Last month CFPB Director Rohit Chopra sat down with The Washington Post's economist columnist Heather Long in an unusual but enlightening conversation published by the Washington Post Live. In this article, we highlight what in our view is likely coming next for the Bureau, both based on what the Director said and what was left unsaid or to the future.
Not Asleep At The Switch.
First, however, if there is one overarching take-away from the Director's comments, it is Rohit Chopra will not permit the CFPB, in his words, to be caught “asleep at the switch.” He is focused on proactively “monitoring these markets” and avoiding what he contends “the American public has seen this over and over again‑‑[of] law enforcement agencies and regulators simply just asleep at the switch, not understanding how markets work, and then being too late when things go badly wrong. And that's just not how we're going to operate.”
CFPB Market Goals.
We commend to you the entire interview, as it covers a wide range of issues from the potential emerging risks of Buy Now, Pay Later product sale financing to the perils of consumer information sharing; from potential challenges of student loan servicing and defaults to the prospects of a digital dollar. In our view, a handful of key themes emerge across the spectrum of topics and financial services.
- Transparent & Competitive Pricing for consumer financial services products.
- “Service & Quality” -- Actual Value for Service and Products
- Reliable Assistance when challenges arise.
- Leveraging Data Analytics to benefit consumers, not potentially harm them.
Chopra believes there is room for improvement in our sector. “When competitive forces work, costs go down, consumers are served better, and I'm not really sure that we totally have that in many sectors of banking.”
Chopra also signaled two other big picture perspectives. Despite the specific responsibilities delineated to the CFPB under Dodd Frank, he is focused on the CFPB being the eyes and ears for a broader forum. “One of the things I have asked our staff to do is we need to make sure that we are collecting information, studying and reporting to the public, because sometimes it doesn't just involve our authority. Sometimes it involves others.”
The Director is concerned about disparate impacts across financial services, especially in light of inflation and other market trends: “how do we keep our financial systems stable, because the risks of mass financial instability disproportionately fall on those who least can afford it? And they get‑‑all of us get really angry that in some cases, the individuals and the politicians who helped cause the financial crisis, there seems to be no consequences for them.”
Data Analytics – Opportunity to Help & Risk for Abuse.
We have seen, even under prior Directors, a clear focus on data analytics, including the CFPB's Consumer Complaint Database. Chopra is fully engaged in the CFPB leveraging the power of data to identify concerns and assess consumer adverse impact. He also is wary of consumer data being used in ways, which the Director contends may harmful to consumers. In discussing the increasing scope of consumer personal data being collected, Chopra commented: “I really wonder whether it makes sense for this data to not have a clear set of transparency about how it's being used, I think, when these data are combined into black box algorithms, used for financial purposes, and sometimes people can't even explain the decisions that come out of them.” He returned to this risk later in the interview, concluding “we want to make sure technology is meaningfully making our lives better, not necessarily turning into a surveillance state, not necessarily to reinforce bias and discrimination.” Accordingly, we expect to see more focus and activity in the spaces of fair lending underwriting, pricing and debt servicing. We also may see in the future the Bureau advocating that institutions leverage data analytics to assist consumers. In criticizing insufficient funds fees, Chorpa noted “so many of these fees are determined by simple timing mismatches between when your paycheck gets deposited and when certain debits are processed.”
Rule Making & Specific Issues Under the CFPB Microscope.
Director Chopra clearly intends to use all the tools he has available to drive the Bureau's progress and achieve his goals. In several instances, he indicated rule making may be in the offing but that an additional tool the CFPB will leverage is supervisory scrutiny. While we can expect the CFPB to continue exercising its authority over all aspects of consumer finance, Chopra focused his commentary on the following products and services:
- Credit Cards and Auto Lending: Chopra expressed concern over the lack of competitive interest rates and pricing in the credit card and auto lending markets, particularly when costs are increasing because of inflation. For auto lending, rising demand resulting from parts shortages further increases the total cost of ownership for both new and used vehicles. We plan to watch for cooperation and data sharing among the CFPB and other regulators to promote competitive options for consumers in credit card and auto lending markets.
- Digital Currency: Chopra noted the importance of distinguishing stable coins from speculative trading when considering the risks of digital currency to consumers. He also expressed an interest in ensuring that digital asset transactions have similar protections to debit or credit cards including, but not limited to, issue escalation, adequate privacy and security measures, and fraud prevention. Digital currency is an area where Chopra suggested we might see CFPB collaborating with other agencies, taking a co-regulatory, multijurisdictional approach similar to that of the mortgage industry.
- Fees: For all consumer markets, the CFPB is paying close attention to what Chopra referred to as “junk fees”, including overdraft, insufficient fund, surcharge, ticketing, and resort fees. Chopra comments, for example, “[insufficient fund fees are] a key place where so many consumers feel kicked when they're down, and often people ask me… ‘what service am I getting?' It doesn't feel like a service at all. It just feels like a punishment. So I think that's part of what we have to think about.” The CFPB is also evaluating whether consumers receive sufficient up-front disclosures to do comparative shopping and make informed decisions with respect to fees. It is unclear whether we'll see rulemaking or further activity with respect to fees. However, companies may mitigate risk by evaluating the basis of their current fee arrangements, disclosures regarding such fees, and whether their fees drive value for consumers to promote a fair and competitive market.
- Student Lending: While other branches of government tackle the ongoing discussion of student loan forgiveness, we can expect the CFPB to focus its attention on remediating harm for students who borrowed to attend for-profit institutions but did not derive value from those programs, or perhaps were harmed as a result of kickback scandals between schools and student loan companies. Director Chopra is also paying close attention to the upcoming transition of federal student loans to back repayment status after more than two years of interest-free forbearance as a result of the COVID-19 pandemic.
Chopra also stressed the importance of expanding access to financial services for unbanked populations, including the development of safe and efficient payment systems for international remittance transfers, as well as facilitating earlier and more frequent access to wages.
Conclusion & Takeaways. Director Chopra is inquisitive, tenacious and principled. Whether or not one agrees with his expressed views on industry, he is invigorating the CFPB with a clear vision and mission. Institutions can leverage the insights he shared to assess consumer services and products through that lens and to align risk and compliance focus to mitigate enforcement and supervisory risk. Early engagement on emerging risk trends will be beneficial. Applying fairness, transparency and value principles he outlined may mitigate consumer complaints and ultimately regulatory and litigation risk.
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