President Biden's nominee to serve as CFPB Director, Rohit Chopra, today testified in front of the Senate Banking Committee about his potential regulatory and enforcement priorities as head of the consumer finance regulator. As we previously discussed, President Biden tapped Chopra, three years into his tenure as FTC Commissioner, to serve as Director of the CFPB. At the Commission, Chopra has been a frequent advocate of more aggressive enforcement, and his record drew criticism from some Republicans who wondered if he would go too far as CFPB Director. Chopra answered all such questions with promises to follow the law. The hearing did not appear to put any obstacles in his path to a favorable vote.
In his prepared statement, Chopra acknowledged the widespread and lasting effects of the global pandemic and highlighted particular concerns for the housing market. He reflected on the economic crisis from a decade ago and remarked on "how unlawful and avoidable foreclosures proved to be catastrophic in cities, small towns, and rural areas alike, contributing to deeper social divisions and inequities." Chopra also noted that Congress provided the CFPB with authority under the Dodd-Frank Act to monitor markets to spot risks, ensure compliance with the law, educate consumers, and promote competition. During the hearing's Q&A, Chopra noted that if confirmed he would make fair lending a focus and also answered questions on the role of financial technology and big data, credit bureaus and consumer reporting laws, civil penalties, student loans, the housing market, and more.
Financial Technology, Big Tech, and Big Data
Asked about the potential for FinTech and new sources of data, Chopra expressed concerns about financial technology, such as "algorithmic decision making" that could raise questions about discrimination. As such, the CFPB would likely look into how companies use big data for their financial products and investigate whether they are creating a discriminatory impact that would run afoul of fair lending laws and/or the Dodd-Frank Act.
He explicitly mentioned social media platforms offering financial services with their own crypto-currencies and questioned the impact of such moves on privacy and personal data. However, Chopra also said he firmly believed in the role of independent business and the value of competition, adding "I don't want to see a market where new entrants cannot get in." He also emphasized the importance of offering robust guidance on how firms can comply with data collections to ensure anti-discrimination provisions are being met, guidance that is currently lacking from an industry perspective.
A few senators stressed the importance of credit bureaus and questioned whether they were fulfilling their role to maintain accurate information that is essential to a consumer's financial livelihood. Asked if he supported new legislation to ensure accurate reporting, Chopra deferred and noted that he shares this concern as well, and plans to actively enforce laws such as the Fair Credit Reporting Act that regulate how information is shared and reported to consumer reporting agencies. Chopra also noted that credit reporting issues are much broader than traditional credit bureaus and also implicate the financial technology sector generally, which can have a significant impact on the financial welfare of a consumer.
Civil Penalty Fund and Restitution
Chopra's support for big monetary fines and civil penalties is well-documented, including in connection with his dissents from no-money settlements as an FTC Commissioner. In his hearing, he reiterated his perspective on the importance of restitution for harmed consumers and civil penalties to act as a deterrent to prevent bad actors from continuing deceptive practices in the future. He emphasized his perspective that civil penalty funds acquired through enforcement actions by the Bureau should only be used for consumer redress in accordance with the law. Any funds used for financial literacy, particularly funds that are used for contracts with non-profit organizations to assist in these efforts, are required to be disclosed.
Student Financial Health and Student Loans
The Commissioner fielded many questions stemming from concerns about student loans and debt. He emphasized the importance of students beginning their financial lives with a good future ahead and noted he intends to work with the Department of Treasury to monitor the relevant markets and report to Congress their findings. He also noted that if confirmed, he would have the CFPB monitor financial products sold to students on campus. Additionally, Chopra suggested that the CFPB would take a close look at student loan servicing and warned that "some of the same issues we saw in the mortgage servicing market were creeping into the student loan servicing market years ago." Chopra remarked that the CFPB would need to work with the Department of Education and state attorneys general to ensure that student loan repayments would all happen lawfully so that "we can avoid an avalanche of defaults."
Chopra also suggested that the Bureau would be active in evaluating systemic impacts on people of color in the student loan market, an experience he characterized as a "double whammy" as they borrow more and then ultimately face a wage gap once they enter the job market. Chopra noted that the CFPB already has authority to supervise and enforce against debt collectors and student lenders under the existing law.
Senator Tester inquired about Chopra's perspective on the CFPB's rules related to qualified mortgage (QM) loans. Chopra responded that he intends to work with the CFPB to ensure mortgage lending is safe and that people can build wealth, but may be open to the QM rules evolving over time. Once the moratoriums related to the global pandemic lift, Chopra voiced his concerns about an impending foreclosure crisis. When asked about the CFPB's role in mitigating foreclosures, Chopra responded that it will be critical for the CFPB to monitor markets and enforce homeowner protections to prevent a "déjà vu" of the Great Recession.
Interest Rate Regulation and Auto Loans
Chopra was asked if he acknowledged limitations on the Bureau's authority, for example whether it could regulate interest rates. He said it did not. Another issue that came up was the 2017 Congressional rejection of the Bureau's guidance against allegedly discriminatory auto loans. He answered that Congress had spoken, and he intended to follow its will. But he did not back down from vigorous enforcement of the Equal Credit Opportunity Act, which he said had been largely neglected by both the CFPB and the FTC in recent years.
Office of Servicemember Affairs (OSA)
Several members of the committee questioned Chopra about his commitment to OSA and ensuring that veterans, active members of the military, and their families are protected from financial abuses and deceptive acts, particularly as it relates to home ownership. Chopra raised concerns about VA home loans and credit reporting issues in particular, and stated that he would want to work closely with the Department of Justice to ensure that OSA leads with data and analysis to enforce relevant laws.
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In summary, the hearing delivered no obvious impediments to the progress of the nomination of Commissioner Rohit Chopra to head the CFPB. The Senate Banking Committee will be sending additional questions to him throughout the next week, and his answers will be due on March 8. We will continue to monitor Chopra's nomination process and post more updates here.
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