUAL REPORT TO CONGRESS
=======================================================================
HEARING
BEFORE THE
COMMITTEE ON
BANKING,HOUSING,AND URBAN AFFAIRS
UNITED STATES SENATE
ONE HUNDRED SEVENTEENTH CONGRESS
FIRST SESSION
ON
CONSUMER FINANCIAL PROTECTION BUREAU'S SEMIANNUAL REPORT TO CONGRESS
__________
OCTOBER 28, 2021
__________
Printed for the use of the Committee on Banking, Housing, and Urban
Affairs
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
Available at: https: //www.govinfo.gov/
__________
U.S. GOVERNMENT PUBLISHING OFFICE
52-232 PDF WASHINGTON : 2023
COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS
SHERROD BROWN, Ohio, Chairman
JACK REED, Rhode Island PATRICK J. TOOMEY, Pennsylvania
ROBERT MENENDEZ, New Jersey RICHARD C. SHELBY, Alabama
JON TESTER, Montana MIKE CRAPO, Idaho
MARK R. WARNER, Virginia TIM SCOTT, South Carolina
ELIZABETH WARREN, Massachusetts MIKE ROUNDS, South Dakota
CHRIS VAN HOLLEN, Maryland THOM TILLIS, North Carolina
CATHERINE CORTEZ MASTO, Nevada JOHN KENNEDY, Louisiana
TINA SMITH, Minnesota BILL HAGERTY, Tennessee
KYRSTEN SINEMA, Arizona CYNTHIA LUMMIS, Wyoming
JON OSSOFF, Georgia JERRY MORAN, Kansas
RAPHAEL WARNOCK, Georgia KEVIN CRAMER, North Dakota
STEVE DAINES, Montana
Laura Swanson, Staff Director
Brad Grantz, Republican Staff Director
Elisha Tuku, Chief Counsel
Sneha Pandya, Fellow
Dan Sullivan, Republican Chief Counsel
Hallee Morgan, Republican Professional Staff Member
Cameron Ricker, Chief Clerk
Shelvin Simmons, IT Director
Charles J. Moffat, Hearing Clerk
(ii)
C O N T E N T S
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THURSDAY, OCTOBER 28, 2021
Page
Opening statement of Chairman Brown.............................. 1
Prepared statement....................................... 33
Opening statements, comments, or prepared statements of:
Senator Toomey............................................... 3
Prepared statement....................................... 34
WITNESS
Rohit Chopra, Director, Consumer Financial Protection Bureau..... 5
Prepared statement........................................... 35
Responses to written questions of:
Senator Toomey........................................... 37
Senator Reed............................................. 43
Senator Van Hollen....................................... 45
Senator Sinema........................................... 47
Additional Material Supplied for the Record
CBA letter....................................................... 49
NAFCU letter..................................................... 55
IPA letter....................................................... 60
(iii)
NEW ERA FOR CONSUMER PROTECTION: THE CONSUMER FINANCIAL PROTECTION
BUREAU'S SEMIANNUAL REPORT TO CONGRESS
----------
THURSDAY, OCTOBER 28, 2021
U.S. Senate,
Committee on Banking, Housing, and Urban Affairs,
Washington, DC.
The Committee met at 10 a.m., via Webex and in room 538,
Dirksen Senate Office Building, Hon. Sherrod Brown, Chairman of
the Committee, presiding.
OPENING STATEMENT OF CHAIRMAN SHERROD BROWN
Chairman Brown. The Senate Committee on Banking, Housing,
and Urban Affairs will come to order. Today we are pursuing, as
we have in the past, the hybrid format. Our witnesses are in
person but Members have the option to appear either in person
or virtually. As Mr. Chopra probably knows, many Members will
be here. Many of them have checked in remote and will be here,
most of them, I think, in person.
A couple of reminders. When you start speaking there will
be a slight delay before being displayed on the screen. I think
every Senator knows how this works. The speaking order will be
as usual, by seniority of the Members who have checked in by
now, before the gavel came down, either in person or virtually,
and then by seniority of Members arriving later, alternating
between Democrats and Republicans.
Welcome, Director. As the newly confirmed Director you are
stepping into a vital role for the American people. It is your
job as Director of the Consumer Financial Protection Bureau to
stand up for the literally hundreds of millions of Americans
who do not have a corporate lobbyist, who do not have a Super
PAC. You work for all the people who do not have a high-priced
attorney fighting for them if a company opens a fake account in
their name, or overcharges them on their credit card, or there
are mistakes in their credit history.
You are stepping into this role at a time when so many
people feel like they do not have a voice in our economy, or
anyone on their side in Government. You are that person for so
many. Your job is to prove them wrong, to be on the side of
everyone who has been preyed on and looked down on by corporate
America, to empower them to get their hard-earned money back.
Your history and the history of this agency both tell me you
are up to the challenge.
Millions of families still deal with the effects of the
pandemic. Over the past year-and-a-half, scammers have done
what they do best--prey on people in a crisis. People
masquerading as Government workers conned families out of
money, promising them early access to a COVID vaccine or
student loan debt relief, even funeral expense benefits. It is
why, after the '08 crisis, we created the CFPB, to stand up to
the powerful companies that will use a crisis to cheat every
extra cent they can out of people.
Unfortunately, for 4 years, the CFPB was held back by an
Administration that tried to tear down the Bureau from within.
Now, after an election where Americans decisively rejected that
corporate kowtowing, the Biden administration has ushered in a
new era of consumer protection.
Under the leadership of Acting Director Dave Uejio, and now
under your leadership, the CFPB has gone back to work, looking
into financial companies, and getting people their money back.
This year, the Bureau has worked to protect the rights of
renters and homeowners, and has connected them with resources
to get rental assistance or housing counseling. It created new
requirements for mortgage servicers, to make sure homeowners
can keep their homes and get back on track with their payments.
CFPB helps people with student loans as loan payment
moratoria end.
And I applaud your decision to join DOJ and the Office of
the Comptroller of the Currency to enforce our fair housing and
fair lending laws, as we work to undo the legacy, the awful
long legacy, from Black codes to Jim Crow to redlining, and
beyond.
Of course, we know corporations and big banks and loan
sharks are not giving up. And as big tech companies encroach
into the consumer finance and housings markets, new threats
emerge every day. Look at what is happening to the tenant
screening industry. Renters are often forced to pay out of
their own pocket for tenant screening reports that can be
riddled with errors and block them from renting, and again, no
explanation.
I have asked the Bureau to conduct a review of the tenant
screening industry to protect renters, and look forward to
learning how we can better crack down on these companies.
Bias in algorithms, and other predatory targeting, risks
reinstating Jim Crow in a new, high-tech form. New revelations
about Facebook's promotion of the most extreme and divisive
content, including vaccine lies, is just the latest reminder
that we cannot trust these big tech algorithms. The last thing
we need is them moving into the payments system and other
financial markets critical to families' financial futures.
The Bureau's recent efforts to investigate big tech
companies' invasion of the financial system and their abusive
data privacy practices are so important. We must continue them.
No matter the industry, the CFPB is all about empowering
people. It is about giving people a tool to stand up to the big
banks and the financial corporations and the big tech companies
that have far too much power in this country. I know those
corporate interests and their allies in this building simply do
not like that. Director Chopra, you were--and you remember
this--confirmed unanimously by voice vote--by voice vote--to be
an FTC commissioner--no dissention from that--yet not one of my
Republican colleagues, not one, in this Committee and of the 50
on the Senate floor, even those who have occasionally stood up,
not one of them wanted you take this job. They do not want this
job to exist. It is not about you. You should not take it
personally.
Anyone who goes after corporate interests, you all attack.
Every time we have one of these hearings, we hear the same
made-up complaints about accountability.
You know how accountable this agency is. You know how many
times one of his predecessors, my Ohio friend, Rich Cordray,
how many times he came before this Committee, and the dozens of
times he came in front of your colleagues in the House.
This agency has returned billions of dollars to consumers.
What you do not like--what you do not like--is that they go
after your contributors and the big banks. But if you want to
attack the Consumer Protection Bureau, say what this is really
about. Do not make up this fake stuff about accountability.
Director, I do not expect you to be cowed. I expect to see
vigorous enforcement of consumer protection laws, consistent
monitoring of fintech companies, and crackdowns on big
corporations which routinely and repeatedly violate orders
issued by the Bureau during your tenure.
Director Chopra, I look forward to hearing about the agenda
you are setting for consumer protection at this very, very
important agency.
Ranking Member Toomey.
OPENING STATEMENT OF SENATOR PATRICK J. TOOMEY
Senator Toomey. Thank you, Mr. Chairman. Welcome, Director
Chopra.
We are going to talk about accountability, and rather than
impugning the motives of my Democratic colleagues who might
disagree with me, we will stick with the facts in the case.
During the Obama administration, the CFPB was routinely a
lawless, antibusiness, unaccountable agency. Through
restrictive policies, it limited consumer choice, drove up the
cost of credit, and needlessly harassed employers.
Unfortunately, the Biden administration has rushed to return
the CFPB to its bad old ways.
In less than 10 months, the Biden CFPB has disregarded its
jurisdictional limits, rescinded policies that provided
regulatory clarity, returned to regulating by enforcement
actions rather than by rules, reportedly pushed out career
civil servants for political reasons, and certainly refused to
comply with legitimate congressional oversight requests.
Let us consider the Biden CFPB's return to regulation by
enforcement. This is a completely unfair practice that occurs
when agencies fail to set clear rules of the road before
bringing enforcement actions for violation of these undefined
rules.
A classic example is with the Dodd-Frank Act. Dodd-Frank
prohibited providers of consumer financial products from
engaging in, quote, ``abusive,'' unquote, acts or practices.
But the law's definition of this new term is so vague it is not
at all clear what it prohibits.
During the CFPB's entire existence, it has never bothered
to issue a rule to clarify this definition. But that did not
stop the Obama CFPB from bringing enforcement actions accusing
businesses of abusive conduct and pressuring them into
settling.
The Trump CFPB issued a sensible policy to curb this
practice. The Biden CFPB, however, quickly rescinded this
policy and took no steps to provide regulatory clarity.
Instead, in just his second week on the job, Director Chopra
brought and settled an enforcement action against a company for
abusive conduct even though the CFPB has never defined that
term. Worse yet, CFPB relied on a novel theory of abusive
conduct. CFPB alleged an, quote, ``abuse of market dominance,''
end quote, which is a foreign concept taken from European
antitrust legal theories, not American consumer laws.
The Biden CFPB has also repeatedly exceeded the bounds of
its statutory authority by acting outside of its jurisdiction.
Take for example the CFPB's overreach into housing rentals and
landlord-tenant law in an effort to advance the Biden
administration's unlawful CDC eviction moratorium.
In May, the CFPB and the FTC, where Mr. Chopra was serving
as a commissioner, jointly sent threatening letters to large
landlords about the moratorium. The problem is housing rentals
and landlord-tenant law are completely outside of the CFPB's
jurisdiction. By statute, the CFPB's jurisdiction is limited to
overseeing, quote, ``consumer financial products and
services,'' end quote, which do not include housing rentals,
and enforcing certain enumerated consumer laws, none of which
govern landlord-tenant relationships.
In its notice to landlords, the CFPB even seemed to
begrudgingly acknowledge its lack of jurisdiction, but that did
not stop the CFPB from threatening them with potential legal
action. The letters stated, quote, ``Neither the FTC nor the
CFPB has determined whether you or your company is violating
the law . . . the FTC or CFPB may still take action based on
law violations,'' end quote.
It is deeply troubling that the CFPB made these threats
when it had no legal authority to follow through on them
because housing rentals and landlord-tenant law are outside of
its jurisdiction.
The Biden CFPB has also refused to comply with legitimate
congressional oversight requests. According to press reports,
the Biden CFPB has taken unusual and possibly unlawful actions
to push out career civil servants in order to replace them with
political loyalists.
In June, I sent the CFPB a letter seeking documents about
these allegations. For 5 months, the CFPB has sought to evade
this legitimate oversight request. In June, the CFPB claimed it
needed more time to respond. Then, in July, instead of
providing records, the CFPB claimed that the Privacy Act
prevented it from producing any of the requested records.
After my staff challenged this claim, the CFPB finally
produced some heavily redacted records this month, just this
month. Despite the heavy redactions, at least one document
referred to, and I quote, ``Voluntary Separation Compensation
Agreement,'' end quote, which sounds like reports that CFPB
civil servants were offered some kind of extraordinary
separation incentives to leave their posts. Now from the
redactions to delay tactics, it really makes you wonder: What
does the CFPB have to hide?
In fact, I could ask the same question about you, Director
Chopra. In June, while your nomination was still pending, I
sent you a letter about the reports of troubling personnel
actions at the CFPB. My letter asked simple questions about
whether you were involved in, or aware of, these actions. You
refused to answer these questions or to respond at all. As a
result, in July, every Republican Member of this Committee,
exactly half the Members of this Committee, sent you a letter
calling on you to answer these simple questions. And still you
refused to provide any answer whatsoever. That is simply
unacceptable.
Let me close by saying this. You have been CFPB Director
for less than a month. There is actually still time for you to
reverse course. A couple of good places to start would be to
end the CFPB's unfair practice of regulation by enforcement,
you could respect the CFPB's jurisdictional limits and stop
stonewalling legitimate congressional oversight requests. I
hope you will make these changes, but I am not holding my
breath.
Chairman Brown. Thank you, Senator Toomey.
I will introduce today's witness. Rohit Chopra is Director
of the Consumer Financial Protection Bureau. He previously
served as an FTC commissioner. After passage of Dodd-Frank,
Director Chopra joined CFPB as Assistant Director, then was
appointed the CFPB's student loan ombudsman. He subsequently
served as a special advisor at the Department of Education.
Director, please proceed.
STATEMENT OF ROHIT CHOPRA, DIRECTOR, CONSUMER FINANCIAL
PROTECTION BUREAU
Mr. Chopra. Chairman Brown, Ranking Member Toomey, and
Members of the Committee, thank you for holding this hearing
today.
2021 is far different than 2020. The economy is reopening
and growing again, labor demand is strong, and employers have
added millions of new jobs. Household spending has rapidly
increased and demand for housing is robust.
While these macro indicators are promising, the recovery
has been uneven. In many individual communities conditions
remain fragile. Many families continue to struggle with their
mortgage and rent payments, many small businesses are facing
severe challenges to make ends meet, and many neighborhoods,
especially those that have been historically disadvantaged,
have not felt much of a recovery.
American families now owe $15 trillion as of the end of the
second quarter of this year, roughly $800 billion more than at
the end of 2019, before the pandemic. Over the course of a
year, though, mortgage origination hit historic highs, at $4.6
trillion.
The CARES Act has kept delinquency rates on mortgages and
student loans at low levels. However, many of the borrower
forbearance programs have expired, so we lack a complete
picture about distress. Many family farmers continue to
confront very severe challenges. Medical debt in collections
continues to grow as a concern for many households.
Congress has tasked the CFPB with monitoring market
conditions to spot risks and meet other statutory objectives.
Most importantly, the CFPB is carefully monitoring the mortgage
market, including foreclosures, and it is critical that
families do not experience unnecessary hardship or illegal
foreclosures or other disruptions that could impede the
recovery. We are keen on understanding how homeowners from
different segments of the population are faring, including
military connected families, older Americans, first-time
homeowners, communities of color, and family farmers.
Technological progress holds the potential for real
benefits to households and the economy, particularly with
respect to real-time consumer payments. In recent years, big
tech companies have sought to gain greater control over the
flow of money in our economy. Last week, the CFPB issued orders
to firms such as Facebook, Google, Apple, and Amazon to shed
light on their payment system practices. The orders seek
information on how firms harvest, track, and monetize data
about our spending habits.
We are also seeking to understand the specific criteria
that firms use to approve or to kick off participants. We will
also be studying some of the practices of Chinese tech giants,
including WeChat and Alipay. This effort will also inform other
initiatives to ensure that our evolving payments landscape is
in alignment with our national interest.
More broadly, the CFPB intends to use its tools to promote
an equitable and inclusive recovery, and given the existing
economic conditions in these tools I expect to have a few areas
of focus.
First, we must find ways to create more competition in
these markets. This is a key objective of the Dodd-Frank Act.
For example, I am concerned that many Americans could be paying
lower rates on their mortgages and credit cards and earning
higher rates on their savings. We plan to listen carefully to
local financial institutions and nascent competitors on the
obstacles they face when seeking to challenge incumbents,
including in big tech.
Second, the CFPB will sharpen its focus on repeat
offenders, repeat offenders that violate agency and court
orders harm families and law-abiding businesses alike.
Third, we must work to restore relationship banking in this
era of big data. Too many households and businesses have no
place to turn to when they need help, especially when they face
errors and problems in their financial lives. The inability to
cut through red tape and get help in one's financial life can
be a major obstacle when seeking a job or when applying for
credit. Preserving relationship banking is critical to our
Nation's resilience and recovery, particularly in these times
of stress.
Thank you again for the opportunity to appear before you,
and I look forward to your question.
Chairman Brown. Thank you, Director. Last week I wrote you,
requesting the CFPB review the tenant screening industry. Over
the last 6 months, our Committee has looked into this and found
a significant number of these tenant screening reports
contained inaccurate information, in some cases including
eviction filings that did not lead to an eviction. Companies
people have never heard of that may not even have accurate data
are stopping people from renting all over the country. These
reports put low-income renters at a distinct disadvantage and
Black renters and Brown renters and female renters oftentimes.
What risks do inaccurate screen reports pose to consumers?
What steps are you considering?
Mr. Chopra. So tenant and employment background screening
have proliferated throughout our country and false matching and
false information can severely impede someone's ability to get
an apartment, to get a job. In a time of economic dislocation
we need people to be able to apply for jobs, to be able to move
where those jobs are available. When inaccurate screening
companies block those people from opportunities, that is a
severe problem, and may, in many cases, violate the Fair Credit
Reporting Act, where the CFPB has enforcement and rulemaking
jurisdiction.
It is certainly an area that I want to work on with you and
other agencies who share jurisdiction, because this is a place
where we need to make sure people are not being locked out of
housing because of illegal practices.
Chairman Brown. Thank you. We know that since our
colleague, Senator Romney's father was Secretary of HUD under
President Nixon that we are not really closing the gap between
home ownership White families and Black and Brown families.
What are you doing to prevent further loss of home ownership
and the generational wealth for families of color?
Mr. Chopra. So the most immediate priority is to pay close
attention to what is happening in mortgage servicing and
foreclosures. I think we saw, a decade ago, what it was like
when so many of those servicers engaged in practices that led
to wrongful foreclosures or wrongful servicing, and that led to
trillions of dollars of wealth, you know, disappearing in the
broader crisis, and that widened many of the gaps.
So we have to make sure that those servicing practices do
not appear again, and we also need to look broadly at our
markets to make sure that we are stamping out illegal
discrimination, that we are looking for places to broaden
participation rather than foreclose based on the color of their
skin.
Chairman Brown. Thank you. Director, too-big-to-fail banks
and corporations are a threat to working families and our
entire economy. We have seen decades of evidence for that.
Wells Fargo, for example, is a too-big-to-manage institution.
It has broken the law over and over. They have been in front of
this Committee when Chairman Crapo sat in this seat.
Wells Fargo, with $1.9 trillion in assets has been
prohibited by financial watchdogs from growing any larger. How
has this asset cap prevented Wells Fargo from hurting even more
consumers, and what other tools might you, as a member of FSOC,
use to protect Americans and the financial system from repeat
offenders?
Mr. Chopra. So with respect to the asset cap, I obviously
want to take a closer look. I do not have the best answers for
you now. But one of the places that is going to be a priority
for me is order violations and repeat offenders. I think we see
kind of a two-tiered system where Federal agencies go hard on
small businesses--when they violate an order they get totally
shut down--larger firms, they sometimes violate those orders or
engage in repeat offenses over and over again, and there is a
complete lack of parity in how justice is administered there.
We need to make sure that we are being even-handed across
the board, that we are focusing our efforts on these repeat
violations, and using the full panoply of remedies, both from
the prudential banking regulators, the CFPB, and others, to
make sure that there are real consequences for repeatedly
violating the law.
Chairman Brown. Thank you, and what you said about the big
offenders versus the smaller guys and what happens to them,
it's really important that you emphasized that. Thank you.
Just a couple more comments. As whistleblowers and
reporters have shown, tech companies like Facebook and Google
and Amazon clearly do not care about anything or anyone other
than their own profits. I think Americans almost unanimously
understand that.
Last week I raised concerns about Facebook's efforts to get
their hands on Americans' hard-earned paychecks with digital
wallets, and they are pushing users to send and receive
payments with a Facebook-controlled stablecoin. We know that
Facebook has failed to contain the damage their products cause.
They clearly cannot be trusted with America's paychecks.
Director, we expect you and this Committee to share the
results of the CFPB's investigation. We expect you will work to
prevent big tech companies from wreaking havoc on the financial
system the way they have in every other industry they get
involved in. That is our expectation, and I hope that is your
commitment.
Mr. Chopra. With respect to the orders we issued, the law
provides us some ability to make summaries of those results
available to the public and to you, and we will keep you
updated on that.
Chairman Brown. Thank you. Senator Toomey.
Senator Toomey. As I mentioned in my opening statement, the
Biden CFPB has reportedly taken unusual and possibly unlawful
actions to push out career civil servants in order to replace
them with political loyalists. Mr. Chopra, on June 17th, I sent
you a letter asking simple questions about whether you were
involved in or aware of this. This a copy of that letter. You
did not reply.
On July 13th, about a month later, every Republican on this
Committee, so exactly half the Members of this Committee, sent
you another letter calling upon you to answer these questions.
This is that letter. You never sent us an answer. In fact, you
never responded to us at all. Why did you not answer these
questions?
Mr. Chopra. So, Senator, thanks for the question. I
observed all of the protocols that are customary with respect
to the confirmation process. I appeared before a hearing. I
answered a large number of questions for the record. And then I
also agreed to appear before any duly constituted committee of
the Senate.
At the time I was not CFPB Director, of course. I was an
FTC commissioner. Where committees that oversaw me in that
capacity asked me questions, and in some cases did so in public
fora, I completely answered. I also answered that I did not
direct or was not involved in those----
Senator Toomey. So you did not acknowledge them. You did
not answer the question as to whether you were involved. You
did not answer anything about these questions. You were a
nominee for a post that is under the jurisdiction of this
Committee. You have been in this job for 3 weeks or so, I
think, and you still have not answer the questions.
Is it your view that you just decide which questions from
oversight committees of Congress you are going to answer and
which ones you are not?
Mr. Chopra. So, Senator, as I said, I observed all of the
protocols that have been involved in confirmation hearings. I
did so on----
Senator Toomey. You did not answer a written question from
the Committee of jurisdiction over your nomination. I am not
aware of any protocol that says do not answer the questions
when half the members of a committee ask you a question. I do
not believe that that is the protocol, in fact.
Mr. Chopra. So----
Senator Toomey. Let me ask you this. Should Republicans
generally expect that we will get answers to questions in the
future, or will you decide, no, maybe there is a protocol
somewhere that says I am not going to answer them?
Mr. Chopra. So, Senator, I have appeared before Congress
many, many times, answered hundreds, maybe even thousands of
questions from members. I take congressional oversight
extremely seriously. I previously came from an agency that
completely ignored Congress all the time, and you have my
commitment that we will work with the Committee to respond and
be transparent, on requests from the Committee, wherever we
can.
You know----
Senator Toomey. Wherever we can. No. If Members of the
Committee ask you a question, you have an obligation to provide
a response. Senator Brown alluded to a letter he sent you. Are
you going to respond to his letter, or will you ignore that one
too?
Mr. Chopra. We will be responsive to requests from this
Committee that are observing all the customary protocols,
including with respect to Senator Brown's letter. I----
Senator Toomey. Well, this little hedge that you keep
introducing about observing and consistent with protocols
sounds like you are looking for a way out, as you apparently
were since you never responded to a very simple,
straightforward question when it was posed twice, first by me,
second by every single Republican on the Committee.
And, by the way, the CFPB was extremely reticent to provide
any answers when we asked for the documents that would back up
their contention that there was nothing untoward here. They
sent us redacted information such that the entire body of the
communications, which, according to the subject line, had to do
with ``voluntary separation compensation agreements,'' the
entire body of it is missing, which certainly makes it look as
though there is something to hide. Your refusal to answer the
question raises the question of what it is that you have to
hide.
Mr. Chopra. Well, I have nothing to hide, Senator, and I
have been----
Senator Toomey. Then why did you not put it in writing?
Mr. Chopra. ----I have been briefed on some of those
issues, and they do involve personnel issues. In the Executive
branch, we are required to adhere to a number of laws and
regulations with respect to----
Senator Toomey. OK. OK. But look, I am not going to let you
hide behind that. You could have redacted communications that
redact the name and redact the identity. I am not asking for
confidential information about individual identifiable people.
We are looking for the substance of the practice. And, in fact,
what we got from the CFPB is the exact opposite. The names are
all there. It is the entire content of the message that was
left out.
I still do not understand why, if there is nothing untoward
happening here, you could not have submitted a simple letter to
us respond to our requests.
Mr. Chopra. Well, with respect to the separation incentives
policy, as I understand this policy was put into place by
Director Kraninger, and I am trying to find out exactly what
happened, and then we will figure out, work with any inquiry
from the inspector general. I know that has been requested. I
have directed staff to be responsive to that. But we cannot
divulge things that are protected by law when it comes to
employee practices.
Senator Toomey. You know that is not what we are asking
you, and you could have given a written--you could have even
provided that in a written answer, but you chose not to. This
raises serious questions about what kind of transparency we can
expect from this agency.
Chairman Brown. Thank you. The Director certainly does not
need me to defend him, but he has been in the job for 3 weeks.
The former Acting Director wrote back and said they do not push
out career employees, and my understanding is the IG is looking
into this. So we will find answers.
Senator Menendez is recognized for 5 minutes.
Senator Menendez. Thank you, Mr. Chairman. I do hope that
the agency will be more responsive because I got nothing under
Director Kraninger for all the years she was there, and nobody
seemed to complain. So I certainly hope that under your
leadership there will be greater responses.
Director, in recent months two of the largest services that
manage Federal student loans on behalf of the Department of
Education announced that they would be exiting their contracts.
Importantly, PHEAA, one of the firms that will exit servicing,
is also in charge of managing the Public Service Loan
Forgiveness Program.
Did the last student loan servicing transfer done on this
scale harm student loan borrowers?
Mr. Chopra. I have some experience that suggests that major
servicing transfers can really be problematic when records have
errors or when systems are not appropriately tested. I am
worried about big transfers. We have seen it happen in mortgage
too.
So we will be looking carefully at that and working with
the Education Department, working with the other regulators, to
make sure that to the extent there are large transfers it is
done so with fidelity. The last thing we need is for hundreds
of thousands or millions of borrowers to have incorrect bills
and incorrect accounts.
Senator Menendez. Let me bring to your attention why I
raise this. The last time there was a student loan servicing
transfer on this scale, where loans were transferred from the
company ACS in the 2010s, it both caused and revealed millions
of errors that continue to harm student loan borrowers,
particularly those trying to access promise relief through the
Public Service Loan Forgiveness. A recent investigation
uncovered 5 million new errors related to the transfer from
ACS, including instances of missing borrower payment histories,
incorrect payment accounts, and other widespread errors.
The difference between that and now is that they have a
watchdog on their side. So I want to know from you, what is the
Bureau doing to prepare for this transfer?
Mr. Chopra. So you may know that we have a rule in place
that allows us to supervise large student loan servicers, so I
intend to make sure that we are engaging in adequate oversight
of those entities, that we are supervising them for our laws as
well as their preparedness for some of these. I do think it is
going to require us to have close cooperation with the
Education Department. The law requires us to have an MOU in
place, and I am examining whether to refresh that.
Senator Menendez. All right. I hope that you do, in order
to make sure we do not have millions of errors in this
transfer. It is not just errors. It is consequences to the
consumer.
Let me turn to another question. As the economy continues
to recover from the COVID-19 pandemic businesses are still
seeking financial lifelines. Stepping up to fill these
financing needs are alternative financing companies, promising
easy approvals with little to no documentation requirements and
funding within 24 hours. However, some of these financing
companies are not transparent in their loan terms, and small
businesses can end up taking on debt they do not understand and
cannot afford. Without cost transparency, businesses cannot
distinguish financial lifelines from land mines.
Do current small business financing disclosures provide
small business owners with the information they need to
understand the cost of the credit product and make an informed
decision about whether it fits their needs?
Mr. Chopra. Certainly not always. It is not covered by the
same protections that exist for household borrowers, and as you
know, many small business owners, especially very small
enterprises, they use a mix of personal credit and small
business credit, and so they cannot even make fair comparisons.
Some States, like California and New York, have begun to
introduce it, but it is a problem for many entrepreneurs.
Senator Menendez. Well it is clear from the Fed studies
that small business owners do not have the information that
they need to make informed decisions. So would providing small
business owners with uniform term disclosures allow them to
make more informed financial decisions?
Mr. Chopra. I think, generally speaking, yes, having the
ability to compare and be able to see, you know, costs clearly,
generally is beneficial. There are a number of practices,
though, in the small business lending arena that are actually
banned when it comes to consumer lending, so-called confessions
of judgment, where borrowers automatically pleads guilty when
they are sued. There are other practices like these where small
business owners are not protected.
Senator Menendez. Well, this is why Congresswoman
Velazquez, who is the Chair of the Small Business Committee in
the House, and I are working on a bill to extend TILA to small
business loans. Sunlight is the best disinfectant, and it is
time to bring some sunlight to small business credit as well.
I will follow up for the record about what the Bureau is
doing to protect borrowers from ensuring there is ample
supervision of the student loan servicing companies, both in
the context of the PSL relief and beyond. There is a history
here that needs some significant oversight, and we look forward
to hearing your responses on that.
Thank you very much.
Chairman Brown. Thank you, Senator Menendez. Senator Tester
from Montana is recognized for 5 minutes.
Senator Tester. Thank you, Mr. Chairman. Thank you, Ranking
Member Toomey. Just in reference to Senator Toomey's comments,
I think if the accusations about replacing career folks with
politicos are correct, I do not think that is responsible and I
think you do need to get back to the Committee.
But I also need to say replacing people with politicos in
this Administration, after what we just went through the last 4
years is totally ridiculous. I watched a President go after the
head of the Fed, trying to politicize the Fed. I do not know
that I have heard one person stand up and say that is
appropriate, on the Republican side of the aisle. If you did,
thank you for doing that, because quite frankly, everything the
last Administration did was about politics, all the time. And I
speak to that as being somebody who is perceived as a moderate,
who the President politicized everything that came down the
pipe. OK?
Director Chopra, before I get to my questions today I want
to say congratulations. I was proud to vote for your
confirmation, though I will be honest with you, I was a little
bit sad to see you leave the FTC, because I thought you did a
great job for American consumers at that Commission.
An issue that has been important to me since long before I
arrived in the U.S. Senate is accurate labeling of products
that are made in the USA. Unfortunately, there is a lot of work
to do in this space, but I have few folks in Government that
understand the importance of this more than you do, and we have
even fewer now that you are here, to move that ball forward. I
have no doubt that you will take this commitment to
transparency to the CFPB and continue to do great work for
America's consumers.
I am not sure that I can ask you a question about the
importance of labeling beef with country of origin, and I do
not think it would be necessarily appropriate today, although I
have no doubt you could answer that question. But I do look
forward to working with you in your new role.
I can tell you that in a State where we have seven
reservations, and they do play in the financial world, I would
hope that you would open up dialog with our Native American
Tribes to make sure what you are doing is fair and appropriate,
for them and for the consumer.
I would say the same thing for our banks, moving forward,
and I would tell you that the CFPB, in the past, has taken a
number of actions on companies that have harmed our
servicemembers, our veterans, and particularly in the mortgage
market. I appreciate the work the Bureau has done to protect
those who have protected us, but there is always more to be
done to stay ahead of the bad actors.
So Director Chopra, I know the CFPB has a number of efforts
in place to look out for our servicemembers and our veterans.
Will you walk us through what that is going to look like under
your leadership?
Mr. Chopra. Yes. We are going to refresh that quite a bit.
I want to make sure that our servicemember, veteran, and
military-connected families' work is a part of how we look at
so many of our products but also how we enforce the law. I had
a chance to discuss this a bit with the Attorney General and
the Justice Department. We need to make sure we are cooperating
on the Military Lending Act enforcement. We need to make sure
that we are continuing our work on the Servicemember Civil
Relief Act with them.
There are many laws that protect these families, and I will
tell you, we saw, a decade ago, that many of them, including
people who were deployed, in theater, had their homes taken
from them. We have seen people who have signed up for a car
loan and gone to basic training and had their car repossessed
illegally. There is clearly something wrong with certain actors
who treat the military, and we will work, using our tools but
also with our partner agencies, to stamp that out.
We also need to make sure that the DoD, when it is doing
its status of the force and is doing its own analysis, that we
are understanding where there are issues when it comes to
credit reporting. Many of those inaccurate credit reporting
issues lead to the loss of a security clearance. All of this
costs taxpayers more and it costs those families more.
Senator Tester. Thank you for that answer. I have long been
a supporter of public student loan forgiveness programs. I
think it is critically important and we need to keep our
commitment to those folks. I made it clear to the previous
director and the former President Trump's Department of
Education that their administration of this program was
unacceptable.
As you know, the Department of Education was blocking the
CFPB's access to the necessary information to adequately
oversee and examine servicers and the program. How is it
working or not working currently?
Mr. Chopra. So to be truthful, I think this program has
been botched over multiple Administrations, and it needs to be
fixed. I understand the Education Department is taking some
steps to remedy those past failures. The way in which it was
administered I think did not meet the standards of the law, and
to the extent that companies have lied or broken the law with
respect to those borrowers they need to be held accountable for
that.
Senator Tester. Sounds good. Thank you very much. Thank
you, Mr. Chairman.
Chairman Brown. Thank you, Senator Tester. Senator Cortez
Masto from Nevada is recognized from her office.
Senator Cortez Masto. Thank you. Thank you, Mr. Chairman.
Director Chopra, welcome. Great to see you here. I am so glad
that you are at the helm of the Consumer Financial Protection
Bureau, and although you have only been there a couple of weeks
it is truly important to have leadership that sees its job as
protecting people from unfair, abusive, and deceptive practices
in financial products.
Under the former President's nominee, let me ask you this.
This is a concern of mine and I talked to her constantly about
this but never got results. But unfortunately, under the
previous nominee, so many firms were fined only a dollar, only
a dollar, with no redress provided to people who lost money.
How will you work with your enforcement staff to ensure that
people who were victims of any type of unfair, abusive, or
deceptive practice are compensated for their losses?
Mr. Chopra. It is a great question. So obviously the
statute authorizes the Bureau to seek redress, damages, civil
penalties, and there are factors in which those civil penalties
are assessed, and all of it is reviewable by a court.
Of course, I think with respect to redress, we want to make
sure that where a defendant is judgment-proof or has already
spent all the money, it is important that we assess a civil
penalty, because only those matters where a civil penalty is
assessed can those victims access our Victims Relief Fund. So
we will make sure that we are applying the civil penalty
factors in fidelity with the law.
But to be honest, Senator, there may be cases where we have
to assess a $1 penalty, to make sure that a judgment-proof
defendant, we can get redress for those victims. But generally
speaking, I think the penalties need to be a strong deterrent.
That is what Congress has made clear. And for wealthy firms, $1
penalty for egregious behavior would be inappropriate.
Senator Cortez Masto. Thank you. I appreciate your
comments. Let me talk a little bit about data privacy. Last
week, the CFPB issued a series of orders to collect information
on the business practices of large technology companies
operating payment systems in the United States. One concern I
have is what data that the platforms are collecting from their
payment products and how is it being shared and used in other
applications?
I know you know this. Consumers expect that their data will
be used to make the system work better rather than sold to
multiple third parties or used for ad targeting in another part
of the online ecosystem. So how will the orders address this
issue?
Mr. Chopra. So, you know, I think it has been over 20 years
since Senator Shelby, on this Committee, talked about the
problems of financial surveillance and spying. You know, we
have laws in place to protect against invasions of financial
privacy: the Gramm-Leach-Bliley Act, which the CFPB
administers, the privacy sections. There are some real open
questions about how the tech companies are harvesting this
data, what are they using it for, how are they monetizing it.
We need to figure out what is going on, because this is not
something that most financial institutions and the banking
system do. They observe the protocols under the Gramm-Leach-
Bliley Act.
So we have asked a number of questions to ascertain what is
happening with this data, how are they using it, and we look
forward to getting those responses and be able to share with
the public what we learned, Senator.
Senator Cortez Masto. Wonderful. And let me just say thank
you also for working with me to curb the unfair practices that
affect some franchise business investors.
Will the CFPB consider the role of Government-guaranteed
loans to franchises in its Section 1071 rulemaking?
Mr. Chopra. Yes. So the rulemaking requires the Bureau to
collect certain data about small business loans for a host of
purposes. We do want to make sure that we are hearing from the
public. There is a Notice of Proposed Rulemaking to implement
that statutory directive.
You are right, Senator. I am very, very interested in the
franchise market, to the extent that there may be
discrimination or to the extent to which we need to learn more,
to understand how loans are being originated to franchisees. I
definitely welcome your feedback, the public's feedback, to
make sure we understand how that is working.
You know, franchisees in this country have been beat up on
for too long, and we need to make sure that they have the
ingredients for success and a small business credit program
that is nondiscriminatory, that we fully understand, is
important to make that model successful.
Senator Cortez Masto. Thank you. I could not agree more.
Thank you so much. Thank you, Mr. Chairman.
Chairman Brown. Thank you, Senator Cortez Masto. Senator
Tillis from North Carolina is recognized from his office.
Senator Tillis. Thank you, Mr. Chair. Mr. Chopra, thank you
for being here. I would like for you, maybe for just a moment,
to look around the room, for Members in the chamber, Senate
Members in the chamber, and based on their appearance and names
can you provide me with the person's ethnicity and race?
Mr. Chopra. So, Senator, I understand that that may be a
reference to the Section 1071 Notice of Proposed Rulemaking. I
understand that there are some guidelines there where a
borrower has not filled out the form appropriately or
completely, that it allows, I believe in the proposal, the
lender to comply by making an ascertain. Obviously, that is
something we will collect comment on. I think this is trying to
strike a balance of finding ways for lenders to be able to
comply. But I have heard these concerns, I understand these
concerns, and we will need to take these concerns into account
when crafting any final rule. I hear you loud and clear.
Senator Tillis. But it does sound like you may be forcing a
lender to guess ethnicity and race, based on appearance. It
does not seem like to me to be a good way to get accurate
information, and you are forcing people to make assumptions
about ethnicity and race. If the goal is to end discrimination,
that does not seem like a very good way to do it.
Mr. Chopra. I appreciate that, and I hope everyone submits
feedback to our open comment period on it. Again, I think there
is always a struggle to figure out how to make sure to give
lenders the ability to understand their obligations and what to
do in the circumstances where someone may not be filling out a
form. I am happy to look into this further, but I understand,
and I have already heard this concern in my first 2 weeks of
the job.
Senator Tillis. Well, I hope you will, because to me it
seems fundamentally flawed. We will be interested to see how
the comments come back.
Mr. Chopra, just moving to another subject about the
Bureau's past experience with midnight embargos. It seemed like
a biased process for releasing CFPB updates to minimize the
chance of outside groups to rebut it before the CFPB could
control the narrative.
Do you recognize why the practice of the midnight embargo
garnered mistrust from the CFPB?
Mr. Chopra. I actually, candidly, I do not, but I am happy
to look into it and learn from it. My understanding----
Senator Tillis. Why do you think it is an acceptable
practice?
Mr. Chopra. Well, I do not know. I am saying I need to
learn more about it. As I understand, many times, for
especially complicated policies or very detailed rules, it is
sometimes released so that the news media have the ability to
identify experts, find all points of view. I am happy to look
into that, but----
Senator Tillis. Yeah. It just seems to me, though, that
there appears to be a pattern of behavior, and perhaps you can
present evidence to the contrary, that appears to me to be an
embargoing of outlets that may be more prepared or more willing
to take the talking points versus a critical assessment for all
takers in the media. So I think it is something I would like
you to look at, and maybe you can demonstrate to me patterns of
behavior contrary to the perception that many of us have on the
midnight embargo practice. So if you could follow up on that I
would appreciate it.
Speaking of news, we had several news reports of outlets
indicating a kind of a purge in the CFPB of career staff
earlier this year with the transition to the Biden
administration. Can you confirm that early retirements or
internal investigations of the CFPB employees were never
offered or launched for political reasons?
Mr. Chopra. As far as I know they were absolutely not. As I
shared earlier, I am getting briefed on it. I am seeking to
understand, and we will, of course, comply with any inspector
general inquiry on it. But I have no evidence at all to suggest
that there was any political purge. I am not even aware of any
terminations. So I will look into it.
Senator Tillis. Do you intend to respond to Ranking Member
Toomey's request--I think it dated back to June 17th--on this
subject?
Mr. Chopra. We will work with the Committee to try and be
responsive, but again, these involved personnel matters, and in
the Executive branch when it comes to specific personnel,
particularly when it comes to allegations of misconduct, there
are certain protocols that must be followed.
Senator Tillis. Well, it just seems to me, in your
confirmation hearing you committed to transparency. I
specifically asked that question. And I think it can begin with
prompt responses to Committee Members, particularly the Ranking
Member.
Thank you, Mr. Chair.
Mr. Chopra. Thank you, sir.
Chairman Brown. Thank you, Senator Tillis. Senator Van
Hollen of Maryland is recognized for 5 minutes.
Senator Van Hollen. Thank you, Mr. Chairman. Welcome,
Director Chopra. I just wanted to cover a couple of topics with
you this morning, beginning with the foreclosure issue and what
I worry could become a foreclosure crisis. As you indicated
earlier, Congress put in place important protections against
mortgage foreclosure during the pandemic, and yet CFPB
documented, in June, a series of violations of that emergency
protection rule. I am especially worried now that those
protections have expired entirely, as of last month, that we
could see a wave of foreclosures.
I know you have put in place a new rule, in August. I
applaud CFPB for doing that. But what is your experience to
date now that the protections have lapsed, and what are you
going to do to make sure that we enforce that rule, because it
is only as good as its enforcement.
Mr. Chopra. So, Senator, I have directed the staff, and I
have already started getting updates on what is happening in
the mortgage market with respect to delinquency and
foreclosure. Right now we are still seeing foreclosure at very
low levels, but I need to understand about whether there are
certain loan servicers or certain geographies or certain
population segments that are being--where there may be
problems. I do not want to act too late on this. So I want to
be hyper-vigilant.
The rule that the past acting director put into place is an
interim rule that seeks to have an orderly transition back to
repayment. Servicers, as I understand, have embraced this and
are already starting the process of evaluating homeowners for
alternatives to foreclosure, including loan modifications. The
thing that his best for homeowners, that is best for investors,
that is best for our economic recovery is to prevent avoidable
foreclosures, and it is a win-win-win when servicers are able
to successfully get a borrower into successful repayment.
Senator Van Hollen. I appreciate that. We will work with
you. We may have some issues that we are seeing signs of in the
State of Maryland.
I want to endorse some of the statements my colleague,
Senator Menendez, Senator Tester, and others have made
regarding the Public Service Loan Forgiveness Program. I agree
with your characterization that this has been botched over a
series of Administrations. I am pleased, and applaud the
Department of Education for waiving some of the excessive
administrative hurdles that have to be gone through, but as you
indicated, you have got the primary servicer of these loans,
PHEAA, going out of business. And I am very nervous that it is
going to be a challenge to implement those waivers and, at the
same time, transfer these loans to another borrowers.
Do you see CFPB as playing a significant role in there now
that you signed the MOU with DOE?
Mr. Chopra. Well, obviously with respect to student loan
servicer they are covered under the consumer financial laws, so
we have a role in supervising and enforcing them.
I think you are right. There is this issue, particularly
when it comes to servicing, when one of them fails or when one
of them exits the reverberation is very challenging to manage.
We need to make sure generally that servicing is a resilient
ecosystem and that we are making sure we are anticipating those
risks, that the incentives are right. So yes, the transition
back to repayment is going to be something that is high on my
list to make sure we do not have a cascade of borrowers across
the country getting wrong bills.
Senator Van Hollen. Got it. No, I appreciate that. Just to
give you the Maryland figure, 90 percent of Maryland applicants
for this public loan----
Mr. Chopra. Denied.
Senator Van Hollen. ----were denied. And it is just
outrageous because I have spoken to a lot of these folks and
they clearly qualify, but because of a whole lot of technical
and bureaucratic issues, and other things, they were denied.
My last issue I just want to raise with you has to do with
bank overdraft fees. In my view we have got to do a lot more to
protect consumers in this area. Under current law, the bank
consumer, on a one-time basis, says, ``OK, it is OK to overdraw
my account and be charged penalties.'' But what we see is after
that first signature, no other communications or notice. And so
it leads to what I call the $35 cup of coffee and multiple $35
cups of coffee in 1 day, because you go in, you provide your
credit card, whatever it may be, no notice in many cases that
you are overdrawing, and then huge penalties. And especially
for lower-income people, this is really a, you know, slug in
the wallet and stomach.
So I do not know if you are doing anything in this area but
we look forward to working with you on this consumer protection
issue.
Mr. Chopra. Thank you, Sir.
Chairman Brown. Thank you, Senator Van Hollen. Senator
Ossoff from Georgia is recognized from his office.
Senator Ossoff. Thank you, Mr. Chairman. Welcome back, Mr.
Chopra. Thank you for your service. It is nice to see you
again. I enjoyed our discussion during your confirmation
hearing.
I want to ask you a few questions about fintech, data
privacy, and tech platforms that are exploring entry into the
fintech or payments markets. First of all, with respect to
privacy, we have seen, over the past decade, particularly the
last couple of years, new entrants in financial technology
providing services that have typically been the domain of more
traditional financial services companies, offering those
companies a significant opportunity to collect data about their
users, about their patterns and habits of consumption, about
their location, other personally identifying information, that
may have value in secondary markets, for sale to data brokers,
or for marketing purposes by the fintech companies themselves.
Can you please comment on these developments and what
jurisdiction your agency may have, or partner agencies may
have, to consider how to protect data privacy as more and more
customers are using these novel financial products?
Mr. Chopra. Thanks for the question, Senator. You know, our
country is turning into a bit of a surveillance State when it
comes to some of these tech companies. The ability to combine
browsing information, geolocation information, health
information, and the list just goes on and on and on, and to
add to it the ability to combine that potentially with not just
our transaction data but SKU-level data--not just how much you
spent at a place but specifically what you bought--this is
actually a major issue when it comes to how can small entrants,
entrepreneurs, small businesses who want to enter this arena,
how can they meaningfully compete with that, especially when
some of these firms have gatekeeper power.
So we need to make sure that we have fair, transparent,
competitive payment system that is protecting privacy. I do not
think we have that now, and I think we need to make sure that
we get to that place. So part of the reason we have issued
those orders is to understand those issues. I think that the
Gramm-Leach-Bliley Act's privacy provisions are so outdated and
almost useless to this point, and, of course, we will continue
to enforce them. But it is a problem, and I hope that it is
something that we can fix. The Bureau, of course, has many
authorities related to this, but for me the first step is to
study the market and see what is happening so that we can shine
more light on it.
Senator Ossoff. Thank you, Mr. Chopra. Well, I am currently
working on some draft privacy legislation. Let's sit down in
coming days and discuss your perspective. I appreciate you
raising the competition policy angle as well. Can you please
approach that from the perspective of looking at companies that
may not currently be under CFPB jurisdiction but entering the
financial services base may come under CFPB jurisdiction? We
have heard, for example, proposals from Facebook to develop
their own proprietary pseudo-currency or cryptocurrency, other
big tech firms that may be pursuing entry into the fintech
space already having access to vast swaths of data. Would that,
in your view, open up those firms to your agency's
jurisdiction?
Mr. Chopra. Oh yes. If they are engaged in, as a covered
person, of course they would be under the jurisdiction. What we
also have to make sure we are thinking about, Senator, is how
are we going to make determinations as to whether they are even
complying with the law if we do not even know what data is
being used or if it is hiding behind some sort of black box
algorithm?
You know, Secretary Carson issued a complaint against
Facebook for violations of the Fair Housing Act, partially
because of this algorithmic targeting, and we know that that is
likely the future of where financial services is going. And to
the extent that big tech companies are using the treasure
troves of data, there needs to at least be some parity with
local banks and other financial institutions who are following
the law. We cannot hold them to a separate standard and simply
let them off the hook.
Senator Ossoff. Thank you, Mr. Chopra, and with my
remaining time a question for you. Do you consider
cryptocurrency wallets consumer financial products subject to
your agency's jurisdiction?
Mr. Chopra. You know, it is a broad question. All of the
financial regulations are based on activities. In many cases we
need to look at the specific facts of the business model, look
at the law. It is a place I know that all of the financial
regulators are actively looking at, and I am happy to circle
back in a question for the record to give you more detail.
Senator Ossoff. Thank you, Mr. Chopra. Thank you, Mr.
Chairman. I yield.
Chairman Brown. Thank you, Senator Ossoff. Senator Hagerty
from Tennessee is recognized for 5 minutes.
Senator Hagerty. Thank you very much, Mr. Chairman, Ranking
Member Toomey. Thank you for holding this hearing today.
Director Chopra, thank you for being here with us as well.
This hearing is a key part of Congress' oversight
responsibilities, and I feel that much more oversight is
required for the regulatory agency that you run, Mr. Chopra.
That is why last month, along with 16 of my colleagues, I
introduced legislation that would subject the CFPB to the
regular appropriations process and return civil penalties that
do not go to direct victims back to the Treasury general
account.
This morning we saw that third-quarter GDP economic growth
has really slowed down. Now is especially not the time for the
Biden administration to double down on an antibusiness agenda,
one which imposes excessive regulatory costs on small business,
one that limits the availability of a range of financial
services to those most in need of them.
Again, as I mentioned last month, I introduced legislation
that would subject the CFPB to the regular appropriations
process so that the CFPB is accountable to the American
people's elected representative, just like every other
Executive branch agency.
Mr. Chopra, I want to understand whether you are opposed to
making the CFPB accountable to the American people's elected
representatives through the appropriations process.
Mr. Chopra. So, Senator, that is really a decision for
Congress, but just to say what the facts are on it. So the way
in which the banking regulators are funded, the CFPB has two
components. So there is a base level of funding that is
guaranteed by statute and then separately, inasmuch as the
Bureau makes requests for supplemental funding, that is subject
to the normal appropriations process.
To date, as I understand, the CFPB has not made a
supplemental request above that amount. The FDIC and the OCC,
which are much larger agencies, they have a fee-charging
arrangement. They charge fees to their regulated institutions.
As I understand, that was not practical to be implemented in
this context because we do not just oversee chartered banks. We
oversee nonbanks as well that may not be subject to the same
chartering and licensing.
So I am happy to work with anyone if the Bureau can provide
technical advice on this, but I do think, as a factual matter,
there are two components, the base-level budget and the
supplemental budget that is subject to appropriations.
Senator Hagerty. Well, I would very much like to see more
accountability here in this case. The bounty system that is
created by taxing people through fees and then using that as
your bank account I think is quite concerning. It creates a set
of incentives that is discomforting to me and to many.
Mr. Chopra. And just to be clear, we do not have that
system. That is what the FDIC, the OCC and a component of the
Federal Reserve Board's budget is. We do not assess fees.
Senator Hagerty. And penalties?
Mr. Chopra. So with respect to civil penalties, the civil
penalties under the law go into a Victim's Relief Fund. For any
entity that is subject to a civil penalty, and where the
victims have not been fully redressed, the civil penalty is
used for that purpose. Congress also authorizes it to be used
for certain financial literacy programs, but I will share with
you that my priority for the civil penalty fund would be for
victim redress----
Senator Hagerty. As it should be.
Mr. Chopra. ----because there are many entities where we
cannot recover redress, and those victims should be made whole
from that fund.
Senator Hagerty. I absolutely agree. They should take the
absolute top priority. And again, I just hate to see a bounty
system set up that in some way might incentivize your agency to
impose fees, because that is a funding source for you that goes
beyond the oversight.
Mr. Chopra. And I take the feedback seriously. I know there
were some concerns raised over the past about how the financial
literacy programs are used. We will make sure we look into
that. I want to know what disbursements are currently going on,
to make sure that everything is in accordance with the law.
Senator Hagerty. Thank you. I want to turn to
cryptocurrency for a moment please. My office receives numerous
complaints every month from constituents about their
cryptocurrency either being fraudulent or hacked. Digital
ledger technology offers a tremendous amount of promise in
terms of financial innovation and inclusion. It is an industry
where I think the United States is leading, has led, and I
would like to see us continue to lead there, especially when we
look at other countries like China and the Chinese Communist
Party, that has moved to ban private sector activity in that
arena.
Would you mind to just describe for the Committee what the
CFPB is doing in the cryptocurrency arena, where you are
aiming?
Mr. Chopra. So our focus is really on consumer payments and
the payment system. As you know, we administer the Electronic
Funds Transfer Act, and last week I issued a series of orders
to Facebook, Google, Amazon, Apple, and others to understand
some of their business practices with respect to their payment
platforms. I, for one, am concerned that they may have the
incentive to, at their whim, kick off participants based on
their own business incentives or something else that we do not
know. I would like to understand how they are protecting
against fraud. The Electronic Funds Transfer Act does have
requirements with respect to that, but we do not really have
much transparency with respect to these big tech platforms.
Ultimately, cryptocurrency right now is generally used for
speculative purposes, including the stablecoin, but we do not
know how that will scale. My sense is that it would scale very
rapidly if big tech platforms are taking it globally.
Senator Hagerty. Trying to push it. I just want to make
certain that as you do exercise your oversight responsibilities
that we do not stifle innovation in this arena. Thank you.
Mr. Chopra. Yeah, I agree, and I think one of the things
that is going to be a priority for me is making sure that
regulation and enforcement is not just empowering the
incumbents even more. We need more entry, we need more
dynamism, we need more innovation, and the way to do that is to
not pick winners and losers by crowning incumbents further.
Senator Hagerty. Understood. Thank you.
Chairman Brown. Thank you, Senator Hagerty. Senator Warner
from Virginia is recognized from his office.
Senator Warner. Thank you, Mr. Chairman, and Mr. Chopra, it
is great to see you. Congratulations on firmly getting into the
saddle.
The first question I have got--and I am going to jump
around a little bit here, so I apologize on the front end--is
on the QM rule. I know the former acting director delayed
implementation until, I believe, October of 2022. You know, the
rule was drafted using a data-driven approach and had a lot of
support from civil rights and consumer advocacy groups. I
supported the final rule, and it was supported in a bipartisan
way. We actually put a letter together on this, and I would be
happy to share that.
I worry that in delaying the implementation we might be
drifting a little bit off course, and I am very concerned,
particularly coming out of the coronavirus that we may be
pushing families of color out of access to capital. So do you
have any thoughts about when we might get this final rule out,
and I hope the delay will not weaken the strong APR
underwriting regulation put in place, the safe product
standards, and a new Governor for affordability on a QM cap.
Again, I know you are very concerned about access to credit.
How do we make sure that this final rule does not undermine
where we landed, which was a pretty good spot?
Mr. Chopra. So, Senator, just to clarify, the rule was not
delayed in terms of effective date. It was delayed in terms of
the mandatory compliance date. So as I understand, and as I
read the Federal Register notice and have been briefed, the
change allowed----
Senator Warner. I am sorry. Compliance. You are right. The
compliance date.
Mr. Chopra. Yeah. So it essentially gave lenders more
flexibility in determining which path they would get QM status
for. Now as I understand, most of the market has really moved
to pricing, and a lot of it has already been implemented. So
the last thing I want to do is create disruptions in the
mortgage market.
That being said, Senator, I do think there are some places
I am particularly interested and where there may be
opportunities to find more loans that may be subject to QM
protections. That is actually in the refinance space. I think
there are a lot of places where homeowners with lower-value
homes or with lower-balance mortgages are not necessarily
getting the benefits of refinancing. I am obviously following
closely the changes to the agreement between Treasury and FHFA
about what the enterprises are eligible to buy.
So we will take that all into account, but just to be
clear, that rules has taken effect, lenders can use the pricing
regime now, and they can continue to do so, given the existing
rule that has been put in place, even with the delayed
mandatory compliance date.
Senator Warner. Well again, on the compliance component, we
want to make sure that we do not wander off some of the
protections.
I know Senator Cortez Masto raised some of the questions
around big tech getting into the payment space. I have some
real concerns there, and I agree with Senator Hagerty, we have
got to maintain the innovation from fintech. But when Facebook
and Google and others potentially get into the payment space it
does raise some concerns, beyond privacy issues, but frankly
even from antitrust, money laundering, a whole host of issues.
And I really appreciate the fact that you have asked the big
six tech companies for some information and scope of where they
are headed.
Why don't you share with me your concerns and what you
think CFPB's role in addressing some of these safety
implications as the big tech gets into payments as well as,
unfortunately, the question around some, like Facebook, getting
into digital currency.
Mr. Chopra. Yeah. That is right. I think, again, as I
mentioned, if big tech companies can scale this globally and
rapidly it opens up a whole host of questions. There is a whole
host of concerns about fair competition, and, Senator, I think
we have discussed before, sometimes when the large, dominant
tech companies enter a space it actually freezes up capital
formation, and venture capital and other investors are less
willing to put money on the table for new entrants because they
think to themselves, well, what if one of these big firms just
shuts it off?
So that is something we want to make sure our payment
system is resilient, that we have a fast, fair, and competitive
system, and I am not really sure that this body should want our
payment system to look more like Alipay and WeChat Pay. I think
we have to take an American approach to it, not a Chinese
approach or a European approach----
Senator Warner. Can I just interject there for 1 second,
because we do have to think about that in the context of what
China is doing----
Mr. Chopra. Of course.
Senator Warner. ----in terms of the digital yuan and the
Chinese platform companies getting very, very active in this
space.
Mr. Chopra. No, of course. That is part of the----
Senator Warner. Finish your answer.
Mr. Chopra. ----Senator, that is the part of the reason why
our inquiry is also going to study the Chinese tech giants'
practices, because we need to understand the interplay and to
make sure that our consumers are protected but also that our
national interest is protected as well.
Senator Warner. I look forward to working with you on that.
Thank you, Mr. Chairman.
Chairman Brown. Thank you, Senator Warner. Senator Daines
from Montana is recognized.
Senator Daines. Thank you, Mr. Chairman. I want to start,
first of all, by expressing my concern and joining my
colleagues about a return to the consistent overreach that we
are seeing by the CFPB, and we saw that same thing under the
Obama administration. Under the Obama CFPB they pursued this
regulation by enforcement, choosing to go after companies
before giving them clarity about how to avoid engaging in what
the CFPB deemed as, quote, ``abusive behavior.''
The behavior of the CFPB has had a very detrimental effect
on businesses and has limited consumer choice and, in fact,
increased the cost of credit across America and in my home
State of Montana. I am concerned and I fear that CFPB is
already reverting back to some of those practices of the Obama
era CFPB, reimposing some burdensome rules.
Director Chopra, you said during your confirmation hearing
that you would not prejudge a business based on the industry
that it is in. Will you reaffirm that commitment to this
Committee here today?
Mr. Chopra. Yes. We should never prejudge a law-abiding
business, and I am happy to answer in whatever you want, yes.
Senator Daines. OK. Well, thank you. And you also said
during your hearing that you intend on focusing your oversight
on large businesses. Will you commit to leaving small
businesses alone?
Mr. Chopra. So let me share some detail on that. My
experience with many Federal agencies, including at the Federal
Trade Commission, is that rather than actually going through
the process of appropriate enforcement that is subject to court
review, what they do is they strong-arm small businesses into
settlements--no litigated decisions--to create a sort of hidden
common law, and I think that is very inappropriate.
I think we have to focus on the biggest players, with
national harm, and that we are doing so because they also have
the know-how, ability, and resources to defend us. Most of
these large firms have compliance departments way bigger than
the CFPB. So it is much more fair when we are focusing on
widespread harm rather than doing what the FTC and others do
which is just beat up on small businesses without really ever
going to court.
Senator Daines. Yeah, a lot of small businesses do not have
a compliance department, period.
Mr. Chopra. Exactly. And small businesses are typically not
ones that are engaged in large-scale harm. That being said, in
some cases, Senator, when we are referred or when we are given
a large number of complaints about a small entity, I am not
saying that small businesses have a free pass from the law, but
that is not going to be my focus.
Senator Daines. I know Senator Tillis touched on this as
well, but I am troubled by the CFPB's proposed rule on Section
1071 on Dodd-Frank. I can tell you that Montana is made up of
very small financial institutions, many of them, and this
proposed rule would apply to those that originate 25 or more
loans per year. I think that is punitive by design and will
place a major regulatory burden on our very small financial
institutions who are, frankly, the least equipped to deal with.
As we talked about, their compliance departments are much, much
smaller.
Are you concerned about imposing undue regulatory burdens
on small financial institutions? I mean, 25 or more loans per
year.
Mr. Chopra. So I do not know the specific details of what
the compliance costs are, but I am going to answer your
question with yes, because here is how I see a lot of
rulemaking that occurs in Washington. It is extremely
complicated, it hundreds of pages so that the large players,
who have a lot of ability to influence it, can cover every
single scenario they want rather than having clear, bright
lines that are easy to follow, easy to enforce. And that is
something I want to move toward. In some cases it is
challenging to do simple, bright-line rules, but I am very
sensitive to what our local financial institutions are facing.
In my testimony I discussed the importance of restoring
relationship banking. We have lost so much of that in our
country, and it is a harm to our economy and our national
resilience, I think.
Senator Daines. Thank you. And you incentivize that, and
relationship banking is a big part of how we do it in Montana.
I just ask you to relook at that 25-loans-or-more threshold. Is
that the right place to draw a line, because that really is
going after the very small financial institutions, and it is
chilling for those institutions back home.
Mr. Chopra. And I want to understand, too, what costs go
involved in reporting, because the law is asking us to collect
data on, you know, the wide swath of the small business lending
market. So I really encourage your financial institutions and
others to submit comments in the record. We are required to
look through those comments and consider them, and I certainly
will look at that carefully.
Senator Daines. Thank you.
Chairman Brown. Thank you, Senator Daines. Senator Smith
from Minnesota is recognized from her office for 5 minutes.
Senator Smith. Thank you very much, Mr. Chair, and thank
you, Director Chopra, for joining us. Welcome to the Committee.
And I would like to focus my questions on abuses by structured
settlement buyers.
So over the last few weeks the Minneapolis Star Tribune has
run a series of stories, really alarming stories, based on what
structured settlement buyers are doing. So as you no doubt
know, Director Chopra, there are about 750,000 Americans who
receive some sort of structured settlement, which are periodic
payments, usually monthly or yearly, to compensate people for
injuries that they or their family members have suffered. These
payments are critical for helping families pay for medical
care, or sometimes just being able to survive after a tragic
incident. We are talking about stories of people who have
experienced, in some cases, a catastrophic injury that in some
cases makes it impossible for them to live independently.
So then what happens is these businesses come in, realizing
that they can make money off of these catastrophes, and they
take advantage of these victims when they are the most
vulnerable. The firms offer one-time, up-front cash payments in
exchange for the family agreeing to sign over future settlement
payments, and on average these firms are taking 60 percent of
the value of a settlement. So that means that the individual
who was harmed, or their family, are getting less value from
those structured payments than the business that bought them.
And what is especially concerning is the high-pressure
sales tactics that are being used by these settlement buyers,
targeting people when they are in deep crisis. In fact, one
former employee of one of these structured settlement
businesses was quoted as saying, quote, ``You have to not have
a conscience to be involved in this industry.''
So, Director Chopra, I want to ask you about this. I know
that you are working on responding to the letter that I sent to
you on this issue, but could you tell me today whether you will
be looking into this very troubling and abusive practice?
Mr. Chopra. So I totally appreciate this question, and,
Senator, I also read those Star Tribune writeups. You know,
structured settlements often target those who are getting
recurring payments in exchange for a lump sum, and under my
predecessor, Director Kraninger, there was an enforcement
action done with, I believe, several States, including the
State of South Carolina.
We will obviously want to make sure we are getting the
right type of consumer complaints, understand what is happening
in the market, and take appropriate action. I would hate to see
that those who have been subject to a horrible accident or some
other tragedy essentially lose financial stability for
themselves and their family because of unlawful practices.
Senator Smith. Thank you for that. I think this is the
worst kind of predatory behavior that we have seen described
here by businesses taking advantage of people, and I appreciate
you paying attention to this and looking into this.
Let me ask you, just as a quick follow-up, and then, Mr.
Chair, I will probably wrap up after this. Do you think,
Director Chopra, that the CFPB's existing rules are sufficient
to stop these abuses, or do you think that new rules are
needed?
Mr. Chopra. You know, I am not sure. I am happy to take a
question for the record on that. I think the specific practices
involved in a structured settlement, you know, exchange, I want
to understand a little bit more about how they contractually
deal with that so that we can understand whether our laws are
adequately protecting people. But I hear you very loud and
clear that in some way this is a loan, has the equivalent of a
loan in some ways, and we need to make sure that we are
protecting people in that way.
Senator Smith. Well, and as I was reading these stories, in
some cases, for example, you will have an individual who is
considering selling their future benefits, and then they are
provided with an advisor, and in some cases that advisor is
provided by the company that is going to be taking advantage of
this individual, and they are often, by some reports, being
compensated. So you have clearly a conflict of interest that is
part of this predatory behavior.
I appreciate you looking into this, and I think that it is
a great example of how we need to be protecting people from
this kind of just really predatory activity.
Thank you very much, Mr. Chair. I yield back.
Chairman Brown. Thank you, Senator Smith. Senator Warnock
from Georgia is recognized, and he will be followed by Senator
Warren from Massachusetts from her office, and Senator Reed
will close the hearing as I go vote. Senator Warnock is
recognized.
Senator Warnock. Thank you so much, Chairman Brown.
Director Chopra, I look forward to working with you as Chair of
the Consumer Protection Subcommittee.
I am proud of the significant number of military families
living in the great State of Georgia. We have more than 60,000
active-duty military personnel, and nearly 700,000 veterans all
calling Georgia home. A CFPB survey estimated that at least 20
percent of servicemembers separating from the military will
have their credit scores drop a tier after just 6 months. This
concerns me and it should concern all of us. We know what
happens when that happens. We know that predatory lenders
target members of our military, particularly young members of
the military. Servicemember complaints to the CFPB reached a
high of 40,800 last year.
Director Chopra, how is the CFPB addressing these
complaints and protecting our service men and service women
from predatory lenders?
Mr. Chopra. So, Reverend, or Senator----
Senator Warnock. Both apply. That is fine.
Mr. Chopra. OK. I want to make sure we are refreshing all
of our work in the servicemembers and veterans area. I have got
to tell you, there are a lot of problems when it comes to
identity theft of military families, because they move very
frequently. It is not just a target for a scammer, it is also a
target for State and non-State actors. We also have to
understand they have unique housing issues that they face,
often when needing to move, particularly when it comes to their
mortgage.
I expect that we will be working with the Judge Advocate
General Corps, we will be working with the DoD, with the VA. I
will tell you that I am going to be robustly increasing the
analytical capabilities to complement what the DoD is doing
with their own status of the force collections so that we
understand specifically, including by geography.
And you may know, Senator, that our servicemembers are a
very diverse group of people. We also have to make sure that
they are not being unfairly harmed due to their, you know,
their identity or to their servicemember status.
Senator Warnock. Well, it is a complicated issue, as you
point out, and there are many contributing factors, some of
which you have listed, and it leads to kind of cascading issues
for these members of the military. And it seems to me that when
these servicemembers fall behind on their predatory loans,
manipulative debt collectors are ready to swoop in, and they
take advantage of people who do not know their rights.
So what is the CFPB doing to protect members of our
military from manipulative debt collectors to ensure that they
know their rights and that they have resources to help when
they are facing harassment?
Mr. Chopra. Well, we need to make sure that we are actively
enforcing the Military Lending Act. I am quite concerned about
when debt collectors inform a CO, a commanding officer, about a
debt. In some cases this feels like coercion, that someone may
not even owe the debt but they feel they just have to pay up
because, you know, their chain of command is hearing about it.
So we have to make sure we are understanding those debt
collection issues. And, you know, the DoD made it very clear
that financial readiness is part of force readiness, and I take
that very seriously.
Senator Warnock. Thank you so much. If I might switch
topics, unfair, deceptive, and abusive acts and practices in
the housing and mortgage market was a big reason for the
creation of CFPB. The National Housing Act of 1934 was supposed
to make housing accessible for all Americans. However, this was
not the case, and we saw a long history of Americans of color,
especially, being redlined out of opportunities and wealth,
which the Fair Housing Act addressed.
Today, many describe artificial intelligence and machine
learning as equalizers that are supposed to correct unfair
practices of the past. We know that not to be true, that often
this is false. For instance, in 2019, the Department of Housing
and Urban Development, HUD, sued Facebook for its targeting
advertising platform violated the Fair Housing Act and
encouraged discrimination.
How is the CFPB addressing the effects of algorithmic bias
on consumers?
Mr. Chopra. So this past Friday, the Attorney General and I
announced, as part of a broader redlining initiative, that we
are going to be looking--and I specifically stated that we need
to hold accountable those who use discriminatory algorithms.
There is a myth out there that algorithms can take the bias out
of a transaction. In reality, they can make that bias go on
steroids. We cannot have a two-tier system where financial
institutions have to play by the rules, where Facebook and
other tech companies, using mysterious black box algorithms,
get to skate off with no accountability.
Secretary Carson's complaint against Facebook in the Fair
Housing Act context is one that all of us should closely
analyze, because there are many corollary areas of conduct
where it applies throughout our economy, including with respect
to financial services.
Senator Warnock. Thank you so very much. I look forward to
working with you on all of these issues.
Mr. Chopra. Thank you, sir.
Senator Reed [presiding]. On behalf of Chairman Brown, let
me recognize Senator Warren.
Senator Warren. Thank you very much. Director Chopra, it is
good to see you here, in front of this Committee for the first
time as the confirmed Director of the CFPB. I know that you are
going to help make our consumer financial markets both fairer
and more transparent, and that is going to help millions of
American families.
So today I want to ask you about an emerging trend in
consumer finance, the rapid growth of big tech companies in our
payment systems. So big tech platforms like Venmo and Square
and Apple Pay and Facebook Pay have multiplied in recent years.
So Director Chopra, a giant company like Amazon owns an online
marketplace, a cloud computing platform, a chain of grocery
stories, and a payments platform. Is that combination a risk
for consumers?
Mr. Chopra. Yes, and it is a risk to small businesses too,
Senator, and that is part of the reason why I issued this
series of orders, including to Amazon, Apple, Facebook, and
Google, to understand what they are doing with this data, how
are they going to decide who gets admitted and who they are
going to kick off, and is it going to be distorted by their own
financial incentives.
Senator Warren. And their own financial incentives here
meaning when they have got that kind of information, what is it
that they can do?
Mr. Chopra. Well, they can do a lot, and I do not think all
of it is very good. Look at what Apple has done in its App
Store context. There are allegations that as soon as there is
app in the App Store that competes with one of Apple's, they go
in for the kill, charging higher commissions, higher fees. If
our payment system and the flow of our currency is distorted by
this, that is a real harm to consumers, and not just to their
privacy but to the options that they have.
Senator Warren. Good. Not good. It is a terrible thing but
I appreciate your making this point, because the risk are real,
and I am glad to see that the CFPB is requiring these companies
to provide data on how they operate their payment systems. It
is long past time for transparency in this space.
Now you saw these companies up close and personal when you
were an FTC commissioner, so I want to ask a different
question. Do you think we can trust these companies on their
own to put in place the safeguards that are necessary to make
sure that consumers and small businesses that use these payment
platforms do not get ripped off, or do you think you need a cop
on the beat, like the CFPB?
Mr. Chopra. Well, one of the problems is that when I
arrived at the FTC there was a clear bias in favor of these
firms. Take Venmo. Under Republicans and Democrats, the FTC
just let them off the hook with a no money, no fault settlement
that did almost nothing to fix things. Facebook violated its
order over and over again, and the FTC's response? An immunity
clause for Mark Zuckerberg and Sheryl Sandberg.
We need to make sure that it is not just the FTC, it is not
just the CFPB, every single Government agency is being impacted
by how big tech companies are infiltrating sectors of the
economy. It is not just going to be one of us. We have to work
all together to protect consumers, protect businesses, and
frankly, to protect our country.
Senator Warren. That is a powerful point. You know, we have
already seen big tech use their size and use their scope to rig
marketplaces, and there is no reason to believe that they are
going to be any different as they infiltrate payment systems
here.
But as you indicated earlier, we are not powerless here. I
know that you took these companies on while you were at the FTC
and that that work continues under FTC Chair Khan. But to the
extent that financial products like payments platforms are part
of the equation, the CFPB has an important role to play here.
Can you talk about just a few of the ways in which the
Bureau can actually help level the playing field?
Mr. Chopra. Well, we have a whole host of tools, including
with respect to our partnerships with the prudential banking
regulators. But, of course, we administer laws, like the
Electronic Fund Transfer Act, like the Gramm-Leach-Bliley
privacy provisions. There may be places that we need to bring
enforcement actions or issue guidance or rules to make sure
that there is not a roll-over-and-play-dead mentality when it
comes to policing these powerful firms.
Senator Warren. Well, and I very much appreciate your focus
on the importance of protecting personal data, and I know that
that is going to be an important role for the CFPB.
Look, I have made my position clear. I think these
companies have far too much power and they should be broken up.
But in the meantime, we need our regulators, all of our
regulators, using every tool that is available to them to make
sure that they protect marketplaces, that they protect small
businesses, and that they protect America's families.
So thank you very much for your work. Good luck to you.
Senator Reed. Thank you, Senator Warren. On behalf of
Chairman Brown let me recognize Senator Moran, please.
Senator Moran. Chairman Reed, thank you very much. Mr.
Chopra, Director Chopra, nice to see you again. Nice to have a
brief conversation this morning.
I want to thank you for a comment you made in regard to
relationship banking, which is actually a phrase I use, and I
am very interested in what I call relationship banking at home,
and I have been an advocate for a different kind of treatment
for those relationship banks. And I just want to emphasize,
again, the importance that has to be placed on preserving their
capability of making loans to farmers and small businessmen and
women. They are just a significant part of the community.
For really as long as I have been in the Congress, I have
reminded my colleagues that economic development where I come
from is often whether or not there is a grocery store in town,
and that is often determined by whether or not there is a
lender who will make that loan, because they know the people,
it is in the best interest of the community, and this ever-
increasing regulatory burden that our relationship bankers are
facing means that we have fewer relationship bankers and the
banking industry gets bigger and bigger.
The Bureau's implementation of Section 1071 is ongoing, and
I would love to hear from you what assurances you can provide
me that that final rule will be appropriately narrowed to limit
the compliance burdens on our smallest community banks and
credit unions.
Mr. Chopra. So, Senator, I really appreciate the question.
One of the things that we have seen, throughout the history of
our country but particularly in all the financial panics, that
really impacted rural areas was that it was a community bank
that served locally and the ability to tide that farmer over,
or rancher over, when there were times of distress. And, you
know, farm bankruptcies are very disconcerting right now. So I
am with you that we have lost that in our country, and a way we
can be resilient and more equitable across areas, whether it is
urban neighborhoods or rural areas, the relationship banking is
a key element of that.
Now with respect to your specific question, I do not want
to prejudge it. There is an open comment period. Obviously the
CFPB has to implement what Congress has said to collect on
small business loans. There are some places where we need to
put in some parameters on what will be reported. I shared with
Senator Daines that we obviously want to take a close look at
what is the impact on a financial institution to report that.
You have my commitment, and I am happy to meet with you further
about this, to talk through what those impacts would be.
At the same time, we also want to make sure--Congress made
clear in the law--we need to get a picture of what is happening
with small business lending in America. I think our country was
at a disadvantage, particularly when constructing the PPP
program, to not have this robust dataset. But I hear you loud
and clear in your concern that we want to make sure we are
attuned to making relationship banking and local banking
successful, rather than just having them all merge and
consolidate into the big guys.
Senator Moran. I would be happy to meet with you and have
further conversation, and I appreciate the suggestion. You also
said something, and I would highlight--and I know that Senator
Daines raised this topic with you, but I did not want you to
miss the opportunity to hear its importance, perhaps to Montana
and Kansas but really lots of places across the country.
The farm bill that the Committee on Agriculture will deal
with over the next several years--we do a farm bill every 5
years--it is important and it is often described as the safety
net for farmers and ranchers. There is an additional safety
net, and it is the relationship between the farmer/rancher and
their banker, their lenders. And it is a safety net that comes
into play, and it is often a relationship between a bank that
is owned by a family, generationally, with a farmer that has
had the farm in the generation, from great-grandparents to
today. And so there is a relationship that matters, and there
is an understanding and a trust and a knowledge that is
different than any regulation can ever demonstrate. It has more
value than that relationship as far as safety and soundness.
In the 25 seconds I have left I would raise a complaint I
had with Director Cordray and hope that you have a different
leadership plan. Under Director Cordray's leadership, the
enforcement authority was often used as an extension of
rulemaking, and it was expected that financial institutions
that read between the lines and discern the rules going forward
based on, for example, the press release announcing the action,
thus circumventing any transparent rulemaking process.
I hope you will commit to avoid rulemaking by enforcement.
Mr. Chopra. So I have said repeatedly that I want to make
sure we move toward a system where the law and the rule are
easy to understand, easy to follow, easy to enforcement. I know
we are out of time, but I am happy to have a discussion with
you about how I plan to do that. Of course, the CFPB cannot
override or veto congressional legislation. We do have to
enforce the law as written. But there are ways that we can work
with you and others to develop the law so that expectations can
be made more clear, inasmuch as that we can do it given the
constraints of the statute.
Senator Moran. The entities you regulate, large or small,
ought to have input into the process, and it can be eliminated
by a way of rulemaking that is not rulemaking. Thank you.
Senator Reed. Thank you, Senator Moran. Director Chopra,
thank you for being here today. Because of pending votes I will
submit my questions for the record, but on behalf of Chairman
Brown I want to thank you for your very thoughtful and very
compelling testimony. And for my colleagues and Senators who
wish to submit questions for the record, those questions are
due 1 week from today, on Thursday, November 4th. To the
witnesses, please submit your responses to questions for the
record 45 days from the day you receive them.
Once again, thank you, Director Chopra. I have great
confidence in you. I was very pleased to support you, and you
are doing, I think, remarkable work to protect consumers
throughout the country.
With that the hearing is adjourned. Thank you.
[Whereupon, at 11:43 a.m., the hearing was adjourned.]
[Prepared statements, responses to written questions, and
additional material supplied for the record follow:]
PREPARED STATEMENT OF CHAIRMAN SHERROD BROWN
Welcome Director Chopra. You are stepping into a vital role for the
American people.
It's your job as Director of the Consumer Financial Protection
Bureau(CFPB) to stand up for the hundreds of millions of Americans who
don't have a corporate lobbyist, who don't have a Super PAC. You work
for all the people who don't have a high-priced attorney fighting for
them if a company opens a fake account in their name, or overcharges
them on their credit card, or there are mistakes in their credit
history.
You're stepping into this role at a time when so many people feel
like they don't have a voice in our economy, or anyone on their side in
Government.
Your job is to prove them wrong--to be on the side of everyone
who's been preyed on and looked down on by corporate America. And to
empower them to get their hard-earned money back.
Your history and the history of this agency tell me you're up to
the challenge.
Millions of families are still dealing with the effects of the
pandemic.
And over the past year-and-a-half, scammers have done what they do
best--prey on people in a crisis.
People masquerading as Government workers conned families out of
money, promising them early access to a COVID vaccine, student loan
debt relief, even funeral expense benefits.
It's why, after the 2008 crisis, we created the CFPB, to stand up
to the powerful companies that will use a crisis to cheat every extra
cent they can out of people.
Unfortunately, for four years, the Consumer Financial Protection
Bureau was held back by an Administration that tried to tear down the
Bureau from within.
Now, after an election where Americans decisively rejected that
corporate kowtowing, the Biden administration has ushered in a new era
of consumer protection.
Under the leadership of Acting Director Dave Uejio, and now under
your leadership, the CFPB has gone back to work, looking into financial
companies, and getting people their money back.
This year, the Bureau has worked to protect the rights of renters
and homeowners, and has connected them with resources to get rental
assistance or housing counseling.
It created new requirements for mortgage servicers, to make sure
homeowners can keep their homes and get back on track with their
payments.
The CFPB is helping people with student loans as loan payment
moratoriums end.
And I applaud your decision to join the Department of Justice and
the Office of the Comptroller of the Currency to enforce our fair
housing and fair lending laws, as we work to undo the long legacy of
redlining.
Of course we know corporations and big banks and loan sharks aren't
giving up. And as big tech companies encroach into the consumer finance
and housings markets, new threats emerge every day.
Look at what's happening in the tenant screening industry. Renters
are often forced to pay out of their own pocket for tenant screening
reports that can be riddled with errors and block them from renting,
with no explanation.
I've asked the Bureau to conduct a review of the tenant screening
industry to protect renters, and look forward to learning how we can
better crack down on these companies.
Bias in algorithms--and other predatory targeting--risks
reinstating Jim Crow in a new, high-tech form.
And new revelations about Facebook's promotion of the most extreme
and divisive content--including vaccine lies--is just the latest
reminder that we cannot trust these Big Tech algorithms.
The last thing we need is them moving into the payments system and
other financial markets critical to families' financial futures.
The Bureau's recent efforts to investigate big tech companies'
invasion of the financial system and their abusive data privacy
practices are so important, and must continue.
No matter the industry, the Consumer Financial Protection Bureau is
all about empowering people. It's about giving people a tool to stand
up to the big banks and the financial corporations and the big tech
companies that have far too much power in this country.
I know those corporate interests and their allies in this building
don't like that. Director Chopra, you were confirmed unanimously by
voice vote to be an FTC commissioner--yet not one of my Republican
colleagues wanted you take this job. They don't want this job to exist.
Anyone who goes after corporate interests, you attack. Every time
we have one of these hearings, we hear the same made-up complaints
about accountability.
You know how accountable this agency is. You know how many times
Richard Cordray came before this committee.
This agency has returned billions of dollars to consumers. What you
don't like is that they go after your contributors and the big banks.
So if you want to attack the Consumer Protection Bureau, say what
this is really about--don't make up this fake stuff about
accountability.
Director Chopra, I don't expect you to be cowed. I expect to see
vigorous enforcement of consumer protection laws, consistent monitoring
of fintech companies, and crackdowns on big corporations who routinely
and repeatedly violate orders issued by the Bureau during your tenure.
Director Chopra, I look forward to hearing about the agenda you are
setting in this new era for consumer protection at the Bureau.
______
PREPARED STATEMENT OF SENATOR PATRICK J. TOOMEY
Mr. Chairman, thank you. Welcome, Director Chopra.
During the Obama administration, the CFPB was a lawless,
antibusiness, unaccountable agency. Through restrictive policies, it
limited consumer choice, drove up the cost of credit, and heedlessly
harassed employers. Unfortunately, the Biden administration has rushed
to return the CFPB to its bad old ways.
In less than ten months, the Biden CFPB has disregarded its
jurisdictional limits, rescinded policies that provided regulatory
clarity, returned to regulating by enforcement actions rather than
rules, reportedly pushed out career civil servants for political
reasons, and refused to comply with congressional oversight.
Let's consider the Biden CFPB's return to regulation by
enforcement. This unfair practice occurs when agencies fail to set
clear rules of the road before bringing enforcement actions.
A classic example is with the Dodd-Frank Act. Dodd-Frank prohibited
providers of consumer financial products from engaging in ``abusive''
acts or practices. However, the law's definition of this new term is so
vague it's not clear what it prohibits.
During the CFPB's entire existence, it has never bothered to issue
a rule to clarify this definition. But that didn't stop the Obama CFPB
from bringing enforcement actions accusing businesses of abusive
conduct and pressuring them into settling.
The Trump CFPB issued a sensible policy to curb this practice. The
Biden CFPB, however, quickly rescinded this policy and took no steps to
provide regulatory clarity.
Instead, in just his second week on the job, Director Chopra
brought and settled an enforcement action against a company for abusive
conduct even though the CPFB has never defined that term. Worse yet,
CFPB relied on a novel theory of abusive conduct. CFPB alleged an
``abuse of market dominance''--a foreign concept taken from European
antitrust legal theories, not American consumer laws.
The Biden CFPB has also repeatedly exceeded the bounds of its
statutory authority by acting outside of its jurisdiction. Take for
example the CFPB's overreach into housing rentals and landlord-tenant
law in effort to advance the Biden administration's unlawful CDC
eviction moratorium.
In May, the CFPB and the FTC, where Mr. Chopra was serving as a
commissioner, jointly sent threatening letters to large landlords about
the moratorium. The problem is housing rentals and landlord-tenant law
are completely outside of the CFPB's jurisdiction.
By statute, the CFPB's jurisdiction is limited to overseeing
``consumer financial products and services,'' which do not include
housing rentals, and enforcing certain enumerated consumer laws, none
of which govern landlord-tenant relationships.
In its notice to landlords, the CFPB even seemed to begrudgingly
acknowledge its lack of jurisdiction, but that didn't stop the CFPB
from threatening them with potential legal action. The letters stated:
``Neither the FTC nor the CFPB has determined whether you or your
company is violating the law . . . the FTC or CFPB may still take
action based on law violations.''
It's deeply troubling that the CFPB made these threats when it had
no legal authority to follow through on them because housing rentals
and landlord-tenant law are outside of its jurisdiction.
The Biden CFPB has also refused to comply with legitimate
congressional oversight requests. According to press reports, the Biden
CFPB has taken unusual and possibly unlawful actions to push out career
civil servants in order to replace them with political loyalists.
In June, I sent the CFPB a letter seeking documents about these
allegations. For 5 months, the CFPB has sought to evade this legitimate
oversight request.
In June, the CFPB claimed it needed more time to respond. Then, in
July, instead of providing records, the CFPB claimed that the Privacy
Act prevented it from producing any of the requested records.
After my staff challenged this claim, the CFPB finally produced
some heavily redacted records this month. Despite the heavy redactions,
at least one document refers to a ``Voluntary Separation Compensation
Agreement,'' which sounds like reports that CFPB civil servants were
offered extraordinary separation incentives to leave their posts.
From the redactions to delay tactics, it makes one wonder: What
does the CFPB have to hide? In fact, I could ask the same question
about you, Director Chopra.
In June, while your nomination was pending, I sent you a letter
about the reports of troubling personnel actions at CFPB. My letter
asked simple questions about whether you were involved in--or aware
of--these actions. You refused to answer these questions or respond at
all.
As a result, in July, every Republican Member of this Committee
sent you a letter calling on you to answer these questions. But you
still refused to provide answers or respond. That's simply
unacceptable.
Let me closing by saying: You've been CFPB Director for less than a
month. There's still time for you to reverse course.
Some good places to start would be to end the CFPB's unfair
practice of regulation-by-enforcement, respect the CFPB's
jurisdictional limits, and stop stonewalling legitimate congressional
oversight requests. I hope you will, but I won't hold my breath.
______
PREPARED STATEMENT OF ROHIT CHOPRA
Director, Consumer Financial Protection Bureau
October 28, 2021
Chairman Brown, Ranking Member Toomey, and distinguished Members of
the Committee, I am pleased to appear before you today in conjunction
with the Consumer Financial Protection Bureau's submission of the
Semiannual Report to Congress.
Two weeks ago, I was honored to be sworn in as the Bureau's
Director. I am grateful to all of you for your input and guidance
during the confirmation process on the issues of importance to you and
your constituents.
Economic Conditions
2021 is far different than 2020. The economy is reopening and
growing. Labor demand is strong, and employers have added millions of
new jobs. Household spending has rapidly increased, and demand for
housing is robust. While these macro indicators are promising, the
recovery has been uneven.
In many parts of the country and in many individual neighborhoods,
conditions remain fragile. Many families continue to struggle to afford
their mortgage and rent payments. Many small businesses are facing
severe challenges to make ends meet. And, many communities have not
felt much of a recovery, especially communities of color and
neighborhoods that have been historically disadvantaged.
Household debt has started to increase at a faster rate. American
families owed $15 trillion as of the end of the second quarter of this
year, roughly $800 billion more than at the end of 2019. From July of
2020 through June of this year, mortgage originations, including
refinancing, hit historic highs with $4.6 trillion in originations.
There has been high demand for auto loans, and Americans now owe $1.4
trillion in auto debt.
The CARES Act has kept delinquency rates on mortgages and student
loans at low levels. However, many of the borrower forbearance programs
have expired, so we lack a complete picture about distress. Many family
farmers continue to confront significant challenges and the immediate
outlook for the sector remains highly uncertain. Medical debt in
collections continues to grow as a concern for many households.
Market Monitoring
Congress has tasked the CFPB with monitoring market conditions to
spot risks, ensure compliance with existing law, and promote
competition in order to protect families and honest businesses.
Most importantly, the CFPB is carefully monitoring conditions in
the mortgage market and is taking steps to minimize avoidable
foreclosures. Avoiding unnecessary foreclosures and putting homeowners
into repayment plans they can afford is essential. In June, the CFPB
put forth an interim rule with the goal of ensuring an orderly
transition back to repayment, so families do not experience unnecessary
hardship and disruptions in the mortgage market do not impede the
recovery. We are keen on understanding how homeowners from different
segments of the population are faring, including communities of color,
military-connected families, older Americans, first-time homeowners,
and family farmers.
Technological progress holds the potential for enormous benefits to
households and the economy, particularly with respect to real-time
consumer payments. At the same time, the desire of Big Tech to gain
greater control over the flow of money in the economy raises a number
of questions. For example, how will these firms harvest and monetize
data they collect on our transactions? What criteria will they use to
decide who is removed from the platform? How will they ensure that
payment systems adhere to consumer protections? Will Big Tech giants
have an incentive to impede the entry of new firms seeking to offer
competitive products and services?
With this in mind, the CFPB has issued orders to dominant firms
such as Facebook, Google, Apple, Amazon, Square, and PayPal to shed
light on some of these questions. We will also be studying some of the
practices of Chinese tech giants, including services provided by WeChat
Pay and AliPay. These efforts complement other work within the Federal
Reserve System to ensure families and businesses can rely on a fast and
reliable payments system. It will also inform other initiatives to
ensure that our evolving payments landscape is in alignment with our
national interest. Given the state of today's economic conditions, the
Bureau also intends to ramp up its monitoring of other markets and
their impact on specific population segments.
Path Forward
The CFPB intends to faithfully and fairly administer the consumer
financial laws entrusted to the agency by Congress. We must use our
tools to promote an equitable and inclusive recovery. Given existing
economic conditions and these tools, I expect to have several areas of
focus.
First, I hope to focus attention on ways to stimulate greater
competitive intensity in consumer financial markets. When I was last at
the CFPB, we undertook a number of initiatives to promote student loan
refinancing options for borrowers to obtain lower rates and better loan
servicing. Today, there are many other places where greater competitive
intensity would benefit households and businesses alike. For example, I
am concerned that there is a dearth of competition in the mortgage
refinance market for families with lower balance mortgages. The lack of
refinancing may disproportionately affect communities of color and
others that are historically disadvantaged. There is also evidence to
suggest that many Americans could be paying lower interest rates on
their credit cards or earning higher interest rates on their savings.
We will be keeping a close eye on practices that might impede
competition, we plan to listen carefully to local financial
institutions and nascent competitors on the obstacles they face when
seeking to challenge dominant incumbents, including in Big Tech.
Second, I anticipate that the CFPB will sharpen its focus on repeat
offenders, particularly those that violate agency or Federal court
orders. The agency has now entered into a substantial number of orders,
largely by consent of the agency and the financial institution, and it
will be critical that we closely monitor compliance with these orders.
Repeat offenders that violate orders and cause ongoing harm to families
and law-abiding businesses must be stopped.
The CFPB will need to work closely with State regulators and other
Federal banking regulators, like the Office of the Comptroller of the
Currency, in order to fashion appropriate remedies for repeat
offenders.
Third, we will look for ways to restore relationship banking in an
era of big data. As automation and algorithms increasingly define the
consumer financial services market, there is less transparency into how
credit decisions are made. In some cases, these practices can
unwittingly reinforce biases and discrimination, undermining racial
equity. Increasingly, households and businesses have no place to turn
to when they need help, especially when they face errors and problems
in their financial lives. In markets like credit reporting, consumers
are not the customer and lack the leverage to get problems fixed in a
timely manner. The inability to cut through red tape and get help in
one's financial life can be a major obstacle when seeking a job or when
applying for credit. Preserving relationship banking is critical to our
Nation's resilience and recovery, particularly in these times of
stress.
Thank you for the opportunity to appear before you today, and I
look forward to your questions.
RESPONSES TO WRITTEN QUESTIONS OF SENATOR TOOMEY
FROM ROHIT CHOPRA
Q.1. Congressional Oversight--Are you aware of whether the CFPB
has taken any steps between January 20, 2021, and the present
to push out, replace, or encourage any career CFPB employees to
leave their positions?
A.1. As you know, I was sworn in as the Director of the
Consumer Financial Protection Bureau on October 12. Upon
arriving at the Bureau, I met with career staff to discuss the
allegations made in media reports last summer that suggested
that the Bureau was taking personnel actions with respect to
career executive civil servants for partisan reasons. I take
such allegations seriously, and I can assure you that, as then-
Acting Director Uejio wrote to you, when making personnel
decisions, the Bureau complies with all applicable laws and
regulations, including laws governing the fair and nonpartisan
treatment of career employees. I can also assure you that I had
no involvement in these decisions.
Since January 20, 2021, no career Bureau Executive has been
``pushed out'' or involuntarily separated from the Bureau. On
occasion--and pursuant to a policy adopted in March 2020 by
former Director Kraninger--the Bureau has offered a voluntary
separation incentive payment (VSC payments) to voluntarily
separating career executives. As further explained in response
to Question 2 below, I understand the Bureau has offered VSC
payments on four occasions, two of which resulted in
agreements.
Q.2. If so, what specific steps are you aware of to push out,
replace, or encourage career CFPB employees to leave their
positions, and at whose direction were they taken?
A.2. See above response to Question 1.
Q.3. When were you first made aware that the CFPB was
attempting to push out, replace, or encourage any career CFPB
employees to leave their positions?
A.3. I was aware of the media reports this past summer but, as
noted above, had no direct knowledge or involvement in the
events described.
Q.4. Have you discussed any plan or decision to push out,
replace, or encourage any career CFPB employees to leave their
positions, and if so, with whom did you discuss this plan or
decision?
A.5. See above response to Question 1.
Q.6. Are you aware of whether the CFPB between January 20,
2021, and the present offered any career CFPB employees
separation incentives to leave their positions?
A.6. The Bureau first instituted a Voluntary Separation
Compensation (VSC) policy in March 2020, under former Director
Kraninger. The VSC policy was enacted pursuant to the
Director's authority under Section 1013 of the Dodd-Frank Wall
Street Reform and Consumer Protection Act; it is similar to
programs in use at other Federal financial regulatory agencies
and was modeled in part on the Voluntary Separation Incentive
Payment Authority, which has been available to and in use at
most Federal agencies since 2002. See 5 U.S.C. 3521-3525.
Since the VSC policy was instituted, the Bureau has offered
VSC payments under both former Director Kraninger's and then-
Acting Director Uejio's leadership on four occasions, two of
which resulted in VSC agreements. The Bureau has not offered
any VSC payments under my leadership.
While I was not involved with the offering of these VSC
payments, I can tell you that I am confident that the Bureau
acted appropriately and that payments were not offered for
partisan or political reasons.
Q.7. If so, please provide a list of all career CFPB employees
offered separation incentives to leave their positions
(identified by their position titles, not their names) and the
specific terms of the separation incentives they were offered.
A.7. See above response to Question 2. Information that would
identify the employees who were offered or accepted a VSC
payment is protected by the Privacy Act.
Q.8. When were you first made aware that the CFPB had offered,
or was intending to offer, any career CFPB employees separation
incentives to leave their positions?
A.8. I was aware of the media reports this past summer but, as
noted above, had no direct knowledge or involvement in the
events described.
Q.9. Have you discussed any plan or decision to offer career
CFPB employees separation incentives to leave their positions,
and if so, with whom did you discuss this plan or decision?
A.9. No.
Q.10. Are you aware of whether the CFPB between January 20,
2021, and the present opened an investigation into any career
CFPB employee at the Associate Director or Assistant Director
level?
A.10. Senior officials at the Bureau are not above the law. All
employees, including senior officials, are subject to a wide
range of requirements, including avoiding conflicts of interest
and not misusing Government funds. I am committed to setting
the highest standards of ethics and integrity for Bureau
employees. To that end, Bureau recently issued additional
ethics guidance to protect the public trust and detect
revolving door misconduct.
As to specific investigations of individuals, in light of
the significant personal privacy interests of Bureau employees
where allegations of misconduct are concerned and to protect
the integrity of internal Bureau processes and the due process
rights of employees, it would not be appropriate for me to
confirm or deny any internal investigations into alleged
employee misconduct.
I can assure you that any Bureau decisions to initiate
investigations are not made for any partisan or political
reason. I can also assure you that any such internal
investigations are directed by career employees solely to
determine whether misconduct has occurred and in order to
assess whether and, if so, what appropriate disciplinary action
should be taken.
Q.11. If so, please provide a list of all such individuals
(identified by their titles, not their names) and the reason
for opening the investigation.
A.11. See above response to Question 3.
Q.12. When were you first made aware that the CFPB had opened,
or was intending to open, an investigation into any career CFPB
employee at the Associate Director or Assistant Director level?
A.12. I was aware of the media reports this past summer but, as
noted above, had no direct knowledge or involvement in the
events described.
Q.13. Have you discussed any plan or decision to open an
investigation into any career CFPB employees at the Associate
Director or Assistant Director level, and if so, with whom did
you discuss this plan or decision?
A.13. See above response to Question 3.
Q.14. Are you aware of whether the CFPB between January 20,
2021, and the present placed any career CFPB employees at the
Associate Director or Assistant Director level on
administrative leave?
A.14. When there is evidence of or credible allegations of
misconduct on the part of Bureau employees, the Bureau takes
such allegations seriously and conducts appropriate
investigations directed by career employees. Where appropriate,
the Bureau will place employees on administrative leave during
such investigations. Such use of administrative leave is
consistent with the provisions of the Administrative Leave Act
setting forth the appropriate basis for placing employees on
investigative leave.
In light of the significant personal privacy interests of
Bureau employees it would not be appropriate for me to confirm
or deny the placement of any Bureau employee on investigative
leave.
Q.15. If so, please provide a list of all such individuals
(identified by their titles, not their names) and the reason
for placing them on administrative leave.
A.15. See above response to Question 4.
Q.16. When were you first made aware that the CFPB had placed,
or was intending to place, any career CFPB employee at the
Associate Director or Assistant Director level on
administrative leave?
A.16. I was aware of the media reports this past summer but, as
noted above, had no direct knowledge or involvement in the
events described.
Q.17. Excluding politically appointed positions, how many
personnel has CFPB hired since January 20, 2021?
A.17. From January 20, 2021, to October 23, 2021, the Bureau
has hired 169 career employees (including 27 interns), i.e.,
employees who are not serving in politically appointed
positions.
Q.18. Excluding politically appointed positions, how many
personnel have departed since January 20, 2021?
A.18. From January 20, 2021 to October 23, 2021, there have
been 109 career employees (including 19 interns) who have
separated from the Bureau. This turnover is consistent with the
Bureau's historic turnover rates, which range from 7.6 percent
and 11.7 percent, depending on the fiscal year.
Q.19. Abusive Acts or Practices--The Government is obligated to
set clear rules of the road before holding anyone responsible
for breaking them. Regulation by enforcement is exactly what we
don't need--it is neither fair nor consistent with the rule of
law.
Additionally, the Government is obligated to be
transparent, explain its reasoning, and address public feedback
when making important decisions. Regulatory guidance is not the
same as notice-and-comment rulemaking. Only rulemaking involves
public feedback and Government transparency.
Unfortunately, in the last 10 years, the CFPB has not
issued a rule to clarify the definition of the ``abusive'' acts
or practices standard created by the Dodd-Frank Act.
Will you commit to going through a transparent and public
notice-and-comment rulemaking to provide much needed clarity to
this definition?
A.19. Congress has made it clear when rules are required before
a prohibition on unfair, deceptive, and abusive acts and
practices can be enforced. For example, under the Consumer
Financial Protection Act, rules are required for State
attorneys general to enforce that law's prohibitions on unfair,
deceptive, and abusive acts and practices against national
banks and Federal savings associations and for the Federal
Trade Commission to enforce the same against nondepositories.
The Bureau, however, is required to enforce the statutory
prohibitions against unfair, deceptive, and abusive acts and
practices, regardless of whether the Bureau has issued rules
relating to those prohibitions. Accordingly, the Bureau pursues
enforcement actions when it becomes aware of unlawful conduct
that violates the prohibition against abusive acts and
practices. Legal principles develop as cases are litigated and
judicial rulings add to a body of jurisprudence. This important
process is currently working to further develop the prohibition
against abusive acts and practices. I will continue to review
all the various options available to the Bureau to help develop
the law and a durable jurisprudence as to abusive acts and
practices.
Q.20. CFPB's Office of Innovation--Financial innovation has the
potential to expand and improve consumers' options for
financial products and services. Regulatory uncertainty stifles
financial innovation and stops financial institutions from
offering more and better choices to consumers.
The CFPB's Office of Innovation administers programs that
resolve regulatory uncertainty about how the CFPB will treat
new financial product and services, provide clarity on how to
comply with the law, and foster responsible innovation.
I am concerned that under the Biden administration the CFPB
has stopped working to foster responsible innovation. Since the
Biden administration took office:
How many requests for No-Action Letters has the Office of
Innovation received?
How many No-Action Letters has the Office of Innovation
ruled on?
How many requests for No-Action Letters are currently
pending review (regardless of when received)?
How many applications for admission to the Compliance
Assistance Sandbox program has the Office of Innovation
received?
How many applicants has the Office of Innovation admitted
to the Compliance Assistance Sandbox program?
How many applications to the Compliance Assistance Sandbox
program are currently pending review (regardless of when
received)?
How many applications for admission to the Trial Disclosure
program has the Office of Innovation received?
How many applicants has the Office of Innovation admitted
to the Trial Disclosure program?
How many applications to the Trial Disclosure program are
currently pending review (regardless of when received)?
A.20. Financial innovation plays an important role in the
consumer marketplace to improve options and products for
consumers. The Bureau has acknowledged this, for example, in
its recent Notice and Request for Comment regarding the
Bureau's inquiry into Big Tech Payment Platforms (Notice). In
that Notice, the Bureau acknowledged that faster, frictionless,
and cheaper payment systems can offer significant, potential
benefits to consumers, workers, and their families. Fast
payment systems can also help small businesses succeed with
quicker transactions, lower cost, and more revenue conversion.
But, despite the benefits of innovation, little is known
publicly about how Big Tech companies may exploit their payment
platforms. Further, as the Notice states, the Bureau's inquiry
to Big Tech will help inform and yield insights that may help
the Bureau implement other statutory responsibilities,
including potential rulemaking.
Fostering innovation and options for financial products and
services are important goals. In addition, the Bureau is
committed to advancing innovation through competition by
guarding against market concentration, anticompetitive
practices, and gatekeeping by major market incumbents. These
kinds of anticompetitive behaviors depress innovation and
prevent new entrants from providing consumers with additional
choices.
To provide regulatory clarity, the Bureau intends to
provide guidance to industry through vehicles that are broadly
applicable to all companies (e.g., advisory opinions and policy
statements), including those that don't have the resources and
lawyers to file an application with the Bureau, and even
companies that have not been created yet. The Bureau should not
be picking winners and losers or giving any individual company
even the informal impression of Bureau endorsement. I'm also
concerned about advantaging companies that hire the right
lawyers who know how to lobby and jump through the red tape
necessary to obtain a No-Action Letter (NAL) or Compliance
Assistance Sandbox (Sandbox) Approval. Advisory opinions and
policy statements apply broadly, they cannot advantage
particular companies.
Applications for eight NALs (three received after January
20, 2021), eleven Sandbox Approvals (nine received after
January 20, 2021), and four disclosure trials (none received
after January 20, 2021) are pending as the Bureau assesses
whether any of these company-specific applications are
appropriate in light of scarce Government resources and the
above referenced preference for more broadly applicable
guidance. None have been approved this year. Please note that
applications for NALs, Sandbox Approvals, and Trial Disclosures
Waivers go through an iterative process with the relevant
company before being ready for disposition. Not all of the
pending applications have gone through that full process.
Q.21. Cryptocurrency--On November 1, 2021, you issued a
statement on the CFPB and the Report on Stablecoins issued by
the President's Working Group on Financial Markets, the Office
of the Comptroller of the Currency, and the Federal Deposit
Insurance Corporation.
You stated that the CFPB ``will be taking several steps
related to this market.'' What specific steps related to the
stablecoin or other cryptocurrency markets will the CFPB take?
A.21. As I testified to, one of the first actions I took after
my confirmation was to order six technology companies (Big
Tech) to turn over information about their payment services to
the Bureau--including information about what cryptocurrency and
stablecoin activities these companies are engaged in in the
context of consumer payment services. As I underscored in my
statement at the time, little is known about how Big Tech
exploit data on their platforms, including how such platforms
engage in payment-related activities. The information requested
will help the Bureau better understand how these firms engage
in payment services, and related activities so the Bureau can
ensure adequate consumer protection.
The Bureau also continues to monitor the market for
consumer financial products and services. While stablecoins are
currently used primarily for speculative trading, they may also
be used for and in connection with other applications within
the Bureau's jurisdiction. To the extent that cryptocurrency
and stablecoins are used for and in connection with consumer
deposits, stored value instruments, retail and other consumer
payments mechanisms, and in consumer credit arrangements, these
acts and practices are subject to Federal consumer financial
laws, such as the Consumer Financial Protection Act, Electronic
Fund Transfer Act, Truth in Lending Act, and other laws within
the Bureau's jurisdiction. We will continue to closely monitor
market developments to determine what further actions, if any,
are necessary.
Q.22. You stated that ``the CFPB is actively monitoring and
preparing for broader consumer adoption of cryptocurrencies.''
What specific actions is the CFPB taking in this regard?
A.22. See above response to Question 9.
Q.23. You stated that ``As the Report on Stablecoins notes,
established players with large user bases could accelerate the
adoption of stablecoins as a payment device, and lead to an
excessive concentration of market power.'' Congress has
entrusted the Federal Trade Commission and the Department of
Justice with authority to enforce U.S. competition laws.
Congress has never entrusted the CFPB with such authority. And,
to my knowledge, the CFPB has never attempted to assert that
Congress has. What did you mean by this statement?
A.23. My statement referred to what the President's Working
Group Report (Report) on Stablecoins noted. I agree with that
statement in the Report.
The Bureau is authorized to ensure that markets for
consumer financial products and services are fair, transparent,
and competitive. The Bureau also must enforce Federal consumer
financial laws consistently to ensure fair competition.
Payments businesses are network businesses and can gain
tremendous scale and market power, potentially posing new risks
and undermining fair competition for consumer financial
products and services. I'm concerned that Big Tech companies
could operate their payments platforms in a manner that
extracts rents from market participants; coerces small
businesses into participating for fear of being suppressed in
search or product listings; and disadvantages the companies'
competitors in other markets, all to the detriment of consumers
and markets for consumer financial products and services.
Knowing what we spend our money on is a valuable source of
data on consumer behavior. This data can be monetized by
companies that seek to profit from behavioral targeting,
particularly around advertising and e-commerce. In some
situations, too, consumers may have little market power to
decide which products to use or to shape how their data is
used. If consumers adopt stablecoins as a payment device, we
need to make sure that there is dynamism and innovation in the
market and that incumbents' advantages are not being
reinforced.
------
RESPONSES TO WRITTEN QUESTIONS OF SENATOR REED
FROM ROHIT CHOPRA
Q.1. We are seeing an emerging problem of credit products that
are structured to avoid Federal and State consumer protection
laws, including buy now, pay later (BNPL) loans provided by
nonbank lenders. What can the CFPB do to ensure that BNPL
borrowers receive the full protections of our credit and fair
lending laws?
A.1. The Bureau actively monitors the buy now pay later (BNPL)
market for consumer benefit and risk and is focused on ensuring
that new entrants and products comply with existing law. On
December 16, 2021, the Bureau issued several 1022(c)(4) Orders
under its authority to collect information to monitor the
organization, business conduct, markets, and activities, in
order to increase the Bureau's knowledge of some of the
foundational elements of the domestic BNPL market. The Bureau
continues to post educational materials for consumers as well,
such as posting recent educational material \1\ and a consumer
blog entitled ``Should you buy now and pay later'' advising
consumers of potential risks associated with the products. \2\
The Bureau also closely reviews the consumer complaints it
receives about BNPL products. Furthermore, the Bureau noted in
its 2021 Consumer Credit Card Market Report, published on
September 21, that BNPL may present different risks to
consumers than credit cards. \3\ The Bureau is committed to
using all of its tools, including but not limited to
enforcement, consumer education, research, and rulemaking, to
protect consumers of BNPL products.
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\1\ https://www.consumerfinance.gov/ask-cfpb/what-is-a-buy-now-
pay-later-bnpl-loan-en-2119/
\2\ https://www.consumerfinance.gov/about-us/blog/should-you-buy-
now-and-pay-later/
\3\ https://files.consumerfinance.gov/f/documents/cfpb-consumer-
credit-card-market-report-2021.pdf
Q.2. What are the CFPB's tools and authorities to address
predatory small-dollar loans, including high-interest payday
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loans?
A.2. The Bureau has enforcement and supervisory authority over
depository small-dollar lenders with total assets over $10
billion and any affiliates thereof. The Bureau also has
enforcement authority over nondepository small-dollar lenders,
regardless of their size. The Bureau's supervisory authority
over nondepository small-dollar lenders under the Consumer
Financial Protection Act applies to payday lenders, regardless
of size.
Small-dollar lenders are subject to several Federal
consumer financial laws that the Bureau enforces and supervises
compliance for, including the Consumer Financial Protection
Act, Truth in Lending Act, Equal Credit Opportunity Act,
Electronic Fund Transfer Act, Fair Credit Reporting Act, Gramm-
Leach-Bliley Act, and Fair Debt Collection Practices Act, as
well as regulations promulgated under those laws. This includes
the Bureau's rules that address certain unfair and abusive
practices in the small-dollar market and certain problematic
debt collection practices, which are common sources of
complaints from consumers. Small-dollar lenders are also
subject to the Military Lending Act. The Bureau also enforces
the Military Lending Act.
The Bureau also provides tools to consumers to help them
make responsible decisions about financial transactions. For
small-dollar lending, the Bureau has a dedicated consumer-
focused website section on payday loans. \4\ The website
contains information to help consumers decipher costs and fees
associated with payday loans, key terms, consumer protections,
and more.
---------------------------------------------------------------------------
\4\ https://www.consumerfinance.gov/consumer-tools/payday-loans/
Q.3. How does the CFPB plan to exercise its authority to
---------------------------------------------------------------------------
supervise for compliance with the Military Lending Act?
A.3. Unlawful financial abuse of servicemembers and their
families is unacceptable. Such abuse not only hurts them, it
also hurts our country's military readiness. The Military
Lending Act is a crucial component in protecting American
servicemembers, their spouses, and certain dependents from
financial harm. The Bureau enforces the Military Lending Act
and examines institutions for conduct that violates the
Military Lending Act, which is closely associated with
activities that are subject to the Truth in Lending Act, which
the Bureau examines for compliance with as well. This is an
efficient use of resources and helps to protect servicemembers
from all illegal financial harms.
Q.4. What are the CFPB's plans for reporting and oversight of
financial products offered to college students, beyond the
credit card agreements that are already subject to the CARD
Act?
A.4. College students deserve access to financial products with
competitive and transparent terms, offered free from conflicts
of interest with schools. After finding that 40 percent of
college students attend a school that has made a deal with a
financial institution to help with or allow the promotion of
debit or prepaid cards, the Bureau designed its Safe Student
Account Toolkit to help colleges ensure access to safer and
more affordable accounts for students. And after working with
the Bureau to explore these issues, the Department of Education
established new marketing and transparency requirements for a
range of school-sponsored accounts. As students return to
campuses across the country, the Bureau is committed to
ensuring that the market for these financial products is fair
and transparent. In addition to this work, the Bureau's Student
Loan Ombudsman has been issuing annual reports on student loans
pursuant to the Dodd-Frank Wall Street Reform and Consumer
Protection Act since 2012. In the most recent report, the
Student Loan Ombudsman made policy recommendations in the areas
of transparency and accountability, return to repayment and
servicer transitions, and student loan debt relief scams. The
Bureau also reported on debit cards in its 2016 College Credit
Card Agreements Report.
The Bureau will continue to monitor this market to ensure
college students are protected when they use the financial
products and services offered to them.
------
RESPONSES TO WRITTEN QUESTIONS OF
SENATOR VAN HOLLEN FROM ROHIT CHOPRA
Q.1. Digital redlining, through the use of technology,
alternative data sets, and social media behaviors,
systematically suppresses the presentation of certain online
and mobile advertisements to certain populations. While it is
generally reasonable that advertisers want to deliver ads to a
targeted audience who have a greater likelihood of buying their
products and services, this type of targeting is problematic
when it comes to financial services. Controlling the ad
delivery process through the use of certain variables can have
the effect of discriminating against protected classes, in a
manner that constitutes an Unfair, Deceptive or Abusive Act or
Practice (UDAAP) or otherwise violates fair lending laws.
How can the Bureau ensure that social media platforms that
use proprietary algorithms do not allow advertisers to use
those algorithms to target users based on protected
characteristics such as race or gender (or their proxies) in
order to market credit products to consumers?
A.1. The Bureau takes its responsibility to root out digital
redlining seriously. As you know, the Consumer Financial
Protection Act (CFPA) authorizes the Bureau to enforce the
Equal Credit Opportunity Act, which prohibits creditors from
discriminating in any aspect of a credit transaction and, as
implemented by Regulation B, also prohibits discouragement of
prospective applicants on a prohibited basis. The CFPA also
authorizes the Bureau to take action against certain persons
who engage in unfair, deceptive, or abusive acts in the
offering of a consumer financial product or service. Policies
and practices that target consumers based on protected
characteristics, such as race, gender, or their proxies, are
unlawful. While artificial intelligence offers some promise in
terms of accessibility, it also raises important questions
about the transparency of decision making and the accuracy of
algorithmic outcomes. It is critical that we not allow
technology to automate, replicate, or amplify bias. At the
Bureau, we are committed to bringing our full authorities to
bear to address these risks.
So-called neutral algorithms and social media platforms may
disguise digital redlining and reinforce biases that have long
existed. Companies cannot simply avoid accountability by
claiming a lack of knowledge about their algorithms or data
feeding their algorithms. The Bureau will not assume that black
box underwriting algorithms are free of bias or create a more
equal playing field. This is particularly true given the speed
with which banks and lenders are turning lending and
advertising decisions over to algorithms.
I am particularly concerned about technology companies and
financial institutions amassing massive amounts of data and
using it to make more and more decisions about our lives,
including loan underwriting and advertising. For example, the
U.S. Department of Housing and Urban Development details and
alleges, in its complaint against Facebook, how Facebook,
through its audience selection tools, ad delivery algorithms
and other features, functions as an advertiser who
intentionally targets or excludes users based on their
protected class, such as race.
One of the first actions I took after my confirmation was
to order six technology platforms (Big Tech) offering payment
services to turn over certain information to the Bureau. As I
underscored in my statement at the time, little is known about
how Big Tech exploit data on their platforms, including how
such platforms ensure that black box algorithms do not lead to
discrimination and exclusion. The information requested will
help the Bureau better understand how these firms use personal
payments data and manage data access to users so the Bureau can
ensure adequate consumer protection. This is only one example
of how the Bureau is actively engaging in this space to protect
consumers from unlawful discrimination.
Q.2. What actions can be taken to prevent detrimental impacts
on consumers seeking financial service products through online
or mobile channels?
A.2. The full panoply of consumer protection laws applies to
consumer financial products, regardless of whether the products
are marketed and originated online or through brick-and-mortar
methods. Thus, to be clear, industry has an affirmative
responsibility to ensure that online advertising, marketing,
and origination practices comply with consumer protection laws,
including fair lending laws and the prohibition against unfair,
deceptive, or abusive acts or practices. The Bureau is
committed to enforcing Federal consumer financial laws,
regardless of the platform or technology that entities use, and
to applying an ``all of Government'' approach by working with
Federal, State, local, and tribal agencies to enforce the law
and protect consumers.
In keeping with that Bureau commitment, the Bureau joined
the Federal Trade Commission and the North Carolina Department
of Justice in filing an amicus brief relating to Section 230 of
the Communications Decency Act. Consistent with the arguments
in that brief, I remain concerned that technology companies
will continue to try to claim sweeping immunity under Section
230 to circumvent consumer and banking laws and undermine fair
competition. As technology companies expand into a large range
of markets, they need to follow the same laws applicable to
other market participants.
------
RESPONSES TO WRITTEN QUESTIONS OF SENATOR SINEMA
FROM ROHIT CHOPRA
Q.1. As Arizona begins to recover from the COVID-19 pandemic,
many hardworking families who were affected financially are
beginning to get back on their feet. Many were able to remain
in their homes due to temporary eviction moratorium and
mortgage forbearance measures that are now expiring. What
actions has the Bureau taken to ensure Arizonans have the tools
and resources to navigate tough decisions about housing as
COVID-19 housing provisions expire?
A.1. The Bureau is committed to ensuring that appropriate
resources reach struggling homeowners, renters, landlords, and
those who have lost their housing. Indeed, we learned from the
2008 financial crisis that systemic problems in the housing
market can quickly ripple through the whole economy. We also
learned that when regulators act too late, miss key early
warnings signals, and fail to take appropriate actions, the
results can be devastating.
To ensure that families have the tools and resources they
need to navigate the current situation, the Bureau and its
other Federal partners launched consumerfinance.gov/housing, an
interagency housing assistance portal that provides information
to homeowners, renters, landlords, and those who have lost
their housing. This resource dovetails with other resources
designed to address consumers' financial needs related to
COVID-19, available at consumerfinance.gov/coronavirus. The
Bureau is also working to ensure resources are reaching
homeowners, renters, and landlords in need through a
coordinated, interagency initiative on housing insecurity.
The Bureau is also prioritizing mortgage servicing in its
supervisory work and overseeing servicers' management of
forbearance exits and the loss mitigation process, including to
determine if mortgage servicers have fully corrected problems
and remediated any harmed consumers. \1\ This summer, the
Bureau also amended its mortgage servicing rules to reinforce
the ongoing economic recovery as the Federal foreclosure
moratoria are phased out and to help protect mortgage borrowers
from unwelcome surprises as they exit forbearance. \2\
Relatedly, the Bureau and the prudential regulators announced
on November 10, 2021, that these agencies would once again
enforce all the mortgage servicing rules to protect borrowers.
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\1\ See Supervisory Highlights, Issue 23, January 2021, https://
files.consumerfinance.gov/f/documents/cfpb-supervisory-highlights-
issue-23-2021-01.pdf.
\2\ See Press Release, Bureau of Consumer Financial Protection,
June 28, 2021, https://www.consumerfinance.gov/about-us/newsroom/cfpb-
issues-rules-to-facilitate-smooth-transition-as-federal-foreclosure-
protections-expire/.
Q.2. During COVID-19, there was a significant increase in
telephone and cyber scams, which can affect any age demographic
and disproportionately affect seniors. What new programs or
practices will the Bureau carry out to educate consumers and
mitigate the risk of increased telephone and cyber scams
---------------------------------------------------------------------------
resulting from the pandemic?
A.2. The Bureau is committed to addressing the unique
challenges faced by older Americans, who may be especially
vulnerable to financial exploitation from increasingly
sophisticated scammers. It is important that these scammers and
those who help them are criminally prosecuted for unlawful
financial abuse. We are closely examining the work of the
Federal Communications Commission on how their tools can help
mitigate telephonic scams.
Additionally, the Bureau has responded to the increase in
telephone and cyber scams by making available a variety of
educational materials. In response to the increase in scams
during the pandemic, the Bureau enhanced its Money Smart for
Older Adults (MSOA) curriculum. MSOA is a scam awareness
resource developed in collaboration with the FDIC that
community groups, financial institution staff, and others can
teach to older adults to help them identify and respond to
scams. In June 2021, the Bureau released a COVID-19 scams
supplement to MSOA and updated the Resource Guide to include
romance scams. \3\ To address COVID-19 scams, the Bureau
published blogs and shared emails on scams related to vaccines,
errand helpers, online shopping, and mortgage relief. That
content, including a short video about scams, can be found on a
special COVID scams landing page. \4\ The Bureau also provides
fraud prevention handouts, a simple and engaging way to empower
older adults to protect themselves from scams. \5\
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\3\ https://www.consumerfinance.gov/about-us/newsroom/cfpb-and-
fdic-release-enhanced-version-money-smart-for-older-adults/
\4\ https://www.consumerfinance.gov/coronavirus/avoiding-scams/
\5\ https://www.consumerfinance.gov/consumer-tools/educator-tools/
resources-for-older-adults/financial-education-placemats/
---------------------------------------------------------------------------
The Bureau also conducts outreach on cyberscams by
frequently hosting and participating in cyberscam webinars with
Government entities and nonprofits including the Federal Trade
Commission, Federal Communications Commission, HHS
Administration for Community Living, Village to Village
Network, Home and Community Based Services Conference, and the
Cybercrime Support Network (CSN).
Additional Material Supplied for the Record
CBA letter
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
NAFCU letter
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
IPA letter
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]