[Senate Hearing 117-738]
[From the U.S. Government Publishing Office]
S. Hrg. 117-738
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
SECOND SESSION
ON
THE CONSUMER FINANCIAL PROTECTION BUREAU'S SEMIANNUAL REPORT TO
CONGRESS
__________
APRIL 26, 2022
__________
Printed for the use of the Committee on Banking, Housing, and Urban
Affairs
Available at: https: //www.govinfo.gov /
_________
U.S. GOVERNMENT PUBLISHING OFFICE
53-478 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
Dan Sullivan, Republican Chief Counsel
Cameron Ricker, Chief Clerk
Shelvin Simmons, IT Director
Pat Lally, Hearing Clerk
(ii)
C O N T E N T S
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TUESDAY, APRIL 26, 2022
Page
Opening statement of Chairman Brown.............................. 1
Prepared statement....................................... 37
Opening statements, comments, or prepared statements of:
Senator Toomey............................................... 4
Prepared statement....................................... 38
WITNESS
Rohit Chopra, Director, Consumer Financial Protection Bureau..... 6
Prepared statement........................................... 40
Responses to written questions of:
Chairman Brown........................................... 43
Senator Toomey........................................... 44
Senator Menendez......................................... 49
Senator Cortez Masto..................................... 50
Senator Ossoff........................................... 54
Senator Shelby........................................... 55
Senator Tillis........................................... 55
Senator Hagerty.......................................... 61
Senator Moran............................................ 62
Senator Daines........................................... 67
Additional Material Supplied for the Record
Principles for Responsible Consumer and Small Business Loans To
Prevent Predatory Lending Abuses............................... 70
Statement submitted by UnidosUS.................................. 80
(iii)
THE CONSUMER FINANCIAL PROTECTION BUREAU'S SEMIANNUAL REPORT TO
CONGRESS
----------
TUESDAY, APRIL 26, 2022
U.S. Senate,
Committee on Banking, Housing, and Urban Affairs,
Washington, DC.
The Committee met at 10 a.m., via Webex and in room SD-538,
Dirksen Senate Office Building, Hon. Sherrod Brown, Chairman of
the Committee, presiding.
OPENING STATEMENT OF CHAIRMAN SHERROD BROWN
Chairman Brown. The Committee on Banking, Housing, and
Urban Affairs will come to order.
As I just mentioned to colleagues on the dais, we do not
have enough Members present for a quorum to vote on the
nominees this morning. The Committee will postpone our markup
to a new time. I have spoken with the Ranking Member about
trying to do it at some point in the next day or two and in the
easiest way possible. There does not seem to be opposition to
them, so we hope we can move pretty quickly on it. So we will
proceed to today's hearing.
Today's hearing is in a hybrid format. Our witness is in
person, as we can see with Director Chopra. Members have the
option to appear either in person or virtually.
Welcome back, Director. Nice to see you in front of us.
American workers need a strong Consumer Financial
Protection Bureau on their side. With you at the helm, they
finally have one again.
We know how much power corporations and wealthy CEOs have
in this country. In 2021, last year, CEOs made 254 times more
than the average worker. In the same year, corporate profits
reached unprecedented levels--the highest ever recorded.
Predictably, too many corporations are growing profit
margins on the backs of families. CEOs complain about rising
costs, they blame workers, they claim they just have to raise
prices--all while funneling more profits to themselves more
than ever.
I guess that CEOs just have to make 254 times more than the
workers who make their companies successful.
That is no coincidence. After decades of growing market
concentration, consumers and small businesses are at the mercy
of ever larger, ever more powerful, ever more unaccountable
corporations. Senator Tester is discussing in the Ag Committee
right now what this means for farmers.
They raise your costs, they mislead you, they even scam
you--too often with little accountability and no meaningful
consequences. They have armies of high-priced lobbyists and
attorneys ready to fight anyone who dares to take them on.
Normal people do not have those kinds of resources. They do
not have a white-shoe law firm on retainer. They do not have an
insider on K Street looking out for them.
But now they have you, Director. They have you and the
dedicated public servants with you at the CFPB, fighting to
make sure Americans keep more of their hard-earned money.
For 4 years, CFPB was run by a Director and pressured by an
Administration that always--always--looked out for corporations
over workers.
The Director was a favorite of payday lenders. Instead of
being a voice for consumers, they turned their agency into yet
another arm of corporate power.
Your work for consumers could not be more different. Let me
run through that.
When you testified in October, you introduced your agenda
to usher in a new era of consumer protection. We are seeing the
results.
The Bureau challenged ``junk fees'' that banks and credit
card companies collect.
According to CFPB's research, in 2019, major credit card
companies charged consumers $14 billion in punitive credit card
fees; banks charged consumers more than $15 billion in
overdraft and nonsufficient funds fees.
Americans paid tens of billions--that is billions with a
``B''--in credit card and overdraft fees.
By pushing banks to stop taxing consumers with junk fees,
the CFPB keeps money in Americans' bank accounts, not on
corporate profit statements.
You have worked as part of the PAVE Interagency Task Force
to examine the process behind the valuation of what is the
single biggest source of families' wealth: their homes.
You worked to identify and root out discrimination and bias
in the appraisal process that hurts homeowners and communities
and contributes to the wealth disparities we see today.
And you have started the long-overdue work to ensure
consumers and our housing system are not subject to defective
appraisal models with discrimination baked in.
The CFPB is also doing important and effective work to
address the growing crisis of medical debt that burdens
American families.
Forty-three million Americans hold $88 billion of medical
debt on their credit reports.
It has been a problem for decades.
In just a few short months, you have already successfully
pressured companies to make meaningful changes.
After increasing scrutiny from you and your staff, last
month the three credit reporting bureaus--Equifax, Experian,
and TransUnion--all announced they would finally change how
they report medical collection debt.
These changes are expected to remove nearly 70 percent of
medical debt in collections from people's credit reports.
This is a positive first step that will make sure that
people with medical debt do not see their credit ruined simply
because they or their loved ones got sick.
That is also why Congress passed the No Surprises Act,
which took effect in January.
The CFPB wasted no time in letting debt collectors and
credit bureaus know they cannot surprise consumers with medical
bills and that they have new responsibilities under the new
law.
You have put companies on notice that if they try to cheat
consumers, you will be going after them.
Yesterday you announced that the CFPB will use its
congressional authority to examine nonbanks. As their market
share increases, it is important that fintechs and other
nonbanks are properly supervised to ensure that consumers are
protected from shady companies.
One of your first major agenda items was to make sure
repeat violators of a consumer protection law do not keep
getting away with scamming and stealing and scamming and
stealing from consumers.
I look forward to hearing about the steps you have taken to
crack down on repeat offenders, whether they are big banks and
credit reporting agencies.
That is what we ought to be talking about today.
I expect my Republican colleagues to do what they have done
for years: launch baseless attacks against CFPB's existence and
question its authorities, transparency, and accountability.
It is not that surprising they want to distract people with
convoluted process arguments. They did it with Sarah Bloom
Raskin. They are doing it now. When people hear the plain truth
about the CFPB, it is a pretty simple contrast.
It is: Whose side are you on? Are you on the side of
corporations that scam people? Or are you on the side of
hardworking Americans who want to keep more of their money?
Congress created the CFPB to protect consumers and help
level the playing field with powerful, unaccountable
corporations.
Congress placed the CFPB Director on the FDIC Board so the
FDIC will act with consumers in mind.
Last year, a majority of that Board, on which Congress
placed you, put forth a proposal to request information from
the public on the bank merger process.
In an unprecedented move, the former Chair ignored the
Board's long history of bipartisanship and collegiality and
refused to make this request an agenda item--even though it was
proposed according to the FDIC's rules and backed by a majority
of the Board.
As CFPB Director and a member of the FDIC Board, you are
doing your job. You are fighting and standing up for the
hundreds of millions of consumers and small banks and
businesses and their communities rather than the most powerful
largest corporations in town.
You have shown that you are willing to meet and work with
anybody--Republicans and Democrats--to fulfill that mission.
We hear a lot of talk from the other side of the dais about
the virtues of capitalism.
But for markets to work, they have to be fair, they have to
be transparent, they have to be competitive. That's why CFPB
was created: to ensure that the financial marketplace is fair
to all, and that corporations used to getting their way cannot
rig the system and get away with it.
I look forward to hearing your testimony.
Senator Toomey.
OPENING STATEMENT OF SENATOR PATRICK J. TOOMEY
Senator Toomey. Thank you, Mr. Chairman.
The CFPB began its existence under the Obama administration
as a lawless and unaccountable agency, and, unfortunately,
under Director Chopra, the CFPB is more out of control than
ever before. It is once again pursuing a far-Left agenda by
abusing--and exceeding--its authorities.
Three weeks ago, the CFPB announced an unprecedented claim
of new authority, without congressional authorization or even
so much as a public notice-and-comment rulemaking process.
Rather, it simply issued a fiat. The CFPB claimed the authority
to sue financial services providers for discrimination without
any evidence of discriminatory intent.
Now, I want to make clear that Congress charged the CFPB
with enforcing laws that protect against discrimination in
consumer finance, and the CFPB should enforce those laws.
But that is not what is going on here. Instead, the CFPB
unilaterally decided that Dodd-Frank's grant of authority to
prevent unfair, deceptive, or abusive acts or practices, known
as UDAAP, now includes disparate impact liability.
The idea of disparate impact liability is that a
statistical difference in outcomes between demographic groups
is proof of discrimination even when there is no discriminatory
intent. For example, if more Asian than Hispanic customers
happen to use a bank's overdraft service and, thus, pay more in
overdraft fees, the CFPB could claim the bank's overdraft
policy has a disparate impact and then issue harsh punishments.
Or in many American households, women might manage the
checkbook, so in theory the CFPB could claim overdraft policies
have a disparate impact on women. In the past, when overseeing
auto-lenders, the CFPB ``discovered'' discrimination even on
the part of lenders who did not know the race of the borrowers
they were accused of discriminating against.
The problem is Dodd-Frank did not authorize disparate
impact liability under UDAAP. In the 12 years since Dodd-Frank
was enacted, the CFPB has never claimed that the law did. And
Congress never contemplated that it would.
We know that because Dodd-Frank's unfair acts or practices
language was taken from the Federal Trade Commission Act of
1914. And for over a century, the FTC has never once treated
that language as including disparate impact liability.
Now, to make matters worse, the CFPB implemented this very
controversial change in law without an open and transparent
rulemaking. Instead, the CFPB issued a press release announcing
it had updated its supervision manual.
This is all even more troubling when you consider the Obama
CFPB's controversial history with disparate impact enforcement
against lenders under the Equal Credit Opportunity Act. That
enforcement campaign was not authorized by statute and was
based on bad data and a fatally flawed methodology. This
notably led Congress to overturn the CFPB's disparate impact
guidance for auto lending in 2018.
But now, invoking UDAAP, the CFPB is attempting to
supervise for disparate impact not only in lending, but in all
consumer financial services and products--in effect extending
the very policy that Congress recently overturned. One of many
harmful consequences of this unauthorized stealth rulemaking is
that it will create tremendous uncertainty among regulated
entities.
Every decision and action businesses take, including even
their advertising and marketing, may subject them to disparate
impact liability, despite their often having no way of knowing
whether a disparate impact will occur. Unfortunately, we can
expect the CFPB to continue disregarding its rulemaking
obligations in the future.
The CFPB recently changed its rules of adjudication to make
it easier to engage in regulation by enforcement. This grossly
unfair practice occurs when agencies fail to set clear rules of
the road before bringing enforcement actions.
Under these new rules, Director Chopra can bypass an
administrative law judge in enforcement cases and rule directly
on substantive legal issues. As a result, he can now authorize
his staff to bring an enforcement case based on a completely
novel legal theory, and then he can personally rule that it is
a valid theory.
These are not the only examples of the CFPB's overreach
under Director Chopra. He has consistently sought to involve
the CFPB in competition and antitrust law, which is outside its
jurisdiction.
For example, the CFPB has falsely justified its campaign
against bank overdraft fees as a means of ``promoting
competition.'' And it has demanded information from tech
companies operating payment systems to examine whether they are
acting ``anticompetitively.''
At the same time, the CFPB is taking actions that will
actually harm competition. It has proposed an overly burdensome
data collection rule for small business lending that will
likely increase credit costs and adversely affect competition
by driving lenders out of the market.
Unfortunately, the CFPB is not the only agency that is out
of control because of Director Chopra. Last year, he helped
lead a hostile and illegitimate takeover of the FDIC, where he
sits on the Board.
Director Chopra and FDIC Director Marty Gruenberg--whose
FDIC term expired over 3 years ago--took unprecedented actions
to force out FDIC Chairman Jelena McWilliams.
Upon seizing control, they are now using the FDIC to
advance their left-wing partisan agenda. In the process, they
recklessly destroyed institutional norms built up over the
FDIC's 88-year history and severely damaged the longstanding
principle that financial regulators should operate free from
partisan politics.
King Louis XIV famously said, ``L'etat c'est moi,'' which
roughly translates as ``I am the State.'' All political
authority rested with one man. Sometimes it seems the CFPB
under Director Chopra believes it has similar authority.
Under Director Chopra, the CFPB is more out of control than
ever before, and the contagion is spreading. It is past time
for Congress to bring accountability to the CFPB by making it
subject to the appropriations process and enacting other needed
reforms.
The current Congress will not do that. The next one should.
Chairman Brown. Thanks, Senator Toomey.
I will introduce today's witness. The Honorable Rohit
Chopra is Director of the Consumer Financial Protection Bureau,
previously served as an FTC Commissioner. After the passage of
Dodd-Frank, Director Chopra joined the CFPB as Assistant
Director, then was appointed the CFPB's Student Loan Ombudsman.
He subsequently served as a special adviser 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 inviting me to appear
today.
American households and businesses continue to recover from
the economic devastation caused by the pandemic. Jobless claims
are hitting record lows, and consumer spending has accelerated.
At the same time, ongoing supply chain disruptions,
geopolitical strife, and inflation pose real challenges. The
CFPB is working hard to fulfill the mandate Congress has
entrusted the agency with: to ensure that markets are fair,
transparent, and competitive. The agency is supervising
financial entities for compliance with Federal consumer
financial laws, handling heavy volumes of complaints, issuing
guidance and rules to implement Federal law, and bringing
enforcement actions where appropriate.
In my written testimony, I detail some of the highlights of
the direction of our work to protect consumers and law-abiding
businesses. Perhaps most importantly, the CFPB is deeply
engaged with market participants and others about the future of
the consumer finance ecosystem, and we will be very focused on
what the future holds and how we can collectively shape it in
ways that align with American values.
Currently, the United States is lurching toward a market
structure where finance and commerce commingle, fueled by
uncontrolled flows of consumer data. This is the market
structure that has emerged in China, where dominant Internet
conglomerates play an outsized role. These tech giants have
extraordinary access to data about businesses, banks, and
consumers, including financial businesses that they compete
with.
Over the last several years, Chinese tech and finance
giants have developed so-called social scoring that goes beyond
credit performance and relies on analyzing user habits
unrelated to credit and banking. These developments raise a
host of questions about privacy, fraud, discrimination, and
much more.
The CFPB is currently studying these issues as part of our
inquiry into Big Tech's entry into consumer payments in the
United States. We expect to issue reports on our research to
contribute to the critical policy discussions about the future
of consumer finance and relationship banking in our country.
In addition, we are shifting our enforcement scrutiny away
from small firms and instead focusing on repeat offenders and
large market actors engaged in widespread harm. We are
particularly focused on entities that violate formal law
enforcement and court orders. Our recent lawsuits against
TransUnion, one of the Nation's largest credit reporting
companies, FirstCash, one of the Nation's largest pawn lenders,
and MoneyGram, one of the Nation's largest international
remittance providers, illustrate this shift.
The CFPB is also dramatically increasing its issuance of
guidance documents. These efforts help entities comply with
laws passed by Congress by either providing further clarity
where needed or drawing attention to an already clear legal
requirement. They also promote consistency among the many
Government actors responsible for enforcement of Federal
consumer financial law, including other Federal regulators and
State and tribal attorneys general across the country.
The CFPB is especially interested in areas where guidance
can support compliance efforts by small institutions and new
entrants and startups.
The agency is also rethinking its approach to regulations
by prioritizing rulemaking that implements congressional
directives. For example, we are heavily focused on making
progress on implementing provisions under Section 1033 to give
consumers more control of their data and facilitate more
competition.
In addition, I have repeatedly expressed concerns about
excessively complicated rules put forth by the banking
regulators, and I have asked CFPB staff to put a high premium
on simplicity and bright-line bands whenever possible.
In closing, we must remind ourselves that our consumer
finance ecosystem serves as critical infrastructure for the
growth and prosperity of the United States. I am optimistic
that the CFPB can live up to the directives that Congress
established at the agency's creation.
Thank you again for the opportunity to appear before you,
and I look forward to your questions.
Chairman Brown. Thank you, Director.
The purpose of this hearing is to discuss CFPB's work for
consumers. It is clear that, for some of my colleagues,
consumers are not at the forefront of today's conversation.
With that, would you like to just begin by taking a minute
and explain in your own words what happened in the FDIC Board?
Then I would like to talk about consumer protection.
Mr. Chopra. Well, I appreciate that. You know, it was all
very sad, but it was all pretty simple. Never before has a
Chair or a Board member of the FDIC purported to be able to
nullify a supermajority of the Board of Directors without any
legal justification other than ``because I say so.'' If any
bank board tried to do this, if any corporate board tried to do
this, there would be serious litigation and serious problems.
I am disappointed that the rule of law was not followed,
and it is important that this never happens again, and the
Board must make sure of it.
Chairman Brown. Thank you for clearing that up and
explaining it so succinctly and so well.
Protecting Americans from medical debt is a priority for
this Administration. Just this year, CFPB released several
reports on medical debt highlighting inaccuracies on credit
reports and wrongful attempts by debt collectors to go after
people for medical debt that they do not actually owe.
What is CFPB planning to do to address both the misconduct
and the mistakes related to medical debt?
Mr. Chopra. Well, I appreciate that. Today in the United
States, the most common collection item on an American's credit
report is actually medical debt, and many of us are concerned
based on the data we see, the research we see, and the
complaints we see that much of this is not even really owed.
Many Americans are caught in a doom loop between their
insurance company and their medical provider, and they are
coerced to pay once it is put on that credit report.
We need to make sure that the debt is accurate, and we are
looking to determine whether the law should be changed or
adjusted accordingly when it comes to medical billing. And with
respect to the CFPB's authorities, we are looking at whether
medical debt should be included at all absent further
requirements or changes.
Chairman Brown. Thank you, Director.
Let me shift to junk fees. This year, thanks to your work
spotlighting banks' overreliance on overdraft and nonsufficient
fund fees, many banks announced they would drastically reduce
and in some cases even eliminate these fees entirely. A welcome
change. The fees average about $34 per transaction.
What efforts will you take to curb the use of junk fees
beyond what you have done with overdraft and nonsufficient fund
fees?
Mr. Chopra. Well, across the economy, what we see is fee
creep, fees that pop up on the back end that are not clearly
advertised up front or provide no value whatsoever. We have
solicited public comment, received over 80,000, and we are
starting to see some of these fees, that some many not even be
disclosed, some may be charging for services that people do not
even want.
We want banks to make money when they are providing
services for bona fide activities that consumers want. And we
are starting to see, Senator, banks compete on offering
overdraft services at lower and lower fees and some eliminating
those fees altogether.
Chairman Brown. Thank you for that answer.
One last question. As you know from your work on the
Property Appraisal and Valuation Equity Task Force, there has
been significant research as well as many publicly reported
individual accounts showing differences in home appraisals
based on race and ethnicity. Your staff may have mentioned to
you a story I told--I will not repeat it--about a family in the
Cincinnati area, southwest Ohio, and what happened to them.
How can we make sure that any technology used to help in
the appraisal process makes the system more fair and just does
not bake in the bias that we have seen for decades?
Mr. Chopra. One of the things Congress has passed is
authorizing the regulators to make sure that so-called
automated valuation models have adequate controls for safety
and soundness, for consumer protection.
One of the things that is under discussion is whether those
controls should assess whether models are accurately looking at
potential discriminatory effects. That process is ongoing, and
we are working with the regulators on potential proposals that
we would jointly propose.
Chairman Brown. Talk a little further about that, the
appraisal system. Does it present a clear way for people to
report errors in discrimination? Or if it does not, how do we
improve the process for consumers? Expand on your last----
Mr. Chopra. Yeah, I think it is a real challenge where--
especially based on types of neighborhoods, there have been
even incidents where people get a completely different
appraisal based on, you know, the pictures that are displayed
in their home or the people that are there. So some of it is
about the algorithms. Some of it is making sure that we have
more appraisers and we use the best of the human appraisers to
be able to get accurate appraisals. It is particularly an issue
in rural areas where many times appraisals have severe
inaccuracies and consumers often have very little recourse.
So we are working with HUD and other agencies to think
about how this can be beneficial to lenders and homeowners
alike.
Chairman Brown. Thank you.
Senator Toomey.
Senator Toomey. Thank you, Mr. Chairman.
Let us go back to the episode when, shortly after you
assumed office as CFPB Director, and with the ex officio role
on the FDIC Board, you and now Interim Chairman Gruenberg began
orchestrating your hostile takeover of the FDIC Board.
Now, I understand that at the time you circulated a
document purporting to provide a legal justification for
bypassing the Chairman and moving matters to a vote. Did the
FDIC General Counsel write that document?
Mr. Chopra. So with respect to the legal justification
around Board members' responsibilities, the bylaws are
obviously public; the legislation is obviously public.
Senator Toomey. OK. I am asking----
Mr. Chopra. The FDIC General Counsel----
Senator Toomey. ----a specific question----
Mr. Chopra. ----did not provide any legal justification for
any interpretation, so----
Senator Toomey. OK. But you acknowledge that you did
distribute a document purporting to provide a legal basis for
this?
Mr. Chopra. Yes, so based on the----
Senator Toomey. OK. I have got very limited time.
Mr. Chopra. OK, sorry.
Senator Toomey. Let me move on. Let me ask you this: Did
Todd Phillips or anybody at the Center for American Progress
contribute to the drafting of this legal document, to your
knowledge?
Mr. Chopra. No.
Senator Toomey. They did not. So who did?
Mr. Chopra. So the General Counsels of all of the agencies
involved in the Board were obviously concerned about the lack
of legal justification proffered by the FDIC's General Counsel.
We also understand the FDIC's General Counsel muzzled many of
the career staff----
Senator Toomey. OK. I asked a simple question. Who worked
on drafting this document?
Mr. Chopra. The General Counsels and legal advisers of----
Senator Toomey. OK. So the CFPB----
Mr. Chopra. And the OCC.
Senator Toomey. ----and the OCC General Counsels. Since
1933, the FDIC Board had a history of trying to work
collaboratively without partisan political influence. As
Chairman McWilliams has stated, when you demanded the FDIC
issue an RFI relating to bank merger policies, the Chairman
expressed a willingness to work with you. You submitted a draft
the FDIC found was filled with omissions, misrepresentations,
and technical inaccuracies, and they drafted a version
reflecting their expertise.
But then you forced an unprecedented and illegitimate vote
on your draft, disregarding the draft that reflected the
expertise and knowledge of the staff at the FDIC.
But I have to say, I have difficulty believing that you
tore down the FDIC's rules and norms simply over a question of
the wording of a merger RFI, particularly because a few months
previously, the Center for American Progress began to very
publicly urge Democrats to seize unprecedented control of the
FDIC Board in order to eliminate all obstacles to the
Democrats' radical agenda.
Your and your Democrats colleagues' actions smacked of a
planned partisan power grab to enact this agenda, and your
politicization of the FDIC has done lasting damage to its
independence and its credibility as a financial regulator.
Now, I want to get to this UDAAP expansion to disparate
impact. Congress----
Mr. Chopra. Senator, may I respond to----
Senator Toomey. I am going to run out of time, so I----
Mr. Chopra. But, actually, you have leveled quite--I do not
believe any of it is in accordance with the facts, and I think
it is only fair----
Senator Toomey. Well, as long as I will get time to ask my
second question.
Mr. Chopra. So when it comes to process, there was long an
established process for 90 years about how the Board operates.
Sometimes Congress has changed the composition of the Board.
Every single process was followed, and what we heard back was
staff is not going to be able to talk to you, disrupting all of
the norms about how career staff engage. This was unbelievable
and sad. And, honestly, we have to be committed to upholding
the rule of law on how these agencies are governed. We cannot
simply make up the fact that a Chair can overrule a
supermajority of the Board.
Senator Toomey. OK. Well, your version of the events is
extremely different from the version of others' and so this is
not a productive path to go down.
Let me move on to this recent expansion, unprecedented
expansion of UDAAP. This month, the CFPB announced that it
would extent disparate impact theory to cover all financial
services, effectively reversing Congress' legislative
decisions. And as I noted in my opening statement, this is also
at odds with over a century of FTC precedent on UDAAP. The FTC
did not use UDAAP to pursue disparate impact before the Dodd-
Frank Act created the CFPB and gave it the same authority the
FTC had to pursue ``unfair or deceptive acts or practices.''
What is more, if the FTC already had blanket authority to
prohibit the discrimination and disparate impact for a century,
Congress would have had no need to enact the Equal Credit
Opportunity Act, the Americans with Disabilities Act, Title VII
of the Civil Rights Act, or other targeted laws it passed to
address discrimination. But Congress did enact those measures
precisely because UDAAP does not already address these harms.
Given that disparate impact is a contested but well-
understood policy with far-reaching consequence, if Congress
had intended to give that power to the CFPB, it would have done
so explicitly.
Equally concerning is the way the CFPB made this
unprecedented change. When an agency imposes new substantive
requirements on regulated entities, the Administrative
Procedures Act requires it to conduct a transparent notice-and-
comment rulemaking, taking public comment into account and
explaining the legal and policy basis for the change.
In this instance, the CFPB simply updated its manual to
instruct examiners to apply this new policy when conducting
supervisions. And because the CFPB did not engage in
rulemaking, there is now significant regulatory uncertainty
regarding the implementation of the new rule. Without a rule,
it is unclear how financial institutions are supposed to
implement disparate impact and what universe of business
decisions they now have to run through a gamut of regression
analysis.
The costs of regulatory uncertainty include reduced
innovation and market paralysis, which only harms consumers in
the long run.
So, obviously, you made the decision not to conduct a
rulemaking. Let me ask you, did anyone in your legal or
regulatory department suggest that you should not proceed this
way because it might conflict with the Administrative
Procedures Act?
Mr. Chopra. So, Senator, I take these procedural questions
very seriously as a matter of law and policy. To be clear, if
we receive complaints that suggest that, for example, someone
is being discriminated against and not being given a bank
account, the compliance manual is a transparency tool
essentially giving the financial institution what the test is.
We give them exactly what we would be looking for in order to
ascertain their compliance management system and their
adherence to existing law. There are decades of----
Senator Toomey. You have totally ignored my question.
Mr. Chopra. ----precedent--well, let me get to it. There
are decades of precedent about the application of the
unfairness standard which dates back to the 1930s. There had
been in many instances where the prongs have been analyzed for
a wide range of conduct, and certainly discriminating against
someone based on their race to open a bank account would meet
those threats. So I do not know exactly what you are referring
to in terms of people say----
Senator Toomey. No, I think you know exactly what I am
referring to.
Mr. Chopra. No, I do not. Please.
Senator Toomey. At what occasion in the 100 and some odd
years at the FTC was UDAAP ever used as a justification for
using disparate impact?
Mr. Chopra. That is not what is in the manual,
respectfully.
Senator Toomey. Yes, it is.
Mr. Chopra. That is not what is in the manual. I am happy
to take the question for the record----
Senator Toomey. You did not answer my question, as you said
you would, about whether anyone in your legal or regulatory
department suggested that you follow the Administrative
Procedures Act and actually have a rulemaking.
Mr. Chopra. Not to my recollection.
Senator Toomey. They did not. All right.
Chairman Brown. Thank you, Senator Toomey.
Senator Warren from Massachusetts is recognized for 5
minutes.
Senator Warren. Thank you, Mr. Chairman.
So, Director Chopra, on March 28th you gave a speech in
which you focused on repeat offenders--not the little guys, but
the giant banks and corporations that repeatedly break the law
even after regulators have imposed fines, consent orders, and
lawsuits.
Now, this is a really serious problem, and I want to talk
today about one of the worst repeat offenders in our entire
financial system: Wells Fargo.
In 2016, Wells Fargo's fake account scandal was exposed.
The company's leadership had squeezed their employees to create
3.5 million unauthorized bank accounts.
Director Chopra, do you recall how much Wells Fargo was
fined in 2016 for this fake accounts scandal?
Mr. Chopra. I want to say it was $180, $185 million.
Senator Warren. That is right, including $100 million of
that was from the CFPB. Now, that was a big fine, and CFPB and
other regulators were right to impose it. But keep in mind that
Wells Fargo booked more than $5 billion in profits that year.
So maybe we should not be surprised that a fine alone was not
enough to persuade Wells Fargo to follow the law, because over
the next few months, the following scandals came to light:
Wells forced consumers to buy unneeded car insurance; they
changed information on customers' documents without
authorization; and they illegally repossessed cars from
servicemembers.
In 2018, the regulators finally said, ``Enough,'' and under
then-Chair of the Federal Reserve Janet Yellen's leadership,
the Fed put a cap on Wells Fargo's growth.
Now, that was pretty shocking at the time, but it still was
not enough to get Wells to follow the law. Since that time,
Wells has closed customers' accounts without authorization,
damaging people's credit reports, and just to rub salt in the
wound, continued to charge them overdraft fees even after those
accounts were closed. Wells has also been fined by the SEC for
recommending unsuitable products to mom-and-pop investors. It
put up to 1,600 customers into forbearance without their
consent. And just a few months ago, Wells was hit was another
fine by the OCC and a new consent order because the bank is
still screwing over consumers. It appears that cheating
customers is simply in Wells Fargo's DNA.
Director Chopra, the asset cap on Wells was a much-needed
step, but it is clear we are dealing with the baddest of the
bad here. What other steps should regulators consider to hold
Wells Fargo and other corporations that break the law over and
over, to hold them accountable?
Mr. Chopra. Well, I do not want to comment on any specific
case, but here is what I see: I see Federal enforcers and
regulators are very quick to lay the hammer down on small guys
and small businesses. They will name people individually. They
will ban them from certain business practices and often
criminally refer them for prosecution. But there is a totally
different standard for large firms who break the law over and
over again.
Yes, they do pay a fine, but often it is less than the
profits that they made from the misconduct. We have to look at
a broader array of remedies. In banking, the Federal Deposit
Insurance Act talks about limitations on FDIC insurance. There
are asset caps like we see that the Federal Reserve Board did
or that the OCC has done. We have to look at structural
remedies that stop the law-breaking from continuing. Fines are
not going to solve this with the biggest players, and frankly,
I think if we care about equal justice, we should treat small
firms and larger firms the same.
Senator Warren. I agree with you. Thank you.
You know, I think it is clear that fines have just become a
cost of doing business for giant corporations like Wells, and
we can put a stop to that.
The Fed has the power to break Wells Fargo up, and they
should use it. And, in addition, I am reintroducing my
Corporate Executive Accountability Act to hold big bank
executives personally liable when the companies they run
repeatedly break the law.
Look, we are not going to get any changes in corporation
America unless we change the rules for repeat offenders and
their CEOs. And I appreciate your leadership on this, Director
Chopra, and I look forward to working together with you.
I also would like to address the comments from my
Republican colleagues who have accused Director Chopra of a
``hostile takeover'' of the FDIC, a ``coup,'' and a ``lawless
overreach.'' You know, they can call it whatever they want, but
here are the facts. The previous FDIC Chair acted in violation
of the FDIC's bylaws to block the Committee's majority, and she
chose to resign when it became clear that she did not have a
leg to stand on. We need regulators who are going to follow the
law and who are going to use their authority to safeguard the
financial system, and I am glad that we have that kind of
regulator now. Thank you.
Thank you, Mr. Chairman.
Chairman Brown. Thank you, Senator Warren.
I believe that Senator Tillis from North Carolina is
joining us from his office. Senator Tillis? If he is not ready
yet----
Senator Tillis. Mr. Chair, I am here.
Chairman Brown. You are ready, OK. Senator Tillis.
Senator Tillis. Thank you, Mr. Chopra. Thank you for coming
before the Committee. I have to say I share some of the
concerns some of my colleagues have expressed about the number
of troubling themes that are already apparent in your brief
tenure at the CFPB. I think your actions regarding--and maybe
in conflict with Senator Warren's comments, I think your
actions regarding the leadership of the FDIC go against about
88 years of agency norms.
Now, you are a smart man. There is no doubt about that. Yet
I feel like you have chosen to poison the well in an effort to
oust a congressionally confirmed head of a Federal financial
regulator. In the process, you went so far as to propose policy
updates for the FDIC on the CFPB website. I do not think this
is how serious people should run these organizations. It
reminds me more of some of the countries I visited in my recent
codel last week, not something I expect from U.S. financial
regulators.
And, unfortunately, I do not think the FDIC, the event at
the FDIC has been an outlier in your behavior at the CFPB. More
recently, you authorized a wholesale rewrite of portions of the
CFPB's examination manual to apply disparate impact to all
consumer financial products and site visits, specifically under
the unfairness prong of CFPB's unfair, deceptive, or abusive
acts or practices, UDAAP.
But Dodd-Frank does not authorize disparate impact
liability under UDAAP. In nearly a century of FTC precedent,
enforcing identical unfairness language has never contemplated
authority to regulate disparate impact.
So, Mr. Chopra, I do have a couple of questions for you,
and if you can keep them brief, I would like to stay within the
time constraints. What industry feedback process did you
initiate when updating the examination processes?
Mr. Chopra. So, Senator, I really appreciate the questions
on this. So just to be clear, as a matter of course, I am also
appalled at what happened at the FDIC. I think never before has
there been such an egregious violation of corporate governance,
and I think as someone who believes in the rule of law and who
takes an oath, we need to make sure that never happens again.
With respect to the examination----
Senator Tillis. I do think--I will say, though, I think the
manner in which you operated there is something that is outside
of the norms of over 88 years of past practices, but I will let
you get to the question.
Mr. Chopra. Yeah, and I am happy to discuss this further
with you. I think it may take more than 5 minutes, and I am
happy to meet with you.
Let me just say with respect to the examination manual, the
examination manual is a vehicle that gives institutions a lens
into what specifically examiners are going to look for, for
example, when investigating complaints of discrimination. So
unfairness, as you say, does derive from the FTC Act. It is
identical language. And it has multiple prongs. The first, is
there substantial injury? The second----
Senator Tillis. Mr. Chopra, I wanted to get to the specific
question. I was kind of curious about--I understand what you
are leading to in terms of the practices, but what specific
industry feedback process did you initiate prior to updating
the examination practices? What specific industry--what sort of
vetting, public comment, interactions did you have?
Mr. Chopra. Well, we hear from all sorts of industries, and
let me share with you, Senator Tillis, across the spectrum, our
regulated institutions really do not believe that
discrimination should play any role, and many acknowledge that
it already violates multiple laws, not just Federal consumer
financial laws, not just civil rights laws. So, for me, this is
already a clear legal prohibition, and I have not heard any
suggestion that discrimination based on someone's race or the
like does not violate the unfairness prohibition. It is clearly
spelled out. There are three prongs, and that type of
discrimination violates those three prongs. It----
Senator Tillis. Mr. Chopra, I think you are talking about
outcome, and I think that is a legitimate discussion and it can
be accomplished within the 5-minute constraints. But I am a
little bit concerned with process. It is almost as if you had
the solution and did not need to seek impact. In your first 120
days in office, you met with only three industry groups. By
comparison, Director Cordray met with 40 industry groups during
his initial 120-day period.
Mr. Chopra. That is not----
Senator Tillis. I have gotten feedback from a number of--I
have gotten feedback from a number of groups who said that you
have generally been unwilling to meet. Do you deny that that is
the case?
Mr. Chopra. Absolutely I deny that. We have met with banker
associations in multiple States, credit union leagues; we have
met with trade associations ranging from mortgage----
Senator Tillis. When you say ``we,'' do you mean you or
your----
Mr. Chopra. I myself--I have personally done that, and,
Senator Tillis, I am happy to have a conversation with you. We
try and make staff available, and I personally meet with so
many industry players. If you look at my testimony, I talk
about how we have gone beyond and listened to a broader range
of the business community. Again, if there are specific folks
that we have not been able to schedule yet, we are prioritizing
the smaller financial institutions who do not have a
supervisory relationship with us but that are impacted by us.
But, again, we meet with all sorts of business associations,
and we are attending----
Senator Tillis. Well, I would be very interested--I want to
be mindful of the time. I am a minute over. But I would be very
interested, particularly with respect to dialogue with those
that were most negatively affected by some of the changes, but
if possible, I would like to get that for the record.
Mr. Chopra. That is fine. Thank you, Senator Tillis.
Senator Tillis. Thank you, Mr. Chair.
Chairman Brown. Thank you, Director.
Senator Warner from Virginia is recognized from his office.
Senator Warner. Thank you, Mr. Chairman. Director Chopra,
it is good to at least see you remotely. I have got three
questions in separate areas, so I will try to be quick on the
questions so you can have time to answer.
First, we have seen a number of the major banks start to
outsource a number of their back-office procedures. Mass data
storage, cloud computing, and a host of other applications are
now being outsourced, and it makes in many cases good business
sense.
I do worry, though, from a regulatory standpoint and a
consumer protection standpoint as these traditional in-house
applications are outsourced, do you feel like you or the other
regulators have enough visibility into these outsourced
functions? Are there additional tools that are needed? Could
you speak to that?
Mr. Chopra. Yeah, I do think it is a business imperative
often to, you know, find service providers, outsource to stay
competitive. At the same time, we hear from some community
banks that there are sometimes only four core service
providers. We see three major cloud providers--Amazon Web
Services, Microsoft Azure, and Google Cloud. That does create
some resilience issues should there be an attack or a shock.
It is important that the regulators have visibility. I do
not think we do enough now. But we are working with the other
regulators to make sure that we can withstand a shock,
potentially even if it is a State or nonstate actor that
attacks.
Senator Warner. Well, I am interested not only from the
kind of potential for a State or nonstate actor in the cyber
domain, but I am also concerned, like you are, about the
concentration of some of these services. If the community bank
says, hey, not our problem anymore because we have outsourced
it to Entity X, do we have visibility into what is still a
critical component of the whole banking system? So I hope we
can continue that conversation.
Mr. Chopra. Absolutely.
Senator Warner. Second--and I know you mentioned this in
your testimony, and this is around payment systems for Big
Tech--again, an area where we are seeing both consolidation and
potentially growth of opaqueness. When do you think that review
of some of the payment systems around Big Tech will be done?
Then I would like you to, as you answer that, more specifically
address--I am particularly concerned from a national security
standpoint of some of the Chinese models around Alipay and
WeChat Pay. And are you looking at not only payment systems in
the more American and Western Big Tech companies, but also in
the Chinese companies?
Mr. Chopra. Yes, Senator, and in my testimony I mention how
the U.S. consumer finance ecosystem appears to be lurching
toward a Chinese-style market structure, and that really is a
concern for a lot of small institutions, a lot of startups.
What we see with WeChat Pay and Alipay I do not think is a
structure we necessarily want to replicate.
We will be reporting on some of our analysis around the
Chinese models as well as what we are learning in our own study
about payments. I am actually quite optimistic that the new
FedNow service, which will give small institutions, small
banks, more ability to offer some of those real-time payment
services that are not yet available to the United States. So it
is something that is concerning, especially when it comes to
privacy, and we look forward to reporting to all of you on our
findings.
Senator Warner. Well, I am very anxious to follow up with
you on that. I feel like particularly pre-COVID, as we saw an
enormous emergence of Chinese tourism around the world, that
particularly in Europe that the default system may become the
WeChat or Alipay system. And I think that has the potential
both in terms of a digital yuan and a host of other privacy and
other issues, that if that becomes default outside of China in
other parts of the world, you know, where does that put us in
the hierarchy? So I hope we will come back to that.
Last question. I saw you came out recently with a report on
financial challenges facing rural communities. I think some of
those challenges may be addressed because those of us who
worked on the bipartisan infrastructure bill were going to be
able to finally get the broadband capabilities so no community
should be left behind. But both in terms of the fact that folks
in rural communities disproportionately work for small
businesses, so they may have bigger challenges around credit
scores, and also the lack of online banking services offered in
rural communities. Can you, in these last few seconds, address
what your report has found and where we need to do some more
work?
Mr. Chopra. Yeah, there are serious challenges facing rural
banking right now. I think across multiple Administrations the
regulators have been a little bit blind on this. Rural
communities need banking in a very different way than
metropolitan areas, particularly family farmers who are dealing
with, you know, commodity spikes or various exogenous factors.
We need to preserve relationship banking even as we need to use
technology to serve people better. There is a broad range of
issues from banking deserts to appraisals and more. We need to
all figure out what we want to do to make sure that rural
counties have access to small business credit, to farm credit,
and consumer credit.
So, Senator, I am eager for us to work hard on this and
address those problems.
Senator Warner. And, Mr. Chairman, I know my time is up,
but I do think, as we all know, we are seeing the diminution of
branch banking, and I think the idea of banking deserts, just
as we discovered the concept of food deserts, is something that
we as a Committee ought to take a look at.
Thank you, Mr. Chairman.
Chairman Brown. As we should, Senator Warner. Thank you.
Senator Rounds from South Dakota is recognized.
Senator Rounds. Thank you, Mr. Chairman.
Director Chopra, good morning. I would like to begin by
looking back at your confirmation hearing where you pledged to
have absolute transparency when it comes to the CFPB's Civil
Penalty Fund to make certain all funds go to victims or for
promoting financial literacy. Can you share with us what steps
you have taken or plan to take in the next 6 months to improve
transparency regarding the fines paid into the fund and how the
money is spent?
Mr. Chopra. Well, thank you so much for that. Senator
Rounds, actually based on feedback from you, I have put a pause
and essentially a moratorium on any spending from the Civil
Penalty Fund that does not directly go to victim redress. I
think it is worthwhile for us to take a hard look at that
process, and personally we see so many consumers who are badly
harmed by scammers, including the elderly, including
servicemembers. Those funds, I think, primarily should be used
to redress them when the defendant has run off with the money
or spent it.
So, yes, we have put a complete pause on that.
Senator Rounds. Would you expect that within the next 6
months you would be able to share with us your plans moving
forward with how those funds would be spent?
Mr. Chopra. Yes, and I can pledge to you that if we undo
that pause or moratorium, you will be one of the first to know.
I will share with you that I do think that there is a lot
of--those civil penalties, when they go back to redress, it is
not, you know, a bonanza for somebody. They are often getting
back the money that was stolen from them, often through a
really egregious scam. So we are also working with State
attorneys general, State banking regulators, when they identify
judgment-proof defendants. When we work together, that may be a
way that those monies can go locally and redress victims rather
than going through, you know, for other purposes.
Senator Rounds. Yes, I would look forward to having that
report. Thank you, sir.
You also committed to respecting the statutory prohibition
against the CFPB regulating insurance. However, in respect to
the Section 1027 rulemaking in premium financing, I am
concerned that you may very well be taking a rather broad view
of financial activity that this rulemaking will cover State-
regulated insurance brokers and agents.
Do you believe that the CFPB can or should regulate
insurance premium financing?
Mr. Chopra. Yeah, so let me just say that this is subject
to an ongoing rulemaking. That rulemaking was proposed before I
arrived. We are receiving a very broad range of comments,
including on the issues that you have raised. I am going to
personally look at that. I will say as a general matter we have
insurance regulators. They are primarily responsible for
regulating insurance. There are some, you know, nuanced
examples where there is financing and insurance commingled, and
we can provide your staff with some of those examples. But,
generally speaking, I completely respect the prohibition that
is in the Consumer Financial Protection Act, and we will look
hard at this issue before finalizing this rule, which we are
under a court order to finalize.
Senator Rounds. OK, because in the vast majority of cases,
most individuals want either semiannual or annual policies
issued, and sometimes it is difficult for them to actually get
the premium to pay it up front. And so if--and in most cases,
it is regulated by State insurance regulators who do require
full disclosure. But it then becomes more limiting or
challenging for those carriers to finance that, and if they
decide not to do that, I think it is a challenge for consumers
who in many cases when they want--and, in particular, for
commercial operators such as someone that has got a business
that is starting up or is in the process of trying to move
forward, if they do not have the money available to them in
their bank account for them to get insurance, it is rather
difficult unless somebody agrees to finance it. So I am really
concerned that we allow those State regulators to include or to
continue to be the primary regulator of those services.
Mr. Chopra. And, again, we are looking at those comments,
and, by the way, if there is specific language that you see in
the proposed rule that, you know, you want to give us feedback,
any Member of Congress obviously should do that, and we are
looking at all of them before we finalize that rule.
We do have to finalize it. It is in Dodd-Frank. It is an
act of Congress. We are under a court order to finalize it
because we, you know, essentially have not done it for 10
years. But I take your feedback very seriously on this issue.
Senator Rounds. Thank you. I have one more question. Is it
true that the CFPB--let me put it this way: I believe that the
CFPB already requires banks, credit unions, and other providers
of consumer financial services to disclose terms and fees in a
clear and conspicuous manner. I think you would agree with me
that that is included today.
Mr. Chopra. Well, it depends on the law. Often it is not
clear and conspicuous, and sometimes it is not disclosed up
front, unfortunately.
Senator Rounds. That changes my question a little bit
because I had assumed that the CFPB already required it. I am
concerned about overdraft protection, and right now a lot of
our financial institutions credit unions, banks, and so forth
to consumers will provide an overdraft protection plan. Right
now that seems to be working fairly well, and it does provide
some short-term liquidity to consumers who may very well be
living paycheck to paycheck.
If the overdraft protection goes away, will consumers have
access to funds to cover that particular item? A lot of people
do use it. In the case of credit products designed to reach
low- and moderate-income consumers and consumers with rather
difficult credit histories in some cases, how does the CFPB
expect financial institutions to bear the costs and offset the
risk of these products in a safe and sound manner without
allowing for a fee assessment? And I think it is there and I
think it is pretty clear that you expect them right now to make
those disclosures. But if you make it more difficult for those
fees to be assessed, you may very well be limiting that short-
term credit availability and push them into other alternatives
that are not nearly as appealing.
Mr. Chopra. And I know I am out of time, but you raise an
important point. It is short-term credit, and we want to make
sure that people have the availability to access credit. But
what we are seeing is actually banks across the board are
starting to compete on this. Many are reducing their overdraft
fees. Many of them are offering grace periods. So the
competitive process I think is going to yield a lot of benefits
for people, and that is exactly what we want to see.
We also want to make sure that consumers actually want the
service. In some of the research, it shows that the fee is
assessed even when then they do not want it. So I am happy to,
again, have a conversation with you, because I agree that
credit is needed short term.
Senator Rounds. Yes, and I would just point out, Mr.
Chairman, that right now those fees the banks receive, it only
makes up about 2 percent of what they actually receive in fees
right now. So that is as of the 2019 reporting period.
Chairman Brown. Thank you, Senator Rounds.
Senator Menendez of New Jersey is recognized.
Senator Menendez. Thank you, Mr. Chairman.
Director, I want to thank you and the CFPB staff for your
work on the proposed rule to implement the Debt Bondage Repair
Act. Senators Cornyn, Lujan, Cortez Masto, and I worked hard to
get the legislation passed so that victims of human trafficking
will not have detrimental marks on their credit reports that
result from financial exploitation by traffickers.
Can you give us a brief summary of the proposed rule and
what it will mean for trafficking victims?
Mr. Chopra. Yes. So survivors of human trafficking will be
able to get certain rights to be able to remove adverse
information from their credit reports. After the law was
enacted and the President signed it, it started a 180-day
clock. We have proposed the rule and intend to finalize it by
the deadline. I think this will be a huge help for those
victims where often financial exploitation is a key part of the
process and their lives can be ruined permanently if we cannot
fix some of their credit report.
Senator Menendez. Well, I appreciate that. This is an
example that shows exactly why we need the CFPB out there to
protect victims of trafficking and really all Americans from
abuses that can take place in the financial system. And I
appreciate your diligence on the issue in seeing the rule
finalized.
Now, Director, as part of its announcement of changes to
income-driven repayment, the Department of Education stated
that it will ``work in partnership'' with the CFPB to better
examine whether student loan servicing companies are
systematically driving borrowers into expensive forbearance
instead of the income-based repayment options that may serve
them better in the long term.
As you know, the Navient settlement put the scope of these
deceptive practices into perspective. The Bureau stated that
from January of 2010 to March of 2015, Navient, the Nation's
largest student loan servicer, added up to $4 billion in
interest charges to the principal balances of borrowers who
were enrolled in multiple consecutive forbearances, noting that
a large portion of these charges could have been avoided had
Navient followed the law.
Can you comment on how the Bureau plans to more thoroughly
monitor the student loan servicing market and prevent future
abuses in servicers' use of forbearance?
Mr. Chopra. I appreciate the question. I do not want to
comment on Navient. The CFPB is still in active litigation on
that matter. But here is the deal: Consumers do not get to
choose their servicer. It is chosen for them, and they are
stuck with them. And we depend on servicers, whether it is in
the mortgage context, student loan context, and others, to be
able to make sure they are being truthful about what the
borrower's options are, particularly when they get in trouble.
Servicers should not be deceiving borrowers about their
alternatives to default and should actually be helping them in
order to stay on the road to repayment. That is often what is
best for the creditor and what is best for the borrower, and we
need to make sure that they are not illegally cutting corners
for their own profits at the detriment of both creditors and
borrowers alike.
So we will be examining them. We are working, of course,
with the Department of Education on the servicers that they
contract, but there are many other private servicers as well,
and we expect them to be prepared and to make sure they are
giving accurate information about borrower benefits.
Senator Menendez. Given that deferments work similarly to
forbearance, has the Bureau looked into whether student loan
servicing companies were also driving borrowers into deferments
when they could have been placed in income-based repayment
plans, especially when their IBR payment would have been zero
dollars monthly?
Mr. Chopra. Yes, so that is something that has long been a
concern. I once remember hearing from a servicer employee who
told the Bureau that, you know, their job was to get the
borrower off the phone as quick as possible, and often it was
faster to be able to put them into a deferment, and often call
center representatives are rated on how fast they process
calls. So there is an incentive mismatch there, and we do need
to make sure that there is not only not forbearance steering
but also not deferment steering, particularly when the borrower
can make some payment.
Senator Menendez. Finally, recent reports show scams have
become widespread on Zelle, a money transfer platform owned by
the largest banks in the Nation. In many of the scams,
fraudsters impersonate bank employees. They trick Zelle users
into authorizing money transfers.
According to the reports, the banks are well aware of these
scams, but have done little to enhance Zelle's security or
reimbursed defrauded consumers. Today Senator Warren and I are
sending a letter to the company that manages Zelle asking why
it has not done more to protect its users from scammers.
Are you familiar with the rampant fraud happening on Zelle?
And has the CFPB seen a resultant increase in complaints? And
would any regulations like Regulation E of the Electronic Fund
Transfer Act apply in these situations to help refund
customers?
Mr. Chopra. So, Senator, I want to be careful on this one.
It is about a particular company. But I am certainly aware of
the complaints. The fraud has gotten more egregious that we are
seeing through P2P payment transfers. It is something we are
highly attuned to, and, again, I am happy to take some
questions for the record but want to be careful.
Senator Menendez. OK. I mention them because the greatest
amounts of fraud that I understand are taking place is that.
But, of course, generically, I would care about how we work and
to make sure that consumers do not get ripped off in that
regard.
Thank you, Mr. Chairman.
Mr. Chopra. Thank you, Senator.
Chairman Brown. Senator Kennedy from Louisiana is
recognized.
Senator Kennedy. Thank you, Mr. Chairman.
What do I call you, ``Mr. Director or Mister''----
Mr. Chopra. You can call me whatever you want, sir.
Senator Kennedy. Well, I would rather call you by your
proper title.
Mr. Chopra. I serve as a Director, yes.
Senator Kennedy. OK. Thanks, Mr. Director. I want to ask
you about this rule, 1071. I understand it is not finalized
yet. You are in the middle of it. You have proposed to have
banks guess the race of a small business owner if a small
business owner elects not to provide race information. Is that
right?
Mr. Chopra. I was not at the Bureau when this was proposed.
Senator Kennedy. Do you support that?
Mr. Chopra. I do not want to talk about an open rulemaking.
We are looking at all the comments related to this, and I
believe what you are referencing is the visual observation
provision when data is missing. I take it very seriously. There
are a lot of comments about this. We will look hard at that.
Senator Kennedy. But you are asking--you have small
businesses owners that do not want to declare their race, and
you have got a proposal, your agency does, to make the banks
guess. Is that right?
Mr. Chopra. I do not think that is exactly how it works.
Senator Kennedy. I do.
Mr. Chopra. The bulk of it----
Senator Kennedy. I do. I have talked to too many bankers.
Do you support that concept? Let us take it away from the rule.
Do you support that concept?
Mr. Chopra. Well, I am not going to make decisions about a
rulemaking that is open right now when we are supposed to look
at all the comments fairly and not prejudge----
Senator Kennedy. Yeah, I know how objective you are.
Mr. Chopra. But that is the process we are going to follow,
and that is what we have to do.
Senator Kennedy. I understand. I know about your
objectivity. Have you ever been in business?
Mr. Chopra. Yes.
Senator Kennedy. What kind of business were you in?
Mr. Chopra. A number of it. Before I was in Government, I
was a management consultant for multiple firms. I served
clients in financial services, pharmaceuticals.
Senator Kennedy. You were a consultant? I mean, have you
ever had to make a payroll?
Mr. Chopra. I do not know if I have ever paid employees,
but I believe I have been self-employed a long time ago.
Senator Kennedy. Yeah, you just paid yourself. Is that what
it was?
Mr. Chopra. Well, and vendors, yeah.
Senator Kennedy. OK. Tell me about this approach at your
agency. I did not have time to look up the correct term. I
think of it as statistical discrimination. In other words, you
look at a set of numbers, and if there is a disparate racial
impact, you assume discrimination. Do you understand what I am
talking about?
Mr. Chopra. I think I know what you are referencing. In our
laws----
Senator Kennedy. You guys do it all the time.
Mr. Chopra. I do not know if we do it all the time, but----
Senator Kennedy. You do it a lot, don't you?
Mr. Chopra. I do not think so.
Senator Kennedy. But do you believe in that approach?
Mr. Chopra. Well, the regulation that implements the Equal
Credit Opportunity Act specifically has provisions around
unintentional discrimination or discrimination where you do not
have hard evidence.
Senator Kennedy. So you think there can be discrimination
without intent?
Mr. Chopra. Well, that is what actually--we do think that
many of these algorithms, especially that we see with all the
surveillance, big data, I mean, certainly what we----
Senator Kennedy. Yeah, but I am talking about human beings.
Do you think human beings can racially discriminate without
intending to racially discriminate?
Mr. Chopra. I think that is--I do not really understand the
question, but if the question is: If the outcomes----
Senator Kennedy. Does a human being have to have intent to
discriminate on the basis of race? You understand that, don't
you?
Mr. Chopra. Well, I think if you are saying they
discriminate, then they are intending to do it.
Senator Kennedy. No. No, I am not. You can make a
distinction among human beings of different races on factors
other than immutable characteristics.
Mr. Chopra. Oh, of course. Of course, and----
Senator Kennedy. You do not think all people----
Mr. Chopra. ----that is exactly----
Senator Kennedy. ----of a race have a particular
characteristic, do you?
Mr. Chopra. That is exactly, I think, what the law is
saying, too. The law is saying that if it is not explained by
other factors, then the courts have established a----
Senator Kennedy. It has to be race----
Mr. Chopra. ----framework, too. Sorry?
Senator Kennedy. It has to be race if it cannot be
explained by other factors?
Mr. Chopra. No, no. The idea is that if it is not explained
by other factors, the courts have established that there can be
liability. Does that make sense? I am sorry.
Senator Kennedy. None of what you do over there makes
sense.
Mr. Chopra. OK. Well, we are happy to take questions for
the record, and----
Senator Kennedy. I know.
Mr. Chopra. ----I am happy to meet with you----
Senator Kennedy. Thank you, Mr. Chairman.
Mr. Chopra. ----to talk through it.
Chairman Brown. Thanks, Senator Kennedy.
Senator Smith of Minnesota is recognized.
Senator Smith. Thank you, Chair Brown, and welcome to the
Committee, Director Chopra. It is very good to see you again. I
enjoyed our conversation, and I am grateful for your strong
advocacy for consumers in this country.
One thing that I pay a lot of attention to is the access to
financial services and credit, particularly in rural
communities. You know, you may know that my grandmother was the
president of a small community bank, so I think a lot about how
important it is to have access to banking services in rural
communities. And I really applaud--I would like to applaud the
CFPB for calling attention to the financial challenges of folks
living in rural communities. Rural banking deserts in
particular make it almost impossible for people to get access
to capital and financial services that you need if you are
going to grow a business, do all the things that you want to
do. And as banks are consolidating and shipping services out of
rural communities, like happened in my Mom's small town,
community development financial institutions, CDFIs, are
increasingly important in filling this gap.
I have worked on a bill, the CDFI Bond Guarantee Program
Improvement Act, which would permanently authorize the CDFI
Bond Guarantee Program to make it easier, more accessible for
small CDFIs. But, Director Chopra, could you talk a little bit
about how unequal access to capital and financial services in
rural communities, what impact that has and how you think about
the role of the CFPB in addressing economic empowerment in
rural communities?
Mr. Chopra. Yeah, it is a great question, and I think we
all should live up to reality and realize that there have been
devastating effects of so many branch closures in rural
counties. While we do not know if it is directly correlated, we
know that there are often issues with, you know, farmers not
being able to weather a tough season and go bankrupt. We know
that small businesses there, which, you know, are
disproportionate employers, may not be able to survive.
You know, with the cost of fertilizers, fuel, automobiles,
this can be really hard for rural areas to actually stay
afloat. And so I think we have not paid enough attention as
policymakers and as regulators. We have launched an initiative
focused on the unique issues facing rural communities, farmers,
and financial institutions, and, you know, we really look
forward to working with you and the other regulators on this.
Senator Smith. Well, thank you. I think that that is
attention very well placed as we look at increasing
consolidation in the financial services industry and the impact
that this has on small rural communities that might be losing
the community bank because it got gobbled up by a big bank.
That means that there is just much less access to services than
people need.
I want to follow up also on an issue that you and I have
talked about before, and this is the abuse of purchases of
these structured settlements. We talked about this a little bit
yesterday, and I understand that this is a Federal as well as a
State issue, and you have been in conversation with State
attorneys general about this. But just for my colleagues, you
know, this is what happens when firms prey on people who have
suffered a grievous or life-altering injury and they are
awarded a settlement to help cover the income that they have
lost or the portion of the income that they have lost, but then
these companies come in and they offer victims a paltry lump
sum in exchange for the rights to future payments under a
structured settlement. And, on average, they are getting only
about 40 percent of the value of the total settlement.
Now, a lot of States have restrictions on the sale of
structured settlements. My home State of Minnesota is working
on this right now. Our attorney general, Keith Ellison, who is
a strong consumer advocate, has been working on this as well,
and I am really glad to know that the CFPB has taken action, I
believe last year, against one firm that paid an adviser who
was supposed to be providing independent counsel, yet, they are
being paid for this. That is just one example.
So could you just address this issue, let us know the work
that you have been doing on this and how you see collaboration
with State attorneys general?
Mr. Chopra. Yeah, when it happens, it can be devastating to
someone. Often they may be deceived about the benefits that
they are getting and not really knowing what they are trading
away. And it can actually make the difference of hundreds of
thousands of dollars and threaten their retirement security or
their ability to actually feed their family.
So there are important State law issues here. There are
important contract law issues. It is a topic certainly that has
come up with the State attorneys general. Others are interested
in it, too, the Federal Trade Commission as well. So I think we
will figure out where are the right targets and what are the
right policies to be able to tell people here is how to stay on
the right side of the law. But if you are not and engaging in
fraud, you have to face some serious consequences.
I will also add some of the conduct may also involve
criminal law, and I think that will be important for us to
explore as well for the most egregious fraud.
Senator Smith. Well, thank you. I appreciate your attention
to that issue, and I look forward to continuing to talk with
you about it.
Thank you, Mr. Chairman.
Chairman Brown. Thank you, Senator Smith.
Senator Daines of Montana is recognized.
Senator Daines. Mr. Chairman, thank you. Before I turn to
my questions, I want to briefly mention that, as some of you
may know, I was the first U.S. Senator to step foot inside
Ukraine since Russia's invasion of February 24th. The bloodshed
and the evil that I witnessed firsthand came at the hands of
Vladimir Putin. I am more convinced than ever that we need to
increase and strengthen our sanctions against Russia and Putin
directly. The Senate Banking Committee has jurisdiction over
such sanctions, and for the most part, this should be a
bipartisan issue and has been.
The U.S. and our allies need to be more aggressive about
turning off the gravy train to Russia, and we should use our
voice on this Committee to hit Putin where it hurts the most,
and that is his piggy bank. That includes sanctioning Russian
energy companies. I hope to see both sides of the aisle here
work together on this important issue in the weeks and months
ahead as this ongoing and unprovoked invasion of Ukraine
occurs.
One more point before I turn to my questions. I was very
pleased to see the Bush administration nominate Ambassador
Bridget Brink to be the Ambassador to Ukraine. I met with her
in Bratislava in the last couple weeks. She is currently
Ambassador to Slovakia. She has a 26-year career at State. She
has served in Serbia, Cyprus, Georgia. She has been on the
National Security Council. She has been in Uzbekistan, now most
recently Slovakia. She speaks five languages, including
Russian. I spoke with her yesterday, and she wants to see that
diplomatic mission return to Ukraine and specifically Kyiv. I
applaud her boldness, her leadership, and I hope that we can
come together on both sides and move her through as quickly as
possible because time is of the essence. It is time to have
that diplomatic mission reopened in Ukraine.
Director Chopra, I want to start by discussing an issue
that I raised with you during your last appearance before the
Committee, which is the CFPB's small business data collection
rulemaking pursuant to Dodd-Frank Section 1072. Subjecting
small entities to a new and complex data collection framework
is likely to cause small lenders to retreat from the market,
leaving business borrowers with fewer options or higher costs.
So my question, first of all, is: How is the Bureau
balancing its consumer protection mission with the need to
ensure the continuing availability of credit for local
businesses?
Mr. Chopra. So, Senator, thanks for the question, and also
thanks for meeting with me yesterday to discuss some of this. I
will tell you it is so critically important that small
businesses are able to get loans. We saw how important this was
during the pandemic and with PPP. We saw how well some small
financial institutions did in serving them.
I do want to be clear, though. We have to implement this
rule by directive of Congress. It is in the law, and actually
the CFPB is under a court order to make progress on that. So we
are doing our best to make sure we are in adherence to, you
know, the statute, to the court deadline. I am not sure there
is really a balance between consumer protection and others. We
have to faithfully implement congressional directives and do it
in a timely fashion.
I am trying to look--the rule was proposed before I
arrived. I am trying to look at what are the ways in which it
can be easy for lenders to report this data, to be streamlined.
What are ways to be more simple? I want to make sure that--we
have a lot of experience under the Home Mortgage Disclosure Act
of how mortgage lenders do this. We need to know what lessons
can we learn from that and make sure----
Senator Daines. I just want to----
Mr. Chopra. Sorry.
Senator Daines. No, no. That is helpful. But how does the
Bureau plan to address concerns from our community-based
lenders that this proposed 25 transaction threshold--it is far
too low. Thoughts?
Mr. Chopra. Well, we are looking at all the comments around
what is the right threshold, but I think there is--more than
the threshold, there is also the issue of what is it going to
take to do the reporting. What is the process by which they
have to go through systems? What type of data will they have to
collect? All of this will help make determinations about how do
we faithfully implement the statute.
Senator Daines. Thank you. The Bureau, in my observation,
seems to pride itself on being a modern, data-driven Government
agency. It is clear that a critical part of that effort is
ensuring that rulemakings are grounded in evidence and
research, including meaningful cost-benefit analysis. Under the
prior leadership, the CFPB established an office for this very
purpose. So as CFPB Director, how are you ensuring the costs of
regulation do not outweigh any potential benefits, especially
since those costs will be passed on to consumers?
Mr. Chopra. Yes, so I believe you will see in the proposed
rule there is some analysis based on the data that has already
been analyzed by our economists and by our market analysts.
That is information that all of us look at very carefully. I
will acknowledge it can sometimes be hard to get that specific
data, but we really do try and get through our comment periods
but also our own market analysis and really anyone who will
contribute that data so we can assess its validity and make an
informed determination. And I should say, Senator, there is
specific language in the statute, you know, about the analysis
of costs that we make sure we comply.
Senator Daines. Just a final comment. I am over time, but,
you know, I have spent many, many hours, thousands of miles
driving around my State, having meetings with small businesses.
I would say over and over again one of their top concerns has
been the regulatory burden that has been placed on them by the
Federal Government, even more so than taxes. I hear more about
regulatory burden than taxes. Of course, nobody likes higher
taxes, but I hear a lot about the regulations.
So I appreciate your thoughtful analysis as you look at the
cost-benefit because ultimately those costs will get passed on
to consumers.
Mr. Chopra. Yeah, and just if I can add, in my written
testimony I have shared with CFPB staff that my observation
across the board is that rules, you know, if they are so
complicated--of course, the large players, they have all the
ability to figure it all out, comply with it, and sometimes
they like the complex rules because it keeps small guys out.
And I think the more we can move to simplicity and bright
lines, the better.
Senator Daines. I appreciate it, because, as you know, the
compliance in large corporations can be three floors of a
building. The compliance department in a small business might
be the owner of the business. So thank you.
Chairman Brown. Thank you, Senator Daines.
Senator Cortez Masto from Nevada is recognized from her
office.
Senator Cortez Masto. Thank you. Thank you, Mr. Chairman,
for this hearing. And, Director, thank you. Thank you for--I
was listening to you this morning, and thank you for your
candor and your commitment here to getting the facts right.
Let me just say something I have observed. In the less than
6 months that you have been there, you have established a more
fair consumer finance ecosystem. Under your determined
leadership, the Consumer Financial Protection Bureau has
restored its mission to protect people and consumers from
surprise charges, from predatory pricing, and unfair terms in
financial products. And just listening to you this morning, it
is clear the Consumer Bureau's actions keep money in people's
pockets and their bank accounts. So thank you for that.
One of the things I want to talk to you about is payday
lending. Nevadans, unfortunately, are charged an average of 602
percent on a $500 payday loan. This is the second highest
amount in the country. Nevadans who take out $500 in
installment loans paid over 4 months have spent $924. Now,
other States have 36-percent interest rate caps.
So I know the Bureau established some national protections
for payday loan borrowers, and payday loan borrowers are
supposed to receive no-cost extended payment plans, for
example. But can you talk a little bit about what did the
Consumer Bureau's research find about payday lenders complying
with these borrower protections? I am curious. And what else
can I be doing or should we be doing to address what I see
happening in Nevada right now?
Mr. Chopra. Yes, thank you, Senator. So the CFPB did
conduct a study about the impact of certain State laws that
require extended repayment plans for certain payday type loans,
and the analysis looked at uptake and the efficacy of those.
And one of the findings was that there was extremely low
uptake, and we certainly in our own supervisory work have found
that payday lenders often did not make those available even
though it is required under State law.
So, you know, one of the thoughts was in many cases the
lender may have a strong incentive not to move it into an
extended repayment plan and instead move into a reborrowing
situation. We are continuing, as we do with every market, to
analyze the latest developments, see what is happening at the
local and State level, and ultimately we want a market that is
fair, transparent, and competitive, that people can get credit
at lower costs in ways that they can successfully pay back.
So we are happy to brief you further on that State law
analysis, but, generally speaking, it appears that in many
circumstances it was not meeting the State law's intent.
Senator Cortez Masto. OK. Thank you. And then let me talk a
little bit about the work that you have done. I know recently
the CFPB issued a report on the challenges faced by Americans
in our rural communities. One of the suggestions from the rural
report was having the Consumer Bureau help rural areas access
and use the CFPB's complaint tool more effectively. And another
suggestion from the rural report was holding roundtables in
Native American communities. Can you tell me what the plan is
for these listening events and what more we should be aware of
that you are doing in our rural communities?
Mr. Chopra. Yes, so, again, I will just say that it is a
huge problem for our country and our family farmers if we are
not able to have access to rural branch banking. Branch banking
is different in rural communities than it is in urban areas.
Of course, all banks are competing to keep up with
technology, but when some communities have no banks at all, are
banking deserts, the implications can be serious.
Senator, we are definitely eager to work more in rural
areas, especially family farmers, especially tribal
communities, to understand what can be done to actually address
the needs of those communities and make sure that they can take
part in all of the economic growth that we hope to see.
I have raised concerns with our staff that rural
communities are less likely to file complaints. We believe that
that could be due to a lack of awareness or a lack of knowledge
about the ability to get help. You know, certainly there may be
fewer complaints there, but we want to make sure, when people
have problems with their credit report or when facing debt
collection, that they know where to go for help.
Senator Cortez Masto. Thank you. And I know my time is
almost up, but I want to touch on one other thing that the
report touched on, although it was on the rural report focus of
it. But I have concerns that there are a number of
manufactured-home communities in my State and across the
country that are being bought up by private equity firms, and
some of these firms have dramatically increased rents and
tacked on costly fees. And we know that the impact to these
residents is they feel stuck. And so I am hopeful that the
Bureau is also taking a look at that, and I would love further
conversation with you about what we can do to address some of
the concerns particularly for these residents.
Mr. Chopra. I am happy to meet with you further about that.
There is no question that there has been a shift to larger
private investment firms that are further engaged in the
housing market rather than local landlords. You know, my focus
is on the mortgage market, but, again, Senator, I am very happy
to discuss that with you further.
Senator Cortez Masto. Thank you.
Thank you, Mr. Chairman.
Chairman Brown. Thank you, Senator Cortez Masto.
Senator Hagerty from Tennessee is recognized.
Senator Hagerty. Thank you, Chairman Brown, Ranking Member
Toomey. And, Director Chopra, thank you for being here and
appearing with us today.
I would like to go back to the foundation of the CFPB. It
was created in a way that intentionally shielded it from
accountability to elected officials. It was, in fact, buried
inside the Federal Reserve, I think with the intent to exempt
it from the congressional appropriations process.
Last year, I introduced the CFPB Accountability Act, and I
was joined by 17 of my colleagues in doing so. Our goal is to
make the CFPB's baseline budget subject to the congressional
appropriations process. I serve on the Appropriations Committee
here in the Senate. I think that I would like to get your
opinion given that effort. Would you support making the CFPB's
baseline budget more transparent and more accountable by
subjecting it to the appropriations process? And could you
think of any reason that the CFPB should not be fully included
in the appropriations process?
Mr. Chopra. Yeah, so, Senator, I appreciate the question.
And just as a factual matter, you know, that is really the role
for Congress to design what the structure of agencies are. But,
specifically, though, the OCC, the FDIC, the Fed, they are
generally not appropriated agencies. None of the banking
regulators are. The FDIC is funded through the Deposit
Insurance Fund. The OCC actually sets its own fees about what
it is going to collect from banks and thrifts in order to fund
its operations. And the Fed obviously has a totally different
system.
So I think there have been a number of proposals about
should the CFPB be funded by fees or another mechanism. As you
know, right now there is a baseline that certainly comes from
the Fed, but anything--it is subject to the appropriations
process inasmuch that the agency makes requests beyond that. So
I think, as I understand from the legislative history, this is
so that the CFPB can cover its basic functions and, for
functions that it seeks, you know, to go beyond, does seek that
from Congress. So that is a supplemental appropriations
process.
Senator Hagerty. Well, we would certainly like to see more
accountability and more direct accountability on this front. I
understand the point about fees and some of the other agencies
that do operate by fees, but my understanding is that fees are
perhaps 10 percent of your revenue at this point, if that.
Mr. Chopra. So we do not charge any fees on regulated
institutions. I think actually a fee-based system would be
challenging because our oversight is over nonbanks as well. So
there is not even necessarily a registry of who those
individuals are.
Senator Hagerty. So there is zero penalty or fee income
that comes to your organization.
Mr. Chopra. Oh, sorry. If you are referring to civil
penalties, civil penalties are segregated, and I just discussed
this with Senator Rounds, and we will be using that for victim
redress. It is not for, you know, discretionary expenditures.
It is limited in the statute----
Senator Hagerty. To that specific pocket of----
Mr. Chopra. That is right, sir.
Senator Hagerty. I think that you have got, you know, some
major concern regarding what occurred at the FDIC. I know you
have spoken to this earlier. The FDIC Board is operated in a
bipartisan fashion and worked effectively regardless of its
political makeup. But in December, you broke this precedent,
and you successfully led a coup at the FDIC, which a number of
Federal Reserve officials have acknowledged in front of this
Committee. I have asked this question many times amongst other
nominees that have come before this Committee. They have all
committed to me not to let this happen again at their
particular point of jurisdiction.
Last October, you and then-Director Gruenberg claimed that
the FDIC Board approved a request for information on bank
mergers that broke decades of precedent and, frankly, was
claimed as being a false claim.
I want to know why this was done in order to seize control
of the agency's agenda, as you threatened to ``take further
steps to exercise independence from management.'' Can you
explain to me----
Mr. Chopra. Well, Senator, I----
Senator Hagerty. ----the thought process?
Mr. Chopra. I would totally dispute what you have laid out.
I will tell you this: You are right, what happened at the FDIC
was sad, but it is--again, it is not a hard story. The law is
clear, the bylaws are clear, and the precedent is clear. The
Chairperson does not have the right to simply nullify the
supermajority of the Board. That is not even how any corporate
board works either. And, in fact, one needs to always operate
under a core principle of the rule of law, and the rule of law
has to be grounded in statute and in precedent, not simply
``because I say so.''
It is so important that our regulators operate under what
Congress has established for its governance structure. The FDIC
is operated by a Board, and that means that when there are
valid actions, no individual can simply say, ``No, thank you,
that is not how it works.''
That is not how orderly Government works, and we need to
make sure----
Senator Hagerty. Actually, I have served on many corporate
boards----
Mr. Chopra. ----it never happens again.
Senator Hagerty. ----and nonprofit boards. And working with
the chairman of the board is a key part of setting----
Mr. Chopra. Of course, and that is what I sought to do,
too. You know, you ultimately want an ability to be able to
compromise, and one Board member cannot simply say, ``Well, I
will only compromise, but you need to know I can crush or
suppress or muzzle anything you want to do.'' I mean, this is
not actually the American system.
Senator Hagerty. What are your thoughts about the precedent
that this sets when parties----
Chairman Brown. Answer the last question. Then we need to
move on for Senator Warnock.
Mr. Chopra. Could you repeat that? I am sorry.
Senator Hagerty. Your thoughts about the precedent that
this sets, particularly when there is another change of control
of the White House.
Mr. Chopra. Well, I think it is extremely important that we
always adhere to the law, bylaws, and precedent, and the
precedent at the FDIC is that Board members make motions, that
Board members vote, and that Board members can consult with the
career staff. Never before has that been violated before, and
we need to make sure it does not happen again.
Chairman Brown. Thank you, Director. Thank you, Senator
Hagerty.
Senator Warnock of Georgia is recognized.
Senator Warnock [presiding]. Thank you so much, Chairman
Brown. Director Chopra, great to see you again. Thank you for
the work that you are doing to protect the people in my home
State of Georgia and all across our country from deceit and
fraud perpetrated by bad actors in the financial industry.
According to the Kaiser Family Foundation, nearly one in
ten adults, or roughly 23 million people, owe medical debt. And
as of 2020, American families collectively owed over $140
billion in medical debt. In Georgia, there is over $120 million
in medical debt for over 100,000 people.
Last month in this Committee, we heard from experts that
people in States like Georgia that have not expanded Medicaid
suffer from higher medical debt, not surprisingly.
What State you live in should not determine whether or not
you have access to free or affordable health care or whether or
not you are forced deeper into medical debt, but that is the
situation we are in right now.
That is why I introduced the Medicaid Saves Lives Act, and
it is the reason I am fighting to close the coverage gap, to
ensure that everybody everywhere is able to see the benefits of
Medicaid and to receive health coverage. We are talking about a
law that has been on the books now for a decade and making sure
people have access to health care through the expansion of
Medicaid.
Director Chopra, in the CFPB's work on medical debt, is
there a difference that you are seeing in debt burdens among
residents of States that have expanded Medicaid and States like
Georgia and the other 11 States that have not?
Mr. Chopra. So, Senator, I do not have that analysis
offhand. What we do know is that for those who are uninsured,
they are much more likely to have higher levels of medical debt
and more likely to, I believe, have collections items on their
credit report. I am happy to check with you on that.
The big challenge I also think is that much of the medical
debt that appears on credit reports may not actually even be
owed. In many cases, these individuals may qualify for certain
charity care under the nonprofit rules that hospitals have to
adhere to. In some cases, they may benefit from their own
insurance that they may have. And so we need to make sure that
credit reports are accurate and not used as a weapon to force
people to pay debt that they do not even owe.
Senator Warnock. I would agree with that, certainly. But
would you agree there if people are less--if they are not
covered, they are more likely to be in debt? So that would
obviously include people----
Mr. Chopra. That sounds right.
Senator Warnock. ----in States that have not expanded
Medicaid, that do not have any kind of coverage, and they would
be more likely to have to resort to high interest credit cards.
Mr. Chopra. That is right.
Senator Warnock. Are you seeing that in your work?
Mr. Chopra. That is right. So in some cases, actually,
medical debt is even blocking people from getting care
altogether. I am particularly concerned that inaccurate medical
debt reporting is actually preventing people from even being
able to pass an employment verification check, to be able to
pass a tenant screening check, to be able to get credit. The
credit reporting system has serious issues with accuracy, and
medical debt is high among them.
Senator Warnock. Right. So because of lack of access to
care, lack of coverage, people find themselves in medical debt,
which also impacts, as you point out, their credit reporting,
impacting employment. So they are caught up in a cycle not only
of debt but unemployment and a whole range of other cascading
issues. Is that----
Mr. Chopra. Yeah, and after you get sick, you should want
to be able to get back on your feet, to get back to work, to
move to a place where you can be near your job, to be able to
rebuild your life. And for many people, they are so frustrated
that they also felt, ``I already paid this,'' or ``I never even
got this service,'' or ``This is sitting with the insurance
company.'' People are going nuts over how to deal with this,
and it is harming people.
Senator Warnock. I appreciate your observations here. I
think that health care is a human right. And, obviously, if it
is a human right, it is not a human right in some of the
States; it is a human right in all 50 States. The Affordable
Care Act has been on the books now for a decade, and the
situation is that people in States like Georgia who find
themselves in a coverage gap are more likely to be carrying
this huge medical debt. And so I look forward to working to
make sure that we get health care passed for all Americans.
I see that our Chairman is not here, and I want to call on
my colleague from the State of Maryland, Senator Van Hollen.
Mr. Chopra. Thank you, Senator.
Senator Van Hollen. Thank you, Senator Warnock. Welcome,
Director Chopra. It is great to see you. And that is a good
launching point for some of my questions, taking a little
deeper dive into medical debt. And I certainly agree with
Senator Warnock that we need to expand access under the
Affordable Care Act, including States like Georgia that are not
currently covered.
But to pick up on your point, we have seen, including in
your own report, that medical debt is less predictive of
creditworthiness than nonmedical debt, and you did a pretty
extensive series of findings in this regard. And we have seen
some credit scoring companies, like FICO and VantageScore,
update their models to reflect the latest research. But despite
the fact that we have some of these updates models, we still
see many lenders are not adopting those models that reflect the
latest research.
So my question to you is: Number one, why is this? And,
number two, what tools do you have to help move these lenders
in the direction that essentially reflects the latest research
with respect to medical debt? And can you work with the FHFA
and with Fannie Mae and Freddie Mac to encourage the use of
more accurate scoring models?
Mr. Chopra. Yeah, it is interesting. So many lenders, you
know, they are quite dependent on credit scores and other
algorithms that help predict creditworthiness. And one of the
things we have seen is that FICO did change one of its versions
to exclude certain medical debt items. But much of the industry
does not use that version. There is a whole host of reasons
why.
I think a lot of creditors are worried that they are not
able to give a good explanation to borrowers who they might
have given adverse terms to or denied them. As to why, it is
often really challenging for individuals to dispute through the
credit reporting system, to say, ``Look, I always paid this.
See this service with this procedure code and this copay? I
paid it.'' It is so much red tape, and they feel that they just
are stuck in a doom loop. And, you know, it really harms
people.
So I think there are all sorts of things that are happening
across the Government to take a harder look about the
appropriateness of excluding people because of allegedly owed
medical debt. The Department of Veterans Affairs has
dramatically changed its policies with respect to how it
reports medical debt for veterans. There is work being done at
the USDA and, yes, we are in discussions with the FHFA about
how should they think about medical debt in the mortgage
origination process. I really think we have to fix this because
this is a major consumer pain point. It is the number one
collections item now on people's credit reports, and so many
people just feel coerced into paying something they do not owe
when they are applying for a mortgage or a job or an apartment.
Senator Van Hollen. Right. Look, as you say, there are lots
of cases that are being disputed for good reasons, and yet
people still get penalized on their credit reports. And the
data shows--and that is why these credit scoring companies have
moved in the direction of the new research. I just hope you
will use the tools available to you and that others in the
Government will use the tools available to them to encourage
lenders who may be denying people credit because of outdated
information, that we move in the direction that you are talking
about. So I look forward to your leadership in that effort
because I know the issue of medical debt is something of great
concern to you.
So let me also turn to another issue that you and I have
discussed in the past--overdraft fees--and we have made some
progress in this area. You know, I have often used the example
of somebody going to buy a cup of coffee and it ends up costing
them 35 bucks, and then later in the afternoon they go buy some
more snacks and it costs them another 35 bucks because of
either overdraft fees or nonsufficient fund fees.
I have been pleased to see a number of banks begin to move
away from the exploitation of that, but, nevertheless, we are
talking about $15 billion in revenues from overdraft fees as a
result of the use of these fees.
Can you talk more about what your plans are to ensure that
we do not see abuse in abuse in this area?
Mr. Chopra. I see we are out of time, but we are looking at
a whole assortment of fees that, you know, many people do not
even want the service that is allegedly being provided. So we
are looking at this holistically. We have solicited comments on
the issue of junk fees and have gotten 80,000 comments. We are
looking at that carefully. But, you know, we are starting to
see the market compete. The market is competing down the level
of these fees. Some institutions are even offering the same
service and giving people a grace period without even charging
a hefty fee. And I think the benefits of competition are huge
when it comes to this.
Senator Van Hollen. Well, I hope there is a race among the
different providers in that direction.
Thank you, Mr. Chairman.
Chairman Brown [presiding]. Thank you, Senator Van Hollen.
Senator Toomey has a couple of questions he wants to ask,
and then Senator Reed will be back, and then we will wrap.
Senator Toomey?
Senator Toomey. Thank you, Mr. Chairman. Really, just a
closing thought on my part about this ongoing dispute we have
over the application of disparate impact under UDAAP.
I think what became clear during the course of the
conversation here is that the Director repeatedly, I think,
directly and implicitly, equates disparate impact with
discrimination. And the problem is they are two very different
things. Disparate impact is a statistical difference in some
kind of outcome between different demographic groups, and these
occur all the time for reasons that have nothing to do with
discrimination.
Now, Congress has rightly enacted all kinds of legislation
to forbid discrimination, and if someone thinks that there are
gaps in our legislative framework to ban discrimination, he
should come to Congress and we should fix it. But the decision
to invent a new authority and enforce this controversial
disparate impact theory under UDAAP, in my view this is
entirely inappropriate. It is not authorized. And let me be
clear about what I think is really going on here. It is not
just an attempt to unilaterally expand CFPB's authority, but it
seems to be an attempt to impose uniform financial outcomes
despite real and legitimate differences in financial
situations, financial needs, financial preference, and to use a
false characterization of discrimination to justify that.
Thank you, Mr. Chairman.
Chairman Brown. Thanks, Senator Toomey.
Senator Reed, last questioner.
Senator Reed. Thank you very much, Mr. Director. One issue
that I want to just generally raise and commend you is the
issue with respect to the Military Lending Act. I know you have
taken a much more positive approach. Could you give us some--
sort of fill in what you have been doing with respect to the
Military Lending Act?
Mr. Chopra. Yes, so we have actually filed a lawsuit
against FirstCash, one of the Nation's largest pawn lenders,
for violating a past law enforcement order related to the
Military Lending Act and continuing to violate the Military
Lending Act. The Military Lending Act is actually quite clear
with many respects, and that entity's order was even crystal
clear. So I think it is important that we stop repeat offenders
of the Military Lending Act.
We have also, with respect to another entity that violated
the Military Lending Act, banned them from certain types of
activities. We are also making sure that institutions are
following it. We will use our supervisory and enforcement tools
as appropriate.
There are also other agencies that enforce this as well,
and we hope that that can have a broad enforcement effort to
root out those violations.
We know the evidence, Senator, and you know it better than
me, that when we have people who lose their security clearance
or get their credit report killed, it is not just a harm to
them; it is a direct harm to our force readiness as well. We
really appreciate the Department of Defense working with us on
this because this is so important to our whole country.
Senator Reed. Thank you. As you know, the essence of the
Military Lending Act is the 36-percent cap on interest, and I
have legislation which I have tried to propose that would apply
not just to service men and women but to everyone, because I
think, in fact, everyone deserves that kind of protection from
excessive rates.
Would you be in favor of that?
Mr. Chopra. Well, you know how it is. I do not know the
specifics of the legislation, but, of course, as we saw in the
Military Lending Act, you know, servicemembers are still able
to get credit. In many cases, they use what almost everyone is
using for short-term, small-dollar lending: a credit card that
is subject to significant consumer protection. We have seen a
number of States enact rate caps, and I think this is an
important area for you all to look at.
Of course, the CFPB cannot establish that under our law,
and we are happy to work with you to provide any analysis or
feedback on your bill.
Senator Reed. Well, thank you very much, and I want to
thank Senator Brown and Senator Toomey for graciously
continuing the hearing so I could ask my questions. And I want
to commend you for the excellent work you are doing. Thank you
very much.
Mr. Chopra. Thank you so much, Senator.
Chairman Brown. Well, Senator Toomey grew up in your State,
and my grandchildren live in your State, so it was an easy
decision.
Senator Reed. And Senator Toomey went to my high school.
Chairman Brown. He went to your high school--way after.
Senator Toomey. Well before you.
[Laughter.]
Senator Reed. He is the senior. He just looks better.
Chairman Brown. Director, thank you for your testimony
today and your patience always. Few Government agencies, few
jobs in our country, private or public, have the kind of
positive impact on so many lives that you do and your agency
does.
Senators wishing to submit questions, they are due 1 week
from today, Tuesday, May 3rd. Please submit your responses to
these questions, Director Chopra, for the record no more than
45 days after you receive them.
Thank you again. The Committee is adjourned.
[Whereupon, at 11:51 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 back Director Chopra.
American workers need a strong Consumer Financial Protection Bureau
on their side. With you at the helm, they finally have one again.
We know how much power corporations and their wealthy CEOs have in
this country.
In 2021, last year, CEOs made 254 times more than the average
worker.
In the same year, corporate profits reached unprecedented levels--
the highest ever recorded.
And predictably, too many corporations are growing their profit
margins on the backs of families. CEOs complain about rising costs,
they blame workers, they claim they just have to raise prices--all
while funneling more profits to themselves than ever.
And I guess that CEOs just have to make 254 times more than the
workers who make their companies successful.
That's no coincidence.
After decades of growing market concentration, consumers and small
businesses are at the mercy of ever larger, ever more powerful, ever
more unaccountable corporations. Senator Tester is discussing in the
Agriculture Committee right now, discussing what this means for
farmers.
They raise your costs, mislead you, even scam you--too often with
little accountability and no meaningful consequences. They have armies
of high-priced lobbyists and attorneys ready to fight anyone who dares
to take them on.
Normal people don't have those kinds of resources. They don't have
a white-shoe law firm on retainer. They don't have an insider on K
Street looking out for them.
But now they have you, Director Chopra. They have you and the
dedicated public servants at the CFPB, fighting to make sure Americans
keep more of their hard-earned money.
For 4 years, the CFPB was run by a director and pressured by an
Administration that always--always--looked out for corporations over
workers.
The director was a favorite of payday lenders. Instead of being a
voice for consumers, they turned the agency into yet another arm of
corporate power.
Your work for consumers could not be more different.
When you testified in October, after you were sworn in, you
introduced your agenda to usher in a new era of consumer protection.
And we are already seeing the results.
The Bureau challenged ``junk fees'' that banks and credit card
companies collect.
According to the CFPB's research, in 2019, major credit card
companies charged consumers $14 billion in punitive credit card fees
and banks charged consumers more than $15 billion in overdraft and
nonsufficient funds fees.
Americans are paying tens of billions--billions with a ``b''--in
credit card and overdraft fees.
By pushing banks to stop taxing consumers with junk fees, the CFPB
is keeping money in Americans' bank accounts, not on corporate profit
statements.
You've also worked as part of the PAVE Interagency Task Force to
examine the process behind the valuation of what is the single biggest
source of most families' wealth--their home.
You are working to identify and root out discrimination and bias in
the appraisal process that hurts homeowners and communities and
contributes to the wealth disparities we see today.
And you've started the long-overdue work to ensure consumers and
our housing system aren't subject to defective appraisal models with
discrimination baked in.
The CFPB is also doing important and effective work to address the
growing crisis of medical debt that burdens American families.
An estimated 43 million Americans hold $88 billion dollars of
medical debt on their credit reports.
It's been a problem for years--even decades.
And in just a few short months on the job, you've already
successfully pressured companies to make meaningful changes.
After increasing scrutiny from the CFPB, last month the three
credit reporting bureaus--Equifax, Experian, and TransUnion--all
announced they would finally change how they report medical collection
debt.
These changes are expected to remove nearly 70 percent of medical
debt in collections from credit reports.
This is a positive first step that will make sure people with
medical debt don't see their credit ruined simply because they or a
loved one got sick.
That's also why Congress passed the No Surprises Act, which took
effect on January 1st.
The CFPB wasted no time in letting debt collectors and credit
bureaus know they can't surprise consumers with medical bills, and that
they have new responsibilities under the new law.
You have put companies on notice that if they try to cheat
consumers, you'll be going after them.
Just yesterday, you announced that the CFPB will use its
Congressional authority to examine nonbanks. As their market share
increases, it is important that fintechs and other nonbanks are
properly supervised, to ensure consumers are protected from shady
companies.
One of your first major agenda items was to make sure repeat
violators of consumer protection laws don't keep getting away with
scamming and stealing from consumers.
I look forward to hearing about the steps you've taken to crack
down on repeat offenders--like big banks and credit reporting agencies.
That's what we ought to be talking about today.
But I expect my Republican colleagues to do what they've done for
years--launch baseless attacks against CFPB's existence and question
its authorities, transparency, and accountability.
It's not that surprising they want to distract people with
convoluted process arguments. When people hear the plain truth about
the CFPB, it's a pretty simple contrast:
Whose side are you on? Are you on the side of corporations that
scam people? Or are you on the side of hardworking Americans who want
to keep more of their money?
Congress created the CFPB to protect consumers, and help level the
playing field with powerful, unaccountable corporations.
And Congress placed the CFPB Director on the FDIC Board, so that
the FDIC will act with consumers in mind.
Last year, a majority of the FDIC Board, on which Congress placed
you, put forth a proposal to request information from the public on the
bank merger process.
In an unprecedented move, the former Chair ignored the Board's long
history of bipartisanship and collegiality and refused to make this
request an agenda item. Even though it was proposed according to the
FDIC's rules and backed by a majority of the Board.
As CFPB Director and member of the FDIC Board, you are doing your
job-fighting, and standing up for hundreds of millions of consumers and
small banks and businesses and their communities, rather than big
corporations.
You have also shown that you are willing to meet and work with
anyone--Republicans and Democrats--to fulfill that mission.
We hear a lot of talk from the other side of the dais about the
virtues of capitalism.
For markets to work, they have to be fair, transparent, and
competitive. And that's why we created the CFPB--to ensure that the
financial marketplace is fair for everyone, and corporations cannot rig
the system and get away with it.
I look forward to hearing your testimony on your consumer agenda.
______
PREPARED STATEMENT OF SENATOR PATRICK J. TOOMEY
Mr. Chairman, thank you.
The CFPB began its existence under the Obama administration as a
lawless and unaccountable agency. Unfortunately, under Director Chopra,
the CFPB is more out of control than ever before. It's once again
pursuing a subversive far-Left agenda by abusing--and exceeding--its
authorities.
Three weeks ago, the CFPB announced an unprecedented claim of new
authority, without congressional authorization or even a public notice-
and-comment rulemaking process. Rather, it simply issued a fiat. The
CFPB claimed the authority to sue financial services providers for
discrimination without any evidence of discriminatory intent.
Now, I want to make clear that Congress charged the CFPB with
enforcing laws that protect against discrimination in consumer finance.
The CFPB should enforce those laws.
But that's not what it's doing here. Instead, the CFPB unilaterally
decided that Dodd-Frank's grant of authority to prevent unfair,
deceptive, or abusive acts or practices, known as UDAAP, now includes
disparate impact liability.
The idea of disparate impact liability is that a statistical
difference in outcomes between demographic groups is proof of
discrimination even when there is no discriminatory intent. For
example, if more Asian than Hispanic customers use a bank's overdraft
service, and thus pay more in overdraft fees, the CFPB could claim the
bank's overdraft policy has a disparate impact, and issue harsh
punishments.
In many American households, women manage the checkbook, so in
theory the CFPB could claim overdraft policies have a disparate impact
on women. In the past, when overseeing auto-lenders, the CFPB has
``discovered'' discrimination even on the part of lenders who didn't
know the race of the borrowers they were accused of discriminating
against.
The problem is Dodd-Frank did not authorize disparate impact
liability under UDAAP. In the 12 years since Dodd-Frank was enacted,
the CFPB has never claimed that the law did. And Congress never
contemplated that it would.
That's because Dodd-Frank's unfair acts or practices language was
taken from the Federal Trade Commission Act of 1914. And for a century,
the FTC has never once treated that language as including disparate
impact liability.
To make matters worse, the CFPB implemented this controversial
change in law without an open and transparent rulemaking. Instead, the
CFPB issued a press release announcing it had updated its supervision
manual.
This is all particularly troubling given the Obama CFPB's
controversial history with disparate impact enforcement against lenders
under the Equal Credit Opportunity Act. That enforcement campaign was
not authorized by statute and was based on bad data and a fatally
flawed methodology. This notably led Congress to overturn the CFPB's
disparate impact guidance for auto lending in 2018.
Now, invoking UDAAP, the CFPB is attempting to supervise for
disparate impact not only in lending, but in all consumer financial
services and products--in effect extending the very policy that
Congress recently overturned. A harmful consequence of this
unauthorized stealth rulemaking is that it will create tremendous
uncertainty among regulated entities.
Every decision and action businesses take, including even their
advertising and marketing, may subject them to disparate impact
liability, despite their often having no way of knowing whether a
disparate impact will occur. Unfortunately, we can expect the CFPB to
continue disregarding its rulemaking obligations in the future.
The CFPB recently changed its rules of adjudication to make it
easier to engage in regulation by enforcement. This grossly unfair
practice occurs when agencies fail to set clear rules of the road
before bringing enforcement actions.
Under these new rules, Director Chopra can bypass an administrative
law judge in enforcement cases and rule directly on substantive legal
issues. As a result, he can now authorize his staff to bring an
enforcement case based on a novel legal theory and then he can
personally rule that it's a valid theory.
These are not the only examples of the CFPB's overreach under
Director Chopra. He has consistently sought to involve the CFPB in
competition and antitrust law, which is outside its jurisdiction.
For example, the CFPB has falsely justified its campaign against
bank overdraft fees as a means of ``promoting competition.'' And it has
demanded information from tech companies operating payment systems to
examine whether they're acting ``anticompetitively.''
At the same time, the CFPB is taking actions that will harm
competition. It has proposed an overly burdensome data collection rule
for small business lending that will likely increase credit costs and
adversely affect competition by driving lenders out of the market.
Unfortunately, the CFPB is not the only agency that's out of
control because of Director Chopra. Last year, he helped lead a hostile
and illegitimate takeover of the FDIC, where he sits on the board.
Director Chopra and FDIC Director Marty Gruenberg--whose FDIC term
expired over 3 years ago--took unprecedented actions to force out FDIC
Chairman Jelena McWilliams.
Upon seizing control, they are now using the FDIC to advance their
left-wing partisan agenda. In the process, they recklessly destroyed
institutional norms built up over the FDIC's 88-year history, and
severely damaged the longstanding principle that financial regulators
should operate free from partisan politics.
King Louis XIV famously said, ``L'etat c'est moi,'' meaning ``I am
the State.'' All political authority rested with one man. It seems the
CFPB under Director Chopra believes it has similar authority.
Under Director Chopra, the CFPB is more out of control than ever
before, and the contagion is spreading. It's past time for Congress to
bring accountability to the CFPB by making it subject to the
appropriations process and enacting other needed reforms. The current
Congress won't do that. The next one should.
______
PREPARED STATEMENT OF ROHIT CHOPRA
Director, Consumer Financial Protection Bureau
April 26, 2022
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 (CFPB) submission of
the Semiannual Report to Congress.
In my first 6 months as Director, the Consumer Financial Protection
Bureau has refocused its efforts to align with the objectives that
Congress set out for the agency. I have outlined some of the highlights
of this work below.
Focusing Enforcement on Repeat Offenders and Other Major Market Actors
When small businesses violate the law, Federal enforcers are often
quick to levy crippling sanctions. But when larger players repeatedly
violate the law, agencies are far more lenient. This is highly
inappropriate.
I am committed to ensuring that the CFPB does not follow this path.
The CFPB is shifting enforcement resources away from investigating
small firms and instead focusing on repeat offenders and large players
engaged in large-scale harm.
For example, in recent months, we have filed lawsuits against two
very large firms, FirstCash and TransUnion, that violated law
enforcement orders and other consumer financial protection laws. In
both cases, the entities willingly consented to an order and were on
clear notice of their obligations. The CFPB alleges that both firms
violated their orders and continued to violate the law.
The CFPB and the New York Attorney General also recently filed a
lawsuit against MoneyGram, one of the biggest providers of remittances
worldwide, for violating rules required by Congress in the money
transfer market, despite being granted many chances to come into
compliance.
During my tenure, the CFPB will not only focus on large actors
engaged in widespread harm, but also enforce the law as written. I
expect that this may lead to more litigation, but also lend greater
legitimacy to agency actions.
Enhancing Transparency Through Guidance
Laws work best when they are easy to understand, easy to follow,
and easy to enforce. During my tenure, the CFPB will dramatically
increase its issuance of guidance documents, such as advisory opinions,
compliance bulletins, policy statements, and other publications. We
have already begun to do so on a wide variety of topics.
These efforts help entities comply with laws passed by Congress by
either providing further clarity where needed or drawing attention to
an already clear legal requirement. They also promote consistency among
the many Government actors responsible for enforcement of Federal
consumer financial law, including other Federal regulators and State
and tribal Attorneys General across the country. The CFPB is especially
interested in areas where guidance can support compliance efforts by
small institutions and new entrants.
Rethinking Our Approach to Regulations
When Congress and the President enact laws that direct or authorize
the promulgation of regulations, agencies should not ignore them. \1\ I
am committed to ensuring that the CFPB takes meaningful steps to carry
out legislative directives.
---------------------------------------------------------------------------
\1\ For example, when I served as a Commissioner on the Federal
Trade Commission, my office conducted an analysis that identified
several pieces of legislation signed into law by President Bill
Clinton, President George W. Bush, and President Barack Obama that the
Commission largely ignored.
---------------------------------------------------------------------------
At the time I became Director, the CFPB had not made any
significant progress on the development of several rules that Congress
authorized in the Consumer Financial Protection Act, including under
Section 1033, a provision that could increase competition and choice in
consumer financial markets. In addition, the agency is working to
implement Section 1071 of the Act, regarding small business data. This
is not a discretionary rule, and the CFPB is subject to a court order
to ensure it is implemented in a timely fashion.
In December 2021, Congress amended the Fair Credit Reporting Act to
assist survivors of human trafficking and required the CFPB to
implement regulations within 180 days. The CFPB has already published a
proposal for public comment and is working to complete the rulemaking
to comply with the deadline set by Congress.
More broadly, I am concerned that the approach to regulations
pursued by Federal banking agencies is excessively complicated. I have
asked CFPB staff to put a higher premium on simplicity and ``bright
lines'' whenever possible. We are also reviewing rules that the agency
inherited from the Federal Reserve Board of Governors to identify
opportunities for improvement.
The CFPB has also launched a new process to allow the public to
more freely exercise the Constitutional right to petition the
Government. Our new process will allow us to hear directly from the
public about potential regulations that should be developed or amended.
Listening and Learning From the Business Community
While large depository and nondepository institutions have direct
access to the CFPB through our supervision program, many other
businesses also have a stake in the CFPB's policies. During my
confirmation process, I received feedback that the CFPB was extremely
responsive to large financial institutions, but not sufficiently
committed to listening and learning from local financial institutions
and the broader business community. I take this criticism seriously and
I have directed a number of changes to the agency's status quo
approach.
A key priority for me has been to engage with institutions without
direct access to the CFPB, including small banks and credit unions. I
have been fortunate to meet with many State-based associations to speak
directly with community banks and credit unions, and I hope to meet
with all of these associations during my term in office.
The CFPB is also engaging with a broad range of other businesses
and associations, including health care providers, automobile dealers,
farmers, hotel owners, retailers, and more. While these industries
generally engage in business practices that fall outside the scope of
the CFPB's authority, they are deeply affected by the laws the agency
administers. These efforts will help the CFPB be more attuned to the
needs of businesses across the economy.
Promoting Competition
In our market system, one of the best ways that consumers can
protect themselves is to switch from providers that treat them poorly.
This is why Congress established as a primary objective that the CFPB
seek to ensure that markets for consumer financial products and
services are fair, transparent, and competitive.
Competition leads to innovation, attractive rates, quality service,
and benefits that may be difficult to quantify. But when consumers do
not get to select their provider or when switching is complex or
difficult, it can lead to stagnation, junk fees, and poor treatment.
Indeed, in many markets for consumer financial products and services,
like loan servicing and credit reporting, consumers have no choice of
provider.
In addition to implementation of rules under Section 1033, we will
be launching other initiatives to identify ways to lower barriers to
entry and increase the pool of firms competing for customers based on
quality, price, and service. We are especially interested in ways that
small financial institutions can leverage technology and systems, like
the planned FedNow program, to capture market share while still
preserving their relationship banking model.
Preparing for the Era of Big Tech and Big Data in Banking
America's consumer finance infrastructure is the plumbing for an
enormous amount of economic activity. New technologies and systems can
bring us faster payments and new opportunities to connect customers and
financial providers. During my tenure, the CFPB will be very focused on
what the future holds and how we can collectively shape it in ways that
align with American values.
Currently, the United States is lurching toward a consolidated
market structure where finance and commerce comingle fueled by
uncontrolled flows of consumer data. This is the market structure that
has emerged in China, where Alipay (operated by Ant Group, formerly
known as Alibaba) and WeChat Pay (operated by Tencent) predominate.
Alipay is part of the same conglomerate that dominates e-commerce, and
WeChat Pay is connected to the dominant messaging app.
These super apps have access to an extraordinary set of data about
consumers and businesses, including financial businesses that they may
compete with. Over the last several years, Chinese tech and finance
giants have developed so-called ``social scoring'' that goes beyond
credit performance and relies on analyzing user habits unrelated to
credit and banking. \2\
---------------------------------------------------------------------------
\2\ See, for example, John Gapper, ``Alibaba's Social Credit
Rating Is a Risky Game'', Financial Times (February 21, 2018), https://
www.ft.com/content/99165d7a-1646-11e8-9376-4a6390addb44.
---------------------------------------------------------------------------
The outsized influence of such dominant tech conglomerates over the
financial services ecosystem comes with risks and raises a host of
questions about privacy, fraud, discrimination, and more. The CFPB is
currently studying these issues first as part of our inquiry into Big
Tech's entry into consumer payments in the United States. The agency
has issued a set of orders to Google, Facebook, Amazon, Apple, PayPal,
and Block (formerly Square) to further understand key issues on their
plans for consumer payments. We expect to issue reports on our research
to contribute to the critical policy discussions about the future of
consumer finance and relationship banking in our country.
Thank you again for the opportunity to appear before you, and I
look forward to answering your questions.
RESPONSES TO WRITTEN QUESTIONS OF CHAIRMAN BROWN
FROM ROHIT CHOPRA
Q.1. Recently, NPR found that student loan servicers mismanaged
the income driven repayment (IDR) program, a program designed
to help low-income borrowers. \1\ Their mismanagement caused
significant harm to borrowers with the lowest incomes. To
address some of the problems with IDR, the Department of
Education recently announced changes to the program, which
includes working in partnership with the CFPB.
---------------------------------------------------------------------------
\1\ https://www.npr.org/2022/04/01/1089750113/student-loan-debt-
investigation
---------------------------------------------------------------------------
How does the CFPB plan to ensure that student loan
servicers that manage IDR properly comply with the recent
changes to the program, so that borrowers are able to reap the
benefits of the recent IDR reforms?
A.1. The Consumer Financial Protection Bureau (CFPB) is working
to ensure that servicers comply with Federal consumer financial
law, including by taking supervisory and enforcement action
when servicers have given student loan borrowers inadequate or
incorrect information about their repayment and forgiveness
options. Earlier this year, the CFPB put student loan servicers
on notice that we are prioritizing student loan servicing
oversight work in the deployment of our enforcement and
supervision resources. \2\ Our efforts include working closely
with the Department of Education. We will hold servicers
accountable for providing inaccurate information and failing to
support student loan borrowers in accessing benefits provided
for them.
---------------------------------------------------------------------------
\2\ https://www.consumerfinance.gov/about-us/newsroom/cfpb-steps-
up-scrutiny-of-student-loan-servicers-who-deceive-borrowers-about-
public-service-loan-forgiveness/
Q.2. An investigative report found that for-profit schools are
steering students towards Buy Now, Pay Later (BNPL) products as
a form of student loan. \3\ Is the CFPB aware of this practice
by for-profit colleges and, if so, what steps will the CFPB
take to ensure consumers are protected?
---------------------------------------------------------------------------
\3\ https://protectborrowers.org/wp-content/uploads/2022/03/SBPC-
BNPL.pdf
A.2. Pursuant to the CFPB's market monitoring authority granted
by the Dodd-Frank Wall Street Reform and Consumer Protection
Act, the CFPB issued a series of orders requesting information
to companies offering Buy Now, Pay Later (BNPL) credit in
December 2021. \4\ These orders identified our concerns in the
BNPL market about accumulating debt, regulatory arbitrage, and
data harvesting in a consumer credit market already quickly
changing because of technology. The orders require receiving
companies to provide information about the amount of originated
BNPL transactions for tuition, fees, and any related expenses
for technical, training, or educational certificates, degrees,
or courses. \5\
---------------------------------------------------------------------------
\4\ https://www.consumerfinance.gov/about-us/newsroom/consumer-
financial-protection-bureau-opens-inquiry-into-buy-now-pay-later-
credit/
\5\ https://files.consumerfinance.gov/f/documents/cfpb-bnpl-
sample-order-2021-12.pdf
---------------------------------------------------------------------------
Our efforts to gather information from the BNPL companies
pursuant to the orders is ongoing, but we anticipate publishing
aggregated findings on insights learned from this inquiry that
will guide future CFPB action.
------
RESPONSES TO WRITTEN QUESTIONS OF SENATOR TOOMEY
FROM ROHIT CHOPRA
Q.1. CFPB Examination Manual Update on UDAAP--At the April 26,
2022, hearing before the Senate Banking Committee, I asked you
about the CFPB exam manual's unprecedented use of Unfair,
Deceptive, and Abusive Acts or Practices (UDAAP) authority to
justify disparate impact authority. You stated ``that's not
what is in the manual actually.'' \1\ When I challenged this
claim, you repeated: ``That is not what is in the manual.'' \2\
In a hearing before the House Financial Service Committee the
very next day, when asked to clarify your statement to me, you
said, ``So just to be clear, disparate impact is not part of
UDAAP. Disparate impact is what the courts have determined is
part of certain very specific laws, including the Equal Credit
Opportunity Act that we do enforce.'' \3\ When asked to confirm
that your answer was that you do not have the authority to
stretch disparate impact into UDAAP, you replied in part:
``That's a different legal doctrine. Unfairness has a different
one.'' \4\
---------------------------------------------------------------------------
\1\ https://plus.cq.com/doc/transcriptswire-
6519354?0&segmentLink=O13-20220426
\2\ Id.
\3\ https://plus.cq.com/doc/congressionaltranscripts-6520840?2.
Your claim that disparate impact is part of the Equal Credit
Opportunity Act is highly contestable. The test the U.S. Supreme Court
used in Inclusive Communities to find that the Fair Housing Act
prohibits disparate impact would find that the Equal Credit Opportunity
Act does not authorize disparate impact liability.
\4\ Id.
---------------------------------------------------------------------------
However, your characterizations of the examination manual
in your testimony to Congress contradict the new examination
manual itself, the CFPB's characterization of the manual, and
prior activist arguments made by you and CFPB's acting general
counsel claiming UDAAP can be extended to include disparate
impact.
On March 16, 2022, the CFPB announced an unprecedented
claim of new authority to punish financial services providers
for disparate impact (a theory that the Government can treat
statistical disparities in outcomes as a form of prohibited
discrimination, even in the absence of evidence of
discriminatory intent) using the CFPB's authority to prevent
Unfair, Deceptive, and Abusive Acts or Practices. The CFPB did
this, not by notice-and-comment rulemaking, but by publishing
an updated examination manual reflecting this change to UDAAP.
The updated examination manual's UDAAP Procedures section
begins with ``General Guidance'' for all UDAAP exams, which
directs examiners to ``obtain and review'' documents including:
``Information collected, retained or used regarding customer
demographics, including the demographics of customers using
various products or services, and the breakdown of consumer
demographics for various product uses, fees, revenue sources
and costs, or the impacts of various products and services on
specific demographics.'' \5\ For servicing and collecting,
specifically, the examination manual's UDAAP Procedures section
directs examiners to consider whether ``the entity ensures that
employees and third party contractors refrain from engaging in
servicing or collection practices that lead to differential
treatment or disproportionately adverse impacts on a
discriminatory basis.'' \6\ For employees and third parties
interacting with consumers, the manual directs examiners to
consider whether the ``entity has a process to take prompt
corrective action if the decision-making processes it uses
produce deficiencies or discriminatory results.'' \7\
---------------------------------------------------------------------------
\5\ https://files.consumerfinance.gov/f/documents/cfpb-unfair-
deceptive-abusive-acts-practices-udaaps-procedures.pdf (emphasis
added).
\6\ Id. (emphasis added).
\7\ Id. (emphasis added).
---------------------------------------------------------------------------
This is what disparate impact theory regulation looks like,
and it is consistent with the express characterization in the
CFPB's press release announcing the examination manual update.
It stated: ``The CFPB published an updated exam manual today
for evaluating UDAAPs, which notes that discrimination may meet
the criteria for `unfairness'. . . . Consumers can be harmed by
discrimination regardless of whether it is intentional. . . .
CFPB examiners will require supervised companies to show their
processes for assessing risks and discriminatory outcomes,
including documentation of customer demographics and the impact
of products and fees on different demographic groups.'' \8\
---------------------------------------------------------------------------
\8\ https://www.consumerfinance.gov/about-us/newsroom/cfpb-
targets-unfair-discrimination-in-consumer-finance/ (emphasis added).
---------------------------------------------------------------------------
Your denial of having extended UDAAP to disparate impact
with the examination manual update rings hollow because you
have previously argued the same language authorizes disparate
impact authority. While serving on the Federal Trade Commission
(FTC) in 2020, you issued an individual statement on an FTC
enforcement action, arguing that the FTC Act's grant of
``UDAP'' authority would empower the FTC to pursue a disparate
impact violation. At the time, you wrote, ``Using disparate
impact analysis and other tools, the [FTC] can use its
unfairness authority to attack harmful discrimination in other
sectors of the economy.'' \9\ The FTC Act's language on UDAP
was essentially copied and pasted nearly verbatim into Dodd-
Frank. It's worth noting that in a century of precedent, the
FTC has never interpreted to address disparate impact (or even
discrimination).
---------------------------------------------------------------------------
\9\ https://www.ftc.gov/system/files/documents/public-statements/
1576002/bronx-honda-final-rchopra-bronx-honda-statement.pdf (emphasis
added).
---------------------------------------------------------------------------
Moreover, the CFPB and FTC were urged to stretch UDAAP/UDAP
to include disparate impact by an activist group founded and
directed by Seth Frotman, your Acting General Counsel and
Senior Advisor at the CFPB. The 2021 paper was co-authored by
Stephen Hayes, who had worked at the CFPB at the same time as
Mr. Frotman, beginning under CFPB Director Richard Cordray. The
paper argues for an `` `unfairness-discrimination' application
of UDA(A)P laws'' and states that ``this application would
ensure that disparate impact liability exists in these areas .
. . Federal and State agencies could pursue this theory in
enforcement and supervision immediately.'' \10\
---------------------------------------------------------------------------
\10\ https://protectborrowers.org/wp-content/uploads/2021/04/
Discrimination-is-Unfair.pdf
---------------------------------------------------------------------------
In light of your confusing and misleading statements to
Congress, further clarification is needed.
Under UDAAP, does the CFPB have the authority to prohibit,
supervise for, enforce, or in any way be able to punish
disparate impact in the provision of consumer financial
services or products?
A.1. The Consumer Financial Protection Bureau (CFPB) has
authority under the Dodd-Frank Wall Street Reform and Consumer
Protection Act (Dodd-Frank Act) to identify, prohibit,
supervise for, and enforce for violations of the prohibition on
unfair practices committed by any covered person or service
provider in connection with any transaction for, or offer of, a
consumer financial product or service. The Dodd-Frank Act
provides the following standard for establishing a violation of
the prohibition on unfair acts or practices: (1) the act or
practice causes or is likely to cause substantial injury; (2)
that is not reasonably avoidable by the consumer; and (3) not
outweighed by countervailing benefits to consumers or
competition.
The CFPB's update to the UDAAP exam manual does not change
existing law; it simply directs examiners to assess whether
discriminatory conduct may violate the Dodd-Frank Act's
prohibition on unfair practices. For unfairness claims, the
UDAAP exam manual restates the statutory standard as the basis
for determining whether the conduct violates the prohibition on
unfair practices. This standard for establishing a violation of
the Dodd-Frank Act's prohibition on unfair practices requires
the CFPB to consider the injury caused by the conduct, and does
not require an element of intent. Injury can come in the form
of monetary harm, such as lost access to or a higher price for
a consumer financial product or service as compared to other
consumers.
Your question asks if the CFPB can ``punish disparate
impact.'' Disparate impact, along with disparate treatment, is
a longstanding legal doctrine under various civil rights laws
recognized by Federal courts and used by regulators, agencies,
and others for nearly five decades. It is used to prove illegal
discrimination under numerous laws, including the Fair Housing
Act, Title VII of the Civil Rights Act of 1964, and the Equal
Credit Opportunity Act. It is, however, a wholly distinct
concept from the Dodd-Frank Act's prohibition on unfair
practices. In assessing whether conduct violates the
prohibition on unfair practices, the key question is not
whether conduct constitutes discrimination, but whether that
conduct--discriminatory or otherwise--satisfies the standard
for establishing a violation as set forth in the Dodd-Frank
Act.
Q.2. Does the CFPB have the authority to issue a supervisory
finding premised on disparate impact in the provision of
noncredit financial services or products such as checking
accounts?
A.2. The CFPB has the authority to issue supervisory findings
related to compliance with Federal consumer financial laws. If
a financial company violates the prohibition on unfairness,
including through engaging in discriminatory acts or practices
that meet the statutory unfairness criteria, this can form the
basis of a supervisory finding.
Q.3. Will you commit that while you are CFPB Director the CFPB
will not assert that it has the authority under UDAAP to
prohibit, supervise for, enforce, or in any way punish
disparate impact in the provision of consumer financial
services or products?
A.3. The CFPB will enforce the law as established by Congress,
based on facts and evidence.
Q.4. FDIC Hostile Takeover--As part of your hostile takeover of
the FDIC Board, on December 9, 2021, you circumvented the FDIC
staff by using the CFPB website to post a request for
information (RFI) that you claimed had been issued by the FDIC,
\11\ and to post a statement issued by you and FDIC Director
Marty Gruenberg in your roles as FDIC directors. \12\ You also
posted a lengthy entry on the CFPB blog on December 14, 2022,
announcing your actions at the FDIC and denigrating the FDIC
Chairman and General Counsel. \13\ And, you circulated a memo
making a legal argument purporting to justify circumventing the
FDIC Chairman's longstanding power to set the voting agenda of
the FDIC Board (a document you then personally authorized
leaking to the press, according to your testimony to the House
Financial Services Committee on April 27, 2022). \14\ However,
the Dodd-Frank Act is clear that ``funds obtained by,
transferred to, or credited to the Bureau Fund shall be
immediately available to the Bureau and under the control of
the Director, and shall remain available until expended, to pay
the expenses of the Bureau in carrying out its duties and
responsibilities.'' \15\
---------------------------------------------------------------------------
\11\ https://files.consumerfinance.gov/f/documents/cfpb-bank-
merger-act-rfi-2021-12.pdf. See also https://www.consumerfinance.gov/
about-us/blog/how-should-regulators-review-bank-mergers/.
\12\ https://files.consumerfinance.gov/f/documents/cfpb-bank-
merger-act-rfi-joint-statement-2021-12.pdf
\13\ https://www.consumerfinance.gov/about-us/newsroom/statement-
of-cfpb-director-rohit-chopra-member-fdic-board-of-directors-december-
open-meeting-of-the-board/
\14\ https://plus.cq.com/doc/congressionaltranscripts-6520840?2
\15\ 12 U.S.C. 5497(c)(1).
---------------------------------------------------------------------------
Did you use CFPB funds for the costs of generating,
publishing, or publicizing these documents related to the FDIC
(including employee time)?
If so, did you consult the CFPB's Legal Department in
advance about whether this was legally permissible?
Which CFPB employees or officers worked on any of these
documents related to the FDIC, or any other issues pertaining
to the FDIC?
How many hours did each of these employees or officers work
on these FDIC matters?
What is the salary of each of these employees or officers?
A.4. In the Dodd-Frank Act, Congress mandated that the CFPB
Director serve on several outside bodies, including as a member
of the Federal Deposit Insurance Corporation (FDIC) Board of
Directors, the Financial Stability Oversight Council, and the
Federal Financial Institutions Examination Council. Since its
inception, the CFPB has expended resources (including personnel
time) to carry out these statutorily mandated responsibilities,
as authorized by the Dodd-Frank Act. \16\
---------------------------------------------------------------------------
\16\ See 12 U.S.C. 5492(a) (the CFPB can ``use and [expend]
funds'' to implement Federal consumer financial law and ``perform[]
such other functions as may be authorized or required by law'')
---------------------------------------------------------------------------
The CFPB's discharge of its legal duties related to the
Director's service on the FDIC board not only comports with
Federal law, but also is consistent with the procedures used by
past CFPB Directors. Since the CFPB's inception, CFPB employees
have regularly advised the agency's Director on issues
pertaining to his or her role on the FDIC Board. Other than in
certain litigation matters, the CFPB does not require employees
to track hours spent on specific matters.
Q.5. You have provided conflicting and evasive testimony before
Congress regarding the legal memo you circulated purporting to
justify circumventing the FDIC Chairman's longstanding power to
set the voting agenda of the FDIC Board. At the April 26, 2022,
hearing before the Senate Banking Committee, I asked you who
worked on drafting this memo, and you responded that it was
``the general counsels and legal advisers of the CFPB,'' and
you immediately added ``and the OCC.'' \17\ In a hearing before
the House Financial Services Committee the very next day, you
denied having indicated to me the day before that the OCC and
the CFPB general counsels worked on the memo together,
claiming: ``I don't believe that. What I said was that the
legal issues were discussed across the agencies . . . .'' \18\
You also stated that ``the legal analysis related to the FDIC
was shared with the FDIC and others.''
---------------------------------------------------------------------------
\17\ https://plus.cq.com/doc/transcriptswire-
6519354?0&segmentLink=O13-20220426
\18\ https://plus.cq.com/doc/congressionaltranscripts-6520840?2
---------------------------------------------------------------------------
What are the names, titles, and organizations of the
individuals, whether inside or outside of the Federal
Government, who had any involvement in the creation of this
legal memo, to include drafting it, editing it, reviewing it,
providing feedback or comments on it, or any other involvement?
Did the OCC's General Counsel or legal advisers work on the
memo?
Did anyone else work on drafting the memo?
With whom else did you share the legal memo? Did you share
it with them before or after authorizing leaking it to the
press?
Who else, inside or outside of the Federal Government,
provided any thoughts or discussed with you or any other CFPB
employee or officer, either the memo or any arguments or
analysis whatsoever related to the legal issues discussed in
the memo?
A.5. I was deeply disturbed by the actions by FDIC political
leadership that precipitated former Chairman McWilliams'
resignation last December. These actions were an egregious
violation of the rule of law. The former Chairman engaged in an
unprecedented attempt to nullify the vote of a supermajority of
the Board of Directors, without any legal justification and in
contravention of the governing structure created by Congress.
At the National Credit Union Administration (NCUA), the
Chairman presides over a board that consists of a majority of
members affiliated with a political party different than his
own. However, the NCUA Board Chairman has worked constructively
with this board, while recognizing the Board majority's
authority. It is unfortunate that the leadership team that
resigned at the FDIC did not follow a similar path.
The memo to which you are referring provides a legal
analysis of the FDIC Board's authority--in particular whether
the Chairperson can unilaterally prevent a majority of the
Board from making decisions for the Corporation. The legal memo
makes clear, based on analysis of the Federal Deposit Insurance
Act and the FDIC Board's Bylaws, that the FDIC Chairperson does
not have such authority. To the extent there is any confusion
regarding this issue as a result of cross-talk during the two
hearings, I want to make clear that that legal memo was the
work product of CFPB staff.
The CFPB sent this legal memorandum to former FDIC General
Counsel Nicholas Podsiadly on December 7, 2021. It was also
shared with a number of others, including former Chairman
McWilliams, Director Gruenberg, and Acting Comptroller Hsu,
along with certain members of their respective staffs.
There were also discussions among all the FDIC Board
members regarding the then-Chairman's lack of legal authority
to overrule the Board's majority. Notably, at no time during
these discussions did then-Chairman McWilliams or then-General
Counsel Podsiadly provide any substantive legal analysis to
support their position that the FDIC Chairperson has the
authority to unilaterally overrule the Board majority. Nor is
the CFPB aware of any legal memorandum that supports the then-
FDIC Chairman's actions or position.
After considering the legal analysis prepared by CFPB
staff, as well as the FDIC General Counsel's failure to provide
any argument in support of his contrary interpretation, I voted
to advance the Request for Information (RFI), as did Acting
Comptroller Hsu and Director Gruenberg. The RFI was approved by
the Board on December 7, 2021.
------
RESPONSES TO WRITTEN QUESTIONS
OF SENATOR MENENDEZ FROM ROHIT CHOPRA
Q.1. Recent reports show scams have become widespread on Zelle,
a money transfer platform owned by the largest banks in the
Nation. In many of the scams, fraudsters impersonate bank
employees and trick Zelle users into authorizing money
transfers. According to reports, the banks are well aware of
these scams, but have done little to enhance Zelle's security
or reimburse defrauded consumers.
Director Chopra, are you familiar with the rampant fraud
happening on Zelle and has the CFPB seen a resultant increase
in complaints?
A.1. The Consumer Financial Protection Bureau (CFPB) is aware
of the increase in fraud with peer-to-peer (P2P) payment
services. I am concerned that these services are being used to
defraud consumers. The CFPB hears directly from consumers about
the challenges they face in the marketplace. The CFPB received
approximately 20,900 money transfer, money service, and virtual
currency (collectively, ``money services'') complaints in 2021.
Consumers typically submit complaints about P2P payment
services in this product category. The issue of fraud or scams
is one of the most common issues in money services complaints.
In their complaints, consumers have described scammers
impersonating company help desks, Government officials, among
others. In their responses to complaints, companies often
stated that their platforms are meant for P2P payments among
people who the consumer knows and trusts, such as family and
friends.
Q.2. Would any regulations, like Regulation E of the Electronic
Fund Transfer Act, apply in these situations to refund
consumers?
A.2. Yes, the limits on liability and dispute resolution
provisions of Regulation E apply to P2P services, similar to
how they apply to traditional electronic transfers facilitated
by banks.
Q.3. The pandemic has created enormous challenges for small
businesses, and many continue to need financial assistance.
Some alternative financing companies are promising quick
approvals, with little documentation requirements, and funds in
under a day. However, many of these financing companies are not
clear in their loan terms and small businesses may take on debt
they do not understand and cannot afford.
I introduced the Small Business Lending Disclosure Act to
protect small business borrowers from predatory lenders and
loans carrying unclear terms and conditions. The legislation
would require disclosures in small businesses commercial
lending that already required in consumer lending by the Truth
in Lending Act.
Director Chopra, do financing disclosures for small
businesses provide owners and entrepreneurs with information
they need to understand the terms and conditions of the credit
product to make an informed decision?
A.3. Small business borrowers are not covered by the same
protections that exist for household borrowers. Many small
business owners, especially very small enterprises, use a
combination of personal credit and small business credit. As
such some small business owners are unable to make a fair
comparison of the terms and conditions of credit products. Some
States have started addressing this issue, but it continues to
be a problem for many entrepreneurs.
Q.4. Would providing small business owners with uniform term
disclosures better help them decide if this is the right
financial product to help their business?
A.4. Yes.
------
RESPONSES TO WRITTEN QUESTIONS
OF SENATOR CORTEZ MASTO FROM ROHIT CHOPRA
Q.1. One of the suggestions from the rural report ``Challenges
in Rural Banking Access'' \1\ was having the Consumer Bureau
help rural areas access and use the CFPB's complaint tool more
effectively. How can rural residents improve their access to
the consumer complaint database?
---------------------------------------------------------------------------
\1\ https://files.consumerfinance.gov/f/documents/cfpb-data-
spotlight-challenges-in-rural-banking-2022-04.pdf
A.1. Many rural communities face severe issues in the consumer
financial marketplace, and the Consumer Financial Protection
Bureau (CFPB) wants to ensure that Americans living in these
communities can access the agency's tools and resources.
The CFPB is currently examining the best ways to promote
utilization of the consumer complaint tool in rural areas, and
we understand there is significant room for improvement. While
consumers can submit complaints by phone or by mail, the
easiest, most convenient method to submit complaints is through
the CFPB's online complaint form. Yet, many people in rural
areas still lack access to reliable, high-speed internet. Also,
because there is less of a presence of direct service providers
that can inform rural consumers about the resources available,
rural residents may be less aware of the option to submit a
consumer complaint to CFPB.
The CFPB is reaching out to Government partners and other
organizations that have a presence in rural areas but who may
not be as familiar with CFPB resources, researching the best
ways to make direct contact with rural consumers, and traveling
to rural areas to hear from rural communities directly about
the issues they face and their suggestions for the best ways to
reach their communities. On June 14 and 15, I traveled to Great
Falls, Montana, to host a discussion with local community
organizations, advocates, leaders, and members of the public
about challenges faced by rural Montanans and how banking
deserts adversely impact Montana's financial landscape.
The CFPB has been collaborating with the United States
Department of Agriculture Cooperative Extension educators on
our Your Money, Your Goals program and has already begun to
promote the utilization of the consumer complaint function more
actively among that cohort. As part of the new Rural
Initiative, the CFPB has also initiated rural roundtables and
outreach to organizations that have a presence in rural areas,
a component of which is to educate and orient them to the
consumer complaint function so they can share the resource with
their members and the people they serve. \2\ The CFPB's user
research team is also actively working on a project to better
understand the best ways to reach rural consumers directly by
looking into the sources of information that have the most
reach, such as local newspapers, and the best ways to get
CFPB's resources in front of rural communities.
---------------------------------------------------------------------------
\2\ On March 10, 2022, the CFPB announced a new initiative to
focus on financial issues facing rural America. Our effort will
initially focus on rural banking deserts, discriminatory and predatory
agricultural credit, and manufactured housing. For more information see
https://www.consumerfinance.gov/about-us/blog/new-effort-focused-on-
financial-issues-facing-rural-communities/.
Q.2. Another suggestion from the rural report was holding
roundtables in Native American communities. When will these
---------------------------------------------------------------------------
listening events be scheduled, and where will they be held?
A.2. The CFPB continues to look for new ways to respond to the
needs of Native American communities. The CFPB hosted a series
of discussions with Tribal members, Native American
associations, and other organizations serving the interests of
these communities (including the Native Community Development
Financial Institutions Network and the Federal Reserve Bank of
Minneapolis' Center for Indian Country Development) to help
inform its Challenges in Rural Banking Access report \3\ and
the CFPB's broader Rural Initiative. The discussions have
explored issues identified by Native American stakeholders,
including their experiences with products and services in the
consumer finance market. The CFPB continued these conversations
during our recent visit to Great Falls, Montana. On June 14 and
15, I hosted a listening session on the challenges faced by
rural Montanans and a listening session with Montana's eight
federally recognized tribes.
---------------------------------------------------------------------------
\3\ https://files.consumerfinance.gov/f/documents/cfpb-data-
spotlight-challenges-in-rural-banking-2022-04.pdf
Q.3. As the Consumer Bureau implements its rural initiative,
---------------------------------------------------------------------------
will you reach out to the Nation's 11 Federal Home Loan Banks?
A.3. Yes, as part of our Rural Initiative, we will reach out to
the Federal Home Loan Banks.
Q.4. Nearly every bank and credit union is a member of a
Federal Home Loan Bank. The Banks are required to meet the
liquidity, housing, and community development needs in the
communities they serve. Will the Consumer Bureau's staff
consider the annual community lending plans of each Federal
Home Loan Bank in its outreach to rural areas to address rural
banking deserts and other issues? \4\
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\4\ https://www.fhfa.gov/PolicyProgramsResearch/Programs/
AffordableHousing/Pages/FHLBank-Community-Lending-Plans.aspx
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A.4. Yes.
Q.5. More than a third of Nevadans own a dog--40 percent of
Latino households and 60 percent of White households own a dog.
For many, pets are beloved family members.
Has the Consumer Bureau issued blog posts, statements or
other consumer warnings about puppy loans or other pet-related
consumer finance issues?
A.5. No, but this is clearly a consumer protection issue that
Federal and State agencies should scrutinize. The CFPB's
initial market monitoring suggests that certain finance
companies may be offering loans that are more expensive than
other options. We will continue to track developments to
determine how to best protect families in this market. We will
also collaborate with other agencies, including the Federal
Trade Commission, which issued an advisory on this issue, and
Federal banking regulators that regulate depository
institutions that partner with nonbanks offering these
products.
Q.6. What role can the CFPB play with State regulators and
others to protect people from predatory puppy finance schemes?
A.6. In addition to collaborating with the Federal Trade
Commission, the CFPB works closely with State attorneys general
and State bank regulators to ensure compliance with the
consumer financial protection laws. Section 1042 of the
Consumer Financial Protection Act of 2010 (CFPA) generally
authorizes States to bring civil actions ``to enforce
provisions of [the CFPA].'' \5\ One such provision of the CFPA
states that it is unlawful for any ``covered person'' or
``service provider'' to ``engage in any unfair, deceptive, or
abusive act or practice.'' \6\ States can rely on section 1042
to pursue an enforcement action against a covered person or
service provider that commits an unfair, deceptive, or abusive
act or practice under the CFPA. CFPB staff are available to
discuss the CFPA with State agencies, and the CFPB has frequent
and ongoing engagement with the States on CFPA enforcement.
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\5\ 12 U.S.C. 5552(a).
\6\ 12 U.S.C. 5536(a)(1)(B).
Q.7. Whistleblowers play an essential role in protecting
consumers from unfair practices, fraud, and abuse. Unlike other
agencies, the Consumer Bureau cannot provide financial
incentives to whistleblowers.
Does the Consumer Bureau receive tips and assistance from
whistleblowers?
A.7. Yes, the CFPB has a whistleblower tip process.
Whistleblowers may contact the CFPB through a number of
methods: (1) a dedicated email address--
[email protected] is accessible through the CFPB's
whistleblower webpage and the CFPB's consumer complaint portal;
(2) a dedicated telephone number that is listed on the CFPB's
webpage; and (3) postal mail. Other Federal agencies submit
tips to the CFPB as well.
Q.8. How helpful are tips from whistleblowers to the Bureau?
A.8. Whistleblower tips are very helpful. They bring corporate
malfeasance to the attention of the CFPB and provide evidence
for our cases. In December 2021, the CFPB announced updates to
its whistleblower website and other enhancements to facilitate
whistleblowing, including by engineers, data scientists, and
other workers. \7\
---------------------------------------------------------------------------
\7\ https://www.consumerfinance.gov/about-us/blog/cfpb-calls-tech-
workers-to-action/
Q.9. The previous leadership of the Consumer Bureau asked
Congress to provide it the authority to provide financial
compensation to whistleblowers. How would being able to furnish
rewards to whistleblowers help the Bureau do its job of
protecting consumers from unfair, deceptive, and abusive
---------------------------------------------------------------------------
practices?
A.9. Financial awards create incentives to blow the whistle and
generally enhance the rule of law. The more leads the CFPB
receives, the better the CFPB will be at prioritizing its
enforcement staff towards significant cases against large
entities. I support legislation, first proposed by former CFPB
Director Kathleen Kraninger, to create a whistleblower award
program.
Q.10. The consolidation of core service providers--those
providing digital services, sending payments, etc.--seems to be
affecting services and costs for community banks and credit
unions. In previous statements, Director Chopra stated that the
major core servicer provider contracts make it difficult for
local financial institutions to switch providers or use add-ons
from outside technology providers.
What are some of the steps the Consumer Financial
Protection Bureau is considering to level the playing field for
small community financial institutions that need services from
third parties but are frustrated with complex, restrictive, and
expansive contracts?
A.10. Small financial institutions need to compete head-to-head
with the largest banks in the country. The CFPB is concerned
that, as a result of unchecked consolidation, the core service
providers these institutions rely on have too much power. We
have spoken with a number of smaller financial institutions
about their relationships with the core service providers and
we repeatedly hear the same complaints: they face high costs,
including minimum monthly fees that are very expensive relative
to their size; long-term contracts that make it difficult to
switch providers; and the need to pay extra to gain access to
their own or their customers' data. Smaller financial
institutions also often feel like they are put ``in the back of
the line'' when it comes to rolling out new products to their
customers. These challenges make it more difficult for smaller
financial institutions to serve their customers or to match the
offerings of their larger competitors.
The CFPB is currently assessing ways to level the playing
field by helping smaller financial institutions address these
challenges. The CFPB will be seeking additional information
from the core service providers about their pricing, other key
contractual terms, and the downstream impact these terms have
on consumers. If we identify patterns of behavior that are
anticompetitive, we will discuss our findings and potential
remedies with our partner agencies.
------
RESPONSES TO WRITTEN QUESTIONS OF SENATOR OSSOFF
FROM ROHIT CHOPRA
Q.1. What effect will bank branch closures have on residents in
rural communities?
A.1. America's rural communities face significant challenges in
accessing reliable financial services. Rural Americans depend
on physical bank branches and smaller banks. However, these
same customers are the ones most likely to not live within 10
miles of a bank with in-person services. The declining number
of banks in rural communities has forced many to use nonbank
alternatives that often charge higher fees and interest rates.
Bank consolidation has also hurt these communities, causing
banking relationships and credit to disappear, followed by
small businesses and jobs.
Q.2. In your opinion, what can Congress do to ensure rural
residents have quality access to banking services?
A.2. The Consumer Financial Protection Bureau (CFPB) will
faithfully execute any legislation Congress chooses to pass
that ensures rural residents have quality access to banking
services. Under our existing legal authorities, we have
launched a Rural Initiative focused on the needs of rural
consumers across the country. The Rural Initiative will ensure
that the ongoing work of the CFPB, that includes issues related
to mortgages, student loans, credit cards, and a wide range of
other consumer finance issues applies to the specific contexts
of rural communities, and we will be addressing issues that are
specific to rural communities that fall within our authorities.
The Rural Initiative will initially focus on rural banking
deserts, issues related to discrimination in the provision of
agriculture credit, and housing. The CFPB has conducted a
roundtable with a wide range of rural stakeholders from across
the country to launch the initiative, has researched and worked
with partners across Federal agencies on issues related to
manufactured housing, has undertaken focused outreach to rural
areas, including a trip to rural Montana focused on rural
issues, and has released a report, ``Data Spotlight: Challenges
in Rural Banking Access'', that presents an overview of the
landscape of issues related to banking services in rural areas.
The Rural Initiative plans to continue to implement a research
agenda and field visits to better understand quality access to
banking services in specific rural regions.
------
RESPONSES TO WRITTEN QUESTIONS OF SENATOR SHELBY
FROM ROHIT CHOPRA
Q.1. The CFPB's current proposed rule on small business lending
data collection includes lenders involved in vehicle financing
in its definition of covered financial institutions. Yet in
many instances, vehicle finance companies do not interact with
small business applicants directly or make final credit
decisions.
Under the current proposed rule, in what instances would a
vehicle finance lender be required to comply with the
requirement to collect data on small business lending?
A.1. Under the proposal subject to public comment that was
released prior to my confirmation as Director, section 1071
obligations would fall on the covered financial institution
that is making the final credit decision. In some cases, a
vehicle finance company might make this final decision and
therefore would have reporting obligations under the proposal.
In other cases, the final decision might be made by an auto
dealer that by operation of section 1029 of the Dodd-Frank Wall
Street Reform and Consumer Protection Act is exempt from
section 1071 reporting obligations. In that context, no party
would have section 1071 reporting obligations under the
proposal.
The rulemaking is ongoing, and we are still in the process
of evaluating the comments and weighing the evidence.
Q.2. How does the CFPB anticipate vehicle finance lenders to
collect such data in cases where the vehicle finance lender has
no direct interaction with the small business applicant?
A.2. Under the proposal subject to public comment that was
released prior to my confirmation as Director, in circumstances
where a vehicle finance lender makes the final credit decision
and accordingly would have a reporting obligation under the
proposed rule, such a lender could rely on the dealer to
transmit any data that the lender may be required to collect
under a final section 1071 rule. Where the vehicle finance
lender does not make the final credit decision, however, as
explained in the response to question 1a above, that lender
would have no obligation to report section 1071 data under the
proposed rule.
The rulemaking is ongoing and we are still in the process
of evaluating the comments and weighing the evidence.
------
RESPONSES TO WRITTEN QUESTIONS OF SENATOR TILLIS
FROM ROHIT CHOPRA
Q.1. Prior to the hearing I was provided information stating
you only met with three industry groups in your first 120 days
in office, a charge you strongly denied. I was also provided
information that Director Cordray met with 40 industry groups
during his initial 120-day period. You stated that you
``personally meet with so many industry players.'' There seems
to be some level of disagreement over whether or not you take
meetings with the stakeholders of industries that the CFPB
regulates.
Please provide a complete list of the organizations and
dates of every meeting you have personally taken during your
tenure as Director.
A.1. During the confirmation process, I understand that there
were concerns that the Consumer Financial Protection Bureau's
(CFPB's) industry outreach efforts were primarily focused on
the very largest financial institutions, rather than the broad
cross-section of businesses affected by the CFPB's actions.
Since the very largest institutions already have frequent
interactions with CFPB staff, I have primarily focused my
outreach on local banks and credit unions. Our primary mode of
engaging these institutions has been through State-based
meetings. These meetings are not venues for ``speeches.''
Instead, it is an opportunity for financial institutions to ask
questions and provide their views.
We primarily organize these meetings through State banker
association and credit union leagues. To date, we have held
these meetings with institutions from Florida, California,
Nevada, Tennessee, Minnesota, Delaware, Pennsylvania, Wyoming,
and Iowa, with more on the horizon. In most of these
interactions, the American Bankers Association has also
participated.
In terms of large financial institutions, we have held
similar roundtable discussions, as well as individual meetings
to discuss targeted issues. For example, the American Financial
Services Association helped to organize a roundtable with
leaders in the captive auto finance industry. The Consumer
Bankers Association organized a discussion between me and many
of its leaders in consumer banking who serve on the
association's board. In addition, I have also had the
opportunity to meet with companies affected by the CFPB's
actions that would not be considered financial companies,
including hotel owners and retailers, as well as trade
associations.
We have sought to assemble a list of these institutions
participating in these meetings that I personally participated
in and are providing this list to your office and the Committee
Clerk.
Separate from this list, I have also appeared at industry
conferences, including the Independent Community Bankers
Association and the Mortgage Bankers Association.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Q.2. You testified that ``the Department of Veterans Affairs
has dramatically changed its policies concerning reporting
medical debt for veterans. There's work being done at the USDA,
and yes, we are in discussions with the FHFA about how they
should think about medical debt in the mortgage origination
process. And we need to fix this because this is a central
consumer pain point. It is the number one collections item now
on people's credit reports, and we have so many people feel
coerced into paying something they don't owe when they're
applying for a mortgage or job or an apartment.''
If you conclude that it is appropriate to exclude the
medical debt from a consumer's credit report, what will the
vehicle be to make that change, and does the CFPB have the
authority to make that change through rulemaking, or will it
require an Act of Congress?
A.2. We are looking at whether it is appropriate and lawful to
include this information and we are still examining whether and
how to address this issue.
Q.3. In a September 2020 notification, the Federal Bureau of
Investigation (FBI) highlighted that ``[c]redential stuffing
attacks accounted for the greatest volume of security incidents
in the financial sector at 41 percent of total incidents from
2017 through 2019, according to a 2020 cybersecurity firm
report.'' The FBI further noted that the ``increasing
prevalence of credential stuffing attacks since 2017 correlates
with an increase in leaked credentials available on the dark
web, which are expected to number in the billions, according to
a 2020 cybersecurity firm report and open-source reporting.''
Given the risks associated with credential stuffing
attacks, do you believe that consumers should be discouraged
from sharing their account login credentials with third
parties?
A.3. The CFPB typically seeks to comport its consumer advice
with agencies leading on cybersecurity issues. For example,
NIST provides guidance on best practices for cybersecurity. \1\
Unfortunately, however, even if consumers perfectly execute
best practices--from reading a privacy policy in its entirety,
to only sharing credentials with firms that they trust--you are
right that security incidents are out of control. The
Department of Labor highlights that identity theft attacks
often are executed ''using stolen identities that were accessed
or purchased from past data breaches.'' \2\
---------------------------------------------------------------------------
\1\ https://csrc.nist.gov/
\2\ https://www.dol.gov/agencies/eta/UIIDtheft
---------------------------------------------------------------------------
In order to complement the hard work done by consumers to
protect themselves, there is a serious problem when the biggest
firms are some of the worst repeat offenders of sloppy data
practices. From Facebook to Google--surveillance by dominant
firms can be essentially inescapable for consumers--it's
critical that big tech is held accountable, and that consumers
are not doing the work alone.
Q.4. In March 2022, the Associate Director of the Federal
Deposit Insurance Corporation's (FDIC) Anti- Money Laundering
and Cyber Fraud Division highlighted how banks have reported
more sophisticated cyberattacks recently and how the FDIC is
prioritizing potential cyberattacks related to the Russian
invasion of Ukraine. She discussed how malicious actors are
attacking bank authentication security to gain access to
customer information as well as deploy ransomware and initiate
transactions.
Given that credential stuffing is the most frequent type of
cyberattack on financial institutions, what is the CFPB doing
to ensure that consumers are not putting themselves at risk by
sharing their credentials with third parties?
A.4. The CFPB typically seeks to comport its consumer advice
with agencies leading on cybersecurity issues. For example,
NIST provides guidance on best practices for cybersecurity. \3\
---------------------------------------------------------------------------
\3\ https://csrc.nist.gov/
---------------------------------------------------------------------------
In addition, the combination of dark patterns (a range of
potentially manipulative user interface designs used on
websites and mobile apps), business models that depend on
underinvesting in security features, and the targeting of older
Americans and those with diminished capacity have made it
really difficult for many consumers to effectively protect
themselves against security risk. Because credential stuffing
attacks are most effective against systems without multifactor
authentication (MFA) implemented at the enterprise level, \4\
it's critical that firms work to offer those features to
consumers, and to help them take advantage of them.
---------------------------------------------------------------------------
\4\ https://www.nist.gov/blogs/cybersecurity-insights/back-basics-
whats-multi-factor-authentication-and-why-should-i-care
Q.5. Do you agree that consumers should be discouraged from
sharing their account login credentials with third parties? If
not, why not? If so, what is the CFPB doing to discourage this
---------------------------------------------------------------------------
behavior?
A.5. The CFPB believes that consumer data should be safe from
sale--and that consumers should be able to decide who they want
to do business with, and when they would like to walk away--
with their data security intact. In particular, Congress
charged us with section 1033 of the Dodd-Frank Act to ensure
that consumers have access to their information.
Q.6. While consumers' ability to share their financial data is
important, it is vital such sharing is done in a safe, secure,
and transparent manner. What is the CFPB doing to ensure that
screen scraping, which relies on the sharing of login
credentials, becomes a practice of the past?
A.6. The CFPB is committed to making financial markets more
competitive and transparent. Consumers should be able to switch
firms and to get services seamlessly and safely, and firms
should be able to have a fair shot to win a consumer with the
best deal. We are working to use our full authority to ensure
that consumers are in the driver's seat and don't have to be at
the mercy of a firm's attempts to raise switching costs. As
part of that effort, we are pursuing a rulemaking under Section
1033 of the Consumer Financial Protection Act. We will consider
whether and in what circumstances screen-scraping should be
restricted in that rulemaking. The CFPB will be publishing a
Small Business Regulatory Enforcement Fairness Act (SBREFA)
outline before the end of this year. That is the first step in
the rulemaking process.
------
RESPONSES TO WRITTEN QUESTIONS OF SENATOR HAGERTY
FROM ROHIT CHOPRA
Q.1. In the hearing, you said ``There is a baseline that
certainly comes from the Fed, but. it is subject to the
appropriations process in as much that the agency makes
requests beyond that. this is so that the CFPB can cover its
basic functions and for functions that it seeks to go beyond,
does seek that from Congress, so that is a supplemental
appropriations process.''
Between Fiscal Years 2012 and 2022, please provide a
detailed accounting of any resources, budget authority, or
Federal funding that the Consumer Financial Protection Bureau
requested from Congress through the supplemental appropriations
process you described in the hearing.
A.1. The Consumer Financial Protection Bureau (CFPB) has not
yet requested or received additional resources, budget
authority, or Federal funding from Congress through the
supplemental appropriation process referenced above, or through
any regular Appropriations Acts, Continuing Resolutions,
Supplemental Appropriations Acts or other direct spending
between Fiscal Years 2012 and 2022. To date, the CFPB has
relied on its base level funding.
Q.2. Additionally, between Fiscal Years 2012 and 2022, please
provide a detailed accounting of any resources, budget
authority, or Federal funding that Congress appropriated to the
Consumer Financial Protection Bureau for a specific purpose and
amount through any regular Appropriations Acts, Continuing
Resolutions, Supplemental Appropriations Acts or other direct
spending.
A.2. The CFPB has not requested or received additional
resources, budget authority, or Federal funding from Congress
through the supplemental appropriation process referenced
above, or through any regular Appropriations Acts, Continuing
Resolutions, Supplemental Appropriations Acts or other direct
spending between Fiscal Years 2012 and 2022.
------
RESPONSES TO WRITTEN QUESTIONS OF SENATOR MORAN
FROM ROHIT CHOPRA
Q.1. A recent CFPB report entitled ``Challenges in Rural
Banking Access'' highlighted issues faced by banks and credit
unions in small towns. It acknowledged that ``access to credit
for farms and small businesses is essential to the economic
health of rural communities.'' The report concluded by saying
that the CFPB is prioritizing outreach to rural areas.
Has the Bureau under your leadership implemented any
suggestion or proposal offered by members of the Credit Union
Advisory Committee or the Community Bank Advisory Committee?
A.1. Yes. For example, on April 7, 2022, the Consumer Financial
Protection Bureau (CFPB) met with members of the Credit Union
Advisory Council and the Community Bank Advisory Council where
CFPB staff asked the members about their thoughts on Age
Friendly Banking and Rural Relationship Banking. On the topic
of rural communities, the members of the Advisory Committee
brought up multiple challenges that they and their customers
face, including lack of access to broadband internet, volatile
commodity prices, population loss in many rural towns, and
other factors that are outside of the scope of the CFPB's work,
but which are essential to understanding market conditions on
the ground in rural areas. Rural areas tend to have a higher
proportion of older residents, and we heard from multiple
members of the advisory groups that the resources the CFPB
provides to help older Americans avoid scams have been
incredibly useful in serving their customers. Members of the
Advisory Councils also spoke about the necessity of
relationship banking to avoid fraud and exploitation and alert
customers, particularly older customers, that they may be a
victim of a scam.
The Advisory Councils also encouraged us to consider the
access needs of immigrant communities and visual and hearing
impaired communities. The CFPB has provided resources in
multiple languages and is continuing to work on making our work
accessible.
Q.2. What specific steps has the Bureau taken to bolster the
local banks and credit unions that support rural Kansas towns?
A.2. The CFPB has launched a Rural Initiative focused on the
needs of rural communities. \1\ As part of this initiative, the
CFPB will continue to do outreach to rural banks and credit
unions, including in Kansas, to hear their perspectives on what
is needed. The CFPB has undertaken a research agenda that
includes the release of a report, ``Data Spotlight: Challenges
in Rural Banking Access'', that presents critical information
about the rural towns and their credit needs as well as their
credit options, as well as information about the critical role
that local banks and credit unions serve in rural communities.
Following this initial report, the CFPB will be releasing a
series of reports that will analyze the needs of specific
regions, along with field visits. As we get a clearer picture
of the credit needs of rural places, and the commonalities and
differences between them, this information will be essential to
local banks and credit unions to better serve their customers.
Through research and conversation with a wide range of rural
stakeholders, including local banks and credit unions, we will
make a contribution to meeting the challenges that rural
communities and rural banks and credit unions are facing.
---------------------------------------------------------------------------
\1\ See https://www.consumerfinance.gov/about-us/blog/new-effort-
focused-on-financial-issues-facing-rural-communities/.
Q.3. Additionally, the CFPB's report on rural financial
services details the importance of small businesses to rural
employment. The rural lenders that provide the credit needed
for small businesses to grow are vital to towns across the
country. Community banks and credit unions expressed
apprehension that the CFPB's proposed rulemaking on Section
1071 will hinder their ability to lend to rural small
businesses.
Are you concerned that applying this rule to smaller-sized
institutions will decrease small business access to credit due
to the large compliance burden placed on community banks and
credit unions?
During your testimony, you praised the effects of
relationship banking. Do you share community bank concerns that
applying Section 1071 requirements without carveouts for small
lenders will damage the relationship banking that so many rural
areas depend on?
A.3. I recently visited a rural community bank in Belt,
Montana. Whenever I speak to the management, staff, and clients
of these institutions, I am reminded of how critical these
institutions are to support the local community. Community
banks are three times more likely to locate their offices in
rural communities than in nonmetropolitan areas and hold the
majority of banking deposits in rural and micropolitan
counties. In addition, community banks' lending to small
businesses in rural communities has a particularly beneficial
impact, as small businesses (fewer than 50 employees) employ 42
percent of rural residents (compared to 28 percent of residents
in metropolitan areas).
We have received comments from many community banks that we
will carefully consider as part of the small business data
collection rulemaking, which is still ongoing.
Q.4. While big banks have the flexibility to adjust the
expenses paid by customers, community banks and credit unions
don't always have this luxury. Many of these payments that the
CFPB labels ``exploitive junk fees'' are what allow small banks
and credit unions to offer their services to rural towns. At a
time of hugely increased competition in financial services,
banks of all sizes compete with each other and fintech
companies for the same customers. Compared to the Nation's
largest banks, local lenders simply don't have the revenue
streams, resources, or regulatory help to remain broadly
competitive without offering these services, all of which
consumers opt-in to. Even under former CFPB Director Richard
Cordray, the Bureau studied overdraft protection and ultimately
chose not to pursue a rulemaking in this area.
If the Bureau proposes a rulemaking that impacts the
ability to offer overdraft fees, how will it ensure that
consumers will not lose access to other valuable products
funded by these common fees?
Do you believe the Bureau's public criticism of banks
regarding these fees undermine trust in local lenders?
A.4. If the CFPB proposed a rulemaking on overdraft fees, it
would conduct the appropriate costs, benefits, and impacts
analysis, including an assessment on any effect on the
availability of overdraft services, etc. We have not proposed a
rule.
Relationship banks benefit when regulators closely
scrutinize the business practices of nonrelationship banks.
Relationship banks typically do not point fingers or send
customers on call center goose chases when customers experience
problems. Many also have long eschewed high fees. In fact, many
small and local financial institutions charge lower late fees
on credit cards than the major issuers, over 2,000 small
financial institutions have never charged overdraft fees, and
over 2,000 additional small financial institutions never
charged overdraft fees on debit or ATM transactions.
Q.5. Instead of regulating through rulemaking and written
guidance, the CFPB has increasingly used enforcement, blog
posts, and press releases as mechanisms to create new and
interpret current standards. The CFPB must provide clarity in
advance rather than issue guidance through enforcement, as this
creates unclear precedents that businesses must interpret on
the fly.
In light of these ``regulations by press release,'' how
does the Bureau plan on fully integrating industry and consumer
feedback given the lack of adherence to the Administrative
Procedure Act?
A.5. I respectfully disagree with this assertion. Many industry
stakeholders have urged the CFPB to produce guidance that helps
institutions understand the obligations of the laws that
Congress enacts.
The CFPB invests in soliciting public input far more than
other banking agencies, going above and beyond compliance with
the Administrative Procedure Act (APA). The CFPB brings
enforcement actions when it encounters violations of law on
matters of importance, and the CFPB is not seeking to replace
the need to provide guidance using enforcement. In fact, the
CFPB has dramatically increased the amount of guidance it
issues. The CFPB's public materials provide transparency and
clarity to the broader public, but we would like to stay in
dialogue with your office to discuss any more specific
concerns.
Q.6. Following your nomination hearing last year, you responded
to my question for the record regarding the Bureau's history of
inadequate Tribal consultation, lack of Indian law expertise
and cultural understanding within its staff, and its exclusion
of Tribal governments from CFPB MOUs despite Congressional
intent that Tribes be treated equal to States by stating that
you are ``committed to ensuring that the views and interests of
tribal communities are reflected in CFPB policymaking,'' adding
that you will ``work with CFPB staff to ensure that tribes can
have their voices heard around key decisions,'' and that you
``welcome suggestions from [my] office on how to continuously
improve [tribal] engagement.''
Since your nomination, how many times have you and/or your
senior staff conducted productive and meaningful consultation
with Tribal leaders?
A.6. Since I joined the CFPB on October 12, 2021, the CFPB has
issued one proposed rule, ``Prohibition on Inclusion of Adverse
Information in Consumer Reporting in Cases of Human Trafficking
(Regulation V)''. Prior to issuing that rule, the CFPB hosted a
virtual consultation with Tribal leaders. The CFPB invited all
Tribal leaders listed in the U.S. Department of Interior,
Bureau of Indian Affairs' Tribal Leaders Directory to attend
the consultation, and the consultation was held through
multiple sessions over a series of days to provide several
opportunities for participation and across five different time
zones.
Outside of the rulemaking consultation, the CFPB has had
numerous discussions (at both the leadership and staff level)
with Tribal nations and their representatives. In December
2021, we hosted an in-person, Government-to-Government meeting
with Tribal leaders, which provided an opportunity to discuss
the challenges they face in furthering sustainable economic
development and independence in their communities. In February
2022, I met in-person with Members of the Native CDFI Network's
(NCN) Board and Policy Committee during the organization's 2022
Mid-Winter Policy Roundtable. There were approximately 12-15
NCN meeting attendees throughout the duration of the event.
This month, I hosted a summit in Great Falls, Montana, with
Montana's eight federally recognized tribes. The discussion
touched on a range of issues facing tribes. If you believe
there is ever an opportunity for the CFPB to engage with tribal
leaders in Kansas beyond what we are doing, we would appreciate
any suggestions.
Q.7. What feedback have you received from Tribal nations and
what changes have you made to improve engagement and support of
Tribal economic development activities?
A.7. Outside of the rulemaking consultation described above,
which did not relate to Tribal economic development, during my
tenure the CFPB has had numerous discussions (at both the
leadership and staff level) with Tribal nations, Tribal
members, Native American associations, and/or other
organizations serving the interests of Native communities to
learn about consumer financial protection issues impacting
Native communities. The CFPB has heard many repeated themes in
these conversations, including information about the lack of
access to banks, responsible credit, and other financial
services in Indian Country, and the failure of current
requirements under the Community Reinvestment Act and its
implementing regulation to incentivize banks to fill those
needs. The CFPB has heard from Tribal nations about the role of
Tribal enterprises, especially the role of Native Community
Development Financial Intuitions, in attempting to fulfill
financial services needs and bridge other gaps in community
needs. Likewise, the CFPB has heard from Tribal nations about
the lack of consumer education on financial issues, including
that many Tribal members do not know what the CFPB does. In
addition, the CFPB has heard that Tribal nations work with
other Federal agencies to provide services to rural communities
as well as the shortfalls of some Federal programs that impact
consumers' finances. The CFPB has also heard from Tribal
nations on tribal sovereignty and Tribal nations' status under
the Dodd-Frank Wall Street Reform and Consumer Protection Act,
predatory lending in Native communities, the difficulty that
Tribal governments have in holding bad actors accountable, the
role of Tribal regulators, and partnership opportunities in the
regulatory and enforcement space.
These discussions have helped inform the CFPB's regulatory
work; its partnership and engagement efforts; discussions with
sister regulators and other Federal agencies; consumer
education work; enforcement work; and most recently the CFPB's
Challenges in Rural Banking Access report and the broader,
ongoing Rural Initiative.
Q.8. Has the Bureau added any staff with Federal Indian policy
experience and expertise?
A.8. While the ranks of the CFPB's career staff include
individuals with knowledge and expertise, you raise an
important suggestion of ensuring that this base of expertise is
robust. I plan to assess this further and would be happy to
discuss this with you.
Q.9. The Consumer Financial Protection Act includes federally
recognized Indian tribes in the definition of ``State,'' yet
the Bureau continues to discount Tribes' authority as sovereign
nations as equal to States. The Bureau has exemplified this
unequal treatment by entering into multiple Memoranda of
Understanding with State units, such as the American Consumer
Financial Innovation Network, yet no Tribal government has been
permitted.
My office has received feedback indicating that Tribes have
a sincere desire to work collaboratively with the Bureau on a
Government-to-Government basis to determine the best policies
and principles for both parties. Tribes regularly enter into
MOUs with local, State and Federal entities for this very
reason, and the CFPB has fallen behind in that regard.
Under the Consumer Financial Protection Act, what is your
understanding of how Tribal nations should be treated as
compared to States?
A.9. Under the Dodd-Frank Wall Street Reform and Consumer
Protection Act, the term ``State'' includes ``any federally
recognized Indian tribe, as defined by the Secretary of the
Interior under section 104(a) of the Federally Recognized
Indian Tribe List Act of 1994 (25 U.S.C. 479a-1(a)).'' 12
U.S.C. 5481(27).
Q.10. What is your plan for rectifying the exclusion of Tribes
from the MOUs and the Consumer Financial Innovation Network
that the CFPB has entered with multiple States?
A.10. The CFPB has not excluded Tribes from memorandums of
understanding (MOUs). In 2013, the CFPB entered into an MOU
with the Navajo Nation Department of Justice that resulted in,
among other things, a joint CFPB-Navajo Nation action to stop
an illegal tax refund scheme. The CFPB will continue to engage
with Tribes to protect consumers. CFPB staff have engaged the
Native American Financial Services Association and Tribal
leaders about establishing a CFPB point of contact to discuss
tribal issues, including an MOU with the CFPB to facilitate
information sharing between the CFPB and tribal authorities.
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RESPONSES TO WRITTEN QUESTIONS OF SENATOR DAINES
FROM ROHIT CHOPRA
Q.1. Under Title X, Section 1061(b)(5)(D) of the Dodd-Frank Act
and the MOU between CFPB and FTC, to promote consistency, the
CFPB and FTC must consult with the other agency prior to
proposing a rule as well as notify the other agency prior to
issuing agency guidance. In accordance with this concurrent
jurisdiction and the MOU, was the FTC consulted or notified by
the CFPB regarding the recent revised examination guidelines on
UDAAPs as published by the Bureau on March 16th?
If so, when?
A.1. The Consumer Financial Protection Bureau's (CFPB's) update
to the UDAAP exam manual is not a rule. It does not alter
existing law or create new obligations for covered persons or
service providers. As such, section 1061(b)(5)(D) of the Dodd-
Frank Wall Street Reform and Consumer Protection Act (Dodd-
Frank Act) does not require the CFPB to consult the Federal
Trade Commission (FTC) because the exam manual update was not a
proposed rule. The CFPB's UDAAP examination manual is
consistent with FTC public statements. In April 2021, the FTC
stated that the sale or use of biased algorithms, as an
example, would be an unfair or deceptive practice (Aiming for
Truth, Equity, and Fairness in Your Company's Use of AI,
https://www.ftc.gov/business-guidance/blog/2021/04/aiming-
truth-fairness-equity-your-companys-use-ai).
Q.2. If not, why and how will the CFPB account for any
inconsistencies in enforcement actions taken against covered
entities under UDAAP?
A.2. The exam procedure update is not a rule. As always, we
will work with our partner agencies to make sure any potential
enforcement matters are consistent. The CFPB's memorandum of
understanding (MOU) with the FTC is designed, among other
things, to coordinate certain law enforcement activities under
section 1024(c)(3) of the Dodd-Frank Act. Under this MOU, the
agencies closely coordinate activities to promote consistency
in law enforcement and to prevent duplicative or conflicting
actions. The MOU includes procedures for notice to the other
agency, where feasible, prior to initiating a civil action.
Q.3. The Bureau's new definition of what constitutes an unfair
practice is a significant change for all providers of financial
products and services outside the scope of the traditional
rulemaking process or Congressional action. Can the CFPB
explain why this substantive change did not warrant
Congressional action or rulemaking? Will the CFPB commit to
engaging impacted stakeholders in an effort to garner
meaningful input prior to enforcement in the absence of
undertaking a formal rulemaking process?
A.3. This is not a new interpretation, and the CFPB provided
additional transparency to supervised institutions about how
examiners will conduct reviews related to discrimination. The
CFPB's updates to the exam manual do not change existing law in
any way; they simply direct examiners to examine potential
discrimination that may satisfy the preexisting standard for a
violation of the prohibition on unfair practices.
The CFPB exam manual's treatment of discriminatory unfair
practices is not the first exam manual to discuss the topic.
The FDIC's Consumer Compliance Examination Manual, in its
section on Unfair or Deceptive Acts or Practices, states that
discriminatory conduct that violates the Equal Credit
Opportunity Act (ECOA), the Fair Housing Act, or state and
local antidiscrimination laws may also violate the FTC Act,
which prohibits unfair or deceptive acts or practices. The
Office of Thrift Supervision's exam manual included the same
language before the agency was disbanded in 2011.
Importantly, the CFPB did not create a new definition of
what constitutes an unfair act or practice. The CFPB has
authority under the Dodd-Frank Act to identify, prohibit,
supervise for, and enforce for violations of the prohibition on
unfair practices committed by any covered person or service
provider in connection with any transaction for, or offer of, a
consumer financial product or service. The Dodd-Frank Act
provides the following standard for establishing a violation of
the prohibition on unfair acts or practices: (1) the act or
practice causes or is likely to cause substantial injury; (2)
that is not reasonably avoidable by the consumer; and (3) not
outweighed by countervailing benefits to consumers or
competition.
The CFPB is always looking for ways to engage stakeholders
and the American public to promote understanding, transparency,
and accountability, and remains committed to doing so.
Q.4. In addition, it is ambiguous what protected categories are
relevant for UDAAP discrimination. Will there be parity with
other lending regulations, such as the Equal Credit Opportunity
Act (ECOA)? Does the CFPB have a position on what categories
are relevant for UDAAP discrimination? Will the CFPB provide
clarity for impacted stakeholders on protected categories? Will
the CFPB follow up with promulgating a rule identifying the
specific contours of ``unfair'' discrimination?
A.4. As noted above, an unfairness claim has different elements
than an ECOA claim, although discriminatory practices that
violate ECOA could also violate the prohibition on unfair
practices.
Discrimination may violate the prohibition on unfair
practices in instances where ECOA or other antidiscrimination
laws do not apply. As noted above, the Dodd-Frank Act sets
forth the standard for determining whether particular conduct
violates the prohibition on unfair practices. The CFPB will
apply this statutory standard to determine if conduct violates
the prohibition on unfair practices. The analysis for
establishing such an unfairness claim--as it has been under
Federal law for decades--is whether the conduct causes
substantial injury that is not reasonably avoidable by the
consumer without countervailing benefits to consumers and to
competition.
Q.5. The guidelines fail to extend limited privilege for
disclosure for impacted stakeholders to self-test for
discrimination similar to what is afforded lenders under ECOA.
Could this undermine the goal of preventing discrimination by
discouraging collection and self-testing? Should there be
parity with ECOA self-testing protections?
A.5. You raise an important question. Many financial
institutions go to great lengths to conduct backwards-looking
analysis to evaluate their marketing, product development, and
financial performance. Importantly, many also conduct this
analysis for compliance testing.
The CFPB has long promoted this type of analysis. When
institutions perform rigorous analyses and make timely and
appropriate fixes, compliance issues can generally be avoided
or resolved without the need for adversarial litigation. As a
practical matter, institutions generally find compliance
management systems and testing to be useful for their overall
business, to ensure that problems are detected early. We would
be happy to discuss this issue further with you so that
institutions feel that they can implement the right approaches
to self-testing.
Q.6. I believe consumers need access to small-dollar credit. Do
you agree with that statement? If so, what's the best way to
keep small-dollar credit markets competitive?
A.6. Consumers benefit from a transparent and competitive
market. A transparent and competitive market will help develop
lower-cost, small-dollar loan products.
Q.7. Auto financing is a complicated transaction with several
parties, including the dealer who is not under the CFPB's
jurisdiction. Will the Bureau specifically address how the 1071
rule will work in the auto finance market? Will it allow the
finance companies to rely on info given to them by the dealer?
A.7. You are absolutely correct that the CFPB may not exercise
any rulemaking, supervisory, enforcement, or any other
authority, including any authority to order assessments, over a
motor vehicle dealer that is predominantly engaged in the sale
and servicing of motor vehicles, the leasing and servicing of
motor vehicles, or both. The rulemaking is ongoing and we are
still in the process of evaluating the comments and weighing
the evidence. We will be closely considering the unique facets
of the auto financing market before finalizing the rule.
Additional Material Supplied for the Record
PRINCIPLES FOR RESPONSIBLE CONSUMER AND SMALL BUSINESS LOANS TO PREVENT
PREDATORY LENDING ABUSES
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
STATEMENT SUBMITTED BY UNIDOSUS
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]