[House Hearing, 117 Congress]
[From the U.S. Government Publishing Office]
BRINGING CONSUMER PROTECTION BACK:
A SEMI-ANNUAL REVIEW OF THE
CONSUMER FINANCIAL PROTECTION BUREAU
=======================================================================
HYBRID HEARING
BEFORE THE
COMMITTEE ON FINANCIAL SERVICES
U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED SEVENTEENTH CONGRESS
FIRST SESSION
__________
OCTOBER 27, 2021
__________
Printed for the use of the Committee on Financial Services
Serial No. 117-57
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
__________
U.S. GOVERNMENT PUBLISHING OFFICE
46-246 PDF WASHINGTON : 2022
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HOUSE COMMITTEE ON FINANCIAL SERVICES
MAXINE WATERS, California, Chairwoman
CAROLYN B. MALONEY, New York PATRICK McHENRY, North Carolina,
NYDIA M. VELAZQUEZ, New York Ranking Member
BRAD SHERMAN, California FRANK D. LUCAS, Oklahoma
GREGORY W. MEEKS, New York BILL POSEY, Florida
DAVID SCOTT, Georgia BLAINE LUETKEMEYER, Missouri
AL GREEN, Texas BILL HUIZENGA, Michigan
EMANUEL CLEAVER, Missouri ANN WAGNER, Missouri
ED PERLMUTTER, Colorado ANDY BARR, Kentucky
JIM A. HIMES, Connecticut ROGER WILLIAMS, Texas
BILL FOSTER, Illinois FRENCH HILL, Arkansas
JOYCE BEATTY, Ohio TOM EMMER, Minnesota
JUAN VARGAS, California LEE M. ZELDIN, New York
JOSH GOTTHEIMER, New Jersey BARRY LOUDERMILK, Georgia
VICENTE GONZALEZ, Texas ALEXANDER X. MOONEY, West Virginia
AL LAWSON, Florida WARREN DAVIDSON, Ohio
MICHAEL SAN NICOLAS, Guam TED BUDD, North Carolina
CINDY AXNE, Iowa DAVID KUSTOFF, Tennessee
SEAN CASTEN, Illinois TREY HOLLINGSWORTH, Indiana
AYANNA PRESSLEY, Massachusetts ANTHONY GONZALEZ, Ohio
RITCHIE TORRES, New York JOHN ROSE, Tennessee
STEPHEN F. LYNCH, Massachusetts BRYAN STEIL, Wisconsin
ALMA ADAMS, North Carolina LANCE GOODEN, Texas
RASHIDA TLAIB, Michigan WILLIAM TIMMONS, South Carolina
MADELEINE DEAN, Pennsylvania VAN TAYLOR, Texas
ALEXANDRIA OCASIO-CORTEZ, New York PETE SESSIONS, Texas
JESUS ``CHUY'' GARCIA, Illinois
SYLVIA GARCIA, Texas
NIKEMA WILLIAMS, Georgia
JAKE AUCHINCLOSS, Massachusetts
Charla Ouertatani, Staff Director
C O N T E N T S
----------
Page
Hearing held on:
October 27, 2021............................................. 1
Appendix:
October 27, 2021............................................. 69
WITNESSES
Wednesday, October 27, 2021
Chopra, Hon. Rohit, Director, Consumer Financial Protection
Bureau (CFPB).................................................. 4
APPENDIX
Prepared statements:
Chopra, Hon. Rohit........................................... 70
Additional Material Submitted for the Record
Waters, Hon. Maxine:
Written statement of the Consumer Bankers Association........ 74
Letter to Hon. Kathleen L. Kraninger from various undersigned
entities................................................... 80
Written statement of the National Association of Federally-
Insured Credit Unions...................................... 85
Letter from Tamara K. Nopper, Associate Professor, Rhode
Island College............................................. 90
Hill, Hon. French:
Letter to Hon. Kathleen L. Kraninger from various undersigned
entities................................................... 80
Chopra, Hon. Rohit:
Semi-Annual Report of the Consumer Financial Protection
Bureau, Spring 2021........................................ 98
Written responses to questions for the record submitted by
Representative Hill........................................ 215
Written responses to questions for the record submitted by
Representative Timmons..................................... 214
Written responses to questions for the record submitted by
Representative Nikema Williams............................. 218
Written responses to questions for the record submitted by
Representative Zeldin...................................... 212
BRINGING CONSUMER PROTECTION BACK:
A SEMI-ANNUAL REVIEW OF THE
CONSUMER FINANCIAL PROTECTION BUREAU
----------
Wednesday, October 27, 2021
U.S. House of Representatives,
Committee on Financial Services,
Washington, D.C.
The committee met, pursuant to notice, at 10:07 a.m., in
room 2128, Rayburn House Office Building, Hon. Maxine Waters
[chairwoman of the committee] presiding.
Members present: Representatives Waters, Maloney, Sherman,
Meeks, Scott, Green, Cleaver, Perlmutter, Himes, Foster,
Beatty, Vargas, Gottheimer, Axne, Casten, Pressley, Torres,
Lynch, Adams, Tlaib, Dean, Garcia of Illinois, Garcia of Texas,
Williams of Georgia, Auchincloss; McHenry, Lucas, Posey,
Luetkemeyer, Huizenga, Wagner, Barr, Williams of Texas, Hill,
Emmer, Zeldin, Loudermilk, Mooney, Davidson, Budd, Kustoff,
Hollingsworth, Gonzalez of Ohio, Rose, Steil, Gooden, Timmons,
Taylor, and Sessions.
Chairwoman Waters. The Financial Services Committee will
come to order.
Without objection, the Chair is authorized to declare a
recess of the committee at any time.
I now recognize myself for 5 minutes to give an opening
statement.
Good morning. Today, we welcome Mr. Rohit Chopra, the
newly-confirmed Director of the Consumer Financial Protection
Bureau (CFPB), before our committee. Mr. Chopra, you have
inherited an agency that was undermined by the Trump
Administration, which actively worked to reduce consumer
protections and enable predatory behavior against the most
vulnerable.
For example, Mick Mulvaney and Kathy Kraninger weakened the
CFPB's Office of Fair Lending and Equal Opportunity. During
their tenure, only a total of four CFPB fair lending
enforcement actions were taken, and regulator referrals to the
Department of Justice for potential Equal Credit Opportunity
Act (ECOA) violations declined by 58 percent. Thankfully, their
efforts to eliminate the CFPB were unsuccessful.
The CFPB was founded on the principle of protecting
consumers from unfair, deceptive, or abusive acts or practices
in the financial marketplace. Since its inception, the CFPB has
uncovered illegal, predatory, and discriminatory conduct toward
consumers, returning over $13.4 billion to over 175 million
people who were taken advantage of by bad actors.
Unfortunately, at a critical time during the COVID-19
pandemic, the Trump Administration left consumers exposed. The
CFPB reported earlier this year that homeowners of color
continue to face significant challenges. Specifically, while
Black and Latinx borrowers represent only 18 percent of all
mortgage borrowers, they are nearly 3 times as likely as White
borrowers to report being behind on their mortgage payment or
having a mortgage in forbearance. It is critical that the CFPB
provide strong oversight of mortgage servicers to ensure that
they proactively work with all borrowers, providing affordable
loan modifications to avoid unnecessary foreclosures.
Furthermore, the COVID-19 crisis highlighted the predatory
behavior of debt collectors, as thousands of people struggled
to make ends meet and keep up rent. A legal aid attorney from
Texas testified that debt collectors made record profits by
aggressively pursuing default judgments, and in some cases,
seizing stimulus payments and unemployment benefits deposited
into bank accounts.
And let's not forget the role of the CFPB in promoting
responsible innovation. With the rise of financial technology,
the CFPB must take action to ensure that consumers have more
control over their own data and are protected from
discrimination and predatory products and services. Last week,
you issued orders for information from Big Tech firms operating
digital payment systems to learn, among other things, how they
are handling sensitive consumer data and to what extent they
are following the consumer protection laws.
So, Director Chopra, I look forward to your testimony and
your leadership at a revitalized CFPB that can be the strong
watchdog Congress always intended to protect consumers,
especially those who have experienced historical
discrimination, such as people of color, women, and low-wage
workers, among others.
I now recognize the ranking member of the committee, the
gentleman from North Carolina, Mr. McHenry, for 5 minutes.
Mr. McHenry. Thank you, Madam Chairwoman, for holding the
hearing today, and I am glad the committee is following up on
our statutorily-required oversight hearings and holding this
semi-annual review of the CFPB on time. And I want to
congratulate you on that because there has been an alarming
trend that the committee Democrats are scrapping these
statutorily-required hearings, and I hope that we are back on
track now.
Director Chopra, welcome to the committee. Thank you for
being here. I know you have been in this room many times
before, but this is your first time testifying. As you know, we
have a lot to discuss. Over the last several months, the CFPB
has issued many new and concerning rules and guidance, as well
as policy statements, and revoked some important actions
completed under previous leadership. The Bureau has also
delayed implementation of major rulemakings, causing regulatory
uncertainty. That is problematic. I would like to hear more
about how the Bureau came to those conclusions and why those
actions were necessary.
But I know you have only been Director for a month. None of
those decisions were of your making. It was Acting Director
Uejio who was calling the shots for the last 9 months, and he
was unconfirmed. He acted as an unaccountable bureaucrat making
those decisions, and I think the decisions were harmful to
small businesses and consumers. But now we have you, a Senate-
confirmed, but still wholly unaccountable under the
organizational structure of the law of the CFPB, a wholly-
unaccountable Democrat CFPB Director. And I think we have seen
this one before. This is not new.
And as you have pointed in your statements to Bureau staff,
you were there at the inception of the Bureau, one of the first
employees more than a decade ago. And under the leadership of
Senator Warren and former Director Cordray, you were an active
participant in the CFPB's regulation by enforcement. I would
hope that having witnessed the harmful impacts of that style of
regulation, you would come to a different conclusion about how
you will operate as Director. The Bureau's overreach was
substantial at the time, but, frankly, what we have heard from
you in your statements is that you, like many of the Democrats
we have been dealing with here on the Hill--the Democrats seem
to have learned nothing and yet forgotten nothing.
And you have made it clear in your statements that the CFPB
will be basically run by Richard Cordray 2.0, and I would like
to hear some differences, but so far I have yet to hear
substantial differences. The main difference between now and
then is that the Supreme Court has recognized what Republicans
were saying, that the CFPB's leadership structure is
unconstitutional. We think this is a good first step, but now
it is time for Congress to rein in the Bureau and create an
accountable agency.
There are a number of Republican proposals to accomplish
such a goal. Take, for instance, Congressman Barr's TABS Act to
make the CFPB's annual funding part of the congressional
appropriations process, or Congressman Luetkemeyer's bill to
make the Bureau a five-member commission. We also have
Congressman Loudermilk's TAILOR Act, to tailor regulatory
actions to limit the burden on institutions and give greater
clarity. We also have Congressman Williams' bill to remove,
``abusive,'' from the UDAAP, and make sure that the Bureau
can't make rules of the road as they sort of go along, and
Congressman Emmer's bill to require a review of all proposed
and existing guidance, orders, rules, and regulations, and to
create a whistleblower reward program at the CFPB.
I think there are things that we can come to terms with in
this basket of Republican policy offerings here. These are
simple and common-sense solutions that we should talk more
about today. Instead, I know that Democrats have attached a
long list of their partisan priorities to this hearing because
they continue to focus on a far-left agenda, trying to pass it
here in the House of Representatives and through the Senate.
Republicans are more interested in getting answers about your
agenda, Director Chopra, and how your decisions will impact
small businesses and American families. And we want it to be
different than last time--we do--and my hope is that you have a
different approach than your predecessors.
Madam Chairwoman, I ask unanimous consent to insert for the
record the list of Republican initiatives, in more detail, of
the reforms to the Bureau--
Chairwoman Waters. Without objection, it is so ordered.
Mr. McHenry. --to ensure that it actually helps consumers.
Chairwoman Waters. Thank you.
Mr. McHenry. I yield back.
Chairwoman Waters. Thank you, Ranking Member McHenry. I now
recognize the gentleman from Colorado, Mr. Perlmutter, for 1
minute.
Mr. Perlmutter. Thank you, Madam Chairwoman. Mr. Chopra,
congratulations on your appointment, and welcome back to our
committee. I am excited to have a champion for consumers at the
CFPB. The pandemic has produced a great deal of fear and
uncertainty in our country, and having strong consumer
protections during the economic recovery is critical to
building back better. When consumers know they have someone on
their side, it helps them have a little more faith in the
economic system and their own future.
The Bureau is faced with many important issues, like
helping consumers having more control over their data, ensuring
lenders aren't engaged in sharp practices, and making sure
student borrowers are treated fairly. Now, as is this
committee's tradition with CFPB Directors, I am sure Mr. Chopra
will get nothing but softball questions today, and there will
be broad bipartisan agreement on the mission, scope, and
structure of the Bureau. Madam Chairwoman, I look forward to
hearing Mr. Chopra's testimony, and I yield back.
Chairwoman Waters. Thank you. I want to welcome today's
distinguished witness, the Honorable Rohit Chopra, Director of
the Consumer Financial Protection Bureau.
You will have 5 minutes to summarize your testimony. You
should be able to see a timer on the desk in front of you that
will indicate how much time you have left. I would ask you to
be mindful of the timer and quickly wrap up your testimony when
your time has expired.
And without objection, your written statement will be made
a part of the record.
Director Chopra, you are now recognized for 5 minutes to
present your oral testimony.
STATEMENT OF THE HONORABLE ROHIT CHOPRA, DIRECTOR, CONSUMER
FINANCIAL PROTECTION BUREAU (CFPB)
Mr. Chopra. Thank you, Chairwoman Waters, Ranking Member
McHenry, and members of the committee. I appreciate you holding
this hearing today.
2021 is very different than 2020. The economy is reopening
and growing, labor demand is strong, and employers have added
millions of new jobs. Household spending is increasing, and
demand for housing is robust. While these macro indicators are
promising, the recovery has been uneven. In many parts of our
country, conditions remain fragile. Many families are
struggling to afford their mortgages and their rent payments.
Many small businesses are facing very severe challenges to make
ends meet. Many communities, especially those that have been
historically disadvantaged, have not felt much of a recovery.
American families now owe $15 trillion in household debt,
roughly $800 billion more than at the end of 2019, before the
pandemic. Over the course of 12 months, mortgage origination
hit historic highs at $4.6 trillion.
The CARES Act has kept delinquency rates on mortgages and
student loans at relatively low levels. However, many of the
borrower forbearance programs have expired, so we lack a
complete picture about distress. Many family farmers continue
to confront significant challenges in staying afloat, and
medical debt collections continue to grow as a concern for
households. Congress has asked the CFPB to monitor market
conditions to spot risks and meet other statutory objectives.
Most importantly, right now I have asked staff at the CFPB to
carefully monitor the mortgage market, including foreclosures.
It is critical for our economy that families do not experience
unnecessary hardship or errors, and that disruptions in the
mortgage market do not impede a fragile recovery. We are keen
on understanding how homeowners from different segments of the
population are faring, including communities of color,
military-connected families, older Americans, first-time
homeowners, and family farmers.
Technological progress holds the potential for enormous
benefits for households and the economy, particularly with
respect to real-time consumer payments. In recent years,
though, Big Tech has sought to gain greater control over the
flow of money and data in our economy. Last week, the CFPB
issued orders to dominant firms, such as Facebook, Google,
Apple, and Amazon, to shed light on their payment system
practices. How will these giants harvest, track, and monetize
data about our spending habits? How will they decide who gets
kicked off their payment platforms? We will also be studying
some of the practices of Chinese tech giants, like WeChat Pay
and AliPay. This effort will inform other initiatives to ensure
that our evolving payments landscape is in alignment with
competition, consumer protection, and our national interests.
More broadly, the CFPB intends to use its tools to promote
an equitable and inclusive recovery, and given the existing
economic conditions and these tools, I expect to have several
areas of focus.
First, we must find ways to create more competition in
markets under our jurisdiction. For example, I am concerned
that many Americans could be paying lower rates on their
mortgages and credit cards and earning higher rates on their
savings. We plan to listen carefully to local financial
institutions and nascent competitors on the obstacles they face
when seeking to challenge dominant incumbents, including in Big
Tech.
Second, the CFPB will sharpen its focus on repeat offenders
that violate Agency and court orders, harming families and law-
abiding businesses.
Third, we must work to restore relationship banking in this
era of big data. Too many households and businesses have no
place to turn to when they need help, especially when they face
errors, problems, and other issues in their financial lives.
The inability to cut through red tape and get help in one's
financial life can be a major obstacle when seeking a job or
when applying for credit. Preserving relationship banking is
critical to our nation's resilience and recovery, particularly
in these times of stress.
Thank you, again, for this opportunity to appear before you
today, and I look forward to your questions.
[The prepared statement of Director Chopra can be found on
page 70 of the appendix.]
Chairwoman Waters. Director Chopra, it is refreshing to
have a consumer financial protection expert leading the CFPB
once again. I will now recognize myself for 5 minutes for
questions.
While I know a Republican Administration would appoint
individuals to run the CFPB with a different approach to
consumer protection, it was appalling to watch the former and
twice-impeached President appoint individuals lacking in
qualifications with the sole mission to destroy the CFPB. After
this effort failed, I sincerely hope my Republican colleagues
will cease politicizing the CFPB and drop their efforts to
undermine its work.
Director Chopra, there are many issues where the CFPB can
play a meaningful role, including fair lending, payday lending,
credit reporting, debt collection, student lending, and
promoting responsible innovation that helps all consumers. Will
you commit to not only reversing prior efforts to weaken
consumer protections on many of these fronts, but reexamine
ways to provide even greater protections for consumers? For
example, instead of simply restoring CFPB's 2017 payday loan
rule that Mick Mulvaney and Kathy Kraninger weakened, will you
realize the full extent of your authority to strengthen the
original rule so we can put an end to the debt trap too many
borrowers, including borrowers of color, have experienced at
the hands of predatory payday lenders?
Mr. Chopra. Thank you for the question, Madam Chairwoman.
Of course, we are doing everything we can to monitor every
single one of those markets carefully. There are obviously a
lot of fluxes in the economy. Things are changing, and we need
to make sure we are acting before it is too late and anticipate
those risks. I was very affected by the foreclosures after
Lehman Brothers, and I think we saw that regulators acted too
late, missed some of the key smoke signals, and the results
were very devastating to homeowners. And with respect to all of
the issues you have raised, I am going to be looking at all of
those markets carefully to see how we can make the markets more
fair, transparent, and competitive as the law directs us to do.
Chairwoman Waters. Thank you. One policy area that I
believe warrants more attention by the CFPB and by Congress is
mortgage servicing. As we saw during the 2008 financial crisis,
shoddy mortgage servicing practices led to far too many
unnecessary foreclosures, when a reasonable loan modification
would have made such a difference to keep homeowners in their
homes with additional benefits for their neighbors and
communities. I am glad the CFPB issued a rule earlier this year
to provide some safeguards for homeowners' existing forbearance
during the pandemic to ensure that mortgage servicers are
communicating with them about loan modification options before
initiating foreclosures.
However, those enhanced protections expire at the end of
the year. Data indicate that over 800,000 homeowners will still
be seriously delinquent at the expiration of the Bureau's rule,
approximately twice the number than at the start of the
pandemic. The significant portion of those homeowners have FHA-
insured loans, which are disproportionately held by borrowers
of color, hit hardest by the pandemic. Moreover, money from the
Homeowner Assistance Fund will not be available to many
homeowners until next year. Have you seen lenders proactively
offer affordable loan modifications to help homeowners stay in
their homes? Do you expect to see a significant increase in the
number of foreclosures in the near future based on the data
that you are analyzing right now?
Mr. Chopra. The issue of foreclosures is number one on my
mind. What we saw a decade ago was that problems in the
mortgage market rebounded through the entire financial system.
And the effect on individual homeowners, and that was
disproportionately those neighborhoods, historically
disadvantaged, they suffered the most. As I understand it, we
are closely monitoring the servicers' activities, and working
with the other bank regulators to make sure we understand where
there are risks of illegal foreclosures, and to make sure we
are using all of our tools to stop them. The CFPB will not be
successful unless it is carefully monitoring what is happening
in housing and, particularly, related to foreclosures.
Chairwoman Waters. Thank you very much. The gentleman from
North Carolina, Mr. McHenry, who is the ranking member of the
committee, is now recognized for 5 minutes.
Mr. McHenry. Director Chopra, I am going to start with the
same question I asked Director Cordray in 2012, and it is about
the word, ``abusive.'' I wrote you a letter about this. Thank
you for the timely response. We are off to a good start. Former
Director Kraninger put out a policy statement about,
``abusive,'' providing clarity, but you wrote in your letter
that, ``Articulated principles actually have the effect of
hampering certainty over time'' How so?
Mr. Chopra. I think what I intended to say there is that
the way in which that policy statement was previously written,
it did not actually provide clarity on the analytical framework
that would be used.
Mr. McHenry. Is it your intention to do so?
Mr. Chopra. I have huge, huge aspirations to create a
durable jurisprudence with respect to that, and that--
Mr. McHenry. Durable jurisprudence. Does that mean that the
courts will define what, ``abusive,'' is?
Mr. Chopra. It could be a mix. It could be a mix of, of
course, our Judicial Branch interpreting statutes. It is also
about how the CFPB may use rules and guidance to help
articulate those standards.
Mr. McHenry. So, rules are very important, right? Rules are
very important. Clarity for those that you are recognizing is
important, and, therefore, they can follow the rules and they
will know what the rulebook says. Don't you acknowledge that is
important, especially on something that is a new standard?
Mr. Chopra. Well, without going into too much boredom--
Mr. McHenry. Oh, I love the boredom. Fantastic.
Mr. Chopra. I used to serve at the FTC, and the FTC had an
unfairness standard that took some time to litigate cases, to
develop rules, to develop a clear analytical framework. And I
agree, we all need to make sure that we are living up to what
Congress was seeking to prohibit, ``abusive.'' There is
actually much more detail on, ``abusive''--
Mr. McHenry. Okay. So a decade in, what you are saying is,
we don't yet have a standard for, ``abusive?''
Mr. Chopra. We have a standard in the statute that has,
essentially, a multi-pronged approach. The courts so far have
not had too much of a difficult time, as I understand it,
interpreting it. But that being said, there is a place for
guidance. There is a place for litigation. There is a place for
rules--
Mr. McHenry. And right now, what we see from your actions
previously and previous Democrat Directors is that regulation
is not how they are going to do it. It is going to be through
enforcement. Are you going to enforce regulation or
enforcement?
Mr. Chopra. When you say, ``regulation,'' do you mean
through the rule writing process?
Mr. McHenry. Right. We have a normal Administrative
Procedure Act (APA) process. Do you intend to adhere to the APA
in writing--
Mr. Chopra. We will always adhere to the Administrative
Procedure Act.
Mr. McHenry. Thank you.
Mr. Chopra. But the issue of abusive rulemaking, just as a
matter of statutory construction, Congress required rulemaking
under that section to trigger two things. The first is State AG
enforcement over national banks, and the second is FTC
enforcement over nonbanks. Other sections of the law required
rulemaking prior to the sections going into effect, but, as I
said, I am very committed to trying to create a durable
jurisprudence--
Mr. McHenry. Let me ask you just a couple of things for the
record.
Mr. Chopra. Sure.
Mr. McHenry. Do you fully intend to cooperate with the
Inspector General's investigations?
Mr. Chopra. All of them.
Mr. McHenry. Okay. And what is your view of congressional
oversight?
Mr. Chopra. As you may know, I have appeared in many--
Mr. McHenry. We are Congress. We like to hear that you like
it.
Mr. Chopra. I have appeared--
Mr. McHenry. Whether or not you personally like it, is kind
of not relevant to the question.
Mr. Chopra. I have appeared many, many times. I have
responded and testified many times. And I will tell you, I came
from an Agency at the FTC that in many ways, in my view, had
absolute contempt for Congress and ignored statutes, and
letters. And I hope to be able to provide and be responsive
to--
Mr. McHenry. So, you hope to be better than the FTC. Got
it. We had the CELA litigation before the Supreme Court. In
effect, the Court ruled that your Agency is, in effect, part of
the Executive Branch, and it is considered part of it. My
question is, is it your intention to adhere to Executive Orders
issued by President Biden?
Mr. Chopra. Executive Orders, as I understand it, are not
binding on the CFPB. There may be some other types of
regulations that are required by statute to apply to all
agencies regardless of if they are independent or not. It is
the newest part of the Federal Reserve System and the entire
Federal Reserve System--
Mr. McHenry. Let me ask you a final question. Executive
Order 12866, which was issued by President Clinton, requires
significant regulatory actions to be submitted for review by
the Office of Information and Regulatory Affairs (OIRA) in the
Office of Management and Budget (OMB). Do you intend to submit
significant regulations?
Mr. Chopra. As I understand from our statute, that is not
part of the process. But with respect to certain principles, we
will adhere to all of the statutory requirements on rulemaking.
Mr. McHenry. Thank you, Madam Chairwoman.
Chairwoman Waters. Thank you. The gentlewoman from New
York, Mrs. Maloney, who is also the Chair of the House
Committee on Oversight and Reform, is now recognized for 5
minutes.
Mrs. Maloney. I thank the chairwoman for yielding. Director
Chopra, congratulations on your confirmation. I must say it is
welcome news to, again, have a CFPB Director who is dedicated
to putting consumers first.
I want to touch on two issues today. As you know, I was the
author of the Credit CARD Act of 2009, which ended the unfair,
deceptive, and abusive practices of the credit card industry
and leveled the playing field between cardholders and credit
card companies. A 2015 CFPB study estimated that this
legislation alone saved consumers over $16 billion in the first
years of its enactment. Other studies have shown that it saves
$20 billion a year. This 2015 study was the last year CFPB
reported the cumulative benefits to consumers. The 2017, 2019,
and 2021 reports don't do so, and I worry that if we stop
talking about the benefits of the CARD Act, and take our eye
off the ball, the industry may attempt to roll back some of
these important protections again or resort to its past abusive
practices. So, Director Chopra, ``yes,'' or ``no,'' will you
reinstitute CFPB's past practice of reporting the cumulative
benefits for consumers of the CARD Act in future reports, as
the Obama Administration did?
Mr. Chopra. Congresswoman, I do believe--I may be
mistaken--that the CFPB is required to give a full picture of
the card market, and I fully intend to make sure we report to
Congress appropriately on that.
Mrs. Maloney. Thank you. And are there any other areas of
particular concern for you in today's credit card market that
you believe merit further consideration by the CFPB or by
Congress?
Mr. Chopra. I think if you look at many of the consumer
complaints and you look at some other market data, obviously
people are concerned about whether assessments of certain types
of fees have been appropriate, whether they are actually due to
system errors. I think in the credit card industry writ large,
I am concerned that not enough Americans are taking advantage
of moving their balances or finding lower rates. Many Americans
qualify for lower rates than they might be paying, and a
competitive and fair market would mean that those consumers
could move or find lower rates, and that could save them a lot
of money. I believe in 2019, Congresswoman, Americans paid, I
think, $90 or $100 billion in credit card interest and fees,
and obviously a more competitive market would be to the
benefit--
Mrs. Maloney. Wow.
Mr. Chopra. --of all issuers and consumers as well.
Mrs. Maloney. Thank you. Changing gears, Director Chopra,
what if I told you that I had a regular cup of coffee to sell
you and it was going to cost $40? ``Yes'' or ``no,'' would you
buy this cup of coffee?
Mr. Chopra. I have not had a cup of coffee that would be
worth that much.
Mrs. Maloney. Of course not, and I can't imagine anyone who
would say, ``yes,'' to that offer. Unfortunately, a $40 cup of
coffee or sandwich from a bodega is too common of an occurrence
today due to the abusive, unfair, and excessive overdraft fees
charged by our nation's financial institutions taking billions
of dollars out of the pockets of hardworking Americans every
year. That is why I have introduced, with many of my colleagues
on this committee, H.R. 4277, the Overdraft Protection Act,
legislation that would crack down on predatory overdraft fees
and establish fair, transparent programs.
In 2012, the CFPB launched an inquiry into overdraft
practices and the Bureau has published research reports which
show that these fees are taking a heavy, unjustified toll out
of many vulnerable consumers. And in the past 10 years, our
nation's financial institutions have drained roughly $125
billion from accountholders struggling day to day.
Director Chopra, under your leadership, what will the CFPB
do to address these abusive, unfair practices in this
profoundly influential driver of racial inequity?
Mr. Chopra. Congresswoman, as I understand the data,
overdraft fees are actually disproportionately paid by a
relatively small sliver of borrowers. Some of those
accountholders are paying a very high amount of overdraft fees
in a single calendar year. We will obviously enforce the law as
written as well as any implementing regulations that have been
promulgated by the Federal Reserve or the CFPB, and we will
closely monitor this market to make sure it is free of unfair,
deceptive practices.
Chairwoman Waters. Thank you.
Mrs. Maloney. Thank you, and I yield back. I hope you
reinstate the studies that you have been doing. Thank you.
Chairwoman Waters. The gentlewoman from Missouri, Mrs.
Wagner, is now recognized for 5 minutes.
Mrs. Wagner. Thank you, Madam Chairwoman, and Director
Chopra, thank you for appearing before us today. I look forward
to hearing from you on the CFPB's actions over the past several
months under the Biden Administration and what your priorities
are as the Bureau's new Director.
Since the CFPB's creation, we have seen the Obama
Administration put in place, frankly, egregious regulations
that made it harder for Americans to qualify for mortgages,
obtain an auto loan, and access other forms of credit that
families depend on every day. Additionally, the CFPB has
continually shunned due process in bringing enforcement cases
against businesses, and is a perfect example of how a lack of
proper checks and balances leads to a downward spiral of
expanded power and overreach, all at the consumer's expense.
The CFPB's structure and funding mechanism must be reformed to
ensure accountability to the American people. Dr. Chopra, do
you agree that all rulemaking should be done in compliance with
Administrative Procedure Act requirements, and that the public
should have the opportunity for notice and comment for any
major regulatory rule changes or shifts?
Mr. Chopra. Congresswoman, yes. Whenever CFPB seeks to
promulgate a rule, we should always, and, as I understand it,
have always complied with the Administrative Procedure Act. But
if there are places where you think--
Mrs. Wagner. Not always.
Mr. Chopra. --we have not complied--
Mrs. Wagner. But I am glad to hear your commitment.
Mr. Chopra. --I would like to hear about it. No, but I
would love to hear where there are places where there hasn't
been compliance so I can look into that.
Mrs. Wagner. Wonderful, and I appreciate your commitment to
following the APA. Do you agree that the Bureau should foster a
better environment for consumers by rewarding companies that
are self-identifying and self-reporting compliance concerns
rather than seeking to punish companies and fining them when
they have already taken corrective action?
Mr. Chopra. Based on my record, I think you will be able to
see that where companies have come forward, remediated and
fixed issues, these things can often be solved without public
enforcement action.
Mrs. Wagner. Good.
Mr. Chopra. That is a place where I want to encourage self-
reporting. But, of course, where they have flagrantly violated
the law and not taken steps to fix things, enforcement action
is usually appropriate.
Mrs. Wagner. Just so that we are clear, self-identifying,
self-reporting concerns, I hope that we are not going to seek
to punish companies and fine them when they have already taken,
as I said, the corrective action and done the right thing.
Mr. Chopra. Yes. And, Congresswoman, in the law, under
Title X, that actually relates to the factors in civil
penalties assessment and good faith, all of those issues.
Mrs. Wagner. Under the Obama Administration, we witnessed
how regulation by enforcement creates uncertainty in the
consumer financial markets, which, in turn, impacts consumers'
ability to access innovative and affordable credit products.
Director Chopra, will you commit the CFPB, under your
leadership, to clearly communicate enforcement expectations to
its supervised financial services companies?
Mr. Chopra. 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 bans can be one way
of doing it, but we also have to enforce the law as written. We
can't decide to invalidate parts of the law we don't like.
Congress makes the laws, and we have to enforce them.
Mrs. Wagner. That is the uncertainty that I think has been
a question over time. Director Chopra, do you believe that the
Bureau is accountable to Congress through your testimony today?
Mr. Chopra. That is really for you to decide about that,
but I hope that all of the requirements that Congress has put
in place for not just the CFPB, but the OCC and other agencies
similarly-situated to us, that we are adhering to high
standards.
Mrs. Wagner. Would you agree that the CFPB should be funded
through the annual congressional appropriations process similar
to other financial regulatory agencies to further increase the
Agency's accountability to Congress and the American people?
Mr. Chopra. Again, that is really a decision for Congress,
but just as a factual matter, the other--
Mrs. Wagner. What is your opinion on it? Do you have an
opinion on it?
Mr. Chopra. The other banking regulators have a similar
type of independent funding, and the CFPB is subject to the
appropriations process for requests above the base budget.
There are two elements of how the funding works. To date, the
CFPB has not requested money above the base budget and is
subject to the normal banking--
Mrs. Wagner. My time has expired. I yield back.
Chairwoman Waters. Thank you. The gentleman from Georgia,
Mr. Scott, who is also the Chair of the House Agriculture
Committee, is now recognized for 5 minutes.
Mr. Scott. Thank you, Madam Chairwoman. Director Chopra,
let me ask you this, at the time that the CFPB Civil Penalty
Fund was established in the Dodd-Frank Act, we in Congress
ensured that in statute, money from this fund could be used for
payments for financial literacy and financial education
programs. And before this hearing, I got a chance to review the
CFPB's year-end financial report, and I was very pleased to
discover that there is now more than $576 million in
unallocated funds within the CFPB's Civil Penalty Fund.
However, while the CFPB has written policies that describe the
Agency's role and the process for making financial allocations
to consumer education, zero--zero--money has been allocated for
financial education. So, the question I have for you is, can
you explain what factors the CFPB considers when determining
the allocation of funds for consumer education and financial
literacy programs?
Mr. Chopra. Congressman, as I understand it, the Civil
Penalty Fund has two purposes. The primary purpose is to
redress victims where the CFPB could not recover funds. Many
defendants may be judgment-proof. Scammers may have taken away
the money. In those situations, where the CFPB has assessed a
civil penalty, the fund can be used to make those individual
families whole from the funds that were illegally taken from
them.
The second part, as you say, can be used for certain
financial literacy initiatives. There is a set of rules that
are in place currently to make determinations. Generally
speaking, it goes through a process covered by certain
procurement laws, but I am happy to follow up with you with
more specifics on it.
But I agree that the Civil Penalty Fund really is important
to redress those victims, and, of course, the CFPB uses its own
allocated budget to engage in financial education initiatives
as well.
Mr. Scott. Thank you so much for that. Let me just say that
on this Financial Services Committee, we have many Members on
both sides of the aisle who are vitally concerned and would
like to see us move in a direction to allocate some of this
money for financial education. That is the way we protect the
consumers. We arm them with education with the literacy
program. That is what will help us to keep our consumers away
from these predators. And so, as you have indicated, there is a
clear linkage between the CFPB's ability to prevent consumers
from falling victim to these scams. And I think you also agree
with many of us on this committee that we will be able, as
written in the law, to allocate some of this half billion
dollars to educating our consumers.
With this in mind, first of all, I appreciate you extending
that offer to get back with us. But, Director Chopra, can I get
a clear commitment from you today that CFPB plans on using a
portion of the more than $570 million in unallocated Civil
Penalties Funds to support financial literacy, financial
education, and consumer education programs?
Mr. Chopra. I totally agree with the spirit of what you are
saying. I want to be upfront that because it also is used for
victim redress, I think we should all have a discussion about
what is the right allocation between victim redress and
consumer education. As the chairwoman said, I want to make sure
that if people are foreclosed upon illegally, we need to be
able to use those funds to make them whole as well. So, it is a
balance--
Mr. Scott. But you are agreeing to work with me on this,
going forward?
Mr. Chopra. Of course.
Mr. Scott. Thank you. And thank you, Madam Chairwoman.
Chairwoman Waters. The gentleman from Oklahoma, Mr. Lucas,
is now recognized for 5 minutes.
Mr. Lucas. Thank you, Madam Chairwoman. Director Chopra,
last week you ordered six Big Technology firms to turn over
information about how they collect, use, and store consumer
data. Could you describe your intent in requesting this type of
information?
Mr. Chopra. Yes, sir. I am very, very worried, I think, as
many in the regulatory community have been, about Big Tech
taking more control of the U.S. dollar and the global flow of
payments. There are so many innovators who are trying to break
in, and they feel that Big Tech can just turn them off. There
are so many people who feel that their data is being misused
and abused. Many of us have no transparency whatsoever as to
how some of these firms determine how they kick people off
platforms, and we have no transparency at all into a number of
other issues. The orders that we have issued cover a number of
topics, and I am hoping that we will be able to use that
information to report to you all because I think safeguarding
our nation's payment system is so critical to our economy. It
is critical to small businesses. It is critical to our national
security. And I want to make sure that payment system is
vibrant and serving everybody.
Mr. Lucas. Given your experience in this area, in your
view, has the growing landscape of digital payment services
been a net positive to consumers?
Mr. Chopra. Oh, innovations that heavily have been driven
from mobile device adoption have been terrific for many, many
businesses and consumers. The ability to be able to transfer
money is more seamless than it was. But what I want to make
sure is that those payment systems still adhere to consumer
protection, that they don't really undermine a fast, fair, and
transparent system, and that they are not squelching out
innovators or kicking people off with no understanding as to
why.
Mr. Lucas. This is an example of a mass amount of
information, really insightful and critical to the developers,
I suspect. I have to ask, do you commit to remaining within the
confines of the Bureau's statutory authority in relation to
payments?
Mr. Chopra. Oh, of course, but, Congressman, the Electronic
Fund Transfer Act, the Gramm-Leach-Bliley privacy rules that
are under our jurisdiction, those are deeply implicated by
these payment systems when it comes to surveillance of our
payments and transactions privacy and misuse of data, squarely
in our jurisdiction.
Mr. Lucas. But let's not by un-intention create fewer
options for the consumers out there.
Mr. Chopra. Oh no, we want more. We want more options.
Mr. Lucas. I respect that. A proposal for the CFPB to take
a role in a government-run credit reporting bureau has gained
support among some of my colleagues. I am concerned that a
government-run credit reporting bureau would decrease privacy
and accountability.
Director, do you support the creation of a government-run
credit reporting bureau? And along with that, what would you
see as potential positives and negatives?
Mr. Chopra. 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. I know in some countries they do
have that, but that would be an enormous undertaking. It would
be a big mountain to move. I am much more concerned in the near
term, given the pandemic, about law violations of the Fair
Credit Reporting Act (FCRA), how the credit reporting agencies
are investigating disputes, and to make sure that new types of
credit reporting agencies are adhering to the law because there
are serious privacy implications of how our data is being
trafficked without our knowledge.
Mr. Lucas. Director, it is important for financial
institutions to be able to collect and close out on previous
loans, which allows them the opportunity to have the resources
to continue to extend credit to those who need it. Would you
describe what the economic impact would be if the ability for
small business and lenders to recover debts was restricted?
Mr. Chopra. If I am understanding the question correctly,
credit reporting obviously can play a very important role in
the financial ecosystem and be beneficial. Where there are
severe errors and inaccuracies, there can be huge pain points
for a business or a consumer to be able to move forward with
their financial life. So, if you are asking whether I think we
should delete everyone's credit report, the answer is no, but
we want to make sure that credit reporting is adhering to all
aspects of the law, including the Fair Credit Reporting Act.
Mr. Lucas. Thank you, Madam Chairwoman.
Chairwoman Waters. Thank you. The gentleman from Texas, Mr.
Green, who is also the Chair of our Subcommittee on Oversight
and Investigations, is now recognized for 5 minutes.
Mr. Green. Thank you very much, Madam Chairwoman, and I
thank you, Mr. Director, for appearing today. I greatly
appreciate the fact that you seem to take an interest in
consumers in ways that, quite frankly, are beneficial to
consumers.
Mr. Director, I recently introduced H.R. 5484, the
Financial Compensation for CFPB Whistleblowers Act, which would
create at the CFPB a whistleblower protection program modeled
on the one created by Dodd-Frank at the Securities and Exchange
Commission. As Facebook and its whistleblower have currently
made headlines and remind us that insiders are uniquely
positioned to bring large-scale corporate wrongdoing to light,
I would like to know what you think about the notion of this
type of action taking place through the CFPB? What do you think
about whistleblowers bringing these kinds of actions to the
attention of the CFPB so as to timely report fraud, abuse, and
other corporate misconduct?
Mr. Chopra. Congressman, I have to say I do believe in the
power of whistleblowers, particularly when reporting this type
of fraud. Director Kraninger, my predecessor, I believe put
forth a proposal around whistleblowers as well. Obviously, we
will have our policy differences, but this is an area where
more whistleblowers will lead to better enforcement, and a
reduction of fraud. I think the SEC's model is one, but I am
happy to work with you and your office to figure out how we can
create an appropriate CFPB whistleblower program.
Mr. Green. Thank you for that comment. I would take it that
you are somewhat familiar with the SEC's model. Can you tell me
how that model is beneficial or some of the positives
associated with it?
Mr. Chopra. Yes. As I understand it, there have been a
number of very severe law breakings that have occurred in
financial institutions, that were often alerted to authorities
by employees or by those with direct knowledge. These
whistleblower laws can, in some circumstances, depending on how
it is crafted, provide protections for those individuals and
also financial compensation. We do know that the United States
has actually recovered quite a bit of money when it comes to
Medicare fraud based on these whistleblower programs, and I
think it is something that can be very beneficial to
enforcement.
Mr. Green. And what about stronger protections? Do you
think they are needed at this time for misconduct such that
persons can report this to the CFPB to get some sort of
redress?
Mr. Chopra. I apologize, sir. It may be just your mask or
the video, but stronger protections for what specifically? I
apologize. I couldn't hear.
Mr. Green. Do you think stronger protections are needed in
the law for persons who report misconduct to the CFPB?
Mr. Chopra. I would need to get back to you with more
specifics on that, but we want to make sure that, like other
agencies, whistleblowers are not retaliated against, and have
the ability to provide information and are safe in doing so.
Mr. Green. I will look forward to working with you. You
have indicated a willingness to do so. I would like to work
with you so that we can present all of that and find favor with
you as well as what we are trying to accomplish here in
Congress. I have always found it beneficial to be aligned with
the Agency that will have to implement policies.
Mr. Chopra. I am happy to do so.
Mr. Green. Thank you very much. I yield back the balance of
my time.
Chairwoman Waters. Thank you. The gentleman from Texas, Mr.
Sessions, is now recognized for 5 minutes.
Mr. Sessions. Madam Chairwoman, thank you very much.
Director, thank you for taking the time to be with the
committee this morning. We do appreciate your time and respect
the role that you have.
Mr. Director, you are now engaged in rulemaking procedures
about what is called Section 1071, which is known as small
business lending data collection. It was important to us when
Dodd-Frank was passed, and it has two overwhelming, really,
reasons of what this is about, intended to do: facilitating
enforcement--in other words, giving an opportunity for the data
collection to match up with enforcement so you can see it--and
secondly, enabling opportunities for people. Would you mind
taking a minute and giving us your viewpoint of this small
business lending data collection rule that you are preparing
and giving us some parameters about how those people who
collect the data--lenders--might gain some access of knowledge
that you are thinking?
Mr. Chopra. Yes. Thanks for this question. The CFPB, before
I arrived, proposed a rule to implement those requirements. I
will tell you, I think the public was at a disadvantage during
the pandemic, including with respect to the Paycheck Protection
Program (PPP), by not having reliable small business data
available. There are many good reasons to have that small
business data, including to understand the complete picture of
how our small businesses are accessing financing, but also, how
we can determine trends, spot risks, and avoid discrimination.
I do want to encourage everyone to submit comments to this
because I think, like the Home Mortgage Disclosure Act (HMDA)
database, there will actually be certain data that may be
publicly available that can be useful to local officials, to
the small business community, to financial institutions, and
others. I am eager to work with everybody to make sure we get
this right and implement it according to the deadline
established by the Court.
Mr. Sessions. Okay. Director, my personal feedback is that
I hope we take this, and the rulemaking would be a part of
this, as data and information that would enable us to do the
two things that are their reasons instead of it being used as a
weapon. I think that data like this needs an opportunity to be
vetted and for us to understand the type of information that
also could have changed dramatically from the time a loan was
taken out. And as you know, during the last few years, a lot of
money was rushed to small businesses without the rules in place
and the knowledge of those rules, and how that data and
information may have been gathered. And thenz, material pieces
of the business and the loan may have changed dramatically as a
result of COVID. So, it is my hope that we would use this as a
tool, as an opportunity to gain more information, and work with
and learn how CFPB would want to use this data, working with
the industry, but not the weapon.
Mr. Chopra. I agree with you, sir. I agree with you.
Mr. Sessions. Right. That is my whole point, and I will
look forward to following up with you, and you may count on me
as someone who would be interested in this issue. And thank you
for your time.
Madam Chairwoman, I yield back my time with the choice here
that I would like to add that I think the Director was very
clear and gave us good answers, and I appreciate it very much.
Thank you.
Chairwoman Waters. Thank you very much. The gentleman from
Colorado, Mr. Perlmutter, who is also the Chair of our
Subcommittee on Consumer Protection and Financial Institutions,
is now recognized for 5 minutes.
Mr. Perlmutter. Thank you, Madam Chairwoman.
And again, Mr. Chopra, it is good to have you here.
Just one thought from my point of view, from my
perspective. Mr. Huizenga and I, a number of years ago, had an
issue where a title company in Michigan had the roof brought
down on them. It was a $500,000 fine brought really out of
nowhere, or it seemed that way to me.
And so, I would just like to reiterate in terms of bringing
the enforcement bludgeon, that there be an effort--and this is
an anecdote. It doesn't happen all the time. But I think from
my point of view, I want to make sure that we have good
regulations in place, that you are following them, and that you
are giving businesses who might be under your jurisdiction an
opportunity to correct whatever mistakes that they have made.
Can you give me sort of your philosophy on this?
Mr. Chopra. Yes. I have thought about this issue a lot. I
think one of the things that drives me a little crazy is when
Federal agencies don't focus their efforts on nationwide or
systemic or severe harm. And instead--I saw this at the FTC. On
one hand, the FTC is letting Facebook and Google off the hook.
On the other hand, they are chasing after small businesses, and
strong-arming many of them into settlements.
I believe that we should focus most of our resources on the
largest firms that are engaged in nationwide harm that are
really totally beyond the pale, where they clearly knew what
the rules were, where they clearly knew what they were doing,
or they buried their head in the sand. Focusing on larger
participants in the market, I think is one of the best ways we
can accomplish our mission.
I don't know about the specific case you mentioned, and in
fact, I don't know the facts. It may have been very severe. I
just don't know. But that is generally my philosophy.
And I think what we have seen over the past many years
under both Democrats and Republicans of failures at the FTC, I
don't want to repeat that at the CFPB.
Mr. Perlmutter. No, thank you. I appreciate your sharing
that.
Let me change a little bit to the big platforms. You just
mentioned some of them. In terms of Section 1033 and Dodd-Frank
and the ability for the CFPB to kind of keep an eye on
transparency, keep an eye on fairness, you talked about getting
kicked off a platform, a payment platform or the like. Explain
to us what you are talking about? And if you want to name
names, I am okay with that, too.
Mr. Chopra. A payment system that works well is one that is
open, resilient, and fast. And I think there are questions. We
have seen it in the App Store context. We have seen it in other
types of platforms. How are they making decisions about whom
they include and whom they kick off, and how are they deciding
how much to charge them?
I am worried that some of these Big Tech platforms may
start competing businesses and, therefore, will want to
foreclose on potential competitors. That is bad for consumers.
That is bad for businesses. And we need to understand those
policies.
In many cases, of course, if someone has red flags related
to money laundering, if people are not eligible for other
specified reasons, that may be totally appropriate. But when
payment networks may be using their own business incentives to
kick off consumers or businesses, we should know why.
Mr. Perlmutter. Okay. In the rulemaking process, in terms
of this data, understanding the data and how these platforms
are working, can you share where you are in the rulemaking
process?
Mr. Chopra. You are referring to Section 1033--
Mr. Perlmutter. Yes.
Mr. Chopra. --which is about consumer control of data. As I
understand it, last year there was an issuance of an Advance
Notice of Proposed Rulemaking (ANPR). There have been comments
collected on that. I am very eager to engage on what we know so
far, because I think Section 1033 holds promise to really make
sure there is a more competitive environment and that consumers
have more choices and that there is not just a handful of
incumbents who control everything. Competition is good here.
At the same time, we are going to need to make sure we are
protecting privacy, security, and other things that are
critical. So, there are a lot of issues, and we are very eager
to hear from everybody on this, as we think through this tool
that Congress has put into place.
Mr. Perlmutter. Thank you, sir.
My time has expired. I yield back.
Chairwoman Waters. Thank you. The gentleman from Florida,
Mr. Posey, is now recognized for 5 minutes.
Mr. Posey. Thank you very much, Chairwoman Waters, for
holding this hearing.
Mr. Chopra, over several Congresses, I have introduced
legislation to direct the CFPB to permit regulated entities to
ask the CFPB to resolve uncertainties in the interpretation of
regulations and statutes by the advisory opinions available. In
more recent years, I asked the previous Director, Ms.
Kraninger, to implement an advisory opinion program
administratively, and I am very grateful that she did do that.
And I just wonder if you could give us an update on the
status of the program for advisory opinions and how it is being
used, the applications and results you have obtained so far,
and how you might plan to expand or improve the program as we
go down the road?
Mr. Chopra. Yes, sir. I am only on day 12 or 13 of the job,
so I don't have all of the exact information, for which I
apologize. But just so you know my views, I do believe there is
a role for, as you mentioned, the interpretative rules,
advisory opinions, and others to be able to develop the law. In
many cases, that is helpful to everybody.
At the same time, I want to be upfront that I don't think
the CFPB should be picking winners and losers, crowning an
individual company to be able to own a market. I think we are
better off when we can go through the rulemaking process, go
through interpretive rules, guidance, and advisory opinions in
ways that everybody can understand and not just one individual
firm that is seeking it.
Mr. Posey. For example, when you say they have to paint the
office furniture red, there are a lot of variations of the
color red. And somebody might want to ask, for the benefit of
many, what particular color code are you talking about?
Mr. Chopra. I totally agree with you. I think the more that
this can be elucidated, and I think, generally speaking, I
prefer pretty clear, easy to understand, easy to follow, easy
to enforce rules. But of course, the CFPB has inherited an
enormous number of rules from the Federal Reserve Board, and
many of them are very complicated. And yes, there are places
where I hear exactly what you are saying. It can be to the
benefit for everybody.
Mr. Posey. Okay, great. Thank you.
In March 2021, the CFPB noticed a rule change to postpone
the compliance date for the new qualified mortgage (QM) rule to
October 1, 2022. Does your postponement reflect a change in
policy direction from the December 2020 rule that would replace
QM loan definition's 43 percent limit on debt-to-income with a
price-based approach, or is there some other explanation for
the postponement?
Mr. Chopra. Sir, obviously, that was before me. But as I
understand it, the new definitions from the general QM rule
have taken effect. The aspect that was delayed was the
mandatory compliance date. So, lenders can use one of multiple
definitions.
And as I understand from the Federal Register Notice, it
was because there were dislocations and potential disruptions
in the mortgage market during the time of the pandemic, and the
goal was actually to create more certainty for lenders, or at
least more flexibility for lenders, on the mechanisms that they
could comply with that rule in order to continue to extend
mortgage credit.
With respect to the QM writ large, I am always eager to
hear of places where it needs to be changed, but I want to be
clear, though, that the rule has taken effect.
Mr. Posey. I thank you for your responses. And I thank you
for your appearing here.
And I see my time is about to expire, so I will yield back.
Thank you.
Mr. Chopra. Thank you, sir.
Chairwoman Waters. Thank you. The gentleman from New York,
Mr. Meeks, who is also the Chair of the House Committee on
Foreign Affairs, is now recognized for 5 minutes.
Mr. Meeks. Thank you, Madam Chairwoman.
And thank you, Mr. Director. It is so good to see you, and
I am really happy to see you because I have been here for a
while, and I know when we created the CFPB, it was for
consumers. We never had anything before for consumers, and
somewhere in the last few years, we lost our way, and we were
not focused on consumers. And it is good to see you and to hear
that we are back to focusing on consumers again.
The Dodd-Frank Act gave the CFPB the authority under
Section 1033 to promulgate a rule that would allow consumers
full electronic access to their financial data. There is a
growing need and desire for the concept of open finance. With
that, open finance marketplaces are offering greater
competition to financial services and products.
My question to you is, will you prioritize CFPB's Section
1033 rulemaking, and can you provide any insight into how you
are going to balance the continued data access for hundreds of
millions of Americans who use fintechs every day, and the need
for consumer protections in the financial data access base?
Mr. Chopra. I appreciate the question, Congressman.
Let me just say, as a general matter, Congress has made it
clear to the CFPB that we need to make sure the markets are
fair, transparent, and competitive. And a competitive market
means that consumers aren't locked in to a product that they
want to get out of or that they want to get a lower price on or
want to get a better service on.
Section 1033, I think aspirationally, could unlock more
competition, could unlock more opportunities. But at the same
time, we also need to make sure that banks and nonbanks are
operating under the same set of rules, that there is not
regulatory arbitrage. So, we are going to be looking at all
these issues.
I will tell you I have studied a bit the United Kingdom's
open banking system, as well as what other jurisdictions have
done to create more consumer control of data and how we can
harness technologies to do it, and I am very interested in
seeing what we can do there.
I don't know any timelines or anything more. Again, I'm
only on, I think, day 12 or 13 of the job, but I'm very, very
interested in what we can unlock for businesses and consumers
alike.
Mr. Meeks. Great. And I know it is only day 12 or 13, but
as I said, there are high expectations that we have, that you
will be focused on consumers.
The pandemic has also highlighted the impact that access to
credit has, particularly on women- and minority-owned
businesses, and there is a tremendous need to increase that
access. And it seems to be clear that under the Biden
Administration, the CFPB is putting financial inclusion and
racial equality at the forefront. And of course, for that, I
want to commend you and your colleagues.
Last month, the CFPB issued a proposed rule under the Equal
Credit Opportunity Act (ECOA)that would require covered
financial institutions to report small business lending data
and annual reports on small businesses and the credit
applications. Can you please explain how the CFPB expects to
use its enforcement authority under the ECOA and how the data
that it will collect will further advance these initiatives for
women- and minority-owned businesses?
Mr. Chopra. Congressman, I am reminded that, I believe in
2013 or 2014, you invited me to Jamaica to have a town hall
with you, and this issue actually came up there.
Mr. Meeks. Absolutely.
Mr. Chopra. People not being able to find help or not
knowing where to turn and not necessarily having access because
there was not a sense of relationship banking locally, and I
think we need to restore that and make sure that our markets
are free of discrimination. I think the rulemaking you refer to
will give the CFPB insight into whether there is any
discriminatory patterns, but also macro data on what
communities are being served well when it comes to small
business loans.
In many ways, it is similar to the Home Mortgage Disclosure
Act data collection on mortgages, but there are some important
differences. But I think if we want a vibrant, growing economy
across the country, regardless of neighborhood, regardless of
race or ethnicity, we want to make sure small business and
entrepreneurship is in people's sights and that they can access
the capital to do so.
Mr. Meeks. Thank you. My time has expired. I am excited to
work with you, though, and excited that you are there.
Chairwoman Waters. Thank you very much. The gentleman from
Michigan, Mr. Huizenga, is now recognized for 5 minutes.
Mr. Huizenga. Thank you, Madam Chairwoman. I appreciate the
opportunity.
And I know he has left, but my colleague from Colorado, Mr.
Perlmutter, brought up something that was very important, and I
know you may not know the details of the case. But to round it
out a little bit, it was a small title company that was put in
the crosshairs of the CFPB, to be made an example of to the
larger companies. And at best--well, let me put it this way. At
worst, their actions were in a gray area, at worst. And they
literally were put in the crosshairs and levied a fine that
would have bankrupted them.
And when I could not even receive a return phone call, I
went to my friend and colleague across the aisle, who then, on
my behalf, called and started getting some answers and had me
be a part of that. And I am forever grateful for him, and
hopefully, I have tried to repay that kindness.
But I want to just restate, make sure I heard what I think
I heard, which is that it is not your philosophy to pound on a
little guy to make sure that the message gets sent to these
larger operators. Is that accurate?
Mr. Chopra. That is accurate. I want to be clear, though,
that it doesn't mean small businesses and medium-sized
businesses should not follow the law.
Mr. Huizenga. Correct.
Mr. Chopra. But it is that the Federal Government should be
focused on us particularly going after the biggest harms in the
market, rather than kind of picking on people. I saw this at
the FTC. I was constantly distressed about the bullying of
small businesses rather than willingness to take the big
companies to court--
Mr. Huizenga. Yes.
Mr. Chopra. --who are well-resourced to do that.
Mr. Huizenga. It is really regulation through enforcement,
and I am glad to hear that isn't the case. And as I said, in
this particular situation, it was a shift in policy from the
CFPB that was not a legislative shift. And it was, like I said,
at worst, a gray area, but they decided to make an example of
that.
So, moving on, I am kind of curious and concerned about
whether you would agree with this notion that having wild
swings in policy coming out of the CFPB or any regulator could
actually cause harm, not just to the company but, by extension,
to the consumer that company is trying to serve. And I just
want to know if you understand those challenges implementing
pretty severe and wide rule changings and swings in policy,
what that might do?
Mr. Chopra. Yes. I think where we are is we always want to
make sure that, obviously, the policies represent those that
Congress has put into place and administer those laws. But I
completely appreciate, particularly for our small businesses,
being able to understand what they need to do to comply and
that they are spending less time hiring lawyers and all of
these things and focusing on their business.
Mr. Huizenga. So, it can really divert resources,
basically, that should be going to be service the customer?
Mr. Chopra. Yes. And as you know, many lawyers want to put
money in their own pockets by creating hysteria and creating
uncertainties, and so it is important for the regulator to also
be clear on what the rules are wherever we can when we are
implementing the laws you pass.
Mr. Huizenga. Great. And this one might be a little outside
your lane, but it dovetails with something that I asked
Chairman Gensler. You happened to bring up large tech
companies, and there are lots of concerns, I think on both
sides of the aisle about this.
I would like to know, when do you think that a service
provider might actually morph into becoming a utility and then
has possibly a different set of regulations on that? So, just
give me a little of your philosophy on what you think--and it
probably is most applicable with tech firms at this point. But
when do these tech firms get to be so big and powerful and
direct? Because you had talked about them setting up
competition to put others out of business. When do those
companies become utilities in your mind?
Mr. Chopra. Yes. Historically, we have a number of
different frameworks for this: the Communications Act; railroad
regulations. I think the way our country has dealt with it is
one of two ways. I think antitrust, sort of breaking up firms
and making sure that they are not monopolies or abusing it, or
utility-style regulation where there is a natural monopoly,
like the electric company or whatever it might be.
So, you are right. It is a little bit distant from the laws
that I am administering, but I think that is something that
there are many places and this is something Chair Lina Khan at
the FTC has described before about ways in which policymakers
can approach these issues. The Communications Act obviously has
a number of vehicles in which this is done, but again, some of
this is a little distant from--
Mr. Huizenga. But you will be enforcing some of those
concerns, presumably as those companies--
Mr. Chopra. Yes, that is right. And I will say that there
are a number of firms that have a huge amount of power in the
financial ecosystem. There are very few credit bureaus. Almost
everyone uses the FICO score. So, we have to figure out how to
make sure that they are fair, transparent, and competitive, of
course.
Mr. Huizenga. My time has expired. Thanks.
Chairwoman Waters. Thank you very much. The gentleman's
time has expired.
The gentleman from Missouri, Mr. Cleaver, who is also the
Chair of our Subcommittee on Housing, Community Development,
and Insurance, is now recognized for 5 minutes.
Mr. Cleaver. Thank you, Madam Chairwoman.
Mr. Director, congratulations, and we certainly look
forward to working with you. I am going to try to squeeze three
questions in, if possible.
On Tuesday, CNBC reported that Mastercard is preparing to
announce that any of the thousands of banks and millions of
merchants on its payment network will be able to integrate
crypto into their products. Every time I see one of these
statements, it causes me to tremble a little bit, because I am
not sure we have successfully dealt with the whole issue of
double spending of Bitcoins and spending the balance more than
once, which you couldn't do if you had a dollar.
But the capitalization--I was with Mr. Meeks in New York at
one of these tech companies, and they talked about the
capitalization. It is now at about $2.6 trillion, with a,
``t.'' Does that create any nervousness on your part, or do you
think we have everything under control, based on Dodd-Frank?
Mr. Chopra. With respect to Bitcoin and the stablecoin,
this is something Secretary Yellen and Chair Powell and all of
the regulators have started to discuss, some of the risks that
are involved, systemic risks. Obviously, there may be risks to
investors or consumers. So, there is a great deal of
interagency discussion about how to approach this problem
because what we do--I think in many ways, Facebook's Libra
proposal in 2019 was a wake-up call to all of us about really
what could be the damage that is done to our dollar and to
really our economy and our households.
So, I think it is really for all of us to be working with
and really to be working with all of you, too, because this is
something we need to make sure that vast seamless payments have
so many benefits, but we need to make sure we are guarding
against risks as well.
Mr. Cleaver. In that regard, are there things that you
would recommend to us that we should legislatively pursue in
order to reduce the threats that we can experience, not just
here at home with Mastercard, but internationally? The hoodlum
governments would love to be able to create problems for us in
this area.
Mr. Chopra. Yes. Congressman Cleaver, I know you and I have
had a lot of discussions about small business loans, student
loans, and I think this is a new one where there are uncertain
risks, and we need to get down to the bottom of it, all of the
banking regulators and securities regulators.
I am very happy to continue to work with you on that. I
don't have any recommendations off the top of my head, but I
think we all need to make sure that we are protecting our
payment systems and flow of currency.
Mr. Cleaver. Thank you very much.
By the way, I try not to be a Cro-Magnon or troglodytic in
my attitudes about new technology. That does create some
fright. But this issue is so serious to me that we may need to
have ongoing dialogue, as you just suggested, to make sure that
we are on top of the issues that could be born out of this
amazing new technology.
You may not even be able to deal with this. If Mastercard
can go in this direction, what happens if we have a flood of
institutions, lending institutions going into this arena like
this?
Mr. Chopra. Yes. I think that is really something to watch
out for. With respect to the stablecoin, stablecoins are right
now primarily used for speculative purposes. But one could
imagine that if it starts riding the rails of some of the large
networks or Big Tech companies, it could scale very, very
quickly.
I apologize that I don't have all the answers for you on
that, but I am attuned to really some of the places where we
need to analyze and collect data. That is part of the reason
that I issued those orders to the Big Tech companies, so that
may be a place where certain digital currencies scale very,
very quickly and globally in ways that we may not fully
understand the implications.
Mr. Cleaver. Again, congratulations, and I look forward to
working with you.
Thank you, Madam Chairwoman.
Chairwoman Waters. Thank you. The gentleman from Kentucky,
Mr. Barr, is now recognized for 5 minutes.
Mr. Barr. Director Chopra, it's good to see you.
Congratulations on your appointment. It's great to see you
again, and I look forward to working with you during your
tenure to promote consumer protection, not from a heavy-handed
central planning approach, but instead, as you have described,
a competitive marketplace where consumers retain access to
choices.
And I was encouraged to hear you say that you want to
restore relationship banking. That was really, really a
positive comment in your prepared testimony and the way I think
of it. And in fact, I think you used the words, ``cut through
red tape.''
I am going to hold you to that, because I believe
relationship banking and relationship lending can't happen when
lenders are deterred by a regulation through enforcement
approach. So, first question. Do you believe that regulated
entities should know the rules of the road in advance of any
supervision or enforcement action?
Mr. Chopra. Yes. The laws that you have passed, we should
make sure that we do our best so that everyone knows what they
are. I believe that we work best when laws are clear, easy to
follow, and easy to enforce.
Mr. Barr. Right. And I think that will facilitate that
relationship-style of lending. Let's talk about UDAAP and your
predecessor, Acting Director Uejio's rescission of the
Kraninger policy statement from 2020. I appreciated what you
said about durability and a durable abuse of jurisprudence, but
you also, in an answer to my colleague's question, talked about
how the Bureau could provide some durability through
interpreting or applying the abusiveness standard.
And here is where I think your immediate predecessor went
wrong on rescinding the guidance, because I don't believe
rescinding the Bureau's guidance promoted durability. I think
it was the opposite. It created a chaotic discontinuity and
unpredictability. And I think, arguably, it was arbitrary and
capricious to just upend abruptly a guidance offered by
Director Kraninger.
My question to you is, given the fact that Acting Director
Uejio, in his rescission, did not offer an alternative
interpretation of, ``abusive,'' what, in your mind, is the
correct definition of, ``abusive?''
Mr. Chopra. There are many questions there. I will try my
best to answer them, and tell me if I don't. With respect to
abusive, Congress has laid out what the definition is in the
multi-pronged approach. So, that exists. That is the law. And
that is enforceable not just by the CFPB, the prudential
banking regulators, but also State attorneys general.
Mr. Barr. Right. But Director Kraninger defined it. The
problem is that market participants didn't have clarity on what
the statutory language actually meant, and that is why there
was this dual pleading position in there. And so, let's get a
little bit more specific.
Mr. Chopra. Congressman, can I just say, that statement was
not binding on the State attorneys general. It is not binding
on the State regulators. It was not binding on the other--
Mr. Barr. Let us get to that durability piece.
Mr. Chopra. Yes. I think the way you build jurisprudence--
there are many, many ways you do that. But particularly, you
raised the issue of dual pleading.
Mr. Barr. Right.
Mr. Chopra. When an agency finds a violation of law and
doesn't plead it, that is actually abrogating what Congress
directed, and it is also bad for the development of the law.
Mr. Barr. Okay. What is the difference in your mind between
abusive and unfair?
Mr. Chopra. Unfairness and abusive are two different
frameworks. Unfairness requires an analysis of substantial
injury, it requires an analysis of avoidability, and it also
requires an analysis of countervailing benefits to consumers in
competition.
Mr. Barr. In the interest of time, because we only have 5
minutes, I would have also asked you what is the difference
between abusive and deceptive. But the point here is that in
the Kraninger policy statement, she specifically said that the
Bureau would avoid challenging conduct of abusive where the
alleged violation relied on all or nearly the same facts as an
unfairness or deception violation.
This is exactly what you are saying. You are making
distinctions between the two. Ms. Kraninger was clarifying
that. Why is Acting Director Uejio's rescission in any way
clarifying the situation? I think the rescission is undermining
durability here.
Mr. Chopra. I totally disagree, respectfully, with you.
When we don't plead those, courts cannot analyze that. They
cannot issue opinions to determine whether the conduct at hand
violates--
Mr. Barr. I am running out of time. Let us work together on
durability.
Mr. Chopra. I am very eager to create a durable--
Mr. Barr. I'm running out of time. Let's work together on
that.
On civil investigative demands, are you open to guardrails
on the factual predicates to initiate a CID and other
parameters? A lot of regulated parties feel that this is a
fishing expedition. I want to know how your Agency and your
leadership intends to put guardrails on CID so it is not a
fishing expedition.
Mr. Chopra. I am happy to review the existing policies on
the issuance of civil investigative demand. While I was a
Commissioner, I closely reviewed them, and often asked that
changes be made to them. So, I will look at that. I take that
feedback seriously.
Mr. Barr. I look forward to working with you. Thanks.
I yield back.
Chairwoman Waters. The gentleman from Illinois, Mr. Foster,
who is also the Chair of our Task Force on Artificial
Intelligence, is now recognized for 5 minutes.
Mr. Foster. Thank you, Madam Chairwoman.
And congratulations, Director Chopra.
As you take the reins of the CFPB, you are going to have to
generate a workforce plan, and particularly in the area of a
high-tech workforce plan to deal with AI and related issues.
And this is going to be particularly important in the context
of the ongoing merger and blurring of the lines between
financial services and Big Tech.
As was just pointed out, Chairwoman Waters has impaneled a
task force on AI, which I am chairing, together with Ranking
Member Gonzalez. And now on this whole issue, we are going to
have to skate to where the puck is going here, because this
transformation will happen over the coming decade. If current
trends persist, soon the great majority of financial services
transactions are going to be marketed and transacted online.
And actually, if Mark Zuckerberg's dreams come true, in a
decade, we are all going to be wandering around in the
metaverse, where we will encounter some AI avatar who is, in
fact, a nonfiduciary robo-adviser. And he will be using all of
Facebook's psychological profiles that they have worked up on
us to figure out exactly what to say to us to gain our
confidence so that they can sell us overpriced life insurance
or crummy investment products, not too different than the
abuses we see in the human area.
And to defend the consumer against this sort of potential
abuse, you are going to need a CFPB workforce that is not
overmatched against the tech companies, which means competitive
salaries, among other things. What are your thoughts on how you
are going to do this, and what is there that Congress can do to
help you make standing up this workforce easier?
Mr. Chopra. I appreciate that, Congressman. And one of the
things I did immediately was I appointed a chief technologist
of the Bureau. I appointed Erie Meyer, who has served at
several Federal agencies and has worked closely with me in the
past on identifying technological talent that can enter public
service, so that it is not just lawyers trying to figure all
this out, but actual individuals with real experience. And not
just in engineering, but in a whole host of skills related to
technology.
I think one of the things that we should just understand as
reality is that unless we can understand the technology that is
being used, we won't be able to effectively police it. And we
are never going to have the resources of the Big Tech
companies. We are never going to have the resources of the big
banks. We are never going to have the big resources of the
credit bureaus.
But we need to make sure we have the skill sets in-house so
that when new products and new markets are shifting, we
actually have a data-driven way of looking at that problem and
that we are looking at the right set of interventions.
When I see the problems in mortgage servicing that the
chairwoman had mentioned, a lot of those problems were also
related to lousy software and decisions that mortgage servicing
companies a decade ago did not take to upgrade that software.
The Equifax data breach was an absolute disgrace. The
regulators I need to make sure that they are understanding how
data is guarded, data is protected, and all of those are places
that the workforce, of course, across Federal agencies is going
to need to evolve.
It is an area I have discussed with the States, and with
our counterparts in Europe as well. And it is an imperative for
our country to be competitive.
Mr. Foster. Yes. Congress has to understand that there is a
need for--oh, I guess a lot of people have already complained
about Dr. Fauci's salary being higher than Members of Congress.
And that is actually okay with us because of the extreme
importance of having a certain number of really highly-skilled
jobs that are paid competitive salaries to the private sector.
And this is a very tough conversation to have when you are
managing a mixed workforce of traditional, scheduled Federal
employees and others. So, what are the challenges there? Do you
find that there is a significant number of people who made
their careers and their fortunes in Silicon Valley companies
who are really willing to come and spend several years, or is
that really not enough, and we are going to have to do
something on the salary side?
Mr. Chopra. Yes, it is a great question.
The experience, I think, in some places, yes, there may be
people who are very financially-comfortable, who are willing to
serve. Of course, at the same time, we have to guard against
conflicts of interest. They may have very substantial stock
holdings.
I think what you see in the financial regulatory agencies
is that many, especially the lawyers, go through the revolving
door and make huge amounts of money on the other end. And we
are not going to be able to pay them the same. But I think what
we want to be able to do is offer a good-value proposition on
how they can serve the public, serve Congress, and serve the
future of our markets.
And the goal is to be able to recruit those people with
that in mind. But of course, you are right. On the margins, it
is exactly--
Mr. Foster. Yes. Well, when you figure all this stuff out,
let me know, okay?
Mr. Chopra. Yes, okay.
Mr. Foster. And my time is up. I yield back.
Mr. Chopra. Thank you, sir.
Chairwoman Waters. Thank you. The gentleman from Texas, Mr.
Williams, is now recognized for 5 minutes.
Mr. Williams of Texas. Thank you, Madam Chairwoman.
Earlier, my colleague, Mr. Perlmutter, called you a
champion for small business. We have something in common. I am
a champion for small business. And before we get started, I
have to say that I am a small business owner in Texas. And I
have to tell you that in the past, your Agency, every way it
turned, cost jobs on Main Street America. And you can't have
competition and you can't help Main Street America by adding
regulations on top of regulations.
Businesses need to know the rules of the road--we talked
about that this morning--before they are hit with arbitrary
enforcement actions. And under Director Cordray's supervision,
the CFPB had an awful track record of issuing massive fines and
penalties--we have heard about that today--for things that have
never previously been deemed harmful to consumers. And I am
very concerned that this practice of regulation through
enforcement will once again come back under this new
leadership, your leadership, and it will force market
participants out of the marketplace, costing more jobs.
We are already seeing this trend in the student loan
servicer space. In the CFPB's own report from the Student Loans
Ombudsman, it states that four of the nine Federal student loan
servicers have either stopped or announced that they are going
to stop servicing Federal student loans.
This will require the largest transfer of student loans,
over 16 million borrowers, with a loan volume of over $650
billion. It is the largest in the history of higher education
and presents heightened risk of borrower harm. So, it will be
impossible for a business to create a regulatory compliance
system if they are unaware of what they are even going to avoid
and what they are expected to do.
Director Chopra, do you understand that the uncertainty
coming out of your Agency is causing businesses to drastically
change their practices in a way that limits competition--and
you have talked about how you want competition--and would
ultimately harm consumers?
Mr. Chopra. Yes. Since about 1982 or 1983, we have seen
small businesses as a proportion of total firms in the economy
go on a constant decline. And there is a host of reasons for
that, and I always want to figure out what is it that we can do
to make sure that people can challenge the big guys, that they
can enter.
You have raised the issue of regulation. It is part of the
reason why I believe that we always want to aspire for laws and
regulations to be easy to enforce, and easy to understand. But
at the same time, I do want to be upfront with you that I
think, based on my conversations with many in venture capital
and others, a big reason people don't want to enter is that
they think they are going to get squashed by the big guys.
That they have so little ability to be able to compete, and
particularly when it comes to small financial institutions,
ones that do offer relationship banking, they have a tough time
doing it. And I think we need to really look at that to see
what are those barriers that they face. And I take your
feedback seriously about what you see as them, but I think
there is a story there that we have to actually conquer
together.
Mr. Williams of Texas. Small businesses are what generates
our economy, and we all know that. There are many rulemakings
the CFPB is undertaking that have banks and Main Street America
very concerned. One of the proposals is the Section 1071 data
collection regime that will force banks to report demographic
data on all small business loans.
This proposed rule is 918 pages long, and is a nightmare
for anyone who is going to be forced to comply. One of the most
laughable provisions in this terrible rule is that lenders will
be forced to guess a loan applicant's race and ethnicity based
on the borrower's appearance and last name, if they leave that
information blank. This will force loan officers to racially
profile every applicant.
I am old enough--very few in here remember the 1960s, but I
was in business in the 1960s, and we couldn't ask those
questions. They took those questions away because it was
racist. Now, here we are back doing the very same thing.
Small businesses would be forced to have significant
amounts of information on their business made public on CFPB's
website. Many small businesses do not want metrics like gross
annual revenue or the purpose of the loan to be accessible to
the public. So, not only will this rule force sensitive
information be made public, but it would add significant new
compliance costs on financial institutions, which will lead to
credit becoming more expensive and less available. All in the
midst of serious inflationary pressure that we see today, and
supply chain issues.
Instead of hiring more loan officers, businesses are going
to have to hire more compliance officers. Quickly, how will you
ensure that access to credit will not be hampered under this
rule and will not allow for borrowers to opt out of complying
with the demographic small-business information requirements in
order to get a loan?
Chairwoman Waters. You may answer.
Mr. Chopra. We will faithfully seek to implement the
congressional directive on Section 1071. With respect to the
specific issues, and I will be quick, we really need people to
file comments on this so that we can actually implement the
statutory directive and consider all of the issues you have
raised, including with respect to privacy.
Mr. Williams of Texas. Thank you, Madam Chairwoman.
Chairwoman Waters. You are welcome. The gentleman from
California, Mr. Sherman, who is also the Chair of our
Subcommittee on Investor Protection, Entrepreneurship, and
Capital Markets, is now recognized for 5 minutes.
Mr. Sherman. Director, first, I want to thank you and your
staff for providing technical assistance and coordinating with
us on drafting the bill to deal with the great London Interbank
Offered Rate (LIBOR) problem. We now have language that I think
every consumer group that is focused on this is at least okay
with, and every business group. Now, we have to work out some
language with the Fed since they are the ones that are actually
going to have to do the work, but your office has been very
helpful.
Property Assessed Clean Energy (PACE) loans are well-
intentioned in that they help people get new air conditioning
systems and other that are energy-efficient. In almost every
instance your predecessor came before our committee, I asked
whether the CFPB was close to finishing the regulations
required by statute. Since spring of 2019, the Bureau has taken
no action beyond issuing an Advance Notice of Proposed
Rulemaking.
Are you getting there? How close?
Mr. Chopra. As I understand it, the process is ongoing. I
just want to be upfront with you. I know it is not optional, so
we are going to do it. I need--
Mr. Sherman. Is the decade in which it is to be completed
optional? That was a rhetorical question. For the record,
please give me a definitive response--
Mr. Chopra. Yes.
Mr. Sherman. --as to when the next step is going to be
completed. I don't want to nail you down--
Mr. Chopra. No, no, no, no, no.
Mr. Sherman. --unless you want to be nailed down.
Mr. Chopra. No, no, no. I actually--
Mr. Sherman. Can you give me a month, a day?
Mr. Chopra. I am happy to take a question for the record on
that. Again, I am, I think, only on day 12 or 13. I am still
making sure I understand what is in the record--
Mr. Sherman. I am going to count on you to actually answer
definitively for the record and move on to another question.
Mr. Chopra. Yes, sir.
Mr. Sherman. Our good colleague from Florida, Mr. Posey,
already asked you what the Bureau plans to do on the QM rule. I
would like to follow up and ask, has the Bureau seen any market
evidence or concerns since April of this year, when the QM
patch was extended, I believe, that you think require another
round of revisions to QM? Do you have concerns or--
Mr. Chopra. Yes. We did have a very robust 12 months, from
July of last year to June of this year, in terms of mortgage
origination. I believe it was a record.
On the other hand, it is hard to make that determination,
given the flux of the economy and the recovery of the pandemic.
What I have asked the staff to do is to really let me know what
are we seeing in some of the more specific borrower segments
and geographies so that we can identify what is going on.
And sir, as you know, Treasury and the FHFA have changed
the preferred share agreement. So, obviously, there are some
changes in the housing capital markets as well that is dictated
by factors outside of the QM rule. But of course, QM is a key
part of the mortgage market and the mortgage regulatory
guidelines. I want to make sure that we are always looking at
it to see whatever we can do to make sure we are promoting the
objectives that Congress laid forward in Dodd-Frank on that
front.
Mr. Sherman. I want to move on to another question, and
that is, consumers are tricked into wiring usually the down
payment on their house, which they have saved their whole life
for, to the wrong account. They are told that is the account of
the escrow agent or the title company because somebody went
phishing and hacking and sent them an email that looks like
that.
The reason they get away with this is because we don't have
a system where you identify the person or company you are
sending the money to, just the number. So, if you can convince
them that Acme Escrow Company is number 12345, and that is
really the account of a Nigerian prince, then your money is
going to support royalty in Nigeria.
I pushed Chairman Powell on this. This week, I pushed
Governor Brainard over on the Fed. It is their system, but it
is your job to protect the consumers. Can you work with us to
get a system like they have in Britain, so that when you wire
money, you wire money to name of a person or company you are
wiring money to and the account number?
Mr. Chopra. Yes. As I understand the standards in which
wiring--it uses the SWIFT code, plus some--but as you say, it
doesn't require an identifier--
Mr. Sherman. Right.
Mr. Chopra. --for a specific name. I am very happy to
discuss this further with other parts of the Federal Reserve
System. I take seriously that we are there to protect
consumers, but the systemic answer may be, in fact--
Mr. Sherman. You are the one with the mission.
Mr. Chopra. Yes.
Mr. Sherman. Thank you.
Chairwoman Waters. The gentleman from Arkansas, Mr. Hill,
is now recognized for 5 minutes.
Mr. Hill. Thank you, Madam Chairwoman, and thank you for
holding the hearing.
And congratulations, Director. We are glad to have you
before us today in your oversight responsibility.
And just a quick note. I would say, having been in
community banking for really on and off for 40 years, I have to
take a little issue that it is not big bank competition. I
really don't think that is the case. I think it really is the
overhead cost as a percentage of assets that is a real
detriment to bank formation and the smaller banks being
successful and competitive on a return on equity (ROE) and
return on assets (ROA) basis.
And to Mr. Williams' point, a lot of that is in the detail
level of compliance and how it has even grown more dense for
banks. And so really, banks under $1 billion, I think really do
struggle with that. Keep that in mind as you look at your work.
And in that regard, I assume you believe that the
Administrative Procedure Act (APA) is the best way for a
regulatory agency to communicate with the broad public on a
proposal. Is that your view?
Mr. Chopra. To communicate?
Mr. Hill. Yes, communicate and ask for comment and actually
outline--
Mr. Chopra. Oh, yes.
Mr. Hill. --your legal proposals?
Mr. Chopra. Yes. I don't know that I would characterize it
as, ``best.'' It is the law. We have to use the Administrative
Procedure Act to promulgate regulations, and it provides for
notices, and a comment period.
Mr. Hill. Yes, I know what it provides. Thank you. I just
wanted to make sure you are supportive of it.
And likewise, do you think that regulatory agencies should
do a cost-benefit analysis to all the parties involved before a
proposal becomes a final rule?
Mr. Chopra. In the Dodd-Frank Act, the Agency is required
to consider certain issues related to benefits, costs, and
other things. So, we will follow what the statute requires.
Mr. Hill. Thank you for that.
On the subject of the QM rule, I listened to Mr. Posey, and
now my friend from California, Mr. Sherman, and I don't know
that either got the kind of answer they are looking for out of
you. So, I am going to go for three strikes here with you.
In the postponement, which was, as you say, delivered due
to the pandemic, we have had a robust housing market. We have
had a record number of closings. I don't see in your complaint
data any spike in complaints.
My question for you is simple: Do you support the proposed
change in the QM rule that was proposed by the CFPB after hours
and weeks and years of work with stakeholders?
Mr. Chopra. I don't know, but I will take a question for
the record on that. I want to make sure I understand the whole
basis of it. But I just want to be clear, that rule has gone
into effect.
Mr. Hill. Yes.
Mr. Chopra. That is now a way that people can comply.
Mr. Hill. And they have an option--I just want to know if
you think it is a good compromise? It was hard to get to where
we were. They have an option now, but that creates uncertainty
in the market, or it certainly could. And it creates
programming uncertainty for IT professionals, and for banks.
So, I think we ought to not postpone it any more and move
forward, and I will ask you that for the record.
Mr. Chopra. Please.
Mr. Hill. And Madam Chairwoman, I would like to submit a
letter to the record from the coalition, dated September of
2019, expressing their strong views.
Chairwoman Waters. Without objection, it is so ordered.
Mr. Hill. I appreciate that.
Mr. Chopra. And sir--I am also keen to understand,
specifically in the mortgage origination marketz, how we can
stimulate more refinancings across-the-board. So, I have been
asking questions about that because one of the ways that the
interest rate environment can transmit to households is broadly
to be able to look at, where are the impediments to
refinancing?
Mr. Hill. Thank you. Well, you should look at that. But the
market has driven refinancings to an all-time high, and every
month my household, like the current mortgage holder got from
10 or 15 different companies, bank and nonbank alike, offering
refinance assistance.
Mr. Chopra. And I hope almost all homeowners get that. I
understand that it has been high--
Mr. Hill. Yes, I will let you do your research on that
point.
Mr. Chopra. Okay.
Mr. Hill. But refinancing, and I would like you--I will
submit a question for the record, should Fannie Mae and Freddie
Mac be disproportionately buying refinance loans, or should
they focus on first home mortgages? What is your view on that?
What is their mission? Helping low- and moderate-income
people? Is that principally done by helping that first-time
homeowner? Ginnie Mae does that. But for low- and moderate-
income people, should that be an emphasis of Freddie Mac and
Fannie Mae, or should they refinance Jeff Bezos' second home?
Mr. Chopra. As you know--
Mr. Hill. Three seconds.
Mr. Chopra. --the Federal Housing Finance Agency (FHFA) is
not the Agency I lead. I am not the conservator of Fannie and
Freddie.
Mr. Hill. Okay.
Mr. Chopra. But again, I am happy to take questions for the
record on that.
Mr. Hill. We will do that. I yield back, Madam Chairwoman.
Chairwoman Waters. The gentlewoman from Ohio, Mrs. Beatty,
who is also the Chair of our Subcommittee on Diversity and
Inclusion, is now recognized for 5 minutes.
Mrs. Beatty. First of all, let me say thank you, Chairwoman
Waters, for this hearing.
And Mr. Director, thank you for being here so early in your
term, in your tenure. I want to thank you for all of your work
and especially for your investment in small businesses, as I,
too, am a former small business owner. As I also support our
servicemembers and our veterans, I wanted to thank you and the
previous Acting Director for your work, because many of us will
remember that under the last Administration, veterans and
servicemembers were not protected as they should have been with
the CFPB.
I don't know if you or everybody has heard of or remember
the, ``Mulvaney discount.'' For you or others who have not
heard of this term, the Mulvaney discount was a term that was
used under the Trump Administration's leadership of the CFPB,
where the CFPB would bring an enforcement action against
someone who had broken our consumer protection laws, but they
would drop their fine to a mere $1 because the defendant simply
said, well, I can't pay the bill, or I can't pay the fine.
For example, under the CFPB in the Trump Administration,
they would actually--if they found a person who had ripped off
a veteran, their pension payment, they would settle that for a
mere $1. And we know how our veterans and servicemembers have
been out on the front lines and all of the things that affected
them. So, it is very important to me, and should be to all of
our Members that we don't go back to that previous
Administration and what the Trump Administration with Director
Mulvaney did.
So, is this a practice that you are aware of or you plan to
change or continue during your Administration?
Mr. Chopra. Congresswoman, we will apply the civil penalty
factors as Congress and the courts have directed us and have
interpreted. Of course, with respect to servicemembers and
veterans, I have already had a chance to speak with some other
agencies about how to revitalize some of the work that we will
do there. We need to make sure the Military Lending Act and
other key protections are enforced.
I will share with you that there may, in fact, be some
instances where the civil penalty is $1. I don't know the
individual circumstances, but assessing a civil penalty against
a judgment-proof defendant, if they are truly judgment proof,
can open up redress under the Civil Penalty Fund. But under no
circumstances will we deviate from the legislative and court-
administered factors to do that.
Mrs. Beatty. Thank you.
Let me go to another question. Under the previous
Administration, I confronted the CFPB for refusing to bring
enforcement actions for violation of fair lending laws. They
only brought up three cases under the leadership of not only
Director Mulvaney, but also under Director Kraninger. I guess
my question is, you have already brought in the 10 months that
you have been in there more than what they did throughout their
entire Administration.
Now, give me your opinion. Do you think it is that all of a
sudden, people started having these fair lending violations, or
they turned a blind eye to it? Because I had a hard time
believing--and after talking to some of the long-term staff
over there--that and not seeing, getting an answer to that, I
believe that there were some fair-lending issues going on. Can
you address that?
Mr. Chopra. All I can do is speak for myself. I am very
determined to make sure that we are administering the laws that
forbid illegal discrimination. On Friday, I joined the Attorney
General in a law enforcement action against Trustmark Bank for
some pretty egregious discriminatory behavior.
Again, we want to make sure that we are not disadvantaging
those financial institutions who follow the law, play by the
rules, and treat people equally. It is not fair to them, and we
need a market that is free of discrimination.
Mrs. Beatty. Thank you so much, and we will continue to
have a dialogue as we talk about fair lending. Certainly, we
are having a lot of movement, thanks to our Chair, in the
housing area, and we will come back and also talk about
diversity and how you are moving forward with that.
Thank you, and I yield back.
Chairwoman Waters. Thank you very much. The committee will
break for a short 5-minute recess.
[brief recess]
Ms. Garcia of Texas. [presiding]. Mr. Emmer, you are now
recognized for 5 minutes.
Mr. Emmer. Thank you, Madam Chairwoman. I have a lot to get
to, so I am going to jump right into it.
Director Chopra, Ranking Member McHenry referred to reports
that former Acting Director Uejio unlawfully removed career
CFPB staff to make room for your handpicked replacements. Here
is the specific allegation in case anyone missed it. This is
from a story that appeared in GovExec.
On June 14, 2021, it states, ``The Biden administration is
taking unusual steps to ensure it can install its own hires
into top career positions at the Consumer Financial Protection
Bureau and push out officials who served under President Trump,
according to several current and former employees. CFPB, in
recent months, has offered separation incentives, including
early retirement, and launched investigations into career
senior executives to sideline them, targeting about a half
dozen of the highest-ranked, non-political staffers at the
Bureau.''
These are serious allegations. If the Inspector General
finds these allegations to be true, it is clear that President
Biden's political team violated a law stating that
discrimination based on political affiliation is prohibited.
The Supreme Court held that the President can remove the
Director of the CFPB for any reason or for no reason at all.
But let me be clear. The Supreme Court did not exempt the
CFPB from laws that prohibit removing career civil servants
based on their political affiliation.
Mr. Chopra, were you aware of the Biden Administration's
plan to push out career officials who were hired during the
Trump Administration?
Mr. Chopra. I do not believe there was a plan to do that,
but--
Mr. Emmer. I just asked if you were aware.
Mr. Chopra. --the allegations--
Mr. Emmer. Were you aware, yes or no?
Mr. Chopra. I could not be aware if there wasn't a plan.
Mr. Emmer. So, it is no. Did anyone at the White House ever
discuss CFPB personnel with you, sir?
Mr. Chopra. I was a nominee, so I was nominated, and that
was through Presidential--
Mr. Emmer. Again, I am trying to be very clear, and I have
a limited amount of time. Did anyone at the White House, whom I
am assuming you had communications with before you were
nominated, once you were nominated, and since you have been
confirmed, before you were actually confirmed, did anyone at
the White House ever discuss CFPB personnel with you?
Mr. Chopra. There has never been any discussion with the
White House about career civil servants or any indications of
that matter. Since I took office, I have begun--
Mr. Emmer. Thank you very much.
Mr. Chopra. --to get briefings--
Mr. Emmer. If I could move on to my next question.
Mr. Chopra. --about--
Mr. Emmer. Sir, I will reclaim my time. Did you discuss the
CFPB workforce with Leandra English at any time since the
election last November?
Mr. Chopra. No. The workforce?
Mr. Emmer. Director, I will say it again. Did you ever
discuss people who work at the CFPB with Leandra English at any
time since the election last November?
Mr. Chopra. I don't recall ever speaking to her about
personnel issues.
Mr. Emmer. Thank you. Director Chopra, if there are people
on your senior political team who hired or fired career staff
because of their political affiliation, I expect you will take
some sort of corrective action, and my question to you, sir,
is, will you rehire the people who were wrongfully terminated?
Mr. Chopra. If there are findings of any prohibited
personnel practice, we will take appropriate disciplinary
action, and--
Mr. Emmer. Would you rehire anyone who was wrongfully
terminated because of their political affiliation?
Mr. Chopra. If there is a finding of that, which I have no
indication to suggest there will be--
Mr. Emmer. It is a yes or a no, sir.
Mr. Chopra. --I will take all the steps that I am required
to under the law, including, if required, rehiring.
Mr. Emmer. I hope that--yes, thank you. I also think it
will be important to know whether any of the actions in
question occurred with your knowledge or at your direction. If
so, I think you may need to consider whether to recuse yourself
from any decisions related to this matter. If it turns out,
sir, that you are implicated in the scheme to remove career
staff based on their perceived political affiliations, can I
have your commitment that you will recuse yourself from any
decision-making related to corrective action?
Mr. Chopra. I will not be implicated in it because I did
not engage in that behavior.
Mr. Emmer. But if you were, you would recuse yourself.
Correct?
Mr. Chopra. On any directive about law findings, of course,
I will adhere to that. But you can trust me. I did not engage
in the allegations you are suggesting.
Mr. Emmer. Thank you. Will you fully cooperate with the
IG's investigation in this matter?
Mr. Chopra. I will always cooperate with the Inspector
General of the Federal Reserve System.
Mr. Emmer. Thank you. And will you instruct the Agency's
political staff to cooperate with the investigation?
Mr. Chopra. Everyone must cooperate with the IG.
Mr. Emmer. And you will tell them that they must, right?
Mr. Chopra. Yes, and I have also told them that they must
adhere to all ethics rules as well.
Mr. Emmer. Thank you.
Mr. Chopra. We need to make sure that all of those are
being followed and that there are not--
Mr. Emmer. I see my time has expired. We will wait and see
what the IG finds in this case. I yield back. Thank you.
Ms. Garcia of Texas. The gentleman's time has expired. We
will now hear from the gentlewoman from Iowa, Mrs. Axne, who is
also the Vice Chair of our Subcommittee on Housing, Community
Development, and Insurance, for 5 minutes.
Mrs. Axne. Thank you, Madam Chairwoman, and
congratulations, Director Chopra, on your new position, and
thank you so much for being here. And I also want to thank the
CFPB for listening to me and others on this committee and
finally resuming the Military Lending Act examinations that you
are supposed to have been doing for a long time, to protect our
servicemembers. So, thank you so much for stepping up for our
servicemembers in the way that you should, and I hope that will
continue. And I really hope to hear about any other issues that
you find that we can be helping you with here in Congress.
Now, I do intend to ask you questions about the work that
you are doing, because I think that is important for these
hearings, so let me get right to it.
I know you have only been there for a couple of weeks now,
but I want to check on the status and planning of a couple of
other areas that I have been asking the CFPB about. First, I
asked your predecessor about the student loan servicers and
whether the CFPB was actually doing the exams to protect the 40
million Americans who have these student loans. I have asked
that a couple of times, and never got a straight answer. I know
this used to be your department. Can you give me an update on
where those things are right now with the CFPB's oversight of
student loan servicers?
Mr. Chopra. I want to be mindful of the protections in the
law about confidential supervisory information, but I will
share that student loan servicers, the large ones, are subject
to the supervisory authority of the CFPB, and I intend to make
sure we are supervising them appropriately. We will, of course,
work with other regulators, including the Department of
Education, to do so, but unless the law is being followed, we
cannot be certain that our borrowers are going to be able to be
on the road to repayment or be protected from unlawful
practices.
Mrs. Axne. Okay. Thank you for that. And what are the
actual benefits--I am hoping that you can tell us--for those
borrowers, of having the Agency looking out for them and
actually having this oversight happen for the first time in
years?
Mr. Chopra. I think it is important to make sure that we
are protecting both the borrowers and the honest companies who
are engaged in these businesses. It is not fair to the law-
abiding businesses when some get a free pass. When it comes to
student loans, for example, good servicing on student loans,
mortgages helps avoid default, helps avoid foreclosures, and
ultimately adheres to the congressional directives to the CFPB.
Mrs. Axne. Great. Well, that will certainly help folks out.
Thank you so much for that.
I have also noted that over the last couple of months,
homeowners have had some new protections from foreclosures,
including now they have the right to new, streamlined loan
modification options because of COVID hardships. Can you walk
us through what those protections are and a little bit of how
you see those working so far?
Mr. Chopra. Yes. As I understand the amended rule, it
provides a way for servicers to help transition borrowers from
the forbearance programs back into repayment. This obviously
can be very challenging, especially for borrowers who have been
struggling during the pandemic. So, I think the win-win here is
for servicers to be able to evaluate borrowers for these
alternatives to foreclosure. That is good for the investors,
that is good for the borrowers, and it is really good for the
economy. Of course, it is a temporary rule to assist with the
orderly transition, but we want to make sure we do not repeat
what happened last time, which was unnecessary, avoidable, and
illegal foreclosures, and there were too many of them and the
effects were devastating.
I would say, Congresswoman, I am also particularly
interested in farm bankruptcies, foreclosures in rural areas. I
know that is of interest to you. And I think we need to
understand all of the issues facing family farms. It is an area
that I have worked on for many years. We cannot have a
resilient and strong country without a base of thriving family
farms who can afford their obligations.
Mrs. Axne. I will tell you what, Director, you are talking
my language there, so thank you so much for bringing that up.
And I am currently working to get affordable housing extension,
more funding through the USDA, but we need a lot of help in our
rural areas, and I am so glad to hear you say that. And, of
course, we want to make sure that we prevent foreclosures as
much as possible, so these loan modifications are a great way
to do this.
I just want to let you know this is one of my top
priorities, to make sure that people can actually benefit from
these programs. So, I made sure we got $100 million to support
housing counselors to help walk people through this process.
And I am wondering, last question, are you working with these
housing counselors on those modifications to make sure that
they are doing the best they can to serve Americans?
Mr. Chopra. Yes, housing counselors are often on the front
lines of helping borrowers to not only get a home, but to keep
their home. I don't have the details handy this early, but you
have my commitment that we will not be forgetting about the
housing counselors, and I know, firsthand, how much of a
vehicle they are to really helping people when it comes to the
dream of homeownership.
Mrs. Axne. Thank you.
Ms. Garcia of Texas. The gentlewoman's time has expired.
The gentleman from Georgia, Mr. Loudermilk, is now recognized
for 5 minutes.
Mr. Loudermilk. Thank you, Madam Chairwoman. And Director
Chopra, thank you for being here.
There are several topics I would like to discuss, the first
being the rulemaking to implement Dodd-Frank Section 1033. As
part of that, I hope the CFPB will take into account the
significant progress the private sector is making on consumer
data issues, specifically moving away from screen scraping of
log-in credentials and transitioning to application programming
interfaces (APIs). I think it would be counterproductive to
impede or duplicate the work that the private sector is doing.
The question is, do you intend to build on the work that is
being done in the private sector as part of Section 1033
rulemaking, and will you make sure not interfere with that
work?
Mr. Chopra. I think that makes sense. I think the way we
can realize a lot of the benefits of any Section 1033
rulemaking--and it is too early to say what the timeline would
be on that--we have to look at actually what are the systems
and protocols and technologies that are already in use and how
are they working or not working?
I think I am, to be transparent with you, going to look at
it with the eye, of course, of competition, security, and
privacy. In many cases, APIs will be a huge vehicle to do so.
But I take what you are saying seriously. If there is already a
movement or there is development that we can learn from to help
expand, I am totally on board with that, and I hear what you
are saying.
Mr. Loudermilk. I appreciate that, because, quite frankly,
it is the private sector that are innovators, not the Federal
Government, and more often, the Federal Government tends to be
suppressors of innovation. Anything that we can do to encourage
innovation and keep things going in the right direction, I
applaud.
Mr. Chopra. Can I add one point?
Mr. Loudermilk. Sure.
Mr. Chopra. I want to make sure that I will look at
private-sector initiatives to make sure that there cannot be
kind of one dominant controller of it. The more that we have an
open system that people can enter, they don't need a lot of
permission slips and corporate red tape to cut through, I am
going to be looking at that.
Mr. Loudermilk. Okay. The CFPB has also proposed a rule to
implement Dodd-Frank Section 1071, which will require lenders
to collect and report data on the demographics of small
business borrowers. I hope you will minimize the burden of
these requirements. The 1071 rule proposes making the data
available to the public annually, to determine what data is
released, the rule proposes a balancing test to measure the
risk and benefits of publicly disclosing the data.
What risks do you believe should be considered in this
test?
Mr. Chopra. Again, I am new to the job, but I will just
share my personal views on this, which is that we need to be
thinking very hard always about re-identification risk. In many
cases, technologies have advanced such that there are more data
points that can be put together to re-identify. So, what I am
going to be looking for is making sure we are implementing the
objectives to make sure we are collecting this data, that it is
being used to guard against discrimination and other
violations, but also that any datasets we make available are
still consistent with the objectives of safeguarding privacy as
well.
Mr. Loudermilk. So far, CFPB has not accepted public
comment on this issue. Will you be open to accepting public
input on the balance tests before it goes into effect?
Mr. Chopra. I need to check on this. I thought that in the
proposed rule, it did discuss implementing a balancing test,
and I think we are collecting comments on all aspects of the
rule. If I am mistaken, we are happy to follow up with you, but
of course, all agencies need guidance when it comes to
protecting data.
Mr. Loudermilk. Right. Our understanding is that it hasn't
been done. If it hasn't, will you do that?
Mr. Chopra. Yes. I am definitely eager to hear views on how
to make sure we are balancing that right.
Mr. Loudermilk. Okay. So, you will ask for public input, if
it hasn't been done, before--
Mr. Chopra. If it hasn't been, for sure, I would want to
make sure we ask for input, particularly from technology and
data experts, and others.
Mr. Loudermilk. Okay. Last question, if I have time, in
April, the CFPB issued an interim final rule regarding debt
collection practices during COVID-19. The rule classified
landlords as debt collectors and accused landlords of refusing
to accept tenant self-attestation of hardship based on
unverified anecdotal evidence from activist groups.
Fortunately, that rule no longer applies because the Supreme
Court struck down the CDC's illegal eviction moratorium, but it
is still troubling.
I understand you were not in this position during that time
period, but in any issue going forward, could we get your
commitment that your policies will be based on concrete facts
and data, not unverified anecdotes, especially from activist
organizations?
Mr. Chopra. Just to be clear, you are saying that rule
covered landlords?
Mr. Loudermilk. Yes.
Mr. Chopra. Okay.
Mr. Loudermilk. The rule classified landlords as debt
collectors.
Mr. Chopra. That wasn't my understanding. I am happy to
look into that. I understood that pursuant to the Fair Debt
Collection Practices Act (FDCPA), that it was third parties
collecting on behalf of landlords who are covered. But to your
question, I, of course, want to make sure we are being
analytically robust whenever we can.
Ms. Garcia of Texas. The gentleman's time has expired. The
gentleman from Illinois, Mr. Casten, who is also the Vice Chair
of our Subcommittee on Investor Protection, Entrepreneurship,
and Capital Markets, is now recognized for 5 minutes.
Mr. Casten. Thank you, Madam Chairwoman, and thank you so
much to Director Chopra for your time and your patience with
all of us today. I have some questions about discriminatory
lending, and I want to go through just ridiculous hypotheticals
to start, so bear with me, but I want to leave enough time for
the substance on the back end.
As you know, the Equal Credit Opportunity Act of 1974
prohibits lending institutions from discriminating on the basis
of all of the usual protected classes--race, religion, national
origin, what have you. So, I want to just start with a
completely softball hypothetical.
If a lending institution was to intentionally, or
unintentionally but effectively market their products to groups
of people that had the practical effect of reducing minorities,
certain religious groups access to loans, would that constitute
a violation of the ECOA?
Mr. Chopra. As I am sure you know, all of us in the banking
regulatory area like to avoid these types of hypotheticals, but
I will try my best to answer. The Equal Credit Opportunity Act
implicates not just underwriting decisions but across the
entire credit transaction. So, it can affect collections, it
can affect marketing and advertising. You may be aware that HUD
Secretary Carson issued a complaint against Facebook for
violations of the Fair Housing Act that related to some of
these issues about advertising. There is some corollary between
the Fair Housing Act and the Equal Credit Opportunity Act. We
are happy to follow up with some of the specific regulations.
Mr. Casten. I appreciate the nuance, and that is the
challenge of these 5-minute hearings is sometimes there is not
enough time for nuance. But stipulate that there are some
things that, within that nuance, are indeed problematic. Does
the CFPB, under your leadership, have the authority and/or the
obligation to investigate and prosecute crimes under the ECOA,
of the type we just talked about?
Mr. Chopra. Yes.
Mr. Casten. Okay. And if a company was violating those, is
knowledge that their marketing techniques were discriminatory a
prerequisite for prosecution, or if their lending practices are
discriminatory but were not intentional, does that absolve them
of liability?
Mr. Chopra. Yes, there is jurisprudence on this. It is also
in the regulation. There is disparate treatment and disparate
impact, and so in the disparate impact context, you need not
necessarily prove intentionality to get to liability.
Mr. Casten. Okay. Well, that is consistent with my
understanding. Here is the substantive reason for the question.
It has been brought to my attention that a number of folks in
the lending industry, when they make a decision whether or not
to advertise on Facebook, Facebook cannot share, and has
refused to share, any information about whether the algorithms
they use to boost their ad tracking are, in fact, intentionally
targeting certain racial groups, certain classes of people, and
could have a practical effect, especially in light of all this
news over the last weeks that Facebook's algorithms have a
habit of targeting and amplifying and boosting signals from
White supremacist groups like the Proud Boys.
Given your prior answers, is a lender that is advertising
on a platform that uses algorithms that may prove to be
discriminatory, or maybe have already been proven to be
discriminatory, is that lender potentially guilty of an ECOA
violation?
Mr. Chopra. It really depends on the facts and
circumstances, but, in fact, Facebook, in your hypothetical,
may be liable for that.
Mr. Casten. And would you have the jurisdiction to pursue a
claim against the platform as opposed to the lender, or both?
Mr. Chopra. It depends on the exact activities, but like in
Secretary Carson's complaint, where Facebook was making those
decisions, in your hypothetical, when a tech company like that
is making the decision, they may, in fact, be liable.
Mr. Casten. Okay. Last, just a question for you as we sit
here, if the platform cannot guarantee that their marketing
channels are not in some fashion discriminatory in a way that
would violate the ECOA, would you advise a lender to continue
advertising on that platform?
Mr. Chopra. I would rather take this question for the
record, because it is a complex one to answer in 9 seconds. But
I am very worried about black box algorithms, that we have no
accountability as to how decisions are made. This is the
opposite of relationship banking, and we need to make sure that
firms cannot dodge fair lending laws and anti-discrimination
laws under the guise of their secret algorithm.
Mr. Casten. Thank you very much. I am out of time. I look
forward to following up with your staff afterwards.
I yield back.
Ms. Garcia of Texas. The gentleman's time has expired. The
gentleman from Tennessee, Mr. Kustoff, is now recognized for 5
minutes.
Mr. Kustoff. Thank you, Madam Chairwoman, and Director
Chopra, congratulations on your confirmation. Thank you for
being here today.
We have heard a lot, obviously, in the past several months
about cryptocurrencies and digital assets. They have gotten a
lot of attention. What do you see as the CFPB's role with
respect to cryptocurrencies and digital assets?
Mr. Chopra. Depending on the laws that are implicated,
obviously there is fact-based determination as to any sort of
law that cryptocurrencies or digital currencies have to comply
with. This is obviously something that the CFPB is working on
with the other regulators, but I will tell you where digital
payments is involved. The Electronic Fund Transfer Act is a key
law with key consumer protections. Obviously, the Gramm-Leach-
Bliley Act, the privacy provisions of that, are a key law that
we enforce. This is part of the reason the Bureau issued orders
to the tech companies about how they are trafficking payments,
what data they are collecting, how they are using it, how they
are engaged in surveillance or denial of service. All of those
matter, and I think there are some intersections there with
digital currencies as well.
Mr. Kustoff. I don't like using absolute terms, but to
paraphrase what you just said, do you see the CFPB's only lane
being in terms of the payments?
Mr. Chopra. I would need to review all of our laws. There
may be certain circumstances where there may be lending
involved. I need to really think through that and get back to
you on it. I do want to make sure that we are guarding our
payment system and taking care of the consumer protections that
you all have passed.
Mr. Kustoff. Fair enough. In your prior position at the
FTC, almost 2 years ago, in November of 2019, you commented on
the FedNow Service. You may remember. I am quoting from the
opening paragraph of your comment. You said you would like to
outline support for the Federal Reserve's proposal to develop
the FedNow service, a new round-the-clock, real-time payment
system, that the proposal is a natural extension of the Federal
Reserve's existing role in check clearing, wire transfers, and
the automated clearing house system. That a private megabank
monopoly, over our faster payment system, would suppress
innovation and distort incentives in our markets, and the
Federal Reserve should not cede control of the plumbing of our
future payment systems to Wall Street.
And that was in your prior role. In your current role, what
do you see as the CFPB's role as it relates to the FedNow
Service, if any?
Mr. Chopra. That is a good question. I think the extent to
which they are creating the FedNow Service, I think we can
serve as experts on consumer protection within the Federal
Reserve System. I know this is an area of great importance to
our local financial institutions and community banks. The CFPB
has a Community Bank Advisory Committee that I want to engage
on payments issues. But obviously, our core is the consumer
protection laws and there are certain places, perhaps related
to fraud or error resolution, where we may have relative
expertise.
Mr. Kustoff. Is there potential for the FedNow Service to,
if you will, crowd out the private sector?
Mr. Chopra. I would have a tough time seeing that. I think
our payments ecosystem is always going to be diverse. There are
going to be many different ways in which money is transferred.
I do think, from a national security perspective and global
competitiveness, we need to have faster payments in our
country. I think the fact that we are being beaten out when it
comes to speedy payments, by China and others, is a concern for
me. So, I think it is really the public sector and the private
sector all have to really work to make sure that we can compete
in that way.
Mr. Kustoff. Thank you, Director. In your prior life--and
maybe in your current life also--you were a prolific tweeter,
almost like a Member of Congress. On March 6th of last year,
you tweeted, ``It's time to end the era of lawbreaking
megabanks. Their empire-building brought our economy to the
brink, their scale made them too big to fail, and their
executives have turned boring banking into a risky business
model built to break the law.''
Two questions: first, who are you talking about; and
second, is it within your purview to, ``end the lawbreaking
megabanks?''
Mr. Chopra. I have to tell you, one of the things that
bothers me so much is when small players break the law, they
get shut down, and when the large players repeatedly break the
law, it feels like nothing happens. In my testimony, I
submitted one of the areas that is going to be a focus for me,
which is the issue of repeat offenders. We cannot have a system
where a small financial player is caught and then totally gets
wiped out, while a big one gets to just pay fines over and over
and over again, and the lawbreaking continues.
If we find that the regulators--not just the CFPB, but the
OCC, the Federal Reserve, and others--do not have the
managerial acumen and operational plans to follow Agency and
Federal court orders, we have a serious problem there.
This was my experience at the FTC, where some of the
largest players repeatedly violated the law and nothing
happened.
Mr. Kustoff. Who were the lawbreaking megabanks?
Ms. Garcia of Texas. The gentleman's time has expired. The
gentlewoman from Massachusetts, Ms. Pressley, who is also the
Vice Chair of our Subcommittee on Consumer Protection and
Financial Institutions, is now recognized for 5 minutes.
Ms. Pressley. Thank you so much, and I want to express my
gratitude to our Chair for her continued commitment to this
issue, and congratulations to you, Director Chopra. It is good
to see you. I am excited and grateful that you will be a
partner at the helm of the CFPB.
I wanted to speak to you about an issue that I have been
sounding the alarm on for over a year now, one I know you are
very familiar with, the issue of educational redlining.
Borrowers who attended an Historically Black College or
University (HBCU) or other Minority Serving Institution (MSI)
have faced thousands of dollars in additional charges because
of these discriminatory algorithms. And we have companies like
Upstart and Stride Funding who are practicing educational
redlining, and continue to be engaged in this practice in the
student loan market. And these companies are using information
about where borrowers went to school, their major, or their
parents' educational attainment to price loans or make credit
decisions.
Director Chopra, what is the Bureau doing to address the
risks to Black and Brown borrowers that arise from the use of
algorithmic decision-making in lending and the reliance on so-
called alternative underwriting criteria such as borrowers'
educational background?
Mr. Chopra. Congresswoman, there has been a myth that
algorithms can be completely neutral. In reality, many of those
algorithms reinforce the biases that already exist. I joined
the Attorney General on Friday to talk about how we need to
make sure that there is a level of accountability on
algorithmic decision-making, that we can make determinations
about whether the law is being followed. And a traditional
financial institution that uses more traditional methods should
not be held to a standard while others get to hide behind their
algorithm.
That is something that we will need to look carefully at,
not just the CFPB, but others, and I would hate to see that we
are reinforcing biases based on the enrollment of a particular
school, particularly, as you mentioned, if they went to an
Historically Black College or University (HBCU).
Ms. Pressley. Thank you, Director. During the Trump
Administration, the Bureau renewed a no-action letter, which
allowed Upstart to act with impunity under the guise of
spurring, ``financial innovation.'' With respect to educational
redlining and algorithm bias, do you agree, just one more time
for the record, that discrimination is wrong, and that no
regulator should make carveouts that allow people to
discriminate?
Mr. Chopra. I, under no circumstances, believe any
regulator should give a permission slip to engage in illegal
discrimination.
Ms. Pressley. Okay. Wonderful. That's good to hear.
Transitioning to a topic that you are very familiar with, I
wanted to talk with you about student debt cancellation. Again,
to be clear, the most efficient way for President Biden to
provide relief for millions of borrowers and families is to
provide across-the-board student debt cancellation. We are
approaching the mark where those payments could restart, and
the fact that we would consider doing such a thing during an
ongoing pandemic-induced recession is really unconscionable. As
you well know, more than 4 in 10 Federal direct loan borrowers
would have to be transferred to a new student loan servicer if
these payments resumed.
Director Chopra, given these simultaneous risks, what is
the CFPB doing, within its oversight authority, to ensure that
borrowers are not harmed should these payments resume?
Mr. Chopra. It is very important that just like the
chairwoman talked about with mortgage servicing, the resumption
to repayment could be really messy, and we need to do
everything we can to make sure it isn't, and the same goes for
student loans. If 40 million people all need to resume
payments, we will need to make sure that servicers and others
are doing so in an orderly and lawful way, and I intend to use
our tools to contribute to efforts to make sure that they are
doing so.
Ms. Pressley. Thank you for that commitment to user your
oversight authority to ensure that borrowers are not harmed
should these payments resume. I know, unlike President Biden,
you do not personally have the authority to cancel student
debt, but I do think the CFPB's job would be much easier if the
President honored his promise and finally cancelled student
debt. We were speaking about HBCUs a moment ago, and those
presidents are using their ARPA funds to cancel student debt
because this is a racial justice issue and an economic justice
issue, and one I think is critical to a just recovery as well.
But, in closing, I look forward to working together to
address the unprecedented student loan debt crisis and other
issues that my constituents care about, like ending
discriminatory lending in the housing market, debt collection
harassment, and harmful credit reporting practices.
Congratulations once again, and thank you.
Mr. Chopra. Thank you, ma'am.
Ms. Garcia of Texas. The gentlewoman's time has expired.
The gentleman from Tennessee, Mr. Rose, is now recognized for 5
minutes.
Mr. Rose. Thank you. I want to thank Chairwoman Waters and
Ranking Member McHenry for holding this hearing, and Director
Chopra, thank you for appearing before us, and it is good to
meet you face to face. We appreciate you being here for this
annual review of the Consumer Financial Protection Bureau.
I am going to dive right in. Director Chopra, the Bureau
has previously acknowledged the key role that small-dollar
loans can play in helping consumers meet credit needs, usually
resulting from unexpected expenses that Americans often incur.
According to the spring 2021 Semiannual Report of the Bureau,
what percent of consumer complaints received by the Bureau were
related to short-term, small-dollar loans? Do you know, off the
top of your head?
Mr. Chopra. I don't. I think the vast bulk of complaints,
maybe even 40 to 50 percent, related to credit reporting and
debt collection issues. That is by far the largest component.
Mr. Rose. It might not surprise you then to learn that the
number that the report shows is that it was 0.2 percent, or 2
in every 1,000 complaints. Given the amount of resources that
the CFPB has focused on small-dollar lenders, I was surprised
to learn from the Bureau's own data that only 0.2 percent of
complaints received by the Bureau were attributed to short-term
or small-dollar lenders.
Director Chopra, yes or no, do you believe that small-
dollar lending can play a positive role in helping consumers
meet their credit needs?
Mr. Chopra. Yes. There are many short-term liquidity
products, whether it is a credit card, whether it is any sort
of small-dollar loan. Of course, that plays an important role,
and it would be good to see many more financial institutions
offering them.
Mr. Rose. Thank you, and I agree very much about that.
Switching topics, I wanted to discuss the Bureau's
recently-proposed rule and request for public comment for small
business lending data collection under the Equal Credit
Opportunity Act. This proposed rule seeks to require covered
financial institutions to collect and report to the Bureau data
on applications for credit for small business. As several of my
colleagues have noted, there is a lot of uncertainty regarding
this rulemaking.
According to the proposed rule, the Bureau is aiming to
create the first comprehensive database of small business
credit applications in the United States. If this rule is
finalized, how will the Bureau protect and safeguard the
information collected and stored in this government-run
database?
Mr. Chopra. That is a great question. I believe in the
Notice of Proposed Rulemaking, there is a section on how there
will be balancing to protect privacy, to protect re-
identification risk. Ultimately, the Bureau is seeking to
implement the statutory directive, and there is a court order
to do so in a timely fashion.
As I mentioned to one of your colleagues, I think there are
many ways we can look at how we can make sure we are
implementing those objectives while also protecting some of the
issues you have raised. In many ways, it is a similar exercise
to the Home Mortgage Disclosure Act database that currently
exists, that collects information on mortgage origination, but
obviously there are some very important differences.
Mr. Rose. To follow up there on the topic of information
security, earlier this year, the Office of the Inspector
General for the CFPB issued a memorandum entitled, ``2021 Major
Management Challenges for the Bureau.'' I am sure you are
familiar with that memorandum. The memo listed the management
challenges in order of significance, and the number-one
challenge listed for the Bureau was ensuring that an effective
information security program is in place. The memo noted that
although the Bureau is working toward implementing effective
identity and access management controls, challenges to
effectively safeguarding sensitive Agency data remain.
The IRS is currently trying to get their hands on account
data of millions of Americans, and the CFPB also wants to
collect massive amounts of data. It seems like the Biden
Administration is attempting a major grab of information. Why
should we trust the government to successfully protect all of
this information, and can I get a commitment from you that this
government-run database will not be live until there is
absolute confidence in the security of the system?
Mr. Chopra. Almost every Federal Agency right now, because
of many of the cyberattacks from state and nonstate actors, we
all know the United States is a big target, and every Agency
needs to be at the top of its game when it comes to protecting
our cybersecurity. There are many, many ways in which every
Agency needs to push forward.
I was very closely involved in a lot of the data security
issues in my last job at the FTC, and I intend to make sure
that we not only follow that directive, but that we are
constantly looking for ways to improve.
Ms. Garcia of Texas. The gentleman's time has expired.
Mr. Rose. Thank you, Director Chopra, and I yield back.
Ms. Garcia of Texas. The gentleman from New York, Mr.
Torres, is now recognized for 5 minutes.
Mr. Torres. How are you, Director? Congratulations on your
appointment.
Mr. Chopra. Thank you so much, sir.
Mr. Torres. In his Executive Order advocating for antitrust
reforms, President Biden called upon the Consumer Financial
Protection Bureau to complete rulemaking on Section 1033 of
Dodd-Frank, which, as you know, establishes the right of
consumers to access and transfer their own financial
information. What is your timetable for finalizing Section 1033
rulemaking in accordance with the President's Executive Order?
Mr. Chopra. I am very, very interested in making sure that
consumers are not trapped or stuck in a product they do not
want, that they can switch, that they have more opportunities.
I think competition is something every Agency, including the
CFPB, should promote. I want to be able to give you a firm
timeline. Two weeks in, I can't do that. But there is a process
underway. There has been an Advanced Notice of Proposed
Rulemaking. We are assessing more. We are consulting experts. I
have been personally trying to learn about the U.K.'s open
banking system. But I really see this as a great opportunity
for all of us.
Mr. Torres. I am pleased to see that you believe, as I do,
that consumer control of data is critical to competition and
consumer choice, ensuring open markets. If I, as a consumer,
ask a bank to share my financial information with a competing
financial institution, should the bank be required to comply
with that request?
Mr. Chopra. As a general matter, I think people need to
control their personal data. I am very uncomfortable with the
surveillance-style system that I think we are seeing, not just
in China but also here, where companies are collecting all
sorts of highly detailed information on us, sometimes without
our consent, sometimes without our knowledge.
Mr. Torres. Could I actually ask about that?
Mr. Chopra. Please.
Mr. Torres. Because it brings to mind data aggregators. Is
your Agency going to play a greater role in supervising and
regulating data aggregators? What are your thoughts on that?
Mr. Chopra. In some circumstances, depending on the
activities of them, there are many laws that they have to
follow. There may be privacy rules. There may be--
Mr. Torres. But general supervision and regulation.
Mr. Chopra. No, aggregators are a key part of something we
have to look at, including to understand the Section 1033
rulemaking.
Mr. Torres. I am going to ask you the same question that I
asked the SEC Commissioner about, ``neither admit nor deny
settlements,'' and I will offer a perspective that I have heard
from constituents. If you are a poor kid from the Bronx who
commits a minor crime and then enters into a plea bargain, as
part of the process of entering into a plea bargain, that young
kid would be expected to admit wrongdoing, to plead guilty.
That young kid would likely have a criminal record that would
haunt him for much of his life.
But if a rich corporation defrauds millions of people out
of millions of dollars, and then enters into a settlement with
the CFPB, that corporation will likely enter into a settlement
without ever admitting wrongdoing. That corporation can move on
as if it had done nothing wrong. Financial regulators like the
SEC and the CFPB essentially protect corporate bad actors from
the consequences of their bad behavior, the reputational
consequences of their bad behavior. Does that seem fair to you,
because it seems unfair to me, and it certainly is unfair to
the people I represent.
Mr. Chopra. No. And, in fact, in criminal law it is almost
unheard of to be able to allow this kind of outright denial.
One of the things that I have written about in the past and
intend to explore, what is the role of findings and admissions
to promote compliance, promote fairness in our markets? And I
agree with you, I am uncomfortable with this sort of blanket
approach of constant denials of liability.
Mr. Torres. Are you committed to either banning the
practice or radically reducing the practice?
Mr. Chopra. I want to talk about it with you further. There
are some tradeoffs, but I do think we need a policy that
actually makes it figure out when we will actually do it,
because right now, I think it is overused.
Mr. Torres. And I think you referenced that you were
studying examples of open finance elsewhere in the world. Is
there a country that you look to as a model for the United
States?
Mr. Chopra. I have to tell you, I want to learn from all of
those countries, but we have to do something that works for our
people. We have a much more diverse country. We have a large
country. I am not wanting to replicate what the Chinese or the
British are doing. We need to do something that is uniquely
ours and that suits our people and our financial system.
Mr. Torres. My time is about to expire, so again,
congratulations on your appointment.
Mr. Chopra. Thank you, sir.
Ms. Garcia of Texas. The gentleman yields back. The
gentleman from North Carolina, Mr. Budd, is now recognized for
5 minutes.
Mr. Budd. I thank the Chair, and Director Chopra, thanks
for being here in person today and congratulations on your new
role.
Director Chopra, under former Director Cordray, the Bureau
was notorious for carrying out regulation by enforcement.
Essentially, the Bureau expected financial services providers
to figure out the rules based on press releases announcing
enforcement actions, instead of providing ahead of time clear
guidance or actual rulemakings on the front end.
In your confirmation hearing, I think it is relevant that
this was your quote, ``I also will commit that the CFPB and
every Federal Agency should be focused on fixing harms, making
it clear to market participants what is expected of them.''
So, will you commit to avoiding the practice of regulation
by enforcement?
Mr. Chopra. I always want to make sure, and I have shared
with some of your colleagues, the best situation is when the
law is clear, it is easy to administer, easy to follow, and
easy to enforce. I do aspire, with respect to our laws, to be
able to make sure it is durable and understandable, but we will
also need to enforce the law as written and how the Congress
has written that statute. We do not have the ability to veto
laws. We do have to administer the laws you pass, and I want to
make sure that it is understandable and that we can figure out
ways to do that.
Mr. Budd. Sure, but the question is about regulation by
enforcement. When there is an unknown out there, where there is
a lack of clarity, where the standard that you just mentioned
is not there, and then all of a sudden, there is regulation
through the mechanism of enforcement--do you see any problems
with that approach, regulation by enforcement?
Mr. Chopra. I think what I shared with one of your
colleagues is that we need to go up and focus our resources
against large players engaged in widescale harms. I don't
believe in strong-arming small businesses into settlements to
create some sort of law. I think we need to litigate more and
we need to make sure that the courts are developing the law
with us, so that creates more understanding and greater
jurisprudence.
Mr. Budd. But do you agree that there should be clarity
ahead of time before they are attacked by regulation by
enforcement? Do you think they should have a standard ahead of
time, rather than some enforcement mechanism, just regulation
through enforcement? All of a sudden, there is an enforcement
without having clarity ahead of time.
Mr. Chopra. In the context of a litigation, a court would
not say that a firm is liable if it did not believe it was
violating the law. We also have to enforce the laws you have
written, and in many cases, we can develop it further. But we
can't just stop enforcing a law that you all have told us to
enforce.
Mr. Budd. Thank you. I want to shift gears. I know a lot of
my colleagues have asked about this today and it has become
quite popular. But you mentioned earlier today that there are
interagency discussions between Fed Chairman Powell and
Treasury Secretary Yellen on the regulation of cryptocurrency
and stablecoins. But Chairman Powell told me, sitting at that
very desk earlier this month, that he had no intention of
banning or overregulating cryptocurrency.
So, Director, do you have a different view than Chairman
Powell on the regulation of cryptocurrency?
Mr. Chopra. Sorry if I misspoke. I thought what I said to
your colleagues was that the issue of virtual currency,
stablecoins, cryptocurrency, is a subject of discussion across
the Administration. There is a working group, the President's
working group, that is covering some of these issues. So, I
apologize if I misspoke earlier.
Mr. Budd. I just want to clarify. Thank you for that,
Director. As a matter of policy, is it your intention to use
your regulatory authority to ban or limit the use of
cryptocurrency or blockchain technology?
Mr. Chopra. No.
Mr. Budd. No. I just want to make sure that we are clear,
if it is your intention to regulate or ban the use of
cryptocurrency or blockchain technology.
Mr. Chopra. Just so we are using the same--that does not
mean that the CFPB should not be looking at payments, and this
is part of why I issued the orders last week to collect
information from the Big Tech companies--some of those laws
that we administer may implicate virtual currencies. But as you
have asked, no, I don't have the intention, but I do want to
make sure we are administering the laws that protect our
payment system.
Mr. Budd. And that is fine, but you do not have an
intention to ban or limit the use of cryptocurrency or
blockchain technology, as a whole?
Mr. Chopra. No.
Mr. Budd. Okay. Thank you. I yield back.
Ms. Garcia of Texas. The gentleman yields back. The
gentleman from Massachusetts, Mr. Lynch, who is also the Chair
of our Task Force on Financial Technology, is now recognized
for 5 minutes.
Mr. Lynch. Thank you, Madam Chairwoman. Welcome, Director
Chopra. It's good to see you, and congratulations on your
appointment.
I know that some of my colleagues have raised this issue
previously, but I did want to talk about something that I
uniquely believe that both my friends on the other side of the
aisle as well as my fellow Democrats believe is important,
which is that consumers own their own data and they should have
control over their data. And I know that you are engaged in a
rulemaking on Dodd-Frank Section 1033. Do you have a timeframe
in terms of--
Mr. Chopra. Being 2 weeks in, I don't, but I will share
with you, as I shared with others, that I think this is a real
opportunity to create more competition, to create more
opportunities. And I am going to be reviewing the work to date
to see what we can accomplish, but I apologize that I don't
have a timeline at this point.
Mr. Lynch. Yes. I know you did--in Section 3.5 of your
annual report you did have a vague reference to the ongoing
comment period, but as you know, this industry is moving at
light speed and we are standing still. So, I would just implore
you to--
Mr. Chopra. Move quickly.
Mr. Lynch. Yes, please.
Mr. Chopra. I hear that. I am hearing that from everybody.
We want to go through and understand how to do it right. I
really encourage you and others to have discussions with us on
the objectives you see. I really see promoting competition,
promoting choice, allowing new entrants to be able to challenge
dominant players, to be able to give people more options as
critical to this.
Mr. Lynch. Yes. I am keenly interested in consumer
protection, like you, and I am wondering, as we look at Section
1033 and the rulemaking, does the General Data Protection
Regulation (GDPR) offer any instruction on how we handle
consumers' privacy? GDPR offers the ownership and access to
information, the portability of information from one
institution to another, the right to be forgotten, the right to
rectification. Are those elements that you would embrace, in
terms of our own response?
Mr. Chopra. I need to give that some more thought. I think
the GDPR, and frankly, other State laws in the U.S. that are
about privacy and greater control of data, are something that,
as you said, has been evolving. I think some of those
principles about control and moving market power toward a
family, so that they have more bargaining leverage, they have
more ability to protect their data too, I think that is good.
Mr. Lynch. Look, I do appreciate what the States have done
and are doing. In my own State, our Secretary of State, Bill
Galvin, has done a wonderful job of protecting consumers. But I
do think there should be a unified baseline, and if States want
to do more in their particular jurisdictions, they have that
right. But I think it would be much better for a cohesive and
competitive industry if we did have a common set of standards
that fintech companies could adhere to, and I think it would
move us all forward in a very positive way.
I am just wondering, as well, whether the Gramm-Leach-
Bliley Act (GLBA) offers enough protections, from a statutory
standpoint, or whether something additional is needed?
Mr. Chopra. No. The GLBA privacy provisions are outdated.
Of course, we will enforce that law and administer it. I
personally do not believe that the GLBA privacy provisions are
working effectively.
Mr. Lynch. Okay. That is great. Again, I welcome your
invitation to be engaged on this issue. I wish you the very
best. It is great to have you, with your background, in this
position. I thank you for your willingness to serve. We have a
lot of work to do.
Madam Chairwoman, I yield back.
Ms. Garcia of Texas. The gentleman yields back. The
gentleman from West Virginia, Mr. Mooney, is now recognized for
5 minutes.
Mr. Mooney. Thank you. Thank you, Madam Chairwoman, and
thank you, Director Chopra, for coming here today. And
congratulations on your confirmation.
In the past, the Consumer Financial Protection Bureau has
taken a, ``punish first and ask questions later'' approach.
Under former Director Cordray's leadership, enforcement actions
had to be reined in after the fact by the courts. This kind of
approach makes it more challenging for businesses large and
small to understand the rules they need to follow. When the
rules are confusing or enforced unevenly businesses, poor
resources, compliance, and attorneys, it is better for
everyone, consumers included, if they can use those resources
to create more jobs and expand their business.
Although you are newly sworn in as Director, we know that
you are not new to the CFPB. You served as Assistant Director
under Mr. Cordray and helped steer the Bureau during that era.
My concern is that as Director, you will take the same approach
to enforcement as Mr. Cordray. Earlier today, you did commit to
Ranking Member McHenry to follow a notice and comment APA
rulemaking process. I was pleased to hear that, and I hope you
will stick to that commitment.
So, Director, in January, the CFPB finalized a joint Agency
rule clarifying that supervisory guidance is nonbinding. Do you
agree that supervisory guidance does not carry the force of
law, and do you commit to follow your Agency's January rule?
Mr. Chopra. Yes. Just to be clear, as I understand it, that
was an interagency rulemaking clarifying that supervisory
guidance is not enforceable in a court, does not carry the
force of law. Frankly, I think that has been Agency practice
forever, but it is now in regulation.
Mr. Mooney. Okay. It's good to have that clear. Also,
Director Chopra, in your testimony you mentioned that restoring
relationship banking is a priority for you. Can you explain
what you mean when you say that you want to emphasize
relationship banking, and how would the CFPB play a role in
that goal?
Mr. Chopra. I am very concerned that there are many
situations where consumers have no place to turn in order to
get help. The credit reporting industry is a great example of
this, where consumers are not really the customer; they are the
product. It is their data that is being bought and sold, so,
those bureaus may not necessarily have the market incentive to
serve consumers well, whereas many financial institutions,
especially local ones that serve their communities, they have
repeat business. They know their local communities.
I think we are disadvantaged as a country, the more
relationship banking goes away, and I want to figure out what
we can do to revitalize that so that there is a greater sense
about the customer having more leverage and the institutions
being more responsive to them. And I think there are some
places where institutions simply are not adequately responsive
to customers and their needs, and I think we all can play a
role in figuring out what we should do to restore that. We need
that for the resilience of our country.
Mr. Mooney. Thank you. And you mentioned earlier choice in
competition, which I think also does benefit consumers. I agree
with you on that. In your testimony, you outlined a host of
priorities for the CFPB under your leadership. Notice and
comment rulemaking forces regulators to take their time and
listen to the public before finalizing regulations, and a
comment period is important for getting these rules right.
As you begin to take action on these priorities, I would
remind you that Congress makes the laws, not the agencies--and
you said that early in your testimony, that we make the laws
and you are enforcing them--and, therefore, it is not within
your power to create new policy and avoid the notice-and-
comment rulemaking process. I would also echo some of my
colleagues' comments today on the issue of regulation by
enforcement. Before pursuing penalties, it is important to ask
whether the rules are clear. If they are not, an enforcement
action is not likely appropriate.
Thank you, Madam Chairwoman, and I yield back the balance
of my time.
Ms. Garcia of Texas. The gentleman yields back. The
gentlewoman from North Carolina, Ms. Adams, is now recognized
for 5 minutes.
Ms. Adams. Thank you.
And to Director Chopra, thank you for being with us today.
I know you were just sworn in a few weeks ago. I want to echo
the sentiments of my colleagues and say it is nice to have
someone like you behind the wheel of the Consumer Financial
Protection Bureau.
So, Director, for 40 years, I was a professor at Bennett
College in Greensboro, North Carolina, a college for women. And
that is why it is so concerning to me that higher education has
become so expensive for so many, to the point of putting it out
of reach for many. And I do want to just commend my colleague
from Massachusetts who spoke about student debt and so forth
earlier.
But it is why the failures of the Public Service Loan
Forgiveness (PSLF) program are at the top of my mind. Do you
plan to ensure that the Bureau is committed to helping our
dedicated public service workers access the student loan relief
that they were promised under the Public Service Loan
Forgiveness Program?
Mr. Chopra. Yes, ma'am. A CFPB report from many years ago
underscored very severe challenges that borrowers were facing
in enrolling in this statutorily-authorized program. I
understand, ma'am, that there has been some changes that the
Department of Education is announcing to ensure greater
enrollments. But inasmuch that firms are lying to borrowers
about that program to discourage them or dissuade them, that
obviously can be in violation of the law.
You have my commitment that we will work with the
Department of Education and others to make sure that program is
meeting the directives of Congress.
Ms. Adams. Great. Thank you so much for that. It is an
important issue, and we want to make sure that they are
protected.
But let me switch gears for a moment and ask about for-
profit institutions of higher education. There are plenty of
good actors in the for-profit space. I want to say that. And I
know that you are standing up or starting up a new enforcement
unit within FSA. How do you plan to collaborate with the
Education Department to hold predatory for-profit schools
accountable for student outcomes?
Mr. Chopra. That is a great question.
To be clear, the CFPB's jurisdiction is not necessarily
related to schools; it is related to the offering of financial
services. In the past, the CFPB has done enforcement work in
this area, particularly where those schools are offering
lending products.
Recently, the Federal Trade Commission also announced some
work to be able to trigger penalties and sanctions against
those schools that lie about certain types of earnings
representations. Obviously, we want to make sure that public
resources are being used efficiently and that we are
coordinating across-the-board.
There are some existing memoranda of understanding, and I
will certainly look to determine whether anything needs to be
updated to ensure that there is adequate cooperation with that
office that you have referenced.
Ms. Adams. Right. The rise of interest in cryptocurrency
has led to an increase in complaints submitted to the CFPB. A
lot of folks in Congress are considering legislative proposals
to regulate and oversee this crypto market and to protect
consumers. What role does the CFPB play in overseeing crypto
markets, and are there plans to work with the SEC and Chair
Gensler?
Mr. Chopra. As I referenced to some of your colleagues,
obviously, the change in the payments landscape is one that
everyone is paying close attention to. Last week, the CFPB
issued a set of orders to Facebook, Apple, Google, Amazon, and
others to gain information on their business practices related
to their payment platforms.
Of course, most of those payment platforms are primarily
using the U.S. dollar. But of course, there has been discussion
in the marketplace about Big Tech also offering virtual
currencies. We will obviously be working with all of the
regulators to make sure that our payment system is fair, fast,
and competitive.
Ms. Adams. Okay. What types of complaints would push you to
begin examining possible deceitful practices when consumers are
buying, selling, and trading crypto products?
Mr. Chopra. We do know that there is a good amount of fraud
in this marketplace. In some cases, that implicates various
State law enforcement, and various Federal law enforcement.
There has been an uptick in those complaints. So, I will make
sure that we review them--
Ms. Adams. I am sorry to cut you off, sir. I am out of
time, and I need to yield back. We will send it to you in
writing.
Thank you, Madam Chairwoman. I yield back.
Chairwoman Waters. Thank you very much. The gentleman from
Wisconsin, Mr. Steil, is now recognized for 5 minutes.
Mr. Steil. Thank you very much, Madam Chairwoman.
Director, thank you for being here today. I am glad we get
a chance to question you early on in your tenure at the CFPB.
I want to start with a pretty straightforward question
related to the limits of the Bureau's authority. Does the CFPB
possess regulatory oversight over insurance products or
insurance companies?
Mr. Chopra. There is actually, in the statute, a specific
exemption--
Mr. Steil. In Title X.
Mr. Chopra. --of the authority for the business of
insurance. Business of insurance is defined there. So, no.
Mr. Steil. Perfect. Thank you very much.
Let me continue on. The CFPB has UDAAP authority with the
two ``A's,'' that is Unfair, Deceptive, or Abusive Acts and
Practices, as you know. But for those listening at home, I
think it is important to say it.
For many years, the CFPB seemed content with the uncertain
definition of the term, ``abusive.'' Leaving the term vaguely
defined allowed the Bureau to regulate by enforcement. This has
created real uncertainty for businesses, and it stretched the
CFPB's authority into new areas.
And I was encouraged when the CFPB issued a policy
statement on January 24, 2020, providing a framework for how it
would apply the abusiveness standard. In that statement, the
Bureau outlined clear principles explaining how and when it
would rely on abusiveness to take a regulatory or supervisory
action.
I understand your predecessor, in his acting capacity,
withdrew the policy statement, and so I want to build on
Ranking Member McHenry's, and my colleague, Mr. Barr's,
comments earlier on this issue. When he asked if you would
restore the previous abusive statement or provide a new one,
you suggested it wasn't necessary. Why is that?
Mr. Chopra. I don't think that I suggested it wasn't
necessary. I think I said the abusive policy statement that was
rescinded by my predecessor, I don't think it provided much of
an analytical framework at all.
What it said was that it would not plead, even when they
believed there was a law violation, abusive if it was also pled
as unfair during certain circumstances. I don't think that is
appropriate at all. That suggests that the Agency can somehow
veto legislation that Congress has passed.
Congress has put forth a number of prongs that would
involve prohibited abusive practice. I do, though, have a view
that it is important for the CFPB to develop a durable abusive
jurisprudence. There are many ways in which we can do this. But
certainly, the policy statement that was issued would not
accomplish that.
Mr. Steil. You are saying there are many ways that you
could do this. Are you looking to go and litigate this through
the courts, or are you planning to put forward a new policy
statement on this to give clarity?
Mr. Chopra. I think all options are on the table. There are
many ways in which agencies can help develop and clarify the
law. A bedrock of the American system is our common law system
in our courts. Courts can review. They can issue opinions. We
look at precedent. But also, administrative agencies have the
ability to issue policy statements, interpretive rules,
guidance, and formal rules as well.
So, I think we can look at all of those. It is going to be
based on the facts and circumstances. There are certain
triggers where Congress has required the CFPB to issue rules
under UDAAP. One is to have State AG enforcement against
national banks, and the second is for FTC enforcement against
nonbanks.
But as it stands, there are many ways to do that. But I do
not agree that the policy statement that was previously issued
offered much clarity at all.
Mr. Steil. We will respectfully disagree on that point, and
that is okay, I suppose, for today's hearing. But I will
caution that I think there is real concern for the certainty
that is needed in the market to not move back to try to define
this through a judicial process and regulation by enforcement.
I think there are some real concerns there.
Let me shift gears once again. We have discussed the value
of predicted data to make important credit and underwriting
decisions. I am a big believer that more data is better,
allowing us to really provide credit to underserved
communities. It can also help us control risk, and get more
more stable financial systems.
Do you believe that more data is helpful, that it will help
those who are struggling to obtain credit?
Mr. Chopra. I think it depends. It often can lead to better
credit decisions. What I worry about is when there is no
transparency at all in how the decision was made. And then, we
have a two-tiered system where the local bank serving their
community is held to account, and the algorithm maker or a
lender depending on that, who can't even explain sometimes how
a decision was made, doesn't have to adhere to it. I don't
think that is fair, but I think we want to make sure that we
have an approach on how algorithms, machine learning, and AI
are doing their work.
Mr. Steil. Thank you for your testimony today. Recognizing
the time, I yield back.
Mr. Chopra. Thank you, sir.
Chairwoman Waters. The gentlewoman from Pennsylvania, Ms.
Dean, is now recognized for 5 minutes.
Ms. Dean. Thank you, Madam Chairwoman, for recognizing me.
And Director Chopra, we are delighted to have you here
today. To echo my colleagues, thank you for coming before us,
and congratulations on your confirmation and appointment to
CFPB Director. I am especially thankful that the former Student
Loan Ombudsman is now the Bureau Director.
I want to associate myself with Representatives Axne and
Pressley and some of their remarks and questions. And to that
end, some of the largest Federal student loan servicers
currently servicing Federal student loan borrowers are ending
or transferring their contracts with the Department of
Education. They include Navient, PHEAA, and Granite State. This
is in addition to the end of the CARES Act forbearance on
Federal student loan payments back in January.
Given these companies' checkered records of servicing
borrowers, I am worried that both of these transitions could
leave borrowers confused or without proper communication tools,
causing potential record-keeping mistakes or the potential for
increased default.
Director Chopra, I recognize that you have only been on the
job 2 weeks, but with great depth of experience, how are you
and the CFPB working on plans to ensure that borrowers are
protected as their loan servicers are changed?
Mr. Chopra. Thank you so much for this question.
Sloppy servicing, when it comes to student loans, has
caused real pain for people. The errors that have been in their
accounts--it has sometimes even spawned scams because people
can't actually get things fixed. These bad actors come and prey
upon them.
I think when it comes to large servicing transfers, we are
going to have to work carefully with all of the regulators, but
especially the Education Department for the Federal student
loan book, because there needs to be an appropriate set of
preparation for testing of moving records with fidelity. If we
have systemic errors in that transfer--and I don't know, maybe
there are already systemic errors with some of their books. But
if it gets worse and creates more disruptions or is unfairly
penalizing people, it will create a lot of hardship. And many
of those are younger people who are just starting out in life.
You have my commitment that we will use our tools and work
with the other agencies to make sure we limit that exposure.
Ms. Dean. Thank you for your focus on that.
And you are absolutely right. I worry about the transfer of
records that are already corrupted or inaccurate. Do you have
the resources you need to make sure these transitions are made,
or to monitor and review how servicers are communicating with
borrowers as they leave one servicer and move to another?
Mr. Chopra. Resources are always very constrained, and we
will have to be agile when it comes to what we are facing,
especially in the mortgage and student loan market, two of our
biggest markets of debt that is owed by families.
Ms. Dean. Thank you very much for that promise.
During the Trump Administration, I was concerned, as I sat
here on the Financial Services Committee, about their proposal
to require the position of the Student Loan Ombudsman to be
reframed as the Private Education Student Loan Ombudsman. Under
your leadership, will the Student Loan Ombudsman coordinate
with the Department of Education and once again provide support
and guidance for all borrowers, not just private student loan
borrowers?
Mr. Chopra. Yes. I am going to assess where we are with the
activities related to our work and for students and borrowers
and including the Ombudsman's Office to make sure that it is
looking at the market in totality, because we need to
understand the full market, not just one part of it.
Ms. Dean. Exactly right. And again, I will echo my concern
that you have the resources you need for these extraordinarily
important economic tasks and oversight.
Mr. Chopra. I share your concern about that, and I will be
sure to work with you and report back further.
Ms. Dean. Wonderful. Thank you. That is great.
Final question: one specific instance in the private
student loan space that I have been working on is the discharge
of private student loans in the case of total and permanent
disability of a borrower, a protection that exists for Federal
student loan borrowers. This actually came to us by way of a
constituent.
Would you support efforts to ensure that this type of
discharge is required on private student loans, ensuring that
those in a seriously dire health situation do not have to be
burdened by cascading debt?
Mr. Chopra. Many years ago, the CFPB put together a report
on the auto defaults that were occurring often when a
borrower's parent or grandparent died, and they were
immediately thrown into default. It was a gruesome practice
that I think was totally unacceptable.
But with respect to an individual's disability or death, I
think I need to look at our authorities on that. I am happy to
get back to you, but I know some lenders are offering that.
Others are not, and it is a huge shock to people when their
parent gets a bill for the whole balance.
Ms. Dean. Exactly. I thank you.
Madam Chairwoman, I yield back.
Chairwoman Waters. Thank you. The gentleman from Texas, Mr.
Gooden, is now recognized for 5 minutes.
Mr. Gooden. Thank you, Madam Chairwoman.
There are countless examples of Big Tech companies shutting
down competition and controlling the flow of information and
free speech across the globe. Many have argued that Federal
regulators and Congress missed the boat by allowing these tech
companies to turn into the monopolies we have today. As one
policymaker said, Big Tech companies can migrate from, ``too
small to care,'' to, ``too big to ignore,'' to, ``too big to
fail,'' very quickly.
Around the world, Big Tech companies accounted for $700
billion of credit in 2020, which is a 40-percent increase on
the prior year. Additionally, these Big Tech companies have
come to account for 94 percent of mobile payments in China in
just a few years.
I want to caution the financial services industry that
while working with Big Tech may look appealing now, you are
making a deal with the devil. Director, if Big Tech companies
continue to operate unregulated in the financial services
industry like they have in other sectors, do you have concerns
they could eventually have a monopoly in yet another industry?
Mr. Chopra. Yes. I am worried that the Big Tech companies
are coming for financial services, and while obviously we want
technological progress and innovation, I am uncomfortable with
us not knowing almost anything about what they are up to,
including their data surveillance and, as you mentioned, how
they decide who gets kicked off, how are they going to use
their own incentives to make decisions. This is why the CFPB
has issued orders to Facebook, Apple, Google, Amazon, and
others. We need to understand this because this is an issue of
consumer protection, systemic risk, and the protection of our
country, writ large.
It is something that I hope this whole committee--I hope we
can all work together on this because it is something we need
to get right.
Mr. Gooden. I agree totally, and thank you.
As a former FTC Commissioner, you bring a unique
perspective to the CFPB. Do you believe Federal regulators like
the FTC and the CFPB have the necessary tools to monitor Big
Tech?
Mr. Chopra. That is a good question. I will certainly want
to look at every tool we have as it relates to how they are
entering into financial services. But as you know, most of
those tech companies are not subject to supervision the way the
banks are. So, I need to think about that more.
I will say that it is a very, very difficult circumstance I
think we find ourselves in, where a new market entrant has to
constantly have the fear that one of those companies will just
turn them off one day. I don't think that is very good.
And when I see what is happening in China, it makes me
worried. I don't think we should go in that direction.
Mr. Gooden. Thank you.
Also, as a former FTC Commissioner, of course you are
familiar with allegations that several of these Big Tech
companies have abused their market dominance at the expense of
their consumers and their commercial partners, which you
touched on briefly.
Why, in your belief, is it appropriate to continue
exploring anti-competitive conduct by Big Tech in your new role
as Director, and what ability does the CFPB have to restrain
anti-competitive conduct that it might find in Big Tech's
payment markets?
Mr. Chopra. We actually have a different authority. It is a
different set of laws, but many of the concerns are similar.
The Congress has directed the CFPB to make sure that
markets are fair, transparent, and competitive. There are many
places in the statute that suggest that competition should be
one we really think about innovation. So, of course, I want to
be mindful about how I comment, because I participated in the
decision to file some of those lawsuits, and that litigation is
ongoing with the FTC.
But there are many places where regulators should be
promoting competition and innovation in ways that are good for
small businesses, good for families, and not just another way
for dominant firms to control more and more about our lives.
Mr. Gooden. Thank you. And with respect to your efforts
against these Big Tech monopolies, I thank you for your work.
I yield back, Madam Chairwoman.
Chairwoman Waters. Thank you. The gentlewoman from
Michigan, Ms. Tlaib, is now recognized for 5 minutes.
Ms. Tlaib. Thank you so much, Madam Chairwoman.
And thank you, Director Chopra.
In December, I think, of 2020, you all had a final debt
collection rule that goes into effect on November 30th, and I
am really pleased because the CFPB was established to protect
consumers, to protect our residents. I know there has been a
lot of questions about the business sector in these certain
industries, but that is not why we created the CFPB. And so, I
hope we center on the residents and the consumers as we move
forward, and prioritize them.
Director, do you think all debt should be treated the same?
Mr. Chopra. I think the answer is no.
Ms. Tlaib. Good. Because nearly 20 percent of adults have
one or more medical debt--
Mr. Chopra. Yes.
Ms. Tlaib. Yes, listed on their credit report. And 90
percent of bankruptcies in our country, Director, are due to
medical debt. And did you know that at the height of the
pandemic last year, the three largest healthcare insurance
companies raked in $10.8 billion in a single quarter, while
nearly 20 million of our neighbors become unemployed?
So, Director, I am worried. I am worried that the pandemic
not only left my residents with emotional trauma, but economic
distress that could forever alter their ability to thrive
because we treat all debt the same. I am sure you know that the
December 2020 rule allows for the debt collector system to send
a physical or electronic message to the consumer and wait for a
reasonable period of time to receive a notice of
undeliverability.
And you are nodding your head because you know this is very
concerning, especially because--
[Audio interruption.]
Ms. Tlaib. So, you know that these debt collectors are
likely to increase their use of electronic communication to
consumers. And so, Director, given that digital divide that we
have in our country and has been exposed, I think, during the
pandemic, what steps is CFPB taking to implement this rule in a
way that protects communities like mine?
Mr. Chopra. Yes. I just have to share, Congresswoman, that
what has happened to family balance sheets in many
neighborhoods has been pretty devastating. And I think while
there has been a recovery for many, many neighborhoods and
households, they are still in deep debt from the struggles they
face.
And I am worried about them being permanently scarred by
that, and I think if we want an equitable recovery, we are
going to need to take a very close look at debt collection and
credit reporting.
Ms. Tlaib. Yes, and Director, you know this. Some of these
emails end up in spam. Some of our folks are not--broadband
Internet is not reliable. I am just really increasingly worried
because they are going to check it off and say, ``sent an
email.''
Mr. Chopra. Understood.
Ms. Tlaib. And so, please, if you can follow up with my
office on some of the steps you are going to take.
In addition, you know that the rule would prohibit debt
collectors from bringing or threatening to bring legal action
to collect a time-barred debt. Very important here. However,
debt collectors often try to deceive consumers in restarting
the statute of limitations. The Center for Responsible Lending
has argued that the CFPB should go further and outright
prohibit the revival of time-barred debt.
Director Chopra, will the CFPB implement similar
protections to prohibit the revival of time-barred debt in
full? Because several States, as you probably know, enacted
laws stating that the partial payment or other acknowledgment
of debt would not revive the statute of limitations.
Mr. Chopra. Yes, I am worried that some of this debt is
getting bought, sold--
Ms. Tlaib. That is right.
Mr. Chopra. --resold, and investment vehicles are trying to
monetize it by squeezing them and collecting debt that is not
owed anymore. So, I want to take a look at the rule. The rule
is going into effect, but as I understand it, the rule does not
create any sort of safe harbor for collecting time-barred debt.
Ms. Tlaib. Yes, but we should work together to prohibit the
revival of time-barred debt--
Mr. Chopra. Yes. I would be happy to do that.
Ms. Tlaib. --in full. Again, more States are acknowledging
that.
Mr. Chopra. Yes.
Ms. Tlaib. So, I think we can do something much more
broadly.
Mr. Chopra. Especially with respect to the renewal of
statute of limitations.
Ms. Tlaib. That is right.
Finally, the National Consumer Law Center has suggested
that CFPB's existing complaint database may not be adequate for
tracking new complaints regarding electronic communications,
such as receiving communication even after opting out or being
unable to read or open file attachments.
Director Chopra, does the CFPB plan on adopting new debt
collection complaint categories with regards to electronic
communications following the December 2020 rule?
Mr. Chopra. I don't think there are current plans, but I
would like to explore that.
Ms. Tlaib. Please do.
Mr. Chopra. Because that seems like a good--given those
changes, we need to make sure that sometimes, people have a
piece of paper. We need to make sure they can provide that
evidence.
Ms. Tlaib. That is right. Yes, and thank you.
And know this, I am working hard with the chairwoman to ban
medically necessary debt on people's credit reports. I think
that is going to help a tremendous deal, especially with the
complaints that you get. But again, people's lives are forever
altered by what debt gets on these credit reports that impact
employment and housing.
So, thank you, and I yield back.
Mr. Chopra. If I may, Madam Chairwoman? Just on the issue
of medical debt on credit reports, there has been evidence in
the past that it is not predictive of other performance. And I
am constantly worried that a patient just feels coerced to pay
while their insurance company and a hospital are in an endless
doom loop, and the credit reporting system cannot be a way to
extort payments out of patients.
Chairwoman Waters. Thank you very much. The gentleman from
Texas, Mr. Taylor, is now recognized for 5 minutes.
Mr. Taylor. Thank you, Madam Chairwoman. I appreciate it.
Director Chopra, thank you for being here. Congratulations
on your confirmation.
If I could just talk to you about your enforcement
perspective, you shared a little bit of that during this
hearing, particularly in your statement that repeat offenders
should be treated more severely, and I certainly concur with
you on that point.
And the reason I ask you about that is, in my time in the
Texas legislature, dealing with the Office of Consumer Credit
Commissioner (OCCC), which is slightly analogous to what you
do, their perspective was, if we find something going wrong, we
are going to work with the business to try to fix it. If they
keep doing it wrong, then we are going to hammer them.
My experience with your predecessors is that they had the
opposite perspective: We are going to hammer them every time.
We are not going to actually try to correct, fix, help anybody.
The problem with that, at least as I see it, is that then
people don't want to talk to you. They don't want to tell you
what is going on because they are afraid that if they show the
book, so to speak, and then you find something, you are going
to hammer them.
Is it your job to put pelts on the wall, or is it your job
to make the consumer space safer, to make the financial
services space safer for consumers?
Mr. Chopra. Yes. Our job is to make it fair, transparent,
and competitive, and I will share with you directly that, of
course, and there are ways to resolve problems through the
confidential supervisory process. Not all issues need to go to
public law enforcement matters.
But I just want to put a finer point on something, which is
when someone has been subject to a law enforcement order that
they often have consented to or they have agreed to make
certain changes, and they egregiously or don't follow it, this
is a very severe problem to me.
Mr. Taylor. Sure.
Mr. Chopra. And when there is an order in place, that order
is not a suggestion. It is a binding--it has the force of law,
and we cannot have large players feel that these are just
optional tip lists.
Mr. Taylor. I certainly concur with you on that point. Do
you think it is fair that someone is pulled over and told, hey,
the speed limit here is 20 miles an hour, and there are no
signs on the road? Is that fair? There are no signs of any
kind.
Mr. Chopra. And I totally hear your point on this, that
people should not be harshly penalized for something that was
not clear.
Mr. Taylor. Sure.
Mr. Chopra. And of course, we know that the law does
specify a number of factors that the Bureau must adhere to when
seeking those penalties. Those are reviewable by the courts, so
we have to make sure that we are applying those factors fairly.
And I share the view that when there is an honest desire to
play by the rules, it is not appropriate to kind of harshly
penalize that, and that is what the factors in the law push us
to do.
Mr. Taylor. And I guess what I am asking is for you to
allow the rules that you make to season, to have a chance for
people to know about them. I have seen agencies, not yours, but
I have seen agencies produce rules in the middle of the
enforcement, saying, ``We got you. Here is this new rule. You
have never seen it before. You are seeing it now, and you are
wrong.''
And I think you and I would agree that is unfair to that
particular--
Mr. Chopra. It would also--just the fact pattern you
mentioned may actually be unconstitutional in that there is in
the legal process, when going to court, a court will assess the
entire notice issues and number of factors. So, this is why I
raised with some of your colleagues the importance of the CFPB
focusing on large market actors causing widespread harm.
Of course, there will be smaller players that may need to
be addressed, and I am sure the enforcement docket, and there
is a lot of backlog. But generally, we should be focusing those
resources against those whom we know, know the rules. They know
the law. They are well-resourced. They can fight in court. But
going after small players, this is just I saw this too much at
the FTC under Republicans and Democrats, and I just--it didn't
sit well with me at all.
Mr. Taylor. Sure. And in my final 30 seconds, I will just
share my own thought on why smaller players are having a more
difficult time operating in the market. And I think, actually,
Mr. Hill mentioned that in his colloquy with you is that the
increased regulations as a result of Dodd-Frank have created a
very difficult environment for smaller financial institutions,
speaking of banks. When Dodd-Frank passed, there were about
8,500 banks in the United States. There are now about 5,000.
And that compression, that smaller group of banks, they are
all bigger. The average size of banks has gone up because the
only way to survive financially is to consolidate, be bigger,
so that you have a bigger core of assets to handle the
regulatory burden that has been thrust upon them by this body.
Madam Chairwoman, I yield back.
Chairwoman Waters. Thank you.
Mr. Chopra. Thank you, sir.
Chairwoman Waters. The gentleman from Illinois, Mr. Garcia,
is now recognized for 5 minutes.
Mr. Garcia of Illinois. Thank you, Madam Chairwoman, and
Ranking Member McHenry, for holding this important hearing.
And of course, I want to thank Director Chopra for your
service at the CFPB and for joining us today. I can say the
CFPB is in good hands.
A financial regulatory agency focused on consumers is
crucial. It is easy for other financial regulators to forget
that in every loan, every refinancing, every repossession,
every deposit, every fee, we are talking about a family home or
the car they use to get to work or cash for groceries. The CFPB
doesn't forget that, and that is critical.
Consumer data is an important issue in almost every
industry, but it is particularly important for the financial
industry because who knows more about you than your bank? This
is one reason why the historic separation of banking and
commerce has become more important in the 21st Century, not
less. The trust and data access in a banking relationship is
dangerous in the hands of a commercial company not only for
customers, but for commercial markets and competition.
In February of this year, the FDIC issued an order
subjecting ILCs to the privacy standards in the Gramm-Leach-
Bliley Act, but that protection doesn't extend to their parent
companies. Mr. Chopra, as you know, in other committees
Congress has extensively covered just how aggressive and
invasive companies like Facebook and Amazon are with customer
data.
The question is, if these companies owned the bank through
an ILC, would it be hard for regulators like the CFPB or the
FDIC to tell if they truly kept consumer data in the bank
behind a firewall, and do you think that this lack of oversight
could pose a real risk to consumers and competitors?
Mr. Chopra. Sir, firewalls are extremely difficult to
monitor in force, and once they are breached, it is almost
impossible to undo. With respect to your question about,
particularly tech companies getting into financial services and
the unimaginable amounts of data that they collect on all of
us, it would be very hard to administer that.
Mr. Garcia of Illinois. Thank you for that succinct
response.
I represent a working-class immigrant district in Chicago.
Remittances mean a lot to my constituents and to their families
in other countries. We know the problem with our remittance
system, but cryptocurrencies are coming into the market fast.
El Salvador adopted Bitcoin as a national currency.
Facebook is launching a new digital currency under the guise of
sending remittances between the U.S. and Guatemala. Is the CFPB
examining cryptocurrency as a consumer financial product, and
what laws, rules, and regulations must be in place to protect
consumers seeking services like remittances?
Mr. Chopra. The Electronic Fund Transfer Act and its
implementing regulations, including the remittance rule that
was required by Congress, govern remittance transfers.
Congressman, it is obviously something that is changing very,
very rapidly about how families are sending money to their
families, especially those families overseas.
I think we want a remittance market that is fast, fair, and
cheap. I don't have an exact answer for you at this point. It
has only been 2 weeks, but I hear you loud and clear that we
need to make sure we fully understand the changes in the market
so that we can administer our enforcement and that we can make
sure that those families are protected.
Mr. Garcia of Illinois. Fair enough. It has only been 2
weeks. I hope to follow up on this subject with you. It affects
many people and many communities throughout the country, a
diverse immigrant community that is engaged in remittances very
deeply.
Thank you so much, and I wish you really good luck in your
position, sir.
I yield back.
Mr. Chopra. Thank you, sir.
Chairwoman Waters. Thank you. The gentleman from South
Carolina, Mr. Timmons, is recognized for 5 minutes.
Mr. Timmons. Thank you, Madam Chairwoman.
And congratulations, Director Chopra, on your recent
confirmation. I hope we can find some areas to work together on
to serve the American people in the coming years.
I am going to start with a question about post offices. Do
you know how many complaints the CFPB has received about the
United States Post Office this year? Probably not a fan.
Mr. Chopra. I don't. Yes.
Mr. Timmons. Mail delivery--we have a lot of people
allegedly sending bills, but nobody is getting them. I have had
some issues myself. It is an issue, I do believe. Maybe, you
can look into it and get back to me.
But all of these efficiencies and, arguably, incompetence
of the Post Office have resulted in many of my constituents and
my colleagues' constituents across the country having late
payments to creditors. I recently discovered that despite the
Post Office's inability to accomplish their mission of
delivering the mail in a timely manner, many people now want
them to offer financial services products that would compete
with the private sector.
Would you agree or would you not agree that the Post Office
maybe ought to focus simply on delivering the mail to make sure
that our constituents have their payments delivered on time,
instead of expanding to an area that distracts from their core
mission?
Mr. Chopra. I don't have a view on your specific question.
I do know that the Post Office has been looking to change and
make sure it is more financially sustainable by offering
ancillary services, by leveraging their existing Post Office
footprint.
I do understand that there are some places where they sell
prepaid cards or where they may be helping with money orders or
other sorts of transfers. But I take your point. It is not an
area that I have studied very carefully.
Mr. Timmons. Sure. I have a gym and a yoga studio, and I
really hope the Federal Government doesn't start paying to
allow people to work out for free and do yoga.
But moving on to a different topic, many enforcement
actions issued recently by the Bureau named company owners by
name. The reason for these allegations appears to simply be the
fact of ownership of a business. This would appear to penalize
small business owners over public companies whose shareholders
and CEOs are not being named in CFPB enforcement actions and
lawsuits.
Earlier today, you talked about how enforcement actions
against smaller players often kill their business while having
a much more marginal impact on larger players. It would appear
that you might agree this discrepancy should end. Will you
commit to naming individuals only in circumstances where facts
show those people actually committed unlawful acts?
Mr. Chopra. Yes. This is actually a very important issue. I
think one of my experiences as a regulator, including at the
Federal Trade Commission, which was the FTC essentially said if
you are a small company, we are naming the individuals. If it
is a big firm, whatever.
We took big steps to change that. I vigorously opposed the
FTC settlement that gave Mark Zuckerberg in the Facebook matter
an immunity clause. You have my commitment that when it comes
to large financial institutions, if there is evidence to
suggest that individuals were involved in directing law
breaking, we will look to determine whether to name them.
Mr. Timmons. And conversely, perhaps stop naming
individuals with small businesses unless they, in fact, were
possibly--
Mr. Chopra. Of course. We should not name an individual
unless we have reason to believe in the evidence to suggest
that. And to the extent there is a discrepancy between how we
are treating small businesses and big businesses, I agree that
we have not paid enough attention to individual liability on
large firms, and I take your point on the small firm aspect.
Mr. Timmons. Sure. I really do appreciate that answer.
One more question: Can you commit to publicly releasing all
of the facts and data that are used to support your decisions
during the rulemaking and enforcement process? That is the
transparency component.
Mr. Chopra. I think with respect to that question, there
may be places where we are not able to release all of the
information. There are rules governing that, as particularly
the enforcement process and supervisory process.
Here is one thing I am trying to do. For certain types of
matters, in addition to just a press release, I also have been
trying in certain circumstances to issue an accompanying
statement that outlines some of the logic and analytical
framework that was used.
We recently did an enforcement action where I explained a
little bit more about the claims and counts that were in it. I
agree with you on wanting to be more transparent and
communicate more, but we have to respect laws and other things.
Mr. Timmons. Yes. Just wherever possible, helping people
understand the decision-making would be helpful.
Mr. Chopra. Yes.
Mr. Timmons. Thank you for being here today.
And Madam Chairwoman, I yield back.
Mr. Chopra. Thank you, sir.
Chairwoman Waters. Thank you. The gentlewoman from Texas,
Ms. Garcia, who is also the Vice Chair of our Subcommittee on
Diversity and Inclusion, is now recognized for 5 minutes.
Ms. Garcia of Texas. Thank you, Madam Chairwoman.
And I, too, want to add my congratulations to the Director,
and I am hoping to work with you in the next couple of years as
we work through some of these processes.
In my district, which is very similar to Mr. Garcia's in
Chicago, financial services are not broadly used. In fact, many
still rely more on credit unions, check cashing services,
remittances, money orders, and still a lot of cash activity. We
are a community of hard-working, diverse families who rely on
critical financial services only to try usually to access
credit. And as you know, access to credit is also about
accumulating wealth.
So, for us, it means that without all of that closing and
being able to access that credit, we will never do much about
reducing the racial wealth gap. I think you have talked about
that some, and the Equal Credit Opportunity Act allows
institutions to develop special purpose credit programs
(SPCPs), which include tailored approaches to meet the credit
needs of and directly benefit economically and socially
disadvantaged groups.
Again, my district is about 77-percent Latino. It is over
50-percent disadvantaged.
According to recent reports by the National Fair Housing
Alliance and the National Consumer Law Center, SPCPs can be
critical tools for addressing the legacy of discrimination in
the mortgage market, promoting equity and inclusion, and
closing the racial wealth gap.
Last December, the CFPB issued an advisory opinion
promoting the use of SPCP programs among creditors. What steps
has the CFPB taken to facilitate the use of these programs in
the financial marketplace?
Mr. Chopra. It is a great question, and I share this
interest completely about how we can both simultaneously
increase trusts in the financial system, but also make sure
that the financial system isn't widening inequities and gaps
but is actually part of closing it and part of making sure that
everyone can access the opportunities that they seek,
particularly when it comes to housing.
I am going to ask the staff to give me more of a review of
the use of special purpose credit programs. It is something I
know that I will be keen to talk to the other regulators and
the Treasury Department about. But I do think it is one of many
ways that we can ensure there is not discriminatory lending,
but also take steps to reverse some of the disgusting redlining
practices of the past.
Ms. Garcia of Texas. Right. And just to be clear, you are
the head of the Consumer Financial Protection Bureau, right?
Emphasis on, ``Consumer.''
Mr. Chopra. That is exactly right.
Ms. Garcia of Texas. So, what are you doing to ensure that
your Agency is inclusive and diverse in its practices, in its
programs, and specifically, I am always concerned about
financial literacy in materials from your Agency and in
programming that would be reflective of the different languages
spoken around the country?
Mr. Chopra. Yes, language--
Ms. Garcia of Texas. I just see a lot of language barriers
in financial transactions.
Mr. Chopra. There are, and I think we should be embracing
the fact that a strength of our country is having so many
people from all over the world and being able to engage in
commerce and banking in a way that they can understand, and
that is comfortable for them. I do want to look at our
authorities to be able to support those institutions who share
that point of view.
Being inclusive is not just about having one brochure in
Spanish. It has to go much, much further than that. I don't
have a great specific answer for you right now, but I
completely share in what you are saying, and I am going to
think more and look into what authorities we have to advance
that goal.
Ms. Garcia of Texas. Right. And within your own materials,
your own implementation of some of your programs, you will work
to ensure that they are reflective of the languages that are
spoken in the different parts of the country?
Mr. Chopra. That is right. And I want to make sure in
particular, I have set a goal that our consumer complaints
should be broadly reflective in terms of the geographies that
we serve across our country and including the languages we
serve. Already, we have made--in the past, there have been more
languages where consumers can call, and file complaints. I want
to see how that is going.
Ms. Garcia of Texas. Thank you, and I see my time is up, so
I yield back.
Chairwoman Waters. Thank you very much. The gentleman from
Massachusetts, Mr. Auchincloss, who is also the Vice Chair of
the Full Committee, is now recognized for 5 minutes.
I understand that Mr. Auchincloss has left the room. At
this time, I would like to thank our very distinguished witness
for his testimony today.
The Chair notes that some Members may have additional
questions for this witness, which they may wish to submit in
writing. Without objection, the hearing record will remain open
for 5 legislative days for Members to submit written questions
to this witnesses and to place his responses in the record.
Also, without objection, Members will have 5 legislative days
to submit extraneous materials to the Chair for inclusion in
the record.
With that, this hearing is adjourned.
Thank you.
[Whereupon, at 2:03 p.m., the hearing was adjourned.]
A P P E N D I X
October 27, 2021
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