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HFSC Semi-Annual Report of the Consumer Financial Protection Bureau Hearing

House Committee on Financial Services

Consumers First: Semi-Annual Report of the Consumer Financial Protection Bureau

Wednesday, December 14, 2022

Topline

  • Members on both sides of the aisle raised concerns about the expansion of big tech companies into banking and finance.
  • Democrats lauded the CFPB for its work pressuring credit bureaus to make policy changes to relieve the burden of medical debt on consumer credit reports.
  • Republicans criticized Chopra for regulating by press release and not following the Administrative Procedure Act.

Witnesses

Opening Statements

Chairwoman Maxine Waters (D-Calif.)

In her opening statement, Waters commended the CFPB for its plan to create an online registry of companies who have violated consumer financial protection laws. She added the registry will help to hold repeat offenders accountable and ensure consumers are protected. Waters said the CFPB pressured credit bureaus to make overdue policy changes to relieve the burden of medical debt on consumer credit reports, and helped small businesses attain much needed access to capital. She noted the CFPB continues to closely monitor the impact fintech and crypto products have on consumers.

Waters said she is closely monitoring the ruling from the Fifth Circuit regarding the CFPB’s funding mechanism, adding the ruling would disrupt the entire federal government, harm the economy, and leave consumers with fewer protections. She said Democrats support the Justice Department and CFPB’s appeal to the Supreme Court. Waters concluded by noting her displeasure related to the way her Republican colleagues have treated the CFPB.

Ranking Member Patrick McHenry (R-N.C.)

In his opening statement, McHenry warned there will be more oversight of the CFPB in the next Congress when Republicans are in the majority. He said the CFPB’s lack of transparency is of grave concern, and said Chopra is implementing progressive policies at the expense of consumers and market participants. McHenry admonished Chopra for moving the Office of Innovation to the backburner. He noted Republicans are interested in the Supreme Court’s action regarding the Fifth Circuit’s decision.

McHenry concluded by saying Chopra abused his political powers, and said he hopes Chopra will change his behavior going forwards.

Rep. Blaine Luetkemeyer (R-Mo.)

In his opening statement, Luetkemeyer said the CFPB was developed in an unconstitutional manner that opened the door for massive abuses of power. He said the CFPB, under Chopra’s direction, has shown a willingness to operate under means that are not legally and ethically appropriate. Luetkemeyer added Chopra sues U.S. companies under erroneous definitions and refuses to meet with stakeholders. He concluded by alleging Chopra is either uninterested in or too lazy to fill his duties as a regulator.

Testimony

The Honorable Rohit Chopra, Director, Consumer Financial Protection Bureau

In his testimony, Chopra noted the CFPB is carefully monitoring consumer finance markets to protect honest businesses and consumers. He explained that during the last year, the CFPB recovered hundreds of millions of dollars in victim redress and penalties, sharpened its focus on repeat offenders, and prioritized implementing rules directed by Congress. Chopra urged Congress to protect the neutrality of our payment system, noting Facebook’s Libra proposal in 2019 was a wake-up call to regulators around the world and serves as an important reminder of the power and potential that tech giants hold. He said financial regulators should carefully monitor how large tech conglomerates and other platforms enter the payments system and financial services.

Chopra discussed how payment apps from large tech firms are the conduit for trillions of dollars in transactions, noting the growing concern that a small set of players, including some of the largest tech companies, are gaining a greater foothold in the payments system. He said the rise in dominance of a small group of payment platforms raises questions about how firms can suppress, suspend, or discriminate against certain participants over others. He explained that the CFPB has heard considerable concerns about payment apps kicking off users, or even claiming the ability to reach into their accounts and fine users without a clear reference to any legal infraction. Chopra said Congress must ensure that tech platforms are not picking winners and losers.

Chopra said he hopes Congress will consider updating the Gramm-Leach-Bliley Act to provide limitations on the collection, use, and sharing of sensitive personal financial data. He noted other opportunities for bipartisan legislative efforts, citing reforming the Appraisal Foundation, expanding awards for whistleblowers, and protecting relationship banking. He concluded by affirming the CFPB’s eagerness to work with this Committee to craft potential solutions on these and many other issues.

Question & Answer

Big Tech Payment Platforms

Waters noted the CFPB launched an inquiry into big tech payment platforms like PayPal. She asked Chopra about the status of that inquiry, and if the CFPB had identified any areas of risk or concern.

Chopra said big tech entering the payment system raises a host of questions about how banks and consumers will fairly participate. He said the CFPB reopened the document to hear concerns about consumers getting their accounts frozen or suspended because of their speech or other activities, adding the payment system should not pick winners and losers. He said big tech collects an extraordinary amount of data about individuals and their transactions.

Waters asked Chopra what issues he would recommend Congress to prioritize regarding legislation to strengthen consumer protections surrounding digital payments. Chopra said stablecoins.

Rep. Pete Sessions (R-Texas) said big tech companies and other digital giants have leveraged their existing platforms to expand their reach into banking and finance. Sessions asked Chopra about his working definition of big tech. Chopra said big tech conveys the largest technology conglomerates that operate globally and have scale and network effects. He noted banks are not allowed to have side businesses, and don’t harvest enormous amounts of information to preference their other businesses. Chopra said big tech firms have enormous power to elevate or suppress some users over others, which is very scary in the context of payments.

Rep. Emmanuel Cleaver (D-Mo.) asked what backs up big tech digital assets. Chopra said users of apps like PayPal and Venmo may not be aware that their funds may not be insured by the FDIC. He added there is a lot of work for regulators and Congress to do.

Section 1071 Rulemaking

Rep. Nydia Velazquez (D-N.Y.) asked if the CFPB is on track to issue a final rulemaking by March regarding Section 1071. Chopra said that was correct, noting they were under court order to do so.

Rep. Roger Williams (R-Texas) said he regularly speaks with community bankers in Texas who tell him how terrified they are about the CFPB’s Section 1071 rulemaking. Williams said community bankers are concerned 1071 will increase the cost of credit and kill relationship banking. Williams asked Chopra how he worked to accommodate the concerns of small businesses in 1071 rulemaking. Chopra said it is important to implement the requirement in the most simplified way possible. He said he worries about small businesses being forced to bank with the largest banks instead of with local banks.

Rep. French Hill (R-Ark.) said Section 1071, while well-intended, is not implementable in a cost-effective way. He said 1071 will mean higher prices for small businesses. Chopra said he shared his concerns, but noted the CFPB is under a court order to complete the rulemaking.

Section 1033 Rulemaking

Rep. Stephen Lynch (D-Mass.) said he was pleased to see that CFPB published an outline of proposals being considered before the rulemaking that would implement Section 1033 of the Dodd-Frank Act in October. He asked Chopra to expand on those proposals. Chopra said the CFPB is looking to propose a rule that would require financial firms to provide people’s ledger data in a machine readable and secure way. He added the goal would be for people to be able to switch banks more easily so they can get better customer service and pricing. Chopra concluded by noting data protection must be part of the rulemaking.

Rep. Warren Davidson (R-Ohio) said he is particularly appreciative of the Section 1033 rulemaking that Chopra has undertaken. Davidson asked Chopra about his previous remarks that the CFPB will convene panels of smaller entities for feedback on the 1033 rulemaking. Davidson asked how the CFPB will decide who participates in those panels. Chopra said the SBA is very involved in the decision. He said the CFPB tried to get a broad set of stakeholders and worked through industry associations.

Administrative Procedure Act

McHenry said the CFPB has a rule for non-bank supervision. He asked Chopra if that rule was going through the Administrative Procedure Act (APA). Chopra said the CFPB provided and published a procedural rule so entities would know how it works.

Rep. Ann Wagner (R-Mo.) said she was hearing from industry and investors that Chopra has chosen to regulate by press release, instead of through the APA. She noted this demonstrates an intent to subvert the comment period. Wagner asked if Chopra would commit to not bring enforcement actions against financial institutions and other market participants who fail to comply with any decree other than APA rules. Chopra said the CFPB will enforce the law as written, noting statutes are developed by Congress. He added when there are additional obligations or requirements, the CFPB goes through that process.

Rep. Alex Mooney (R-W.V.) asked if Chopra would vow to not bring an enforcement action against any financial institution for violations not expressly laid out in statute or in APA rule. Chopra said the CFPB cannot bring enforcement actions unless they plead a violation of law or regulation.

CFPB Funding

Rep. Al Green (D-Texas) said he supports an independent CFPB that does not have to depend on Congress for its funding. He asked Chopra how consumers would be impacted if Congress controlled the CFPB’s purse strings and decreased its funding. Chopra said a robust and reliable CFPB is the best thing for consumers and critical for industry participants. He said there would be chaos if the CFPB’s funding was cut. Green asked Chopra what would happen to people who are in the process of acquiring a loan if the independent CFPB was dismantled. Chopra said if we want housing and mortgages to be robust, throwing huge amounts of uncertainty into that would not help anyone.

Rep. Andy Barr (R-Ky.) said the Supreme Court will affirm the Fifth Circuit’s decision, which found the CFPB’s funding mechanism unconstitutional. Barr asked if Chopra will support his TABS Act, which would put the CFPB under congressional appropriations. Chopra said the CFPB will comply with the Supreme Court’s ruling.

Cryptocurrency

Cleaver asked what Chopra thought the CFPB and Congress should do regarding cryptocurrency.  Chopra said the CFPB is focused on payments, noting cryptocurrency is not currently in consumer payments. He said if crypto is ever used in consumer payments, the CFPB will work with Congress.

Rep. Bill Huizenga (R-Mich.) asked if Chopra anticipated expanding the CFPB’s enforcement in the crypto area. Chopra said no. Huizenga asked if the CFPB had received any criminal complaints or enforcement actions regarding FTX or Sam Bankman-Fried. Chopra said no, explaining the CFPB is not a criminal enforcer.

Credit Bureaus

Rep. Joyce Beatty (D-Ohio) asked Chopra to discuss credit reporting. Chopra said it was no longer just the three major credit reporting conglomerates, noting big tech firms are developing scores and background dossiers on all of us. He said this raises real questions about what we need to do to protect privacy and data sharing. Beatty asked if Chopra would work with Congress on related legislation. He said absolutely.

Rep. Bill Foster (D-Ill.) asked if Chopra believed that Equifax and other credit reporting agencies have appropriate procedures and controls in place to ensure the maximum possible accuracy. Chopra said accuracy must be their north star.

Rep. Sean Casten (D-Ill.) noted the CFPB released a statement of policy confirming that federal anti-discrimination law requires companies to explain to applicants the specific reasons they were denied credit. He asked Chopra if he observed any changes in financial institutions who were using black box algorithms to make lending decisions since that guidance was issued. Chopra said the CFPB is still trying to see where there might be additional questions but noted there have been multiple developments that are putting a premium on explainability.

Credit Cards

Rep. Carolyn Maloney (D-N.Y.) asked if Chopra was keeping records on the effectiveness of the Credit CARD Act. He said the CFPB is gearing up to look at this, noting its importance. Maloney noted banks have started eliminating overdraft fees. She asked Chopra if it would be less confusing for consumers if there was one uniform standard regarding overdraft fees. Chopra said the CFPB will continue supervising institutions on the question of deposit charges. He noted he is encouraged by where the market has moved and said overdraft fees and credit cards are linked. Chopra said the CFPB wants people to have the cheapest access to credit.

Medical Debt

Rep. Rashida Tlaib (D-Mich.) asked Chopra if it is correct that 40% of Americans who file for bankruptcy do so because of medical debt. Chopra said she was correct and reaffirmed that medical debt is one of the major causes of bankruptcy. Tlaib said we need to do more about the medical debt crisis.

Rep. Ayanna Pressley (D-Mass.) asked Chopra what further steps the CFBP is considering to protect vulnerable consumers who are facing chronic medical issues. Chopra said the CFPB is considering rulemaking under the Fair Credit Reporting Act to address medical debt. He explained how credit reports can be used as a tool of coercion to get people to pay debt they’ve already paid or never owed in the first place. Chopra noted this is also a privacy issue.

For more information on this hearing, please click here.

For an archive of past SIFMA hearing coverage, please click here.