With the congressional confirmation of Rohit Chopra as Director at the Consumer Financial Protection Bureau, President Joe Biden continues to make his mark on U.S. financial regulation. The new director will be an aggressive regulator who will press to break new ground as technology plays a bigger role in banking. Financial institution lenders, marketers and technologists will be watching as the consumer watchdog agency continues to rediscover its teeth in a time when progressive Democrats are clamoring for action.
“Chopra has a reputation for cracking down hard on financial services companies accused of consumer protection law violations,” says Michele Alt, Partner and Co-Founder at Klaros Group, and a veteran in the legal section of the Comptroller’s Office.
Chopra, a McKinsey consultant before he entered public service, has made it clear that an early priority will be protecting consumers who have or will be coming out from under the umbrella of mortgage forbearance programs.
“We should make sure they can stay in their homes when they have the ability to do so,” he testified, “and not be deceived about what their options are.” Many of the consumers who signed up early for the federal protection began emerging from it in fall 2021.
More generally, Chopra has often indicated that the industry sins that led to the mortgage debacle that contributed to the Great Recession made a significant impression on him. “It’s critical for regulators to not make the same mistakes that we made in the lead up to the financial crisis,” he testified during his confirmation hearing.
New Sherriff in Town:
Chopra steps into the job following one of the most divided confirmation processes in recent years, and likely a preview of what’s to come when Saule Omarova, Biden’s nominee for Comptroller of the Currency, goes through the hoops.
When his nomination came before the full Senate, Banking Committee Chairman Sherrod Brown (D.-Ohio) presented a long, passionate endorsement plea to the chamber. Chopra, he said, “will be America’s voice and America’s advocate,” and a champion for the little guy scrimping along while the rich get richer. By contrast, when the committee’s ranking member, Sen. Patrick Toomey of Pennsylvania opposed Chopra’s nomination, he said he had “grave concerns that … Chopra would return the CFPB to the lawless, overreaching, highly politicized agency it was during the Obama administration.” He called it “the most unaccountable agency of the federal government.”
During Chopra’s confirmation hearing, conducted jointly with that for Gary Gensler, now Chairman of the Securities and Exchange Commission, Elizabeth Warren (D.-Mass.), not surprisingly, treated Chopra in a friendly way.
“The last administration appointee acted like they worked for the giant banks that they were supposed to regulate,” she stated in the hearing. “It’s clear the bureau has to return to its core mission of protecting consumers.” She spoke particularly about the previous team’s gutting of CFPB’s fair-lending enforcement arm and Chopra readily agreed, saying Congress had made it clear that that issue should be a bureau priority.
Coming Back to CFPB in the Midst of Industry Change
Chopra, who had headed the bureau’s student loan function after helping to establish the new organization, was serving on the Federal Trade Commission when picked to become bureau Director.
Born to Controversy:
CFPB has been controversial from the get-go and there’s no reason to expect that it won’t continue to be under Chopra. While its core mission is supervising banks, thrifts and credit unions over $10 billion in assets, its influence ranges more broadly.
Much of CFPB’s rulemaking authority was inherited from the Federal Reserve. That authority affects many more institutions than financial institutions of $10 billion in assets or more. CFPB has the power to assert authority in areas of finance outside of its core mission, as well.
Chopra understands the changing makeup of the business and the increasing role of big tech and fintech firms. During his time at FTC he was critical of practices at Facebook and Amazon particularly and appears to be highly skeptical of big tech in general. He has spoken of his concerns about the application of artificial intelligence and related science in financial marketing, credit analysis and ongoing data analytics.
On Oct. 21 Chopra announced a first salvo on bigtechs. CFPB issued a series of orders to collect information from six U.S. bigtechs concerning their payments system policies and practices. The companies are Amazon, Apple, Facebook, Google, PayPal and Square.
After President Biden came in, CFPB began a return to more aggressive work under acting director Dave Uejio, and one of Chopra’s first actions after rejoining the agency was adding a quartet of new officials to the bureau’s roster, including a key congressional aide to Senator Brown.
Clearly Chopra has a strong belief in accountability. In a fireside chat at the University of Michigan’s Ford School of Public Policy in 2019, he spoke of how people went to jail after the savings and loan scandals of the 1980s but that nothing like that happened after the financial crisis and the Great Recession. Nor has that happened when student loan scandals have occurred. In recent history, he suggested, investors have had more protection than ordinary consumers.
“What kills me is you can take advantage of and lie and cheat consumers, but … if you lie to an investor you will be personally held accountable for that offense. I think we sometimes need to think about massive fraud against consumers and whether we have the calibration right.”
— Rohit Chopra, in 2019 comments
At FTC Chopra didn’t hesitate to depart from the majority if he felt his fellow commissioners hadn’t been tough enough. He issued statements and tweets opining on issues and he’s continued tweeting with his renamed official (@ChopraCFPB) and personal (@hitchop) Twitter accounts since taking office at the bureau. During his time at FTC Chopra pressed for tougher enforcement against repeat offenders.
During the same fireside chat Chopra made an observation that may cause some division among financial institutions.
He was amazed, he said, at how “you can make a business decision to cross the line and even if you are caught maybe there won’t be consequences,” said Chopra. “This is deeply unfair to law-abiding financial firms.”
He added that while some settlements announced by government agencies sound huge and punishing, for the size of the companies involved he doesn’t think they are so drastic. This suggests at CFPB that he could push for stiffer penalties. In the interview he regretted that FTC’s powers didn’t include imposition of civil penalties.
Confronting a Longstanding Industry Gripe
In its early years CFPB became known for practices that gave the banking industry fits.
One was its frequent practice of issuing sweeping press releases in the wake of settlements, which often did not include the point that a case may have originated after an institution performed a self-assessment and turned itself in. Another was an early emphasis on supervision through enforcement — that is, citing behavior that had not been explicitly identified as wrong in statute or regulation. Institutions began tracking enforcement actions and settlements to puzzle out what they were expected to do.
This type of thing was pointed out at several points during the testimony and Chopra went as far as stating that the bureau, under his leadership, would be “focused on fixing harms and making it clear what is expected of companies.” He also said that “guidances cannot impose obligations. That is not the appropriate way that new laws are created. Supervisory guidance is supposed to be there to help institutions figure out how to best comply.”
Formally, in responses to later written questions from banking committee members, Chopra acknowledged that “I understand that retroactive changes to legal interpretations can raise significant fair notice concerns. If confirmed, I will follow the law.”
Fair-Lending Enforcement, a Top Biden Priority
In congressional testimony and other venues Chopra has made his interest in fair-lending issues clear. One of the goals of the Biden financial services platform was the reinvigoration of “disparate impact” fair-lending cases. Simply put, that type of case concerns lender actions that on their face aren’t discriminatory, but which produce discriminatory results. This was deemphasized during the Trump administration.
Another wrinkle, according to Klaros Group’s Michele Alt, commenting during a webinar, is that Chopra has suggested that disparate impact situations may also trigger “UDAAP” violations.
UDAAP stands for unfair, deceptive and abusive acts and practices. The explanations of what “abusive” entails have been somewhat vague and definitely controversial.
“I think the bureau under Chopra is going to push the frontiers on everything they can,” Marsha Courchane, VP and Practice Leader, Charles River Associates, said during the webinar. Fellow speaker Andrea Mitchell, Managing Partner and Founding Member at law firm Mitchell Sandler LLC, noted that in its first years, under founding Director Richard Cordray, CFPB typically explored novel applications of laws to “pile on” charges, often to create additional pools of settlement funds. In the hands of a director who supports CFPB’s purpose, she said, UDAAP can make “a great dragnet.”
Mitchell also suggested that one aftermath of Covid relief will be after-the-fact fair-lending investigations of how forbearance and related measures were applied. This will likely rope in other banking regulations and laws as well. Courchane sees the Paycheck Protection Program and mortgage servicing as the basis of other work the CFPB and other regulators may do in this area.
“Every bank I worked with and probably fintechs too violated some law during Covid. It was impossible to get everything perfect.”
— Andrea Mitchell, Mitchell Sandler LLC
Mitchell said it was likely CFPB would “pick some weak gazelles from the herd.”
And there’s also another risk on the horizon: immigration status. While that is not a protected grouping under federal discrimination law, the speakers suggested the bureau might team up with state supervisors, such as California’s new Department of Financial Protection and Innovation. In some states immigration status is a protected category.
On Oct. 22, 2021, Chopra took part in a Department of Justice press conference where the department’s Combatting Redlining Initiative was unveiled by Attorney General Merrick Garland. Chopra, along with Acting Comptroller Michael Hsu, supported the Justice effort and jointly announced a settlement of redlining accusations involving Trustmark National Bank.
CFPB Directors Do More than Run the Bureau
Something many bankers and credit union executives may not know is that the authority of the head of the bureau goes beyond CFPB itself. The role can lead to broader influence.
Under the legislation that created it, the director also sits on the board of the FDIC, just as the Comptroller of the Currency does. CFPB’s head also sits on the Federal Financial Institutions Examination Council, and on the Financial Stability Oversight Council.
All of which made Chopra’s answer during testimony at the confirmation hearing interesting when he was asked about the status of “too big to fail” and megabanks.
Chopra said he believes the federal government had to keep pressing against the principles of too big to fail contained in the Dodd-Frank Act.
“We want competition on the merits,” he said. “We want to make sure there is a market structure where small banks and other small financial institutions can compete fair and square. Regulators have to be attuned to every financial institution, not the largest ones.”
In a related vein, Chopra said he supports Federal Reserve efforts to usher in faster payments. First, he sees this as a matter of international competition. Second, he sees it as a means of getting money to consumers faster both in the ordinary course of events like payroll as well as when the government needs to pump out benefits, as during the pandemic.
And during his fireside chat, Chopra raised the point that he questioned continuing to give benefits like federal deposit insurance to companies that repeatedly violated consumer protection and other rules.