Yesterday, the newly confirmed Director of the Consumer Financial Protection Bureau, Rohit Chopra, appeared before the House Financial Services Committee for the required semi-annual report to Congress. It was a more substantive discussion than we’ve seen recently. I’ve boiled down the 4+ hour testimony into a 37-minute “greateast hits” of exchanges with members of Congress that I thought would be of interest to the industry.
You can read Director Chopra’s prepared remarks here.
You can watch the complete testimony here.
You can watch my greatest hits video here or below.
Here is a summary of the highlights I chose for the video:
Rep. Patrick McHenry (R-N.C.) began by questioning Chopra about how he intends to interpret and enforce the “abusive” standard and asked why he repealed former Director Kraninger’s policy statement on this topic.
Chopra shared that “I have huge, huge aspirations to provide durable jurisprudence with respect to [an analytical framework defining abusive]” but that Kraninger’s policy did not provide such a framework. He suggested this could be developed through a combination of judicial activity interpreting the statute and CFPB rules and guidance.
McHenry also raised questions about Chopra’s intentions regarding:
Adhering to the Administrative Procedures Act (Chopra said “yes, always”)
Cooperating with the Federal Reserve’s Inspector General’s investigations (Chopra said “all of them”)
His opinion of Congressional oversight (Chopra said, in a nutshell, that he intended to be responsive and, as McHenry summarized, “better than the FTC”)
In Seila v. CFPB the court ruled that the CFPB is part of the Executive Branch; is it his intention to comply with executive orders? For instance, Clinton’s 1993 Order 12866 provides that significant regulatory actions be submitted for review to the Office of Information and Regulatory Affairs (OIRA) in the Office of Management and Budget (OMB). Do you intend to adhere to that? (Chopra said as he understands it that’s not part of the process but that he would adhere to statutory requirements under rulemaking)
Rep. Anne Wagner (R-MO) said the Obama administration put in place many regulations making it difficult for families to get credit and shunned due process for businesses, and that the CFPB’s structure and funding mechanism must be reformed. She asked whether all rulemaking should be done in accordance with the Administrative Procedures Act, with the public having the chance to comment. Chopra said yes.
Rep. Wagner asked whether the CFPB should reward companies that self-identify and report concerns vs. punishing them. Chopra suggested that his record will show that where companies self-report and remediate, matters can typically be handled without public action.
She suggested that regulation by enforcement creates uncertainty in markets and makes it difficult, in turn, for consumers to access products, and asked Chopra whether he would commit to clearly communicating enforcement expectations to supervised entities. Chopra said, “That is absolutely my aspiration. I think markets work well when rules are easy to follow and easy to enforce. And I think often bright lines and bands can be one way.”
Rep. David Scott (D-GA) noted that the CFPB’s year-end financial report reveals that the Civil Penalty Fund currently has $576M in unallocated funds and that zero dollars have been allocated for financial literacy education. He asked about whether Director Chopra thought these should be used for financial literacy education.
Chopra said the Fund has two purposes; the first is to make consumers whole when restitution can’t be recovered from defendants. The second is for financial literacy initiatives. He suggested that there is a separate budget allocated for that but that he would review the situation.
Rep. Frank Lucas (R-OK) asked Director Chopra his opinion about the idea of a government-run credit reporting bureau, which has gained some support within Congress. He expressed concern that such a bureau would decrease privacy and accountability.
In one of his more candid responses, Chopra said, “I have to be blunt with you. I have not actually given much thought to this because I don’t know how mechanically it would work...it would be an enormous undertaking. It would be a big mountain to move. I’m much more concerned in the near term...about law violations of the Fair Credit Reporting Act, how agencies are investigating disputes, and how new types of credit reporting agencies are adhering to the law.”
Lucas then asked Chopra to describe the economic impact if the ability for businesses to recover debts was restricted.
Chopra said that “credit reporting can play an important role in the financial ecosystem but where there are errors and inaccuracies, that can be a huge pain point for a business or a consumer to be able to move forward. So if you’re asking whether I think we should delete everyone’s credit report the answer is no.”
Rep. Bill Huizenga (R-MI) raised the issue of a CFPB under the prior administration taking action against small a small title company that was put in the crosshairs of the CFPB to be made an example to the large companies. At worst, their activities were in a gray area. They were levied a fine that would have bankrupted them. Is it not your philosophy to “pound on the little guy to make sure the message gets sent”?
Chopra said “That is accurate. It doesn’t mean that small and mid-sized companies shouldn’t follow the law, but that the federal government should be focused on going after the biggest harms in the market rather than picking on people. At the FTC I was constantly distressed about the bullying of small businesses rather than taking the big companies to court, who are well resourced.”
He also asked about whether Chopra thought wild policy swings coming from the CFPB would be harmful to not only businesses but consumers. Chopra basically said yes, particularly for small businesses. The two agreed it would be more productive for businesses to spend fewer resources on hiring lawyers to deal with changing regulations.
Rep. Andy Barr (R-KY) was pleased to hear in Director Chopra’s opening remarks that he would like to restore relationship banking to the market, referring to Chopra’s stated desire to “cut through red tape.” He then asked whether Chopra thought businesses should know the rules of the road before experiencing enforcement action. Chopra said yes.
He then referred back to the conversation with Rep. McHenry about Acting Director Uejio’s rescinding the “Abusive” policy issued by former Director Kraninger. What’s the difference between “abusive” and “unfair”, and “abusive” and “deceptive”. He suggested that Kraninger provided clarity between the terms and that rescinding the policy created confusion. Chopra disagreed and said the statement was not binding on state attorneys general. He said that “when we don’t plead those, courts can not analyze that.”
Moving on, Rep. Barr asked Chopra whether he was open to guardrails on issuing Civil Investigative Demands (CID) to make them less of a fishing expedition.
Time ran out and the two agreed to work together on these matters.