[Senate Hearing 117-738]
[From the U.S. Government Publishing Office]






                                                        S. Hrg. 117-738


    THE CONSUMER FINANCIAL PROTECTION BUREAU'S SEMIANNUAL REPORT TO 
                                CONGRESS

=======================================================================

                                HEARING

                               before the

                              COMMITTEE ON
                   BANKING,HOUSING,AND URBAN AFFAIRS
                          UNITED STATES SENATE

                    ONE HUNDRED SEVENTEENTH CONGRESS

                             SECOND SESSION

                                   ON

    THE CONSUMER FINANCIAL PROTECTION BUREAU'S SEMIANNUAL REPORT TO 
                                CONGRESS

                               __________

                             APRIL 26, 2022

                               __________

  Printed for the use of the Committee on Banking, Housing, and Urban 
                                Affairs


                Available at: https: //www.govinfo.gov /



                             _________
                              
                 U.S. GOVERNMENT PUBLISHING OFFICE
                 
53-478 PDF               WASHINGTON : 2023  





























            COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS

                     SHERROD BROWN, Ohio, Chairman

JACK REED, Rhode Island              PATRICK J. TOOMEY, Pennsylvania
ROBERT MENENDEZ, New Jersey          RICHARD C. SHELBY, Alabama
JON TESTER, Montana                  MIKE CRAPO, Idaho
MARK R. WARNER, Virginia             TIM SCOTT, South Carolina
ELIZABETH WARREN, Massachusetts      MIKE ROUNDS, South Dakota
CHRIS VAN HOLLEN, Maryland           THOM TILLIS, North Carolina
CATHERINE CORTEZ MASTO, Nevada       JOHN KENNEDY, Louisiana
TINA SMITH, Minnesota                BILL HAGERTY, Tennessee
KYRSTEN SINEMA, Arizona              CYNTHIA LUMMIS, Wyoming
JON OSSOFF, Georgia                  JERRY MORAN, Kansas
RAPHAEL WARNOCK, Georgia             KEVIN CRAMER, North Dakota
                                     STEVE DAINES, Montana

                     Laura Swanson, Staff Director

                 Brad Grantz, Republican Staff Director

                       Elisha Tuku, Chief Counsel

                 Dan Sullivan, Republican Chief Counsel

                      Cameron Ricker, Chief Clerk

                      Shelvin Simmons, IT Director

                        Pat Lally, Hearing Clerk

                                  (ii)































                            C O N T E N T S

                              ----------                              

                        TUESDAY, APRIL 26, 2022

                                                                   Page

Opening statement of Chairman Brown..............................     1
        Prepared statement.......................................    37

Opening statements, comments, or prepared statements of:
    Senator Toomey...............................................     4
        Prepared statement.......................................    38

                                WITNESS

Rohit Chopra, Director, Consumer Financial Protection Bureau.....     6
    Prepared statement...........................................    40
    Responses to written questions of:
        Chairman Brown...........................................    43
        Senator Toomey...........................................    44
        Senator Menendez.........................................    49
        Senator Cortez Masto.....................................    50
        Senator Ossoff...........................................    54
        Senator Shelby...........................................    55
        Senator Tillis...........................................    55
        Senator Hagerty..........................................    61
        Senator Moran............................................    62
        Senator Daines...........................................    67

              Additional Material Supplied for the Record

Principles for Responsible Consumer and Small Business Loans To 
  Prevent Predatory Lending Abuses...............................    70
Statement submitted by UnidosUS..................................    80

                                 (iii)

 
    THE CONSUMER FINANCIAL PROTECTION BUREAU'S SEMIANNUAL REPORT TO 
                                CONGRESS

                              ----------                              


                        TUESDAY, APRIL 26, 2022

                                       U.S. Senate,
          Committee on Banking, Housing, and Urban Affairs,
                                                    Washington, DC.
    The Committee met at 10 a.m., via Webex and in room SD-538, 
Dirksen Senate Office Building, Hon. Sherrod Brown, Chairman of 
the Committee, presiding.

          OPENING STATEMENT OF CHAIRMAN SHERROD BROWN

    Chairman Brown. The Committee on Banking, Housing, and 
Urban Affairs will come to order.
    As I just mentioned to colleagues on the dais, we do not 
have enough Members present for a quorum to vote on the 
nominees this morning. The Committee will postpone our markup 
to a new time. I have spoken with the Ranking Member about 
trying to do it at some point in the next day or two and in the 
easiest way possible. There does not seem to be opposition to 
them, so we hope we can move pretty quickly on it. So we will 
proceed to today's hearing.
    Today's hearing is in a hybrid format. Our witness is in 
person, as we can see with Director Chopra. Members have the 
option to appear either in person or virtually.
    Welcome back, Director. Nice to see you in front of us.
    American workers need a strong Consumer Financial 
Protection Bureau on their side. With you at the helm, they 
finally have one again.
    We know how much power corporations and wealthy CEOs have 
in this country. In 2021, last year, CEOs made 254 times more 
than the average worker. In the same year, corporate profits 
reached unprecedented levels--the highest ever recorded.
    Predictably, too many corporations are growing profit 
margins on the backs of families. CEOs complain about rising 
costs, they blame workers, they claim they just have to raise 
prices--all while funneling more profits to themselves more 
than ever.
    I guess that CEOs just have to make 254 times more than the 
workers who make their companies successful.
    That is no coincidence. After decades of growing market 
concentration, consumers and small businesses are at the mercy 
of ever larger, ever more powerful, ever more unaccountable 
corporations. Senator Tester is discussing in the Ag Committee 
right now what this means for farmers.
    They raise your costs, they mislead you, they even scam 
you--too often with little accountability and no meaningful 
consequences. They have armies of high-priced lobbyists and 
attorneys ready to fight anyone who dares to take them on.
    Normal people do not have those kinds of resources. They do 
not have a white-shoe law firm on retainer. They do not have an 
insider on K Street looking out for them.
    But now they have you, Director. They have you and the 
dedicated public servants with you at the CFPB, fighting to 
make sure Americans keep more of their hard-earned money.
    For 4 years, CFPB was run by a Director and pressured by an 
Administration that always--always--looked out for corporations 
over workers.
    The Director was a favorite of payday lenders. Instead of 
being a voice for consumers, they turned their agency into yet 
another arm of corporate power.
    Your work for consumers could not be more different. Let me 
run through that.
    When you testified in October, you introduced your agenda 
to usher in a new era of consumer protection. We are seeing the 
results.
    The Bureau challenged ``junk fees'' that banks and credit 
card companies collect.
    According to CFPB's research, in 2019, major credit card 
companies charged consumers $14 billion in punitive credit card 
fees; banks charged consumers more than $15 billion in 
overdraft and nonsufficient funds fees.
    Americans paid tens of billions--that is billions with a 
``B''--in credit card and overdraft fees.
    By pushing banks to stop taxing consumers with junk fees, 
the CFPB keeps money in Americans' bank accounts, not on 
corporate profit statements.
    You have worked as part of the PAVE Interagency Task Force 
to examine the process behind the valuation of what is the 
single biggest source of families' wealth: their homes.
    You worked to identify and root out discrimination and bias 
in the appraisal process that hurts homeowners and communities 
and contributes to the wealth disparities we see today.
    And you have started the long-overdue work to ensure 
consumers and our housing system are not subject to defective 
appraisal models with discrimination baked in.
    The CFPB is also doing important and effective work to 
address the growing crisis of medical debt that burdens 
American families.
    Forty-three million Americans hold $88 billion of medical 
debt on their credit reports.
    It has been a problem for decades.
    In just a few short months, you have already successfully 
pressured companies to make meaningful changes.
    After increasing scrutiny from you and your staff, last 
month the three credit reporting bureaus--Equifax, Experian, 
and TransUnion--all announced they would finally change how 
they report medical collection debt.
    These changes are expected to remove nearly 70 percent of 
medical debt in collections from people's credit reports.
    This is a positive first step that will make sure that 
people with medical debt do not see their credit ruined simply 
because they or their loved ones got sick.
    That is also why Congress passed the No Surprises Act, 
which took effect in January.
    The CFPB wasted no time in letting debt collectors and 
credit bureaus know they cannot surprise consumers with medical 
bills and that they have new responsibilities under the new 
law.
    You have put companies on notice that if they try to cheat 
consumers, you will be going after them.
    Yesterday you announced that the CFPB will use its 
congressional authority to examine nonbanks. As their market 
share increases, it is important that fintechs and other 
nonbanks are properly supervised to ensure that consumers are 
protected from shady companies.
    One of your first major agenda items was to make sure 
repeat violators of a consumer protection law do not keep 
getting away with scamming and stealing and scamming and 
stealing from consumers.
    I look forward to hearing about the steps you have taken to 
crack down on repeat offenders, whether they are big banks and 
credit reporting agencies.
    That is what we ought to be talking about today.
    I expect my Republican colleagues to do what they have done 
for years: launch baseless attacks against CFPB's existence and 
question its authorities, transparency, and accountability.
    It is not that surprising they want to distract people with 
convoluted process arguments. They did it with Sarah Bloom 
Raskin. They are doing it now. When people hear the plain truth 
about the CFPB, it is a pretty simple contrast.
    It is: Whose side are you on? Are you on the side of 
corporations that scam people? Or are you on the side of 
hardworking Americans who want to keep more of their money?
    Congress created the CFPB to protect consumers and help 
level the playing field with powerful, unaccountable 
corporations.
    Congress placed the CFPB Director on the FDIC Board so the 
FDIC will act with consumers in mind.
    Last year, a majority of that Board, on which Congress 
placed you, put forth a proposal to request information from 
the public on the bank merger process.
    In an unprecedented move, the former Chair ignored the 
Board's long history of bipartisanship and collegiality and 
refused to make this request an agenda item--even though it was 
proposed according to the FDIC's rules and backed by a majority 
of the Board.
    As CFPB Director and a member of the FDIC Board, you are 
doing your job. You are fighting and standing up for the 
hundreds of millions of consumers and small banks and 
businesses and their communities rather than the most powerful 
largest corporations in town.
    You have shown that you are willing to meet and work with 
anybody--Republicans and Democrats--to fulfill that mission.
    We hear a lot of talk from the other side of the dais about 
the virtues of capitalism.
    But for markets to work, they have to be fair, they have to 
be transparent, they have to be competitive. That's why CFPB 
was created: to ensure that the financial marketplace is fair 
to all, and that corporations used to getting their way cannot 
rig the system and get away with it.
    I look forward to hearing your testimony.
    Senator Toomey.

         OPENING STATEMENT OF SENATOR PATRICK J. TOOMEY

    Senator Toomey. Thank you, Mr. Chairman.
    The CFPB began its existence under the Obama administration 
as a lawless and unaccountable agency, and, unfortunately, 
under Director Chopra, the CFPB is more out of control than 
ever before. It is once again pursuing a far-Left agenda by 
abusing--and exceeding--its authorities.
    Three weeks ago, the CFPB announced an unprecedented claim 
of new authority, without congressional authorization or even 
so much as a public notice-and-comment rulemaking process. 
Rather, it simply issued a fiat. The CFPB claimed the authority 
to sue financial services providers for discrimination without 
any evidence of discriminatory intent.
    Now, I want to make clear that Congress charged the CFPB 
with enforcing laws that protect against discrimination in 
consumer finance, and the CFPB should enforce those laws.
    But that is not what is going on here. Instead, the CFPB 
unilaterally decided that Dodd-Frank's grant of authority to 
prevent unfair, deceptive, or abusive acts or practices, known 
as UDAAP, now includes disparate impact liability.
    The idea of disparate impact liability is that a 
statistical difference in outcomes between demographic groups 
is proof of discrimination even when there is no discriminatory 
intent. For example, if more Asian than Hispanic customers 
happen to use a bank's overdraft service and, thus, pay more in 
overdraft fees, the CFPB could claim the bank's overdraft 
policy has a disparate impact and then issue harsh punishments.
    Or in many American households, women might manage the 
checkbook, so in theory the CFPB could claim overdraft policies 
have a disparate impact on women. In the past, when overseeing 
auto-lenders, the CFPB ``discovered'' discrimination even on 
the part of lenders who did not know the race of the borrowers 
they were accused of discriminating against.
    The problem is Dodd-Frank did not authorize disparate 
impact liability under UDAAP. In the 12 years since Dodd-Frank 
was enacted, the CFPB has never claimed that the law did. And 
Congress never contemplated that it would.
    We know that because Dodd-Frank's unfair acts or practices 
language was taken from the Federal Trade Commission Act of 
1914. And for over a century, the FTC has never once treated 
that language as including disparate impact liability.
    Now, to make matters worse, the CFPB implemented this very 
controversial change in law without an open and transparent 
rulemaking. Instead, the CFPB issued a press release announcing 
it had updated its supervision manual.
    This is all even more troubling when you consider the Obama 
CFPB's controversial history with disparate impact enforcement 
against lenders under the Equal Credit Opportunity Act. That 
enforcement campaign was not authorized by statute and was 
based on bad data and a fatally flawed methodology. This 
notably led Congress to overturn the CFPB's disparate impact 
guidance for auto lending in 2018.
    But now, invoking UDAAP, the CFPB is attempting to 
supervise for disparate impact not only in lending, but in all 
consumer financial services and products--in effect extending 
the very policy that Congress recently overturned. One of many 
harmful consequences of this unauthorized stealth rulemaking is 
that it will create tremendous uncertainty among regulated 
entities.
    Every decision and action businesses take, including even 
their advertising and marketing, may subject them to disparate 
impact liability, despite their often having no way of knowing 
whether a disparate impact will occur. Unfortunately, we can 
expect the CFPB to continue disregarding its rulemaking 
obligations in the future.
    The CFPB recently changed its rules of adjudication to make 
it easier to engage in regulation by enforcement. This grossly 
unfair practice occurs when agencies fail to set clear rules of 
the road before bringing enforcement actions.
    Under these new rules, Director Chopra can bypass an 
administrative law judge in enforcement cases and rule directly 
on substantive legal issues. As a result, he can now authorize 
his staff to bring an enforcement case based on a completely 
novel legal theory, and then he can personally rule that it is 
a valid theory.
    These are not the only examples of the CFPB's overreach 
under Director Chopra. He has consistently sought to involve 
the CFPB in competition and antitrust law, which is outside its 
jurisdiction.
    For example, the CFPB has falsely justified its campaign 
against bank overdraft fees as a means of ``promoting 
competition.'' And it has demanded information from tech 
companies operating payment systems to examine whether they are 
acting ``anticompetitively.''
    At the same time, the CFPB is taking actions that will 
actually harm competition. It has proposed an overly burdensome 
data collection rule for small business lending that will 
likely increase credit costs and adversely affect competition 
by driving lenders out of the market.
    Unfortunately, the CFPB is not the only agency that is out 
of control because of Director Chopra. Last year, he helped 
lead a hostile and illegitimate takeover of the FDIC, where he 
sits on the Board.
    Director Chopra and FDIC Director Marty Gruenberg--whose 
FDIC term expired over 3 years ago--took unprecedented actions 
to force out FDIC Chairman Jelena McWilliams.
    Upon seizing control, they are now using the FDIC to 
advance their left-wing partisan agenda. In the process, they 
recklessly destroyed institutional norms built up over the 
FDIC's 88-year history and severely damaged the longstanding 
principle that financial regulators should operate free from 
partisan politics.
    King Louis XIV famously said, ``L'etat c'est moi,'' which 
roughly translates as ``I am the State.'' All political 
authority rested with one man. Sometimes it seems the CFPB 
under Director Chopra believes it has similar authority.
    Under Director Chopra, the CFPB is more out of control than 
ever before, and the contagion is spreading. It is past time 
for Congress to bring accountability to the CFPB by making it 
subject to the appropriations process and enacting other needed 
reforms.
    The current Congress will not do that. The next one should.
    Chairman Brown. Thanks, Senator Toomey.
    I will introduce today's witness. The Honorable Rohit 
Chopra is Director of the Consumer Financial Protection Bureau, 
previously served as an FTC Commissioner. After the passage of 
Dodd-Frank, Director Chopra joined the CFPB as Assistant 
Director, then was appointed the CFPB's Student Loan Ombudsman. 
He subsequently served as a special adviser at the Department 
of Education.
    Director, please proceed.

    STATEMENT OF ROHIT CHOPRA, DIRECTOR, CONSUMER FINANCIAL 
                       PROTECTION BUREAU

    Mr. Chopra. Chairman Brown, Ranking Member Toomey, and 
Members of the Committee, thank you for inviting me to appear 
today.
    American households and businesses continue to recover from 
the economic devastation caused by the pandemic. Jobless claims 
are hitting record lows, and consumer spending has accelerated.
    At the same time, ongoing supply chain disruptions, 
geopolitical strife, and inflation pose real challenges. The 
CFPB is working hard to fulfill the mandate Congress has 
entrusted the agency with: to ensure that markets are fair, 
transparent, and competitive. The agency is supervising 
financial entities for compliance with Federal consumer 
financial laws, handling heavy volumes of complaints, issuing 
guidance and rules to implement Federal law, and bringing 
enforcement actions where appropriate.
    In my written testimony, I detail some of the highlights of 
the direction of our work to protect consumers and law-abiding 
businesses. Perhaps most importantly, the CFPB is deeply 
engaged with market participants and others about the future of 
the consumer finance ecosystem, and we will be very focused on 
what the future holds and how we can collectively shape it in 
ways that align with American values.
    Currently, the United States is lurching toward a market 
structure where finance and commerce commingle, fueled by 
uncontrolled flows of consumer data. This is the market 
structure that has emerged in China, where dominant Internet 
conglomerates play an outsized role. These tech giants have 
extraordinary access to data about businesses, banks, and 
consumers, including financial businesses that they compete 
with.
    Over the last several years, Chinese tech and finance 
giants have developed so-called social scoring that goes beyond 
credit performance and relies on analyzing user habits 
unrelated to credit and banking. These developments raise a 
host of questions about privacy, fraud, discrimination, and 
much more.
    The CFPB is currently studying these issues as part of our 
inquiry into Big Tech's entry into consumer payments in the 
United States. We expect to issue reports on our research to 
contribute to the critical policy discussions about the future 
of consumer finance and relationship banking in our country.
    In addition, we are shifting our enforcement scrutiny away 
from small firms and instead focusing on repeat offenders and 
large market actors engaged in widespread harm. We are 
particularly focused on entities that violate formal law 
enforcement and court orders. Our recent lawsuits against 
TransUnion, one of the Nation's largest credit reporting 
companies, FirstCash, one of the Nation's largest pawn lenders, 
and MoneyGram, one of the Nation's largest international 
remittance providers, illustrate this shift.
    The CFPB is also dramatically increasing its issuance of 
guidance documents. These efforts help entities comply with 
laws passed by Congress by either providing further clarity 
where needed or drawing attention to an already clear legal 
requirement. They also promote consistency among the many 
Government actors responsible for enforcement of Federal 
consumer financial law, including other Federal regulators and 
State and tribal attorneys general across the country.
    The CFPB is especially interested in areas where guidance 
can support compliance efforts by small institutions and new 
entrants and startups.
    The agency is also rethinking its approach to regulations 
by prioritizing rulemaking that implements congressional 
directives. For example, we are heavily focused on making 
progress on implementing provisions under Section 1033 to give 
consumers more control of their data and facilitate more 
competition.
    In addition, I have repeatedly expressed concerns about 
excessively complicated rules put forth by the banking 
regulators, and I have asked CFPB staff to put a high premium 
on simplicity and bright-line bands whenever possible.
    In closing, we must remind ourselves that our consumer 
finance ecosystem serves as critical infrastructure for the 
growth and prosperity of the United States. I am optimistic 
that the CFPB can live up to the directives that Congress 
established at the agency's creation.
    Thank you again for the opportunity to appear before you, 
and I look forward to your questions.
    Chairman Brown. Thank you, Director.
    The purpose of this hearing is to discuss CFPB's work for 
consumers. It is clear that, for some of my colleagues, 
consumers are not at the forefront of today's conversation.
    With that, would you like to just begin by taking a minute 
and explain in your own words what happened in the FDIC Board? 
Then I would like to talk about consumer protection.
    Mr. Chopra. Well, I appreciate that. You know, it was all 
very sad, but it was all pretty simple. Never before has a 
Chair or a Board member of the FDIC purported to be able to 
nullify a supermajority of the Board of Directors without any 
legal justification other than ``because I say so.'' If any 
bank board tried to do this, if any corporate board tried to do 
this, there would be serious litigation and serious problems.
    I am disappointed that the rule of law was not followed, 
and it is important that this never happens again, and the 
Board must make sure of it.
    Chairman Brown. Thank you for clearing that up and 
explaining it so succinctly and so well.
    Protecting Americans from medical debt is a priority for 
this Administration. Just this year, CFPB released several 
reports on medical debt highlighting inaccuracies on credit 
reports and wrongful attempts by debt collectors to go after 
people for medical debt that they do not actually owe.
    What is CFPB planning to do to address both the misconduct 
and the mistakes related to medical debt?
    Mr. Chopra. Well, I appreciate that. Today in the United 
States, the most common collection item on an American's credit 
report is actually medical debt, and many of us are concerned 
based on the data we see, the research we see, and the 
complaints we see that much of this is not even really owed. 
Many Americans are caught in a doom loop between their 
insurance company and their medical provider, and they are 
coerced to pay once it is put on that credit report.
    We need to make sure that the debt is accurate, and we are 
looking to determine whether the law should be changed or 
adjusted accordingly when it comes to medical billing. And with 
respect to the CFPB's authorities, we are looking at whether 
medical debt should be included at all absent further 
requirements or changes.
    Chairman Brown. Thank you, Director.
    Let me shift to junk fees. This year, thanks to your work 
spotlighting banks' overreliance on overdraft and nonsufficient 
fund fees, many banks announced they would drastically reduce 
and in some cases even eliminate these fees entirely. A welcome 
change. The fees average about $34 per transaction.
    What efforts will you take to curb the use of junk fees 
beyond what you have done with overdraft and nonsufficient fund 
fees?
    Mr. Chopra. Well, across the economy, what we see is fee 
creep, fees that pop up on the back end that are not clearly 
advertised up front or provide no value whatsoever. We have 
solicited public comment, received over 80,000, and we are 
starting to see some of these fees, that some many not even be 
disclosed, some may be charging for services that people do not 
even want.
    We want banks to make money when they are providing 
services for bona fide activities that consumers want. And we 
are starting to see, Senator, banks compete on offering 
overdraft services at lower and lower fees and some eliminating 
those fees altogether.
    Chairman Brown. Thank you for that answer.
    One last question. As you know from your work on the 
Property Appraisal and Valuation Equity Task Force, there has 
been significant research as well as many publicly reported 
individual accounts showing differences in home appraisals 
based on race and ethnicity. Your staff may have mentioned to 
you a story I told--I will not repeat it--about a family in the 
Cincinnati area, southwest Ohio, and what happened to them.
    How can we make sure that any technology used to help in 
the appraisal process makes the system more fair and just does 
not bake in the bias that we have seen for decades?
    Mr. Chopra. One of the things Congress has passed is 
authorizing the regulators to make sure that so-called 
automated valuation models have adequate controls for safety 
and soundness, for consumer protection.
    One of the things that is under discussion is whether those 
controls should assess whether models are accurately looking at 
potential discriminatory effects. That process is ongoing, and 
we are working with the regulators on potential proposals that 
we would jointly propose.
    Chairman Brown. Talk a little further about that, the 
appraisal system. Does it present a clear way for people to 
report errors in discrimination? Or if it does not, how do we 
improve the process for consumers? Expand on your last----
    Mr. Chopra. Yeah, I think it is a real challenge where--
especially based on types of neighborhoods, there have been 
even incidents where people get a completely different 
appraisal based on, you know, the pictures that are displayed 
in their home or the people that are there. So some of it is 
about the algorithms. Some of it is making sure that we have 
more appraisers and we use the best of the human appraisers to 
be able to get accurate appraisals. It is particularly an issue 
in rural areas where many times appraisals have severe 
inaccuracies and consumers often have very little recourse.
    So we are working with HUD and other agencies to think 
about how this can be beneficial to lenders and homeowners 
alike.
    Chairman Brown. Thank you.
    Senator Toomey.
    Senator Toomey. Thank you, Mr. Chairman.
    Let us go back to the episode when, shortly after you 
assumed office as CFPB Director, and with the ex officio role 
on the FDIC Board, you and now Interim Chairman Gruenberg began 
orchestrating your hostile takeover of the FDIC Board.
    Now, I understand that at the time you circulated a 
document purporting to provide a legal justification for 
bypassing the Chairman and moving matters to a vote. Did the 
FDIC General Counsel write that document?
    Mr. Chopra. So with respect to the legal justification 
around Board members' responsibilities, the bylaws are 
obviously public; the legislation is obviously public.
    Senator Toomey. OK. I am asking----
    Mr. Chopra. The FDIC General Counsel----
    Senator Toomey. ----a specific question----
    Mr. Chopra. ----did not provide any legal justification for 
any interpretation, so----
    Senator Toomey. OK. But you acknowledge that you did 
distribute a document purporting to provide a legal basis for 
this?
    Mr. Chopra. Yes, so based on the----
    Senator Toomey. OK. I have got very limited time.
    Mr. Chopra. OK, sorry.
    Senator Toomey. Let me move on. Let me ask you this: Did 
Todd Phillips or anybody at the Center for American Progress 
contribute to the drafting of this legal document, to your 
knowledge?
    Mr. Chopra. No.
    Senator Toomey. They did not. So who did?
    Mr. Chopra. So the General Counsels of all of the agencies 
involved in the Board were obviously concerned about the lack 
of legal justification proffered by the FDIC's General Counsel. 
We also understand the FDIC's General Counsel muzzled many of 
the career staff----
    Senator Toomey. OK. I asked a simple question. Who worked 
on drafting this document?
    Mr. Chopra. The General Counsels and legal advisers of----
    Senator Toomey. OK. So the CFPB----
    Mr. Chopra. And the OCC.
    Senator Toomey. ----and the OCC General Counsels. Since 
1933, the FDIC Board had a history of trying to work 
collaboratively without partisan political influence. As 
Chairman McWilliams has stated, when you demanded the FDIC 
issue an RFI relating to bank merger policies, the Chairman 
expressed a willingness to work with you. You submitted a draft 
the FDIC found was filled with omissions, misrepresentations, 
and technical inaccuracies, and they drafted a version 
reflecting their expertise.
    But then you forced an unprecedented and illegitimate vote 
on your draft, disregarding the draft that reflected the 
expertise and knowledge of the staff at the FDIC.
    But I have to say, I have difficulty believing that you 
tore down the FDIC's rules and norms simply over a question of 
the wording of a merger RFI, particularly because a few months 
previously, the Center for American Progress began to very 
publicly urge Democrats to seize unprecedented control of the 
FDIC Board in order to eliminate all obstacles to the 
Democrats' radical agenda.
    Your and your Democrats colleagues' actions smacked of a 
planned partisan power grab to enact this agenda, and your 
politicization of the FDIC has done lasting damage to its 
independence and its credibility as a financial regulator.
    Now, I want to get to this UDAAP expansion to disparate 
impact. Congress----
    Mr. Chopra. Senator, may I respond to----
    Senator Toomey. I am going to run out of time, so I----
    Mr. Chopra. But, actually, you have leveled quite--I do not 
believe any of it is in accordance with the facts, and I think 
it is only fair----
    Senator Toomey. Well, as long as I will get time to ask my 
second question.
    Mr. Chopra. So when it comes to process, there was long an 
established process for 90 years about how the Board operates. 
Sometimes Congress has changed the composition of the Board. 
Every single process was followed, and what we heard back was 
staff is not going to be able to talk to you, disrupting all of 
the norms about how career staff engage. This was unbelievable 
and sad. And, honestly, we have to be committed to upholding 
the rule of law on how these agencies are governed. We cannot 
simply make up the fact that a Chair can overrule a 
supermajority of the Board.
    Senator Toomey. OK. Well, your version of the events is 
extremely different from the version of others' and so this is 
not a productive path to go down.
    Let me move on to this recent expansion, unprecedented 
expansion of UDAAP. This month, the CFPB announced that it 
would extent disparate impact theory to cover all financial 
services, effectively reversing Congress' legislative 
decisions. And as I noted in my opening statement, this is also 
at odds with over a century of FTC precedent on UDAAP. The FTC 
did not use UDAAP to pursue disparate impact before the Dodd-
Frank Act created the CFPB and gave it the same authority the 
FTC had to pursue ``unfair or deceptive acts or practices.''
    What is more, if the FTC already had blanket authority to 
prohibit the discrimination and disparate impact for a century, 
Congress would have had no need to enact the Equal Credit 
Opportunity Act, the Americans with Disabilities Act, Title VII 
of the Civil Rights Act, or other targeted laws it passed to 
address discrimination. But Congress did enact those measures 
precisely because UDAAP does not already address these harms.
    Given that disparate impact is a contested but well-
understood policy with far-reaching consequence, if Congress 
had intended to give that power to the CFPB, it would have done 
so explicitly.
    Equally concerning is the way the CFPB made this 
unprecedented change. When an agency imposes new substantive 
requirements on regulated entities, the Administrative 
Procedures Act requires it to conduct a transparent notice-and-
comment rulemaking, taking public comment into account and 
explaining the legal and policy basis for the change.
    In this instance, the CFPB simply updated its manual to 
instruct examiners to apply this new policy when conducting 
supervisions. And because the CFPB did not engage in 
rulemaking, there is now significant regulatory uncertainty 
regarding the implementation of the new rule. Without a rule, 
it is unclear how financial institutions are supposed to 
implement disparate impact and what universe of business 
decisions they now have to run through a gamut of regression 
analysis.
    The costs of regulatory uncertainty include reduced 
innovation and market paralysis, which only harms consumers in 
the long run.
    So, obviously, you made the decision not to conduct a 
rulemaking. Let me ask you, did anyone in your legal or 
regulatory department suggest that you should not proceed this 
way because it might conflict with the Administrative 
Procedures Act?
    Mr. Chopra. So, Senator, I take these procedural questions 
very seriously as a matter of law and policy. To be clear, if 
we receive complaints that suggest that, for example, someone 
is being discriminated against and not being given a bank 
account, the compliance manual is a transparency tool 
essentially giving the financial institution what the test is. 
We give them exactly what we would be looking for in order to 
ascertain their compliance management system and their 
adherence to existing law. There are decades of----
    Senator Toomey. You have totally ignored my question.
    Mr. Chopra. ----precedent--well, let me get to it. There 
are decades of precedent about the application of the 
unfairness standard which dates back to the 1930s. There had 
been in many instances where the prongs have been analyzed for 
a wide range of conduct, and certainly discriminating against 
someone based on their race to open a bank account would meet 
those threats. So I do not know exactly what you are referring 
to in terms of people say----
    Senator Toomey. No, I think you know exactly what I am 
referring to.
    Mr. Chopra. No, I do not. Please.
    Senator Toomey. At what occasion in the 100 and some odd 
years at the FTC was UDAAP ever used as a justification for 
using disparate impact?
    Mr. Chopra. That is not what is in the manual, 
respectfully.
    Senator Toomey. Yes, it is.
    Mr. Chopra. That is not what is in the manual. I am happy 
to take the question for the record----
    Senator Toomey. You did not answer my question, as you said 
you would, about whether anyone in your legal or regulatory 
department suggested that you follow the Administrative 
Procedures Act and actually have a rulemaking.
    Mr. Chopra. Not to my recollection.
    Senator Toomey. They did not. All right.
    Chairman Brown. Thank you, Senator Toomey.
    Senator Warren from Massachusetts is recognized for 5 
minutes.
    Senator Warren. Thank you, Mr. Chairman.
    So, Director Chopra, on March 28th you gave a speech in 
which you focused on repeat offenders--not the little guys, but 
the giant banks and corporations that repeatedly break the law 
even after regulators have imposed fines, consent orders, and 
lawsuits.
    Now, this is a really serious problem, and I want to talk 
today about one of the worst repeat offenders in our entire 
financial system: Wells Fargo.
    In 2016, Wells Fargo's fake account scandal was exposed. 
The company's leadership had squeezed their employees to create 
3.5 million unauthorized bank accounts.
    Director Chopra, do you recall how much Wells Fargo was 
fined in 2016 for this fake accounts scandal?
    Mr. Chopra. I want to say it was $180, $185 million.
    Senator Warren. That is right, including $100 million of 
that was from the CFPB. Now, that was a big fine, and CFPB and 
other regulators were right to impose it. But keep in mind that 
Wells Fargo booked more than $5 billion in profits that year. 
So maybe we should not be surprised that a fine alone was not 
enough to persuade Wells Fargo to follow the law, because over 
the next few months, the following scandals came to light: 
Wells forced consumers to buy unneeded car insurance; they 
changed information on customers' documents without 
authorization; and they illegally repossessed cars from 
servicemembers.
    In 2018, the regulators finally said, ``Enough,'' and under 
then-Chair of the Federal Reserve Janet Yellen's leadership, 
the Fed put a cap on Wells Fargo's growth.
    Now, that was pretty shocking at the time, but it still was 
not enough to get Wells to follow the law. Since that time, 
Wells has closed customers' accounts without authorization, 
damaging people's credit reports, and just to rub salt in the 
wound, continued to charge them overdraft fees even after those 
accounts were closed. Wells has also been fined by the SEC for 
recommending unsuitable products to mom-and-pop investors. It 
put up to 1,600 customers into forbearance without their 
consent. And just a few months ago, Wells was hit was another 
fine by the OCC and a new consent order because the bank is 
still screwing over consumers. It appears that cheating 
customers is simply in Wells Fargo's DNA.
    Director Chopra, the asset cap on Wells was a much-needed 
step, but it is clear we are dealing with the baddest of the 
bad here. What other steps should regulators consider to hold 
Wells Fargo and other corporations that break the law over and 
over, to hold them accountable?
    Mr. Chopra. Well, I do not want to comment on any specific 
case, but here is what I see: I see Federal enforcers and 
regulators are very quick to lay the hammer down on small guys 
and small businesses. They will name people individually. They 
will ban them from certain business practices and often 
criminally refer them for prosecution. But there is a totally 
different standard for large firms who break the law over and 
over again.
    Yes, they do pay a fine, but often it is less than the 
profits that they made from the misconduct. We have to look at 
a broader array of remedies. In banking, the Federal Deposit 
Insurance Act talks about limitations on FDIC insurance. There 
are asset caps like we see that the Federal Reserve Board did 
or that the OCC has done. We have to look at structural 
remedies that stop the law-breaking from continuing. Fines are 
not going to solve this with the biggest players, and frankly, 
I think if we care about equal justice, we should treat small 
firms and larger firms the same.
    Senator Warren. I agree with you. Thank you.
    You know, I think it is clear that fines have just become a 
cost of doing business for giant corporations like Wells, and 
we can put a stop to that.
    The Fed has the power to break Wells Fargo up, and they 
should use it. And, in addition, I am reintroducing my 
Corporate Executive Accountability Act to hold big bank 
executives personally liable when the companies they run 
repeatedly break the law.
    Look, we are not going to get any changes in corporation 
America unless we change the rules for repeat offenders and 
their CEOs. And I appreciate your leadership on this, Director 
Chopra, and I look forward to working together with you.
    I also would like to address the comments from my 
Republican colleagues who have accused Director Chopra of a 
``hostile takeover'' of the FDIC, a ``coup,'' and a ``lawless 
overreach.'' You know, they can call it whatever they want, but 
here are the facts. The previous FDIC Chair acted in violation 
of the FDIC's bylaws to block the Committee's majority, and she 
chose to resign when it became clear that she did not have a 
leg to stand on. We need regulators who are going to follow the 
law and who are going to use their authority to safeguard the 
financial system, and I am glad that we have that kind of 
regulator now. Thank you.
    Thank you, Mr. Chairman.
    Chairman Brown. Thank you, Senator Warren.
    I believe that Senator Tillis from North Carolina is 
joining us from his office. Senator Tillis? If he is not ready 
yet----
    Senator Tillis. Mr. Chair, I am here.
    Chairman Brown. You are ready, OK. Senator Tillis.
    Senator Tillis. Thank you, Mr. Chopra. Thank you for coming 
before the Committee. I have to say I share some of the 
concerns some of my colleagues have expressed about the number 
of troubling themes that are already apparent in your brief 
tenure at the CFPB. I think your actions regarding--and maybe 
in conflict with Senator Warren's comments, I think your 
actions regarding the leadership of the FDIC go against about 
88 years of agency norms.
    Now, you are a smart man. There is no doubt about that. Yet 
I feel like you have chosen to poison the well in an effort to 
oust a congressionally confirmed head of a Federal financial 
regulator. In the process, you went so far as to propose policy 
updates for the FDIC on the CFPB website. I do not think this 
is how serious people should run these organizations. It 
reminds me more of some of the countries I visited in my recent 
codel last week, not something I expect from U.S. financial 
regulators.
    And, unfortunately, I do not think the FDIC, the event at 
the FDIC has been an outlier in your behavior at the CFPB. More 
recently, you authorized a wholesale rewrite of portions of the 
CFPB's examination manual to apply disparate impact to all 
consumer financial products and site visits, specifically under 
the unfairness prong of CFPB's unfair, deceptive, or abusive 
acts or practices, UDAAP.
    But Dodd-Frank does not authorize disparate impact 
liability under UDAAP. In nearly a century of FTC precedent, 
enforcing identical unfairness language has never contemplated 
authority to regulate disparate impact.
    So, Mr. Chopra, I do have a couple of questions for you, 
and if you can keep them brief, I would like to stay within the 
time constraints. What industry feedback process did you 
initiate when updating the examination processes?
    Mr. Chopra. So, Senator, I really appreciate the questions 
on this. So just to be clear, as a matter of course, I am also 
appalled at what happened at the FDIC. I think never before has 
there been such an egregious violation of corporate governance, 
and I think as someone who believes in the rule of law and who 
takes an oath, we need to make sure that never happens again.
    With respect to the examination----
    Senator Tillis. I do think--I will say, though, I think the 
manner in which you operated there is something that is outside 
of the norms of over 88 years of past practices, but I will let 
you get to the question.
    Mr. Chopra. Yeah, and I am happy to discuss this further 
with you. I think it may take more than 5 minutes, and I am 
happy to meet with you.
    Let me just say with respect to the examination manual, the 
examination manual is a vehicle that gives institutions a lens 
into what specifically examiners are going to look for, for 
example, when investigating complaints of discrimination. So 
unfairness, as you say, does derive from the FTC Act. It is 
identical language. And it has multiple prongs. The first, is 
there substantial injury? The second----
    Senator Tillis. Mr. Chopra, I wanted to get to the specific 
question. I was kind of curious about--I understand what you 
are leading to in terms of the practices, but what specific 
industry feedback process did you initiate prior to updating 
the examination practices? What specific industry--what sort of 
vetting, public comment, interactions did you have?
    Mr. Chopra. Well, we hear from all sorts of industries, and 
let me share with you, Senator Tillis, across the spectrum, our 
regulated institutions really do not believe that 
discrimination should play any role, and many acknowledge that 
it already violates multiple laws, not just Federal consumer 
financial laws, not just civil rights laws. So, for me, this is 
already a clear legal prohibition, and I have not heard any 
suggestion that discrimination based on someone's race or the 
like does not violate the unfairness prohibition. It is clearly 
spelled out. There are three prongs, and that type of 
discrimination violates those three prongs. It----
    Senator Tillis. Mr. Chopra, I think you are talking about 
outcome, and I think that is a legitimate discussion and it can 
be accomplished within the 5-minute constraints. But I am a 
little bit concerned with process. It is almost as if you had 
the solution and did not need to seek impact. In your first 120 
days in office, you met with only three industry groups. By 
comparison, Director Cordray met with 40 industry groups during 
his initial 120-day period.
    Mr. Chopra. That is not----
    Senator Tillis. I have gotten feedback from a number of--I 
have gotten feedback from a number of groups who said that you 
have generally been unwilling to meet. Do you deny that that is 
the case?
    Mr. Chopra. Absolutely I deny that. We have met with banker 
associations in multiple States, credit union leagues; we have 
met with trade associations ranging from mortgage----
    Senator Tillis. When you say ``we,'' do you mean you or 
your----
    Mr. Chopra. I myself--I have personally done that, and, 
Senator Tillis, I am happy to have a conversation with you. We 
try and make staff available, and I personally meet with so 
many industry players. If you look at my testimony, I talk 
about how we have gone beyond and listened to a broader range 
of the business community. Again, if there are specific folks 
that we have not been able to schedule yet, we are prioritizing 
the smaller financial institutions who do not have a 
supervisory relationship with us but that are impacted by us. 
But, again, we meet with all sorts of business associations, 
and we are attending----
    Senator Tillis. Well, I would be very interested--I want to 
be mindful of the time. I am a minute over. But I would be very 
interested, particularly with respect to dialogue with those 
that were most negatively affected by some of the changes, but 
if possible, I would like to get that for the record.
    Mr. Chopra. That is fine. Thank you, Senator Tillis.
    Senator Tillis. Thank you, Mr. Chair.
    Chairman Brown. Thank you, Director.
    Senator Warner from Virginia is recognized from his office.
    Senator Warner. Thank you, Mr. Chairman. Director Chopra, 
it is good to at least see you remotely. I have got three 
questions in separate areas, so I will try to be quick on the 
questions so you can have time to answer.
    First, we have seen a number of the major banks start to 
outsource a number of their back-office procedures. Mass data 
storage, cloud computing, and a host of other applications are 
now being outsourced, and it makes in many cases good business 
sense.
    I do worry, though, from a regulatory standpoint and a 
consumer protection standpoint as these traditional in-house 
applications are outsourced, do you feel like you or the other 
regulators have enough visibility into these outsourced 
functions? Are there additional tools that are needed? Could 
you speak to that?
    Mr. Chopra. Yeah, I do think it is a business imperative 
often to, you know, find service providers, outsource to stay 
competitive. At the same time, we hear from some community 
banks that there are sometimes only four core service 
providers. We see three major cloud providers--Amazon Web 
Services, Microsoft Azure, and Google Cloud. That does create 
some resilience issues should there be an attack or a shock.
    It is important that the regulators have visibility. I do 
not think we do enough now. But we are working with the other 
regulators to make sure that we can withstand a shock, 
potentially even if it is a State or nonstate actor that 
attacks.
    Senator Warner. Well, I am interested not only from the 
kind of potential for a State or nonstate actor in the cyber 
domain, but I am also concerned, like you are, about the 
concentration of some of these services. If the community bank 
says, hey, not our problem anymore because we have outsourced 
it to Entity X, do we have visibility into what is still a 
critical component of the whole banking system? So I hope we 
can continue that conversation.
    Mr. Chopra. Absolutely.
    Senator Warner. Second--and I know you mentioned this in 
your testimony, and this is around payment systems for Big 
Tech--again, an area where we are seeing both consolidation and 
potentially growth of opaqueness. When do you think that review 
of some of the payment systems around Big Tech will be done? 
Then I would like you to, as you answer that, more specifically 
address--I am particularly concerned from a national security 
standpoint of some of the Chinese models around Alipay and 
WeChat Pay. And are you looking at not only payment systems in 
the more American and Western Big Tech companies, but also in 
the Chinese companies?
    Mr. Chopra. Yes, Senator, and in my testimony I mention how 
the U.S. consumer finance ecosystem appears to be lurching 
toward a Chinese-style market structure, and that really is a 
concern for a lot of small institutions, a lot of startups. 
What we see with WeChat Pay and Alipay I do not think is a 
structure we necessarily want to replicate.
    We will be reporting on some of our analysis around the 
Chinese models as well as what we are learning in our own study 
about payments. I am actually quite optimistic that the new 
FedNow service, which will give small institutions, small 
banks, more ability to offer some of those real-time payment 
services that are not yet available to the United States. So it 
is something that is concerning, especially when it comes to 
privacy, and we look forward to reporting to all of you on our 
findings.
    Senator Warner. Well, I am very anxious to follow up with 
you on that. I feel like particularly pre-COVID, as we saw an 
enormous emergence of Chinese tourism around the world, that 
particularly in Europe that the default system may become the 
WeChat or Alipay system. And I think that has the potential 
both in terms of a digital yuan and a host of other privacy and 
other issues, that if that becomes default outside of China in 
other parts of the world, you know, where does that put us in 
the hierarchy? So I hope we will come back to that.
    Last question. I saw you came out recently with a report on 
financial challenges facing rural communities. I think some of 
those challenges may be addressed because those of us who 
worked on the bipartisan infrastructure bill were going to be 
able to finally get the broadband capabilities so no community 
should be left behind. But both in terms of the fact that folks 
in rural communities disproportionately work for small 
businesses, so they may have bigger challenges around credit 
scores, and also the lack of online banking services offered in 
rural communities. Can you, in these last few seconds, address 
what your report has found and where we need to do some more 
work?
    Mr. Chopra. Yeah, there are serious challenges facing rural 
banking right now. I think across multiple Administrations the 
regulators have been a little bit blind on this. Rural 
communities need banking in a very different way than 
metropolitan areas, particularly family farmers who are dealing 
with, you know, commodity spikes or various exogenous factors. 
We need to preserve relationship banking even as we need to use 
technology to serve people better. There is a broad range of 
issues from banking deserts to appraisals and more. We need to 
all figure out what we want to do to make sure that rural 
counties have access to small business credit, to farm credit, 
and consumer credit.
    So, Senator, I am eager for us to work hard on this and 
address those problems.
    Senator Warner. And, Mr. Chairman, I know my time is up, 
but I do think, as we all know, we are seeing the diminution of 
branch banking, and I think the idea of banking deserts, just 
as we discovered the concept of food deserts, is something that 
we as a Committee ought to take a look at.
    Thank you, Mr. Chairman.
    Chairman Brown. As we should, Senator Warner. Thank you.
    Senator Rounds from South Dakota is recognized.
    Senator Rounds. Thank you, Mr. Chairman.
    Director Chopra, good morning. I would like to begin by 
looking back at your confirmation hearing where you pledged to 
have absolute transparency when it comes to the CFPB's Civil 
Penalty Fund to make certain all funds go to victims or for 
promoting financial literacy. Can you share with us what steps 
you have taken or plan to take in the next 6 months to improve 
transparency regarding the fines paid into the fund and how the 
money is spent?
    Mr. Chopra. Well, thank you so much for that. Senator 
Rounds, actually based on feedback from you, I have put a pause 
and essentially a moratorium on any spending from the Civil 
Penalty Fund that does not directly go to victim redress. I 
think it is worthwhile for us to take a hard look at that 
process, and personally we see so many consumers who are badly 
harmed by scammers, including the elderly, including 
servicemembers. Those funds, I think, primarily should be used 
to redress them when the defendant has run off with the money 
or spent it.
    So, yes, we have put a complete pause on that.
    Senator Rounds. Would you expect that within the next 6 
months you would be able to share with us your plans moving 
forward with how those funds would be spent?
    Mr. Chopra. Yes, and I can pledge to you that if we undo 
that pause or moratorium, you will be one of the first to know.
    I will share with you that I do think that there is a lot 
of--those civil penalties, when they go back to redress, it is 
not, you know, a bonanza for somebody. They are often getting 
back the money that was stolen from them, often through a 
really egregious scam. So we are also working with State 
attorneys general, State banking regulators, when they identify 
judgment-proof defendants. When we work together, that may be a 
way that those monies can go locally and redress victims rather 
than going through, you know, for other purposes.
    Senator Rounds. Yes, I would look forward to having that 
report. Thank you, sir.
    You also committed to respecting the statutory prohibition 
against the CFPB regulating insurance. However, in respect to 
the Section 1027 rulemaking in premium financing, I am 
concerned that you may very well be taking a rather broad view 
of financial activity that this rulemaking will cover State-
regulated insurance brokers and agents.
    Do you believe that the CFPB can or should regulate 
insurance premium financing?
    Mr. Chopra. Yeah, so let me just say that this is subject 
to an ongoing rulemaking. That rulemaking was proposed before I 
arrived. We are receiving a very broad range of comments, 
including on the issues that you have raised. I am going to 
personally look at that. I will say as a general matter we have 
insurance regulators. They are primarily responsible for 
regulating insurance. There are some, you know, nuanced 
examples where there is financing and insurance commingled, and 
we can provide your staff with some of those examples. But, 
generally speaking, I completely respect the prohibition that 
is in the Consumer Financial Protection Act, and we will look 
hard at this issue before finalizing this rule, which we are 
under a court order to finalize.
    Senator Rounds. OK, because in the vast majority of cases, 
most individuals want either semiannual or annual policies 
issued, and sometimes it is difficult for them to actually get 
the premium to pay it up front. And so if--and in most cases, 
it is regulated by State insurance regulators who do require 
full disclosure. But it then becomes more limiting or 
challenging for those carriers to finance that, and if they 
decide not to do that, I think it is a challenge for consumers 
who in many cases when they want--and, in particular, for 
commercial operators such as someone that has got a business 
that is starting up or is in the process of trying to move 
forward, if they do not have the money available to them in 
their bank account for them to get insurance, it is rather 
difficult unless somebody agrees to finance it. So I am really 
concerned that we allow those State regulators to include or to 
continue to be the primary regulator of those services.
    Mr. Chopra. And, again, we are looking at those comments, 
and, by the way, if there is specific language that you see in 
the proposed rule that, you know, you want to give us feedback, 
any Member of Congress obviously should do that, and we are 
looking at all of them before we finalize that rule.
    We do have to finalize it. It is in Dodd-Frank. It is an 
act of Congress. We are under a court order to finalize it 
because we, you know, essentially have not done it for 10 
years. But I take your feedback very seriously on this issue.
    Senator Rounds. Thank you. I have one more question. Is it 
true that the CFPB--let me put it this way: I believe that the 
CFPB already requires banks, credit unions, and other providers 
of consumer financial services to disclose terms and fees in a 
clear and conspicuous manner. I think you would agree with me 
that that is included today.
    Mr. Chopra. Well, it depends on the law. Often it is not 
clear and conspicuous, and sometimes it is not disclosed up 
front, unfortunately.
    Senator Rounds. That changes my question a little bit 
because I had assumed that the CFPB already required it. I am 
concerned about overdraft protection, and right now a lot of 
our financial institutions credit unions, banks, and so forth 
to consumers will provide an overdraft protection plan. Right 
now that seems to be working fairly well, and it does provide 
some short-term liquidity to consumers who may very well be 
living paycheck to paycheck.
    If the overdraft protection goes away, will consumers have 
access to funds to cover that particular item? A lot of people 
do use it. In the case of credit products designed to reach 
low- and moderate-income consumers and consumers with rather 
difficult credit histories in some cases, how does the CFPB 
expect financial institutions to bear the costs and offset the 
risk of these products in a safe and sound manner without 
allowing for a fee assessment? And I think it is there and I 
think it is pretty clear that you expect them right now to make 
those disclosures. But if you make it more difficult for those 
fees to be assessed, you may very well be limiting that short-
term credit availability and push them into other alternatives 
that are not nearly as appealing.
    Mr. Chopra. And I know I am out of time, but you raise an 
important point. It is short-term credit, and we want to make 
sure that people have the availability to access credit. But 
what we are seeing is actually banks across the board are 
starting to compete on this. Many are reducing their overdraft 
fees. Many of them are offering grace periods. So the 
competitive process I think is going to yield a lot of benefits 
for people, and that is exactly what we want to see.
    We also want to make sure that consumers actually want the 
service. In some of the research, it shows that the fee is 
assessed even when then they do not want it. So I am happy to, 
again, have a conversation with you, because I agree that 
credit is needed short term.
    Senator Rounds. Yes, and I would just point out, Mr. 
Chairman, that right now those fees the banks receive, it only 
makes up about 2 percent of what they actually receive in fees 
right now. So that is as of the 2019 reporting period.
    Chairman Brown. Thank you, Senator Rounds.
    Senator Menendez of New Jersey is recognized.
    Senator Menendez. Thank you, Mr. Chairman.
    Director, I want to thank you and the CFPB staff for your 
work on the proposed rule to implement the Debt Bondage Repair 
Act. Senators Cornyn, Lujan, Cortez Masto, and I worked hard to 
get the legislation passed so that victims of human trafficking 
will not have detrimental marks on their credit reports that 
result from financial exploitation by traffickers.
    Can you give us a brief summary of the proposed rule and 
what it will mean for trafficking victims?
    Mr. Chopra. Yes. So survivors of human trafficking will be 
able to get certain rights to be able to remove adverse 
information from their credit reports. After the law was 
enacted and the President signed it, it started a 180-day 
clock. We have proposed the rule and intend to finalize it by 
the deadline. I think this will be a huge help for those 
victims where often financial exploitation is a key part of the 
process and their lives can be ruined permanently if we cannot 
fix some of their credit report.
    Senator Menendez. Well, I appreciate that. This is an 
example that shows exactly why we need the CFPB out there to 
protect victims of trafficking and really all Americans from 
abuses that can take place in the financial system. And I 
appreciate your diligence on the issue in seeing the rule 
finalized.
    Now, Director, as part of its announcement of changes to 
income-driven repayment, the Department of Education stated 
that it will ``work in partnership'' with the CFPB to better 
examine whether student loan servicing companies are 
systematically driving borrowers into expensive forbearance 
instead of the income-based repayment options that may serve 
them better in the long term.
    As you know, the Navient settlement put the scope of these 
deceptive practices into perspective. The Bureau stated that 
from January of 2010 to March of 2015, Navient, the Nation's 
largest student loan servicer, added up to $4 billion in 
interest charges to the principal balances of borrowers who 
were enrolled in multiple consecutive forbearances, noting that 
a large portion of these charges could have been avoided had 
Navient followed the law.
    Can you comment on how the Bureau plans to more thoroughly 
monitor the student loan servicing market and prevent future 
abuses in servicers' use of forbearance?
    Mr. Chopra. I appreciate the question. I do not want to 
comment on Navient. The CFPB is still in active litigation on 
that matter. But here is the deal: Consumers do not get to 
choose their servicer. It is chosen for them, and they are 
stuck with them. And we depend on servicers, whether it is in 
the mortgage context, student loan context, and others, to be 
able to make sure they are being truthful about what the 
borrower's options are, particularly when they get in trouble. 
Servicers should not be deceiving borrowers about their 
alternatives to default and should actually be helping them in 
order to stay on the road to repayment. That is often what is 
best for the creditor and what is best for the borrower, and we 
need to make sure that they are not illegally cutting corners 
for their own profits at the detriment of both creditors and 
borrowers alike.
    So we will be examining them. We are working, of course, 
with the Department of Education on the servicers that they 
contract, but there are many other private servicers as well, 
and we expect them to be prepared and to make sure they are 
giving accurate information about borrower benefits.
    Senator Menendez. Given that deferments work similarly to 
forbearance, has the Bureau looked into whether student loan 
servicing companies were also driving borrowers into deferments 
when they could have been placed in income-based repayment 
plans, especially when their IBR payment would have been zero 
dollars monthly?
    Mr. Chopra. Yes, so that is something that has long been a 
concern. I once remember hearing from a servicer employee who 
told the Bureau that, you know, their job was to get the 
borrower off the phone as quick as possible, and often it was 
faster to be able to put them into a deferment, and often call 
center representatives are rated on how fast they process 
calls. So there is an incentive mismatch there, and we do need 
to make sure that there is not only not forbearance steering 
but also not deferment steering, particularly when the borrower 
can make some payment.
    Senator Menendez. Finally, recent reports show scams have 
become widespread on Zelle, a money transfer platform owned by 
the largest banks in the Nation. In many of the scams, 
fraudsters impersonate bank employees. They trick Zelle users 
into authorizing money transfers.
    According to the reports, the banks are well aware of these 
scams, but have done little to enhance Zelle's security or 
reimbursed defrauded consumers. Today Senator Warren and I are 
sending a letter to the company that manages Zelle asking why 
it has not done more to protect its users from scammers.
    Are you familiar with the rampant fraud happening on Zelle? 
And has the CFPB seen a resultant increase in complaints? And 
would any regulations like Regulation E of the Electronic Fund 
Transfer Act apply in these situations to help refund 
customers?
    Mr. Chopra. So, Senator, I want to be careful on this one. 
It is about a particular company. But I am certainly aware of 
the complaints. The fraud has gotten more egregious that we are 
seeing through P2P payment transfers. It is something we are 
highly attuned to, and, again, I am happy to take some 
questions for the record but want to be careful.
    Senator Menendez. OK. I mention them because the greatest 
amounts of fraud that I understand are taking place is that. 
But, of course, generically, I would care about how we work and 
to make sure that consumers do not get ripped off in that 
regard.
    Thank you, Mr. Chairman.
    Mr. Chopra. Thank you, Senator.
    Chairman Brown. Senator Kennedy from Louisiana is 
recognized.
    Senator Kennedy. Thank you, Mr. Chairman.
    What do I call you, ``Mr. Director or Mister''----
    Mr. Chopra. You can call me whatever you want, sir.
    Senator Kennedy. Well, I would rather call you by your 
proper title.
    Mr. Chopra. I serve as a Director, yes.
    Senator Kennedy. OK. Thanks, Mr. Director. I want to ask 
you about this rule, 1071. I understand it is not finalized 
yet. You are in the middle of it. You have proposed to have 
banks guess the race of a small business owner if a small 
business owner elects not to provide race information. Is that 
right?
    Mr. Chopra. I was not at the Bureau when this was proposed.
    Senator Kennedy. Do you support that?
    Mr. Chopra. I do not want to talk about an open rulemaking. 
We are looking at all the comments related to this, and I 
believe what you are referencing is the visual observation 
provision when data is missing. I take it very seriously. There 
are a lot of comments about this. We will look hard at that.
    Senator Kennedy. But you are asking--you have small 
businesses owners that do not want to declare their race, and 
you have got a proposal, your agency does, to make the banks 
guess. Is that right?
    Mr. Chopra. I do not think that is exactly how it works.
    Senator Kennedy. I do.
    Mr. Chopra. The bulk of it----
    Senator Kennedy. I do. I have talked to too many bankers. 
Do you support that concept? Let us take it away from the rule. 
Do you support that concept?
    Mr. Chopra. Well, I am not going to make decisions about a 
rulemaking that is open right now when we are supposed to look 
at all the comments fairly and not prejudge----
    Senator Kennedy. Yeah, I know how objective you are.
    Mr. Chopra. But that is the process we are going to follow, 
and that is what we have to do.
    Senator Kennedy. I understand. I know about your 
objectivity. Have you ever been in business?
    Mr. Chopra. Yes.
    Senator Kennedy. What kind of business were you in?
    Mr. Chopra. A number of it. Before I was in Government, I 
was a management consultant for multiple firms. I served 
clients in financial services, pharmaceuticals.
    Senator Kennedy. You were a consultant? I mean, have you 
ever had to make a payroll?
    Mr. Chopra. I do not know if I have ever paid employees, 
but I believe I have been self-employed a long time ago.
    Senator Kennedy. Yeah, you just paid yourself. Is that what 
it was?
    Mr. Chopra. Well, and vendors, yeah.
    Senator Kennedy. OK. Tell me about this approach at your 
agency. I did not have time to look up the correct term. I 
think of it as statistical discrimination. In other words, you 
look at a set of numbers, and if there is a disparate racial 
impact, you assume discrimination. Do you understand what I am 
talking about?
    Mr. Chopra. I think I know what you are referencing. In our 
laws----
    Senator Kennedy. You guys do it all the time.
    Mr. Chopra. I do not know if we do it all the time, but----
    Senator Kennedy. You do it a lot, don't you?
    Mr. Chopra. I do not think so.
    Senator Kennedy. But do you believe in that approach?
    Mr. Chopra. Well, the regulation that implements the Equal 
Credit Opportunity Act specifically has provisions around 
unintentional discrimination or discrimination where you do not 
have hard evidence.
    Senator Kennedy. So you think there can be discrimination 
without intent?
    Mr. Chopra. Well, that is what actually--we do think that 
many of these algorithms, especially that we see with all the 
surveillance, big data, I mean, certainly what we----
    Senator Kennedy. Yeah, but I am talking about human beings. 
Do you think human beings can racially discriminate without 
intending to racially discriminate?
    Mr. Chopra. I think that is--I do not really understand the 
question, but if the question is: If the outcomes----
    Senator Kennedy. Does a human being have to have intent to 
discriminate on the basis of race? You understand that, don't 
you?
    Mr. Chopra. Well, I think if you are saying they 
discriminate, then they are intending to do it.
    Senator Kennedy. No. No, I am not. You can make a 
distinction among human beings of different races on factors 
other than immutable characteristics.
    Mr. Chopra. Oh, of course. Of course, and----
    Senator Kennedy. You do not think all people----
    Mr. Chopra. ----that is exactly----
    Senator Kennedy. ----of a race have a particular 
characteristic, do you?
    Mr. Chopra. That is exactly, I think, what the law is 
saying, too. The law is saying that if it is not explained by 
other factors, then the courts have established a----
    Senator Kennedy. It has to be race----
    Mr. Chopra. ----framework, too. Sorry?
    Senator Kennedy. It has to be race if it cannot be 
explained by other factors?
    Mr. Chopra. No, no. The idea is that if it is not explained 
by other factors, the courts have established that there can be 
liability. Does that make sense? I am sorry.
    Senator Kennedy. None of what you do over there makes 
sense.
    Mr. Chopra. OK. Well, we are happy to take questions for 
the record, and----
    Senator Kennedy. I know.
    Mr. Chopra. ----I am happy to meet with you----
    Senator Kennedy. Thank you, Mr. Chairman.
    Mr. Chopra. ----to talk through it.
    Chairman Brown. Thanks, Senator Kennedy.
    Senator Smith of Minnesota is recognized.
    Senator Smith. Thank you, Chair Brown, and welcome to the 
Committee, Director Chopra. It is very good to see you again. I 
enjoyed our conversation, and I am grateful for your strong 
advocacy for consumers in this country.
    One thing that I pay a lot of attention to is the access to 
financial services and credit, particularly in rural 
communities. You know, you may know that my grandmother was the 
president of a small community bank, so I think a lot about how 
important it is to have access to banking services in rural 
communities. And I really applaud--I would like to applaud the 
CFPB for calling attention to the financial challenges of folks 
living in rural communities. Rural banking deserts in 
particular make it almost impossible for people to get access 
to capital and financial services that you need if you are 
going to grow a business, do all the things that you want to 
do. And as banks are consolidating and shipping services out of 
rural communities, like happened in my Mom's small town, 
community development financial institutions, CDFIs, are 
increasingly important in filling this gap.
    I have worked on a bill, the CDFI Bond Guarantee Program 
Improvement Act, which would permanently authorize the CDFI 
Bond Guarantee Program to make it easier, more accessible for 
small CDFIs. But, Director Chopra, could you talk a little bit 
about how unequal access to capital and financial services in 
rural communities, what impact that has and how you think about 
the role of the CFPB in addressing economic empowerment in 
rural communities?
    Mr. Chopra. Yeah, it is a great question, and I think we 
all should live up to reality and realize that there have been 
devastating effects of so many branch closures in rural 
counties. While we do not know if it is directly correlated, we 
know that there are often issues with, you know, farmers not 
being able to weather a tough season and go bankrupt. We know 
that small businesses there, which, you know, are 
disproportionate employers, may not be able to survive.
    You know, with the cost of fertilizers, fuel, automobiles, 
this can be really hard for rural areas to actually stay 
afloat. And so I think we have not paid enough attention as 
policymakers and as regulators. We have launched an initiative 
focused on the unique issues facing rural communities, farmers, 
and financial institutions, and, you know, we really look 
forward to working with you and the other regulators on this.
    Senator Smith. Well, thank you. I think that that is 
attention very well placed as we look at increasing 
consolidation in the financial services industry and the impact 
that this has on small rural communities that might be losing 
the community bank because it got gobbled up by a big bank. 
That means that there is just much less access to services than 
people need.
    I want to follow up also on an issue that you and I have 
talked about before, and this is the abuse of purchases of 
these structured settlements. We talked about this a little bit 
yesterday, and I understand that this is a Federal as well as a 
State issue, and you have been in conversation with State 
attorneys general about this. But just for my colleagues, you 
know, this is what happens when firms prey on people who have 
suffered a grievous or life-altering injury and they are 
awarded a settlement to help cover the income that they have 
lost or the portion of the income that they have lost, but then 
these companies come in and they offer victims a paltry lump 
sum in exchange for the rights to future payments under a 
structured settlement. And, on average, they are getting only 
about 40 percent of the value of the total settlement.
    Now, a lot of States have restrictions on the sale of 
structured settlements. My home State of Minnesota is working 
on this right now. Our attorney general, Keith Ellison, who is 
a strong consumer advocate, has been working on this as well, 
and I am really glad to know that the CFPB has taken action, I 
believe last year, against one firm that paid an adviser who 
was supposed to be providing independent counsel, yet, they are 
being paid for this. That is just one example.
    So could you just address this issue, let us know the work 
that you have been doing on this and how you see collaboration 
with State attorneys general?
    Mr. Chopra. Yeah, when it happens, it can be devastating to 
someone. Often they may be deceived about the benefits that 
they are getting and not really knowing what they are trading 
away. And it can actually make the difference of hundreds of 
thousands of dollars and threaten their retirement security or 
their ability to actually feed their family.
    So there are important State law issues here. There are 
important contract law issues. It is a topic certainly that has 
come up with the State attorneys general. Others are interested 
in it, too, the Federal Trade Commission as well. So I think we 
will figure out where are the right targets and what are the 
right policies to be able to tell people here is how to stay on 
the right side of the law. But if you are not and engaging in 
fraud, you have to face some serious consequences.
    I will also add some of the conduct may also involve 
criminal law, and I think that will be important for us to 
explore as well for the most egregious fraud.
    Senator Smith. Well, thank you. I appreciate your attention 
to that issue, and I look forward to continuing to talk with 
you about it.
    Thank you, Mr. Chairman.
    Chairman Brown. Thank you, Senator Smith.
    Senator Daines of Montana is recognized.
    Senator Daines. Mr. Chairman, thank you. Before I turn to 
my questions, I want to briefly mention that, as some of you 
may know, I was the first U.S. Senator to step foot inside 
Ukraine since Russia's invasion of February 24th. The bloodshed 
and the evil that I witnessed firsthand came at the hands of 
Vladimir Putin. I am more convinced than ever that we need to 
increase and strengthen our sanctions against Russia and Putin 
directly. The Senate Banking Committee has jurisdiction over 
such sanctions, and for the most part, this should be a 
bipartisan issue and has been.
    The U.S. and our allies need to be more aggressive about 
turning off the gravy train to Russia, and we should use our 
voice on this Committee to hit Putin where it hurts the most, 
and that is his piggy bank. That includes sanctioning Russian 
energy companies. I hope to see both sides of the aisle here 
work together on this important issue in the weeks and months 
ahead as this ongoing and unprovoked invasion of Ukraine 
occurs.
    One more point before I turn to my questions. I was very 
pleased to see the Bush administration nominate Ambassador 
Bridget Brink to be the Ambassador to Ukraine. I met with her 
in Bratislava in the last couple weeks. She is currently 
Ambassador to Slovakia. She has a 26-year career at State. She 
has served in Serbia, Cyprus, Georgia. She has been on the 
National Security Council. She has been in Uzbekistan, now most 
recently Slovakia. She speaks five languages, including 
Russian. I spoke with her yesterday, and she wants to see that 
diplomatic mission return to Ukraine and specifically Kyiv. I 
applaud her boldness, her leadership, and I hope that we can 
come together on both sides and move her through as quickly as 
possible because time is of the essence. It is time to have 
that diplomatic mission reopened in Ukraine.
    Director Chopra, I want to start by discussing an issue 
that I raised with you during your last appearance before the 
Committee, which is the CFPB's small business data collection 
rulemaking pursuant to Dodd-Frank Section 1072. Subjecting 
small entities to a new and complex data collection framework 
is likely to cause small lenders to retreat from the market, 
leaving business borrowers with fewer options or higher costs.
    So my question, first of all, is: How is the Bureau 
balancing its consumer protection mission with the need to 
ensure the continuing availability of credit for local 
businesses?
    Mr. Chopra. So, Senator, thanks for the question, and also 
thanks for meeting with me yesterday to discuss some of this. I 
will tell you it is so critically important that small 
businesses are able to get loans. We saw how important this was 
during the pandemic and with PPP. We saw how well some small 
financial institutions did in serving them.
    I do want to be clear, though. We have to implement this 
rule by directive of Congress. It is in the law, and actually 
the CFPB is under a court order to make progress on that. So we 
are doing our best to make sure we are in adherence to, you 
know, the statute, to the court deadline. I am not sure there 
is really a balance between consumer protection and others. We 
have to faithfully implement congressional directives and do it 
in a timely fashion.
    I am trying to look--the rule was proposed before I 
arrived. I am trying to look at what are the ways in which it 
can be easy for lenders to report this data, to be streamlined. 
What are ways to be more simple? I want to make sure that--we 
have a lot of experience under the Home Mortgage Disclosure Act 
of how mortgage lenders do this. We need to know what lessons 
can we learn from that and make sure----
    Senator Daines. I just want to----
    Mr. Chopra. Sorry.
    Senator Daines. No, no. That is helpful. But how does the 
Bureau plan to address concerns from our community-based 
lenders that this proposed 25 transaction threshold--it is far 
too low. Thoughts?
    Mr. Chopra. Well, we are looking at all the comments around 
what is the right threshold, but I think there is--more than 
the threshold, there is also the issue of what is it going to 
take to do the reporting. What is the process by which they 
have to go through systems? What type of data will they have to 
collect? All of this will help make determinations about how do 
we faithfully implement the statute.
    Senator Daines. Thank you. The Bureau, in my observation, 
seems to pride itself on being a modern, data-driven Government 
agency. It is clear that a critical part of that effort is 
ensuring that rulemakings are grounded in evidence and 
research, including meaningful cost-benefit analysis. Under the 
prior leadership, the CFPB established an office for this very 
purpose. So as CFPB Director, how are you ensuring the costs of 
regulation do not outweigh any potential benefits, especially 
since those costs will be passed on to consumers?
    Mr. Chopra. Yes, so I believe you will see in the proposed 
rule there is some analysis based on the data that has already 
been analyzed by our economists and by our market analysts. 
That is information that all of us look at very carefully. I 
will acknowledge it can sometimes be hard to get that specific 
data, but we really do try and get through our comment periods 
but also our own market analysis and really anyone who will 
contribute that data so we can assess its validity and make an 
informed determination. And I should say, Senator, there is 
specific language in the statute, you know, about the analysis 
of costs that we make sure we comply.
    Senator Daines. Just a final comment. I am over time, but, 
you know, I have spent many, many hours, thousands of miles 
driving around my State, having meetings with small businesses. 
I would say over and over again one of their top concerns has 
been the regulatory burden that has been placed on them by the 
Federal Government, even more so than taxes. I hear more about 
regulatory burden than taxes. Of course, nobody likes higher 
taxes, but I hear a lot about the regulations.
    So I appreciate your thoughtful analysis as you look at the 
cost-benefit because ultimately those costs will get passed on 
to consumers.
    Mr. Chopra. Yeah, and just if I can add, in my written 
testimony I have shared with CFPB staff that my observation 
across the board is that rules, you know, if they are so 
complicated--of course, the large players, they have all the 
ability to figure it all out, comply with it, and sometimes 
they like the complex rules because it keeps small guys out. 
And I think the more we can move to simplicity and bright 
lines, the better.
    Senator Daines. I appreciate it, because, as you know, the 
compliance in large corporations can be three floors of a 
building. The compliance department in a small business might 
be the owner of the business. So thank you.
    Chairman Brown. Thank you, Senator Daines.
    Senator Cortez Masto from Nevada is recognized from her 
office.
    Senator Cortez Masto. Thank you. Thank you, Mr. Chairman, 
for this hearing. And, Director, thank you. Thank you for--I 
was listening to you this morning, and thank you for your 
candor and your commitment here to getting the facts right.
    Let me just say something I have observed. In the less than 
6 months that you have been there, you have established a more 
fair consumer finance ecosystem. Under your determined 
leadership, the Consumer Financial Protection Bureau has 
restored its mission to protect people and consumers from 
surprise charges, from predatory pricing, and unfair terms in 
financial products. And just listening to you this morning, it 
is clear the Consumer Bureau's actions keep money in people's 
pockets and their bank accounts. So thank you for that.
    One of the things I want to talk to you about is payday 
lending. Nevadans, unfortunately, are charged an average of 602 
percent on a $500 payday loan. This is the second highest 
amount in the country. Nevadans who take out $500 in 
installment loans paid over 4 months have spent $924. Now, 
other States have 36-percent interest rate caps.
    So I know the Bureau established some national protections 
for payday loan borrowers, and payday loan borrowers are 
supposed to receive no-cost extended payment plans, for 
example. But can you talk a little bit about what did the 
Consumer Bureau's research find about payday lenders complying 
with these borrower protections? I am curious. And what else 
can I be doing or should we be doing to address what I see 
happening in Nevada right now?
    Mr. Chopra. Yes, thank you, Senator. So the CFPB did 
conduct a study about the impact of certain State laws that 
require extended repayment plans for certain payday type loans, 
and the analysis looked at uptake and the efficacy of those. 
And one of the findings was that there was extremely low 
uptake, and we certainly in our own supervisory work have found 
that payday lenders often did not make those available even 
though it is required under State law.
    So, you know, one of the thoughts was in many cases the 
lender may have a strong incentive not to move it into an 
extended repayment plan and instead move into a reborrowing 
situation. We are continuing, as we do with every market, to 
analyze the latest developments, see what is happening at the 
local and State level, and ultimately we want a market that is 
fair, transparent, and competitive, that people can get credit 
at lower costs in ways that they can successfully pay back.
    So we are happy to brief you further on that State law 
analysis, but, generally speaking, it appears that in many 
circumstances it was not meeting the State law's intent.
    Senator Cortez Masto. OK. Thank you. And then let me talk a 
little bit about the work that you have done. I know recently 
the CFPB issued a report on the challenges faced by Americans 
in our rural communities. One of the suggestions from the rural 
report was having the Consumer Bureau help rural areas access 
and use the CFPB's complaint tool more effectively. And another 
suggestion from the rural report was holding roundtables in 
Native American communities. Can you tell me what the plan is 
for these listening events and what more we should be aware of 
that you are doing in our rural communities?
    Mr. Chopra. Yes, so, again, I will just say that it is a 
huge problem for our country and our family farmers if we are 
not able to have access to rural branch banking. Branch banking 
is different in rural communities than it is in urban areas.
    Of course, all banks are competing to keep up with 
technology, but when some communities have no banks at all, are 
banking deserts, the implications can be serious.
    Senator, we are definitely eager to work more in rural 
areas, especially family farmers, especially tribal 
communities, to understand what can be done to actually address 
the needs of those communities and make sure that they can take 
part in all of the economic growth that we hope to see.
    I have raised concerns with our staff that rural 
communities are less likely to file complaints. We believe that 
that could be due to a lack of awareness or a lack of knowledge 
about the ability to get help. You know, certainly there may be 
fewer complaints there, but we want to make sure, when people 
have problems with their credit report or when facing debt 
collection, that they know where to go for help.
    Senator Cortez Masto. Thank you. And I know my time is 
almost up, but I want to touch on one other thing that the 
report touched on, although it was on the rural report focus of 
it. But I have concerns that there are a number of 
manufactured-home communities in my State and across the 
country that are being bought up by private equity firms, and 
some of these firms have dramatically increased rents and 
tacked on costly fees. And we know that the impact to these 
residents is they feel stuck. And so I am hopeful that the 
Bureau is also taking a look at that, and I would love further 
conversation with you about what we can do to address some of 
the concerns particularly for these residents.
    Mr. Chopra. I am happy to meet with you further about that. 
There is no question that there has been a shift to larger 
private investment firms that are further engaged in the 
housing market rather than local landlords. You know, my focus 
is on the mortgage market, but, again, Senator, I am very happy 
to discuss that with you further.
    Senator Cortez Masto. Thank you.
    Thank you, Mr. Chairman.
    Chairman Brown. Thank you, Senator Cortez Masto.
    Senator Hagerty from Tennessee is recognized.
    Senator Hagerty. Thank you, Chairman Brown, Ranking Member 
Toomey. And, Director Chopra, thank you for being here and 
appearing with us today.
    I would like to go back to the foundation of the CFPB. It 
was created in a way that intentionally shielded it from 
accountability to elected officials. It was, in fact, buried 
inside the Federal Reserve, I think with the intent to exempt 
it from the congressional appropriations process.
    Last year, I introduced the CFPB Accountability Act, and I 
was joined by 17 of my colleagues in doing so. Our goal is to 
make the CFPB's baseline budget subject to the congressional 
appropriations process. I serve on the Appropriations Committee 
here in the Senate. I think that I would like to get your 
opinion given that effort. Would you support making the CFPB's 
baseline budget more transparent and more accountable by 
subjecting it to the appropriations process? And could you 
think of any reason that the CFPB should not be fully included 
in the appropriations process?
    Mr. Chopra. Yeah, so, Senator, I appreciate the question. 
And just as a factual matter, you know, that is really the role 
for Congress to design what the structure of agencies are. But, 
specifically, though, the OCC, the FDIC, the Fed, they are 
generally not appropriated agencies. None of the banking 
regulators are. The FDIC is funded through the Deposit 
Insurance Fund. The OCC actually sets its own fees about what 
it is going to collect from banks and thrifts in order to fund 
its operations. And the Fed obviously has a totally different 
system.
    So I think there have been a number of proposals about 
should the CFPB be funded by fees or another mechanism. As you 
know, right now there is a baseline that certainly comes from 
the Fed, but anything--it is subject to the appropriations 
process inasmuch that the agency makes requests beyond that. So 
I think, as I understand from the legislative history, this is 
so that the CFPB can cover its basic functions and, for 
functions that it seeks, you know, to go beyond, does seek that 
from Congress. So that is a supplemental appropriations 
process.
    Senator Hagerty. Well, we would certainly like to see more 
accountability and more direct accountability on this front. I 
understand the point about fees and some of the other agencies 
that do operate by fees, but my understanding is that fees are 
perhaps 10 percent of your revenue at this point, if that.
    Mr. Chopra. So we do not charge any fees on regulated 
institutions. I think actually a fee-based system would be 
challenging because our oversight is over nonbanks as well. So 
there is not even necessarily a registry of who those 
individuals are.
    Senator Hagerty. So there is zero penalty or fee income 
that comes to your organization.
    Mr. Chopra. Oh, sorry. If you are referring to civil 
penalties, civil penalties are segregated, and I just discussed 
this with Senator Rounds, and we will be using that for victim 
redress. It is not for, you know, discretionary expenditures. 
It is limited in the statute----
    Senator Hagerty. To that specific pocket of----
    Mr. Chopra. That is right, sir.
    Senator Hagerty. I think that you have got, you know, some 
major concern regarding what occurred at the FDIC. I know you 
have spoken to this earlier. The FDIC Board is operated in a 
bipartisan fashion and worked effectively regardless of its 
political makeup. But in December, you broke this precedent, 
and you successfully led a coup at the FDIC, which a number of 
Federal Reserve officials have acknowledged in front of this 
Committee. I have asked this question many times amongst other 
nominees that have come before this Committee. They have all 
committed to me not to let this happen again at their 
particular point of jurisdiction.
    Last October, you and then-Director Gruenberg claimed that 
the FDIC Board approved a request for information on bank 
mergers that broke decades of precedent and, frankly, was 
claimed as being a false claim.
    I want to know why this was done in order to seize control 
of the agency's agenda, as you threatened to ``take further 
steps to exercise independence from management.'' Can you 
explain to me----
    Mr. Chopra. Well, Senator, I----
    Senator Hagerty. ----the thought process?
    Mr. Chopra. I would totally dispute what you have laid out. 
I will tell you this: You are right, what happened at the FDIC 
was sad, but it is--again, it is not a hard story. The law is 
clear, the bylaws are clear, and the precedent is clear. The 
Chairperson does not have the right to simply nullify the 
supermajority of the Board. That is not even how any corporate 
board works either. And, in fact, one needs to always operate 
under a core principle of the rule of law, and the rule of law 
has to be grounded in statute and in precedent, not simply 
``because I say so.''
    It is so important that our regulators operate under what 
Congress has established for its governance structure. The FDIC 
is operated by a Board, and that means that when there are 
valid actions, no individual can simply say, ``No, thank you, 
that is not how it works.''
    That is not how orderly Government works, and we need to 
make sure----
    Senator Hagerty. Actually, I have served on many corporate 
boards----
    Mr. Chopra. ----it never happens again.
    Senator Hagerty. ----and nonprofit boards. And working with 
the chairman of the board is a key part of setting----
    Mr. Chopra. Of course, and that is what I sought to do, 
too. You know, you ultimately want an ability to be able to 
compromise, and one Board member cannot simply say, ``Well, I 
will only compromise, but you need to know I can crush or 
suppress or muzzle anything you want to do.'' I mean, this is 
not actually the American system.
    Senator Hagerty. What are your thoughts about the precedent 
that this sets when parties----
    Chairman Brown. Answer the last question. Then we need to 
move on for Senator Warnock.
    Mr. Chopra. Could you repeat that? I am sorry.
    Senator Hagerty. Your thoughts about the precedent that 
this sets, particularly when there is another change of control 
of the White House.
    Mr. Chopra. Well, I think it is extremely important that we 
always adhere to the law, bylaws, and precedent, and the 
precedent at the FDIC is that Board members make motions, that 
Board members vote, and that Board members can consult with the 
career staff. Never before has that been violated before, and 
we need to make sure it does not happen again.
    Chairman Brown. Thank you, Director. Thank you, Senator 
Hagerty.
    Senator Warnock of Georgia is recognized.
    Senator Warnock [presiding]. Thank you so much, Chairman 
Brown. Director Chopra, great to see you again. Thank you for 
the work that you are doing to protect the people in my home 
State of Georgia and all across our country from deceit and 
fraud perpetrated by bad actors in the financial industry.
    According to the Kaiser Family Foundation, nearly one in 
ten adults, or roughly 23 million people, owe medical debt. And 
as of 2020, American families collectively owed over $140 
billion in medical debt. In Georgia, there is over $120 million 
in medical debt for over 100,000 people.
    Last month in this Committee, we heard from experts that 
people in States like Georgia that have not expanded Medicaid 
suffer from higher medical debt, not surprisingly.
    What State you live in should not determine whether or not 
you have access to free or affordable health care or whether or 
not you are forced deeper into medical debt, but that is the 
situation we are in right now.
    That is why I introduced the Medicaid Saves Lives Act, and 
it is the reason I am fighting to close the coverage gap, to 
ensure that everybody everywhere is able to see the benefits of 
Medicaid and to receive health coverage. We are talking about a 
law that has been on the books now for a decade and making sure 
people have access to health care through the expansion of 
Medicaid.
    Director Chopra, in the CFPB's work on medical debt, is 
there a difference that you are seeing in debt burdens among 
residents of States that have expanded Medicaid and States like 
Georgia and the other 11 States that have not?
    Mr. Chopra. So, Senator, I do not have that analysis 
offhand. What we do know is that for those who are uninsured, 
they are much more likely to have higher levels of medical debt 
and more likely to, I believe, have collections items on their 
credit report. I am happy to check with you on that.
    The big challenge I also think is that much of the medical 
debt that appears on credit reports may not actually even be 
owed. In many cases, these individuals may qualify for certain 
charity care under the nonprofit rules that hospitals have to 
adhere to. In some cases, they may benefit from their own 
insurance that they may have. And so we need to make sure that 
credit reports are accurate and not used as a weapon to force 
people to pay debt that they do not even owe.
    Senator Warnock. I would agree with that, certainly. But 
would you agree there if people are less--if they are not 
covered, they are more likely to be in debt? So that would 
obviously include people----
    Mr. Chopra. That sounds right.
    Senator Warnock. ----in States that have not expanded 
Medicaid, that do not have any kind of coverage, and they would 
be more likely to have to resort to high interest credit cards.
    Mr. Chopra. That is right.
    Senator Warnock. Are you seeing that in your work?
    Mr. Chopra. That is right. So in some cases, actually, 
medical debt is even blocking people from getting care 
altogether. I am particularly concerned that inaccurate medical 
debt reporting is actually preventing people from even being 
able to pass an employment verification check, to be able to 
pass a tenant screening check, to be able to get credit. The 
credit reporting system has serious issues with accuracy, and 
medical debt is high among them.
    Senator Warnock. Right. So because of lack of access to 
care, lack of coverage, people find themselves in medical debt, 
which also impacts, as you point out, their credit reporting, 
impacting employment. So they are caught up in a cycle not only 
of debt but unemployment and a whole range of other cascading 
issues. Is that----
    Mr. Chopra. Yeah, and after you get sick, you should want 
to be able to get back on your feet, to get back to work, to 
move to a place where you can be near your job, to be able to 
rebuild your life. And for many people, they are so frustrated 
that they also felt, ``I already paid this,'' or ``I never even 
got this service,'' or ``This is sitting with the insurance 
company.'' People are going nuts over how to deal with this, 
and it is harming people.
    Senator Warnock. I appreciate your observations here. I 
think that health care is a human right. And, obviously, if it 
is a human right, it is not a human right in some of the 
States; it is a human right in all 50 States. The Affordable 
Care Act has been on the books now for a decade, and the 
situation is that people in States like Georgia who find 
themselves in a coverage gap are more likely to be carrying 
this huge medical debt. And so I look forward to working to 
make sure that we get health care passed for all Americans.
    I see that our Chairman is not here, and I want to call on 
my colleague from the State of Maryland, Senator Van Hollen.
    Mr. Chopra. Thank you, Senator.
    Senator Van Hollen. Thank you, Senator Warnock. Welcome, 
Director Chopra. It is great to see you. And that is a good 
launching point for some of my questions, taking a little 
deeper dive into medical debt. And I certainly agree with 
Senator Warnock that we need to expand access under the 
Affordable Care Act, including States like Georgia that are not 
currently covered.
    But to pick up on your point, we have seen, including in 
your own report, that medical debt is less predictive of 
creditworthiness than nonmedical debt, and you did a pretty 
extensive series of findings in this regard. And we have seen 
some credit scoring companies, like FICO and VantageScore, 
update their models to reflect the latest research. But despite 
the fact that we have some of these updates models, we still 
see many lenders are not adopting those models that reflect the 
latest research.
    So my question to you is: Number one, why is this? And, 
number two, what tools do you have to help move these lenders 
in the direction that essentially reflects the latest research 
with respect to medical debt? And can you work with the FHFA 
and with Fannie Mae and Freddie Mac to encourage the use of 
more accurate scoring models?
    Mr. Chopra. Yeah, it is interesting. So many lenders, you 
know, they are quite dependent on credit scores and other 
algorithms that help predict creditworthiness. And one of the 
things we have seen is that FICO did change one of its versions 
to exclude certain medical debt items. But much of the industry 
does not use that version. There is a whole host of reasons 
why.
    I think a lot of creditors are worried that they are not 
able to give a good explanation to borrowers who they might 
have given adverse terms to or denied them. As to why, it is 
often really challenging for individuals to dispute through the 
credit reporting system, to say, ``Look, I always paid this. 
See this service with this procedure code and this copay? I 
paid it.'' It is so much red tape, and they feel that they just 
are stuck in a doom loop. And, you know, it really harms 
people.
    So I think there are all sorts of things that are happening 
across the Government to take a harder look about the 
appropriateness of excluding people because of allegedly owed 
medical debt. The Department of Veterans Affairs has 
dramatically changed its policies with respect to how it 
reports medical debt for veterans. There is work being done at 
the USDA and, yes, we are in discussions with the FHFA about 
how should they think about medical debt in the mortgage 
origination process. I really think we have to fix this because 
this is a major consumer pain point. It is the number one 
collections item now on people's credit reports, and so many 
people just feel coerced into paying something they do not owe 
when they are applying for a mortgage or a job or an apartment.
    Senator Van Hollen. Right. Look, as you say, there are lots 
of cases that are being disputed for good reasons, and yet 
people still get penalized on their credit reports. And the 
data shows--and that is why these credit scoring companies have 
moved in the direction of the new research. I just hope you 
will use the tools available to you and that others in the 
Government will use the tools available to them to encourage 
lenders who may be denying people credit because of outdated 
information, that we move in the direction that you are talking 
about. So I look forward to your leadership in that effort 
because I know the issue of medical debt is something of great 
concern to you.
    So let me also turn to another issue that you and I have 
discussed in the past--overdraft fees--and we have made some 
progress in this area. You know, I have often used the example 
of somebody going to buy a cup of coffee and it ends up costing 
them 35 bucks, and then later in the afternoon they go buy some 
more snacks and it costs them another 35 bucks because of 
either overdraft fees or nonsufficient fund fees.
    I have been pleased to see a number of banks begin to move 
away from the exploitation of that, but, nevertheless, we are 
talking about $15 billion in revenues from overdraft fees as a 
result of the use of these fees.
    Can you talk more about what your plans are to ensure that 
we do not see abuse in abuse in this area?
    Mr. Chopra. I see we are out of time, but we are looking at 
a whole assortment of fees that, you know, many people do not 
even want the service that is allegedly being provided. So we 
are looking at this holistically. We have solicited comments on 
the issue of junk fees and have gotten 80,000 comments. We are 
looking at that carefully. But, you know, we are starting to 
see the market compete. The market is competing down the level 
of these fees. Some institutions are even offering the same 
service and giving people a grace period without even charging 
a hefty fee. And I think the benefits of competition are huge 
when it comes to this.
    Senator Van Hollen. Well, I hope there is a race among the 
different providers in that direction.
    Thank you, Mr. Chairman.
    Chairman Brown [presiding]. Thank you, Senator Van Hollen.
    Senator Toomey has a couple of questions he wants to ask, 
and then Senator Reed will be back, and then we will wrap. 
Senator Toomey?
    Senator Toomey. Thank you, Mr. Chairman. Really, just a 
closing thought on my part about this ongoing dispute we have 
over the application of disparate impact under UDAAP.
    I think what became clear during the course of the 
conversation here is that the Director repeatedly, I think, 
directly and implicitly, equates disparate impact with 
discrimination. And the problem is they are two very different 
things. Disparate impact is a statistical difference in some 
kind of outcome between different demographic groups, and these 
occur all the time for reasons that have nothing to do with 
discrimination.
    Now, Congress has rightly enacted all kinds of legislation 
to forbid discrimination, and if someone thinks that there are 
gaps in our legislative framework to ban discrimination, he 
should come to Congress and we should fix it. But the decision 
to invent a new authority and enforce this controversial 
disparate impact theory under UDAAP, in my view this is 
entirely inappropriate. It is not authorized. And let me be 
clear about what I think is really going on here. It is not 
just an attempt to unilaterally expand CFPB's authority, but it 
seems to be an attempt to impose uniform financial outcomes 
despite real and legitimate differences in financial 
situations, financial needs, financial preference, and to use a 
false characterization of discrimination to justify that.
    Thank you, Mr. Chairman.
    Chairman Brown. Thanks, Senator Toomey.
    Senator Reed, last questioner.
    Senator Reed. Thank you very much, Mr. Director. One issue 
that I want to just generally raise and commend you is the 
issue with respect to the Military Lending Act. I know you have 
taken a much more positive approach. Could you give us some--
sort of fill in what you have been doing with respect to the 
Military Lending Act?
    Mr. Chopra. Yes, so we have actually filed a lawsuit 
against FirstCash, one of the Nation's largest pawn lenders, 
for violating a past law enforcement order related to the 
Military Lending Act and continuing to violate the Military 
Lending Act. The Military Lending Act is actually quite clear 
with many respects, and that entity's order was even crystal 
clear. So I think it is important that we stop repeat offenders 
of the Military Lending Act.
    We have also, with respect to another entity that violated 
the Military Lending Act, banned them from certain types of 
activities. We are also making sure that institutions are 
following it. We will use our supervisory and enforcement tools 
as appropriate.
    There are also other agencies that enforce this as well, 
and we hope that that can have a broad enforcement effort to 
root out those violations.
    We know the evidence, Senator, and you know it better than 
me, that when we have people who lose their security clearance 
or get their credit report killed, it is not just a harm to 
them; it is a direct harm to our force readiness as well. We 
really appreciate the Department of Defense working with us on 
this because this is so important to our whole country.
    Senator Reed. Thank you. As you know, the essence of the 
Military Lending Act is the 36-percent cap on interest, and I 
have legislation which I have tried to propose that would apply 
not just to service men and women but to everyone, because I 
think, in fact, everyone deserves that kind of protection from 
excessive rates.
    Would you be in favor of that?
    Mr. Chopra. Well, you know how it is. I do not know the 
specifics of the legislation, but, of course, as we saw in the 
Military Lending Act, you know, servicemembers are still able 
to get credit. In many cases, they use what almost everyone is 
using for short-term, small-dollar lending: a credit card that 
is subject to significant consumer protection. We have seen a 
number of States enact rate caps, and I think this is an 
important area for you all to look at.
    Of course, the CFPB cannot establish that under our law, 
and we are happy to work with you to provide any analysis or 
feedback on your bill.
    Senator Reed. Well, thank you very much, and I want to 
thank Senator Brown and Senator Toomey for graciously 
continuing the hearing so I could ask my questions. And I want 
to commend you for the excellent work you are doing. Thank you 
very much.
    Mr. Chopra. Thank you so much, Senator.
    Chairman Brown. Well, Senator Toomey grew up in your State, 
and my grandchildren live in your State, so it was an easy 
decision.
    Senator Reed. And Senator Toomey went to my high school.
    Chairman Brown. He went to your high school--way after.
    Senator Toomey. Well before you.
    [Laughter.]
    Senator Reed. He is the senior. He just looks better.
    Chairman Brown. Director, thank you for your testimony 
today and your patience always. Few Government agencies, few 
jobs in our country, private or public, have the kind of 
positive impact on so many lives that you do and your agency 
does.
    Senators wishing to submit questions, they are due 1 week 
from today, Tuesday, May 3rd. Please submit your responses to 
these questions, Director Chopra, for the record no more than 
45 days after you receive them.
    Thank you again. The Committee is adjourned.
    [Whereupon, at 11:51 a.m., the hearing was adjourned.]
    [Prepared statements, responses to written questions, and 
additional material supplied for the record follow:]
              PREPARED STATEMENT OF CHAIRMAN SHERROD BROWN
    Welcome back Director Chopra.
    American workers need a strong Consumer Financial Protection Bureau 
on their side. With you at the helm, they finally have one again.
    We know how much power corporations and their wealthy CEOs have in 
this country.
    In 2021, last year, CEOs made 254 times more than the average 
worker.
    In the same year, corporate profits reached unprecedented levels--
the highest ever recorded.
    And predictably, too many corporations are growing their profit 
margins on the backs of families. CEOs complain about rising costs, 
they blame workers, they claim they just have to raise prices--all 
while funneling more profits to themselves than ever.
    And I guess that CEOs just have to make 254 times more than the 
workers who make their companies successful.
    That's no coincidence.
    After decades of growing market concentration, consumers and small 
businesses are at the mercy of ever larger, ever more powerful, ever 
more unaccountable corporations. Senator Tester is discussing in the 
Agriculture Committee right now, discussing what this means for 
farmers.
    They raise your costs, mislead you, even scam you--too often with 
little accountability and no meaningful consequences. They have armies 
of high-priced lobbyists and attorneys ready to fight anyone who dares 
to take them on.
    Normal people don't have those kinds of resources. They don't have 
a white-shoe law firm on retainer. They don't have an insider on K 
Street looking out for them.
    But now they have you, Director Chopra. They have you and the 
dedicated public servants at the CFPB, fighting to make sure Americans 
keep more of their hard-earned money.
    For 4 years, the CFPB was run by a director and pressured by an 
Administration that always--always--looked out for corporations over 
workers.
    The director was a favorite of payday lenders. Instead of being a 
voice for consumers, they turned the agency into yet another arm of 
corporate power.
    Your work for consumers could not be more different.
    When you testified in October, after you were sworn in, you 
introduced your agenda to usher in a new era of consumer protection. 
And we are already seeing the results.
    The Bureau challenged ``junk fees'' that banks and credit card 
companies collect.
    According to the CFPB's research, in 2019, major credit card 
companies charged consumers $14 billion in punitive credit card fees 
and banks charged consumers more than $15 billion in overdraft and 
nonsufficient funds fees.
    Americans are paying tens of billions--billions with a ``b''--in 
credit card and overdraft fees.
    By pushing banks to stop taxing consumers with junk fees, the CFPB 
is keeping money in Americans' bank accounts, not on corporate profit 
statements.
    You've also worked as part of the PAVE Interagency Task Force to 
examine the process behind the valuation of what is the single biggest 
source of most families' wealth--their home.
    You are working to identify and root out discrimination and bias in 
the appraisal process that hurts homeowners and communities and 
contributes to the wealth disparities we see today.
    And you've started the long-overdue work to ensure consumers and 
our housing system aren't subject to defective appraisal models with 
discrimination baked in.
    The CFPB is also doing important and effective work to address the 
growing crisis of medical debt that burdens American families.
    An estimated 43 million Americans hold $88 billion dollars of 
medical debt on their credit reports.
    It's been a problem for years--even decades.
    And in just a few short months on the job, you've already 
successfully pressured companies to make meaningful changes.
    After increasing scrutiny from the CFPB, last month the three 
credit reporting bureaus--Equifax, Experian, and TransUnion--all 
announced they would finally change how they report medical collection 
debt.
    These changes are expected to remove nearly 70 percent of medical 
debt in collections from credit reports.
    This is a positive first step that will make sure people with 
medical debt don't see their credit ruined simply because they or a 
loved one got sick.
    That's also why Congress passed the No Surprises Act, which took 
effect on January 1st.
    The CFPB wasted no time in letting debt collectors and credit 
bureaus know they can't surprise consumers with medical bills, and that 
they have new responsibilities under the new law.
    You have put companies on notice that if they try to cheat 
consumers, you'll be going after them.
    Just yesterday, you announced that the CFPB will use its 
Congressional authority to examine nonbanks. As their market share 
increases, it is important that fintechs and other nonbanks are 
properly supervised, to ensure consumers are protected from shady 
companies.
    One of your first major agenda items was to make sure repeat 
violators of consumer protection laws don't keep getting away with 
scamming and stealing from consumers.
    I look forward to hearing about the steps you've taken to crack 
down on repeat offenders--like big banks and credit reporting agencies.
    That's what we ought to be talking about today.
    But I expect my Republican colleagues to do what they've done for 
years--launch baseless attacks against CFPB's existence and question 
its authorities, transparency, and accountability.
    It's not that surprising they want to distract people with 
convoluted process arguments. When people hear the plain truth about 
the CFPB, it's a pretty simple contrast:
    Whose side are you on? Are you on the side of corporations that 
scam people? Or are you on the side of hardworking Americans who want 
to keep more of their money?
    Congress created the CFPB to protect consumers, and help level the 
playing field with powerful, unaccountable corporations.
    And Congress placed the CFPB Director on the FDIC Board, so that 
the FDIC will act with consumers in mind.
    Last year, a majority of the FDIC Board, on which Congress placed 
you, put forth a proposal to request information from the public on the 
bank merger process.
    In an unprecedented move, the former Chair ignored the Board's long 
history of bipartisanship and collegiality and refused to make this 
request an agenda item. Even though it was proposed according to the 
FDIC's rules and backed by a majority of the Board.
    As CFPB Director and member of the FDIC Board, you are doing your 
job-fighting, and standing up for hundreds of millions of consumers and 
small banks and businesses and their communities, rather than big 
corporations.
    You have also shown that you are willing to meet and work with 
anyone--Republicans and Democrats--to fulfill that mission.
    We hear a lot of talk from the other side of the dais about the 
virtues of capitalism.
    For markets to work, they have to be fair, transparent, and 
competitive. And that's why we created the CFPB--to ensure that the 
financial marketplace is fair for everyone, and corporations cannot rig 
the system and get away with it.
    I look forward to hearing your testimony on your consumer agenda.
                                 ______
                                 
            PREPARED STATEMENT OF SENATOR PATRICK J. TOOMEY
    Mr. Chairman, thank you.
    The CFPB began its existence under the Obama administration as a 
lawless and unaccountable agency. Unfortunately, under Director Chopra, 
the CFPB is more out of control than ever before. It's once again 
pursuing a subversive far-Left agenda by abusing--and exceeding--its 
authorities.
    Three weeks ago, the CFPB announced an unprecedented claim of new 
authority, without congressional authorization or even a public notice-
and-comment rulemaking process. Rather, it simply issued a fiat. The 
CFPB claimed the authority to sue financial services providers for 
discrimination without any evidence of discriminatory intent.
    Now, I want to make clear that Congress charged the CFPB with 
enforcing laws that protect against discrimination in consumer finance. 
The CFPB should enforce those laws.
    But that's not what it's doing here. Instead, the CFPB unilaterally 
decided that Dodd-Frank's grant of authority to prevent unfair, 
deceptive, or abusive acts or practices, known as UDAAP, now includes 
disparate impact liability.
    The idea of disparate impact liability is that a statistical 
difference in outcomes between demographic groups is proof of 
discrimination even when there is no discriminatory intent. For 
example, if more Asian than Hispanic customers use a bank's overdraft 
service, and thus pay more in overdraft fees, the CFPB could claim the 
bank's overdraft policy has a disparate impact, and issue harsh 
punishments.
    In many American households, women manage the checkbook, so in 
theory the CFPB could claim overdraft policies have a disparate impact 
on women. In the past, when overseeing auto-lenders, the CFPB has 
``discovered'' discrimination even on the part of lenders who didn't 
know the race of the borrowers they were accused of discriminating 
against.
    The problem is Dodd-Frank did not authorize disparate impact 
liability under UDAAP. In the 12 years since Dodd-Frank was enacted, 
the CFPB has never claimed that the law did. And Congress never 
contemplated that it would.
    That's because Dodd-Frank's unfair acts or practices language was 
taken from the Federal Trade Commission Act of 1914. And for a century, 
the FTC has never once treated that language as including disparate 
impact liability.
    To make matters worse, the CFPB implemented this controversial 
change in law without an open and transparent rulemaking. Instead, the 
CFPB issued a press release announcing it had updated its supervision 
manual.
    This is all particularly troubling given the Obama CFPB's 
controversial history with disparate impact enforcement against lenders 
under the Equal Credit Opportunity Act. That enforcement campaign was 
not authorized by statute and was based on bad data and a fatally 
flawed methodology. This notably led Congress to overturn the CFPB's 
disparate impact guidance for auto lending in 2018.
    Now, invoking UDAAP, the CFPB is attempting to supervise for 
disparate impact not only in lending, but in all consumer financial 
services and products--in effect extending the very policy that 
Congress recently overturned. A harmful consequence of this 
unauthorized stealth rulemaking is that it will create tremendous 
uncertainty among regulated entities.
    Every decision and action businesses take, including even their 
advertising and marketing, may subject them to disparate impact 
liability, despite their often having no way of knowing whether a 
disparate impact will occur. Unfortunately, we can expect the CFPB to 
continue disregarding its rulemaking obligations in the future.
    The CFPB recently changed its rules of adjudication to make it 
easier to engage in regulation by enforcement. This grossly unfair 
practice occurs when agencies fail to set clear rules of the road 
before bringing enforcement actions.
    Under these new rules, Director Chopra can bypass an administrative 
law judge in enforcement cases and rule directly on substantive legal 
issues. As a result, he can now authorize his staff to bring an 
enforcement case based on a novel legal theory and then he can 
personally rule that it's a valid theory.
    These are not the only examples of the CFPB's overreach under 
Director Chopra. He has consistently sought to involve the CFPB in 
competition and antitrust law, which is outside its jurisdiction.
    For example, the CFPB has falsely justified its campaign against 
bank overdraft fees as a means of ``promoting competition.'' And it has 
demanded information from tech companies operating payment systems to 
examine whether they're acting ``anticompetitively.''
    At the same time, the CFPB is taking actions that will harm 
competition. It has proposed an overly burdensome data collection rule 
for small business lending that will likely increase credit costs and 
adversely affect competition by driving lenders out of the market.
    Unfortunately, the CFPB is not the only agency that's out of 
control because of Director Chopra. Last year, he helped lead a hostile 
and illegitimate takeover of the FDIC, where he sits on the board.
    Director Chopra and FDIC Director Marty Gruenberg--whose FDIC term 
expired over 3 years ago--took unprecedented actions to force out FDIC 
Chairman Jelena McWilliams.
    Upon seizing control, they are now using the FDIC to advance their 
left-wing partisan agenda. In the process, they recklessly destroyed 
institutional norms built up over the FDIC's 88-year history, and 
severely damaged the longstanding principle that financial regulators 
should operate free from partisan politics.
    King Louis XIV famously said, ``L'etat c'est moi,'' meaning ``I am 
the State.'' All political authority rested with one man. It seems the 
CFPB under Director Chopra believes it has similar authority.
    Under Director Chopra, the CFPB is more out of control than ever 
before, and the contagion is spreading. It's past time for Congress to 
bring accountability to the CFPB by making it subject to the 
appropriations process and enacting other needed reforms. The current 
Congress won't do that. The next one should.
                                 ______
                                 
                   PREPARED STATEMENT OF ROHIT CHOPRA
             Director, Consumer Financial Protection Bureau
                             April 26, 2022
    Chairman Brown, Ranking Member Toomey, and distinguished Members of 
the Committee, I am pleased to appear before you today in conjunction 
with the Consumer Financial Protection Bureau's (CFPB) submission of 
the Semiannual Report to Congress.
    In my first 6 months as Director, the Consumer Financial Protection 
Bureau has refocused its efforts to align with the objectives that 
Congress set out for the agency. I have outlined some of the highlights 
of this work below.
Focusing Enforcement on Repeat Offenders and Other Major Market Actors
    When small businesses violate the law, Federal enforcers are often 
quick to levy crippling sanctions. But when larger players repeatedly 
violate the law, agencies are far more lenient. This is highly 
inappropriate.
    I am committed to ensuring that the CFPB does not follow this path. 
The CFPB is shifting enforcement resources away from investigating 
small firms and instead focusing on repeat offenders and large players 
engaged in large-scale harm.
    For example, in recent months, we have filed lawsuits against two 
very large firms, FirstCash and TransUnion, that violated law 
enforcement orders and other consumer financial protection laws. In 
both cases, the entities willingly consented to an order and were on 
clear notice of their obligations. The CFPB alleges that both firms 
violated their orders and continued to violate the law.
    The CFPB and the New York Attorney General also recently filed a 
lawsuit against MoneyGram, one of the biggest providers of remittances 
worldwide, for violating rules required by Congress in the money 
transfer market, despite being granted many chances to come into 
compliance.
    During my tenure, the CFPB will not only focus on large actors 
engaged in widespread harm, but also enforce the law as written. I 
expect that this may lead to more litigation, but also lend greater 
legitimacy to agency actions.
Enhancing Transparency Through Guidance
    Laws work best when they are easy to understand, easy to follow, 
and easy to enforce. During my tenure, the CFPB will dramatically 
increase its issuance of guidance documents, such as advisory opinions, 
compliance bulletins, policy statements, and other publications. We 
have already begun to do so on a wide variety of topics.
    These efforts help entities comply with laws passed by Congress by 
either providing further clarity where needed or drawing attention to 
an already clear legal requirement. They also promote consistency among 
the many Government actors responsible for enforcement of Federal 
consumer financial law, including other Federal regulators and State 
and tribal Attorneys General across the country. The CFPB is especially 
interested in areas where guidance can support compliance efforts by 
small institutions and new entrants.
Rethinking Our Approach to Regulations
    When Congress and the President enact laws that direct or authorize 
the promulgation of regulations, agencies should not ignore them. \1\ I 
am committed to ensuring that the CFPB takes meaningful steps to carry 
out legislative directives.
---------------------------------------------------------------------------
     \1\ For example, when I served as a Commissioner on the Federal 
Trade Commission, my office conducted an analysis that identified 
several pieces of legislation signed into law by President Bill 
Clinton, President George W. Bush, and President Barack Obama that the 
Commission largely ignored.
---------------------------------------------------------------------------
    At the time I became Director, the CFPB had not made any 
significant progress on the development of several rules that Congress 
authorized in the Consumer Financial Protection Act, including under 
Section 1033, a provision that could increase competition and choice in 
consumer financial markets. In addition, the agency is working to 
implement Section 1071 of the Act, regarding small business data. This 
is not a discretionary rule, and the CFPB is subject to a court order 
to ensure it is implemented in a timely fashion.
    In December 2021, Congress amended the Fair Credit Reporting Act to 
assist survivors of human trafficking and required the CFPB to 
implement regulations within 180 days. The CFPB has already published a 
proposal for public comment and is working to complete the rulemaking 
to comply with the deadline set by Congress.
    More broadly, I am concerned that the approach to regulations 
pursued by Federal banking agencies is excessively complicated. I have 
asked CFPB staff to put a higher premium on simplicity and ``bright 
lines'' whenever possible. We are also reviewing rules that the agency 
inherited from the Federal Reserve Board of Governors to identify 
opportunities for improvement.
    The CFPB has also launched a new process to allow the public to 
more freely exercise the Constitutional right to petition the 
Government. Our new process will allow us to hear directly from the 
public about potential regulations that should be developed or amended.
Listening and Learning From the Business Community
    While large depository and nondepository institutions have direct 
access to the CFPB through our supervision program, many other 
businesses also have a stake in the CFPB's policies. During my 
confirmation process, I received feedback that the CFPB was extremely 
responsive to large financial institutions, but not sufficiently 
committed to listening and learning from local financial institutions 
and the broader business community. I take this criticism seriously and 
I have directed a number of changes to the agency's status quo 
approach.
    A key priority for me has been to engage with institutions without 
direct access to the CFPB, including small banks and credit unions. I 
have been fortunate to meet with many State-based associations to speak 
directly with community banks and credit unions, and I hope to meet 
with all of these associations during my term in office.
    The CFPB is also engaging with a broad range of other businesses 
and associations, including health care providers, automobile dealers, 
farmers, hotel owners, retailers, and more. While these industries 
generally engage in business practices that fall outside the scope of 
the CFPB's authority, they are deeply affected by the laws the agency 
administers. These efforts will help the CFPB be more attuned to the 
needs of businesses across the economy.
Promoting Competition
    In our market system, one of the best ways that consumers can 
protect themselves is to switch from providers that treat them poorly. 
This is why Congress established as a primary objective that the CFPB 
seek to ensure that markets for consumer financial products and 
services are fair, transparent, and competitive.
    Competition leads to innovation, attractive rates, quality service, 
and benefits that may be difficult to quantify. But when consumers do 
not get to select their provider or when switching is complex or 
difficult, it can lead to stagnation, junk fees, and poor treatment. 
Indeed, in many markets for consumer financial products and services, 
like loan servicing and credit reporting, consumers have no choice of 
provider.
    In addition to implementation of rules under Section 1033, we will 
be launching other initiatives to identify ways to lower barriers to 
entry and increase the pool of firms competing for customers based on 
quality, price, and service. We are especially interested in ways that 
small financial institutions can leverage technology and systems, like 
the planned FedNow program, to capture market share while still 
preserving their relationship banking model.
Preparing for the Era of Big Tech and Big Data in Banking
    America's consumer finance infrastructure is the plumbing for an 
enormous amount of economic activity. New technologies and systems can 
bring us faster payments and new opportunities to connect customers and 
financial providers. During my tenure, the CFPB will be very focused on 
what the future holds and how we can collectively shape it in ways that 
align with American values.
    Currently, the United States is lurching toward a consolidated 
market structure where finance and commerce comingle fueled by 
uncontrolled flows of consumer data. This is the market structure that 
has emerged in China, where Alipay (operated by Ant Group, formerly 
known as Alibaba) and WeChat Pay (operated by Tencent) predominate. 
Alipay is part of the same conglomerate that dominates e-commerce, and 
WeChat Pay is connected to the dominant messaging app.
    These super apps have access to an extraordinary set of data about 
consumers and businesses, including financial businesses that they may 
compete with. Over the last several years, Chinese tech and finance 
giants have developed so-called ``social scoring'' that goes beyond 
credit performance and relies on analyzing user habits unrelated to 
credit and banking. \2\
---------------------------------------------------------------------------
     \2\ See, for example, John Gapper, ``Alibaba's Social Credit 
Rating Is a Risky Game'', Financial Times (February 21, 2018), https://
www.ft.com/content/99165d7a-1646-11e8-9376-4a6390addb44.
---------------------------------------------------------------------------
    The outsized influence of such dominant tech conglomerates over the 
financial services ecosystem comes with risks and raises a host of 
questions about privacy, fraud, discrimination, and more. The CFPB is 
currently studying these issues first as part of our inquiry into Big 
Tech's entry into consumer payments in the United States. The agency 
has issued a set of orders to Google, Facebook, Amazon, Apple, PayPal, 
and Block (formerly Square) to further understand key issues on their 
plans for consumer payments. We expect to issue reports on our research 
to contribute to the critical policy discussions about the future of 
consumer finance and relationship banking in our country.
    Thank you again for the opportunity to appear before you, and I 
look forward to answering your questions.
        RESPONSES TO WRITTEN QUESTIONS OF CHAIRMAN BROWN
                       FROM ROHIT CHOPRA

Q.1. Recently, NPR found that student loan servicers mismanaged 
the income driven repayment (IDR) program, a program designed 
to help low-income borrowers. \1\ Their mismanagement caused 
significant harm to borrowers with the lowest incomes. To 
address some of the problems with IDR, the Department of 
Education recently announced changes to the program, which 
includes working in partnership with the CFPB.
---------------------------------------------------------------------------
     \1\ https://www.npr.org/2022/04/01/1089750113/student-loan-debt-
investigation
---------------------------------------------------------------------------
    How does the CFPB plan to ensure that student loan 
servicers that manage IDR properly comply with the recent 
changes to the program, so that borrowers are able to reap the 
benefits of the recent IDR reforms?

A.1. The Consumer Financial Protection Bureau (CFPB) is working 
to ensure that servicers comply with Federal consumer financial 
law, including by taking supervisory and enforcement action 
when servicers have given student loan borrowers inadequate or 
incorrect information about their repayment and forgiveness 
options. Earlier this year, the CFPB put student loan servicers 
on notice that we are prioritizing student loan servicing 
oversight work in the deployment of our enforcement and 
supervision resources. \2\ Our efforts include working closely 
with the Department of Education. We will hold servicers 
accountable for providing inaccurate information and failing to 
support student loan borrowers in accessing benefits provided 
for them.
---------------------------------------------------------------------------
     \2\ https://www.consumerfinance.gov/about-us/newsroom/cfpb-steps-
up-scrutiny-of-student-loan-servicers-who-deceive-borrowers-about-
public-service-loan-forgiveness/

Q.2. An investigative report found that for-profit schools are 
steering students towards Buy Now, Pay Later (BNPL) products as 
a form of student loan. \3\ Is the CFPB aware of this practice 
by for-profit colleges and, if so, what steps will the CFPB 
take to ensure consumers are protected?
---------------------------------------------------------------------------
     \3\ https://protectborrowers.org/wp-content/uploads/2022/03/SBPC-
BNPL.pdf

A.2. Pursuant to the CFPB's market monitoring authority granted 
by the Dodd-Frank Wall Street Reform and Consumer Protection 
Act, the CFPB issued a series of orders requesting information 
to companies offering Buy Now, Pay Later (BNPL) credit in 
December 2021. \4\ These orders identified our concerns in the 
BNPL market about accumulating debt, regulatory arbitrage, and 
data harvesting in a consumer credit market already quickly 
changing because of technology. The orders require receiving 
companies to provide information about the amount of originated 
BNPL transactions for tuition, fees, and any related expenses 
for technical, training, or educational certificates, degrees, 
or courses. \5\
---------------------------------------------------------------------------
     \4\ https://www.consumerfinance.gov/about-us/newsroom/consumer-
financial-protection-bureau-opens-inquiry-into-buy-now-pay-later-
credit/
     \5\ https://files.consumerfinance.gov/f/documents/cfpb-bnpl-
sample-order-2021-12.pdf
---------------------------------------------------------------------------
    Our efforts to gather information from the BNPL companies 
pursuant to the orders is ongoing, but we anticipate publishing 
aggregated findings on insights learned from this inquiry that 
will guide future CFPB action.
                                ------                                


        RESPONSES TO WRITTEN QUESTIONS OF SENATOR TOOMEY
                       FROM ROHIT CHOPRA

Q.1. CFPB Examination Manual Update on UDAAP--At the April 26, 
2022, hearing before the Senate Banking Committee, I asked you 
about the CFPB exam manual's unprecedented use of Unfair, 
Deceptive, and Abusive Acts or Practices (UDAAP) authority to 
justify disparate impact authority. You stated ``that's not 
what is in the manual actually.'' \1\ When I challenged this 
claim, you repeated: ``That is not what is in the manual.'' \2\ 
In a hearing before the House Financial Service Committee the 
very next day, when asked to clarify your statement to me, you 
said, ``So just to be clear, disparate impact is not part of 
UDAAP. Disparate impact is what the courts have determined is 
part of certain very specific laws, including the Equal Credit 
Opportunity Act that we do enforce.'' \3\ When asked to confirm 
that your answer was that you do not have the authority to 
stretch disparate impact into UDAAP, you replied in part: 
``That's a different legal doctrine. Unfairness has a different 
one.'' \4\
---------------------------------------------------------------------------
     \1\ https://plus.cq.com/doc/transcriptswire-
6519354?0&segmentLink=O13-20220426
     \2\ Id.
     \3\ https://plus.cq.com/doc/congressionaltranscripts-6520840?2. 
Your claim that disparate impact is part of the Equal Credit 
Opportunity Act is highly contestable. The test the U.S. Supreme Court 
used in Inclusive Communities to find that the Fair Housing Act 
prohibits disparate impact would find that the Equal Credit Opportunity 
Act does not authorize disparate impact liability.
     \4\ Id.
---------------------------------------------------------------------------
    However, your characterizations of the examination manual 
in your testimony to Congress contradict the new examination 
manual itself, the CFPB's characterization of the manual, and 
prior activist arguments made by you and CFPB's acting general 
counsel claiming UDAAP can be extended to include disparate 
impact.
    On March 16, 2022, the CFPB announced an unprecedented 
claim of new authority to punish financial services providers 
for disparate impact (a theory that the Government can treat 
statistical disparities in outcomes as a form of prohibited 
discrimination, even in the absence of evidence of 
discriminatory intent) using the CFPB's authority to prevent 
Unfair, Deceptive, and Abusive Acts or Practices. The CFPB did 
this, not by notice-and-comment rulemaking, but by publishing 
an updated examination manual reflecting this change to UDAAP.
    The updated examination manual's UDAAP Procedures section 
begins with ``General Guidance'' for all UDAAP exams, which 
directs examiners to ``obtain and review'' documents including: 
``Information collected, retained or used regarding customer 
demographics, including the demographics of customers using 
various products or services, and the breakdown of consumer 
demographics for various product uses, fees, revenue sources 
and costs, or the impacts of various products and services on 
specific demographics.'' \5\ For servicing and collecting, 
specifically, the examination manual's UDAAP Procedures section 
directs examiners to consider whether ``the entity ensures that 
employees and third party contractors refrain from engaging in 
servicing or collection practices that lead to differential 
treatment or disproportionately adverse impacts on a 
discriminatory basis.'' \6\ For employees and third parties 
interacting with consumers, the manual directs examiners to 
consider whether the ``entity has a process to take prompt 
corrective action if the decision-making processes it uses 
produce deficiencies or discriminatory results.'' \7\
---------------------------------------------------------------------------
     \5\ https://files.consumerfinance.gov/f/documents/cfpb-unfair-
deceptive-abusive-acts-practices-udaaps-procedures.pdf (emphasis 
added).
     \6\ Id. (emphasis added).
     \7\ Id. (emphasis added).
---------------------------------------------------------------------------
    This is what disparate impact theory regulation looks like, 
and it is consistent with the express characterization in the 
CFPB's press release announcing the examination manual update. 
It stated: ``The CFPB published an updated exam manual today 
for evaluating UDAAPs, which notes that discrimination may meet 
the criteria for `unfairness'. . . . Consumers can be harmed by 
discrimination regardless of whether it is intentional. . . . 
CFPB examiners will require supervised companies to show their 
processes for assessing risks and discriminatory outcomes, 
including documentation of customer demographics and the impact 
of products and fees on different demographic groups.'' \8\
---------------------------------------------------------------------------
     \8\ https://www.consumerfinance.gov/about-us/newsroom/cfpb-
targets-unfair-discrimination-in-consumer-finance/ (emphasis added).
---------------------------------------------------------------------------
    Your denial of having extended UDAAP to disparate impact 
with the examination manual update rings hollow because you 
have previously argued the same language authorizes disparate 
impact authority. While serving on the Federal Trade Commission 
(FTC) in 2020, you issued an individual statement on an FTC 
enforcement action, arguing that the FTC Act's grant of 
``UDAP'' authority would empower the FTC to pursue a disparate 
impact violation. At the time, you wrote, ``Using disparate 
impact analysis and other tools, the [FTC] can use its 
unfairness authority to attack harmful discrimination in other 
sectors of the economy.'' \9\ The FTC Act's language on UDAP 
was essentially copied and pasted nearly verbatim into Dodd-
Frank. It's worth noting that in a century of precedent, the 
FTC has never interpreted to address disparate impact (or even 
discrimination).
---------------------------------------------------------------------------
     \9\ https://www.ftc.gov/system/files/documents/public-statements/
1576002/bronx-honda-final-rchopra-bronx-honda-statement.pdf (emphasis 
added).
---------------------------------------------------------------------------
    Moreover, the CFPB and FTC were urged to stretch UDAAP/UDAP 
to include disparate impact by an activist group founded and 
directed by Seth Frotman, your Acting General Counsel and 
Senior Advisor at the CFPB. The 2021 paper was co-authored by 
Stephen Hayes, who had worked at the CFPB at the same time as 
Mr. Frotman, beginning under CFPB Director Richard Cordray. The 
paper argues for an `` `unfairness-discrimination' application 
of UDA(A)P laws'' and states that ``this application would 
ensure that disparate impact liability exists in these areas . 
. . Federal and State agencies could pursue this theory in 
enforcement and supervision immediately.'' \10\
---------------------------------------------------------------------------
     \10\ https://protectborrowers.org/wp-content/uploads/2021/04/
Discrimination-is-Unfair.pdf
---------------------------------------------------------------------------
    In light of your confusing and misleading statements to 
Congress, further clarification is needed.
    Under UDAAP, does the CFPB have the authority to prohibit, 
supervise for, enforce, or in any way be able to punish 
disparate impact in the provision of consumer financial 
services or products?

A.1. The Consumer Financial Protection Bureau (CFPB) has 
authority under the Dodd-Frank Wall Street Reform and Consumer 
Protection Act (Dodd-Frank Act) to identify, prohibit, 
supervise for, and enforce for violations of the prohibition on 
unfair practices committed by any covered person or service 
provider in connection with any transaction for, or offer of, a 
consumer financial product or service. The Dodd-Frank Act 
provides the following standard for establishing a violation of 
the prohibition on unfair acts or practices: (1) the act or 
practice causes or is likely to cause substantial injury; (2) 
that is not reasonably avoidable by the consumer; and (3) not 
outweighed by countervailing benefits to consumers or 
competition.
    The CFPB's update to the UDAAP exam manual does not change 
existing law; it simply directs examiners to assess whether 
discriminatory conduct may violate the Dodd-Frank Act's 
prohibition on unfair practices. For unfairness claims, the 
UDAAP exam manual restates the statutory standard as the basis 
for determining whether the conduct violates the prohibition on 
unfair practices. This standard for establishing a violation of 
the Dodd-Frank Act's prohibition on unfair practices requires 
the CFPB to consider the injury caused by the conduct, and does 
not require an element of intent. Injury can come in the form 
of monetary harm, such as lost access to or a higher price for 
a consumer financial product or service as compared to other 
consumers.
    Your question asks if the CFPB can ``punish disparate 
impact.'' Disparate impact, along with disparate treatment, is 
a longstanding legal doctrine under various civil rights laws 
recognized by Federal courts and used by regulators, agencies, 
and others for nearly five decades. It is used to prove illegal 
discrimination under numerous laws, including the Fair Housing 
Act, Title VII of the Civil Rights Act of 1964, and the Equal 
Credit Opportunity Act. It is, however, a wholly distinct 
concept from the Dodd-Frank Act's prohibition on unfair 
practices. In assessing whether conduct violates the 
prohibition on unfair practices, the key question is not 
whether conduct constitutes discrimination, but whether that 
conduct--discriminatory or otherwise--satisfies the standard 
for establishing a violation as set forth in the Dodd-Frank 
Act.

Q.2. Does the CFPB have the authority to issue a supervisory 
finding premised on disparate impact in the provision of 
noncredit financial services or products such as checking 
accounts?

A.2. The CFPB has the authority to issue supervisory findings 
related to compliance with Federal consumer financial laws. If 
a financial company violates the prohibition on unfairness, 
including through engaging in discriminatory acts or practices 
that meet the statutory unfairness criteria, this can form the 
basis of a supervisory finding.

Q.3. Will you commit that while you are CFPB Director the CFPB 
will not assert that it has the authority under UDAAP to 
prohibit, supervise for, enforce, or in any way punish 
disparate impact in the provision of consumer financial 
services or products?

A.3. The CFPB will enforce the law as established by Congress, 
based on facts and evidence.

Q.4. FDIC Hostile Takeover--As part of your hostile takeover of 
the FDIC Board, on December 9, 2021, you circumvented the FDIC 
staff by using the CFPB website to post a request for 
information (RFI) that you claimed had been issued by the FDIC, 
\11\ and to post a statement issued by you and FDIC Director 
Marty Gruenberg in your roles as FDIC directors. \12\ You also 
posted a lengthy entry on the CFPB blog on December 14, 2022, 
announcing your actions at the FDIC and denigrating the FDIC 
Chairman and General Counsel. \13\ And, you circulated a memo 
making a legal argument purporting to justify circumventing the 
FDIC Chairman's longstanding power to set the voting agenda of 
the FDIC Board (a document you then personally authorized 
leaking to the press, according to your testimony to the House 
Financial Services Committee on April 27, 2022). \14\ However, 
the Dodd-Frank Act is clear that ``funds obtained by, 
transferred to, or credited to the Bureau Fund shall be 
immediately available to the Bureau and under the control of 
the Director, and shall remain available until expended, to pay 
the expenses of the Bureau in carrying out its duties and 
responsibilities.'' \15\
---------------------------------------------------------------------------
     \11\ https://files.consumerfinance.gov/f/documents/cfpb-bank-
merger-act-rfi-2021-12.pdf. See also https://www.consumerfinance.gov/
about-us/blog/how-should-regulators-review-bank-mergers/.
     \12\ https://files.consumerfinance.gov/f/documents/cfpb-bank-
merger-act-rfi-joint-statement-2021-12.pdf
     \13\ https://www.consumerfinance.gov/about-us/newsroom/statement-
of-cfpb-director-rohit-chopra-member-fdic-board-of-directors-december-
open-meeting-of-the-board/
     \14\ https://plus.cq.com/doc/congressionaltranscripts-6520840?2
     \15\ 12 U.S.C. 5497(c)(1).
---------------------------------------------------------------------------
    Did you use CFPB funds for the costs of generating, 
publishing, or publicizing these documents related to the FDIC 
(including employee time)?
    If so, did you consult the CFPB's Legal Department in 
advance about whether this was legally permissible?
    Which CFPB employees or officers worked on any of these 
documents related to the FDIC, or any other issues pertaining 
to the FDIC?
    How many hours did each of these employees or officers work 
on these FDIC matters?
    What is the salary of each of these employees or officers?

A.4. In the Dodd-Frank Act, Congress mandated that the CFPB 
Director serve on several outside bodies, including as a member 
of the Federal Deposit Insurance Corporation (FDIC) Board of 
Directors, the Financial Stability Oversight Council, and the 
Federal Financial Institutions Examination Council. Since its 
inception, the CFPB has expended resources (including personnel 
time) to carry out these statutorily mandated responsibilities, 
as authorized by the Dodd-Frank Act. \16\
---------------------------------------------------------------------------
     \16\ See 12 U.S.C. 5492(a) (the CFPB can ``use and [expend] 
funds'' to implement Federal consumer financial law and ``perform[] 
such other functions as may be authorized or required by law'')
---------------------------------------------------------------------------
    The CFPB's discharge of its legal duties related to the 
Director's service on the FDIC board not only comports with 
Federal law, but also is consistent with the procedures used by 
past CFPB Directors. Since the CFPB's inception, CFPB employees 
have regularly advised the agency's Director on issues 
pertaining to his or her role on the FDIC Board. Other than in 
certain litigation matters, the CFPB does not require employees 
to track hours spent on specific matters.

Q.5. You have provided conflicting and evasive testimony before 
Congress regarding the legal memo you circulated purporting to 
justify circumventing the FDIC Chairman's longstanding power to 
set the voting agenda of the FDIC Board. At the April 26, 2022, 
hearing before the Senate Banking Committee, I asked you who 
worked on drafting this memo, and you responded that it was 
``the general counsels and legal advisers of the CFPB,'' and 
you immediately added ``and the OCC.'' \17\ In a hearing before 
the House Financial Services Committee the very next day, you 
denied having indicated to me the day before that the OCC and 
the CFPB general counsels worked on the memo together, 
claiming: ``I don't believe that. What I said was that the 
legal issues were discussed across the agencies . . . .'' \18\ 
You also stated that ``the legal analysis related to the FDIC 
was shared with the FDIC and others.''
---------------------------------------------------------------------------
     \17\ https://plus.cq.com/doc/transcriptswire-
6519354?0&segmentLink=O13-20220426
     \18\ https://plus.cq.com/doc/congressionaltranscripts-6520840?2
---------------------------------------------------------------------------
    What are the names, titles, and organizations of the 
individuals, whether inside or outside of the Federal 
Government, who had any involvement in the creation of this 
legal memo, to include drafting it, editing it, reviewing it, 
providing feedback or comments on it, or any other involvement?
    Did the OCC's General Counsel or legal advisers work on the 
memo?
    Did anyone else work on drafting the memo?
    With whom else did you share the legal memo? Did you share 
it with them before or after authorizing leaking it to the 
press?
    Who else, inside or outside of the Federal Government, 
provided any thoughts or discussed with you or any other CFPB 
employee or officer, either the memo or any arguments or 
analysis whatsoever related to the legal issues discussed in 
the memo?

A.5. I was deeply disturbed by the actions by FDIC political 
leadership that precipitated former Chairman McWilliams' 
resignation last December. These actions were an egregious 
violation of the rule of law. The former Chairman engaged in an 
unprecedented attempt to nullify the vote of a supermajority of 
the Board of Directors, without any legal justification and in 
contravention of the governing structure created by Congress.
    At the National Credit Union Administration (NCUA), the 
Chairman presides over a board that consists of a majority of 
members affiliated with a political party different than his 
own. However, the NCUA Board Chairman has worked constructively 
with this board, while recognizing the Board majority's 
authority. It is unfortunate that the leadership team that 
resigned at the FDIC did not follow a similar path.
    The memo to which you are referring provides a legal 
analysis of the FDIC Board's authority--in particular whether 
the Chairperson can unilaterally prevent a majority of the 
Board from making decisions for the Corporation. The legal memo 
makes clear, based on analysis of the Federal Deposit Insurance 
Act and the FDIC Board's Bylaws, that the FDIC Chairperson does 
not have such authority. To the extent there is any confusion 
regarding this issue as a result of cross-talk during the two 
hearings, I want to make clear that that legal memo was the 
work product of CFPB staff.
    The CFPB sent this legal memorandum to former FDIC General 
Counsel Nicholas Podsiadly on December 7, 2021. It was also 
shared with a number of others, including former Chairman 
McWilliams, Director Gruenberg, and Acting Comptroller Hsu, 
along with certain members of their respective staffs.
    There were also discussions among all the FDIC Board 
members regarding the then-Chairman's lack of legal authority 
to overrule the Board's majority. Notably, at no time during 
these discussions did then-Chairman McWilliams or then-General 
Counsel Podsiadly provide any substantive legal analysis to 
support their position that the FDIC Chairperson has the 
authority to unilaterally overrule the Board majority. Nor is 
the CFPB aware of any legal memorandum that supports the then-
FDIC Chairman's actions or position.
    After considering the legal analysis prepared by CFPB 
staff, as well as the FDIC General Counsel's failure to provide 
any argument in support of his contrary interpretation, I voted 
to advance the Request for Information (RFI), as did Acting 
Comptroller Hsu and Director Gruenberg. The RFI was approved by 
the Board on December 7, 2021.
                                ------                                


                 RESPONSES TO WRITTEN QUESTIONS
             OF SENATOR MENENDEZ FROM ROHIT CHOPRA

Q.1. Recent reports show scams have become widespread on Zelle, 
a money transfer platform owned by the largest banks in the 
Nation. In many of the scams, fraudsters impersonate bank 
employees and trick Zelle users into authorizing money 
transfers. According to reports, the banks are well aware of 
these scams, but have done little to enhance Zelle's security 
or reimburse defrauded consumers.
    Director Chopra, are you familiar with the rampant fraud 
happening on Zelle and has the CFPB seen a resultant increase 
in complaints?

A.1. The Consumer Financial Protection Bureau (CFPB) is aware 
of the increase in fraud with peer-to-peer (P2P) payment 
services. I am concerned that these services are being used to 
defraud consumers. The CFPB hears directly from consumers about 
the challenges they face in the marketplace. The CFPB received 
approximately 20,900 money transfer, money service, and virtual 
currency (collectively, ``money services'') complaints in 2021. 
Consumers typically submit complaints about P2P payment 
services in this product category. The issue of fraud or scams 
is one of the most common issues in money services complaints. 
In their complaints, consumers have described scammers 
impersonating company help desks, Government officials, among 
others. In their responses to complaints, companies often 
stated that their platforms are meant for P2P payments among 
people who the consumer knows and trusts, such as family and 
friends.

Q.2. Would any regulations, like Regulation E of the Electronic 
Fund Transfer Act, apply in these situations to refund 
consumers?

A.2. Yes, the limits on liability and dispute resolution 
provisions of Regulation E apply to P2P services, similar to 
how they apply to traditional electronic transfers facilitated 
by banks.

Q.3. The pandemic has created enormous challenges for small 
businesses, and many continue to need financial assistance. 
Some alternative financing companies are promising quick 
approvals, with little documentation requirements, and funds in 
under a day. However, many of these financing companies are not 
clear in their loan terms and small businesses may take on debt 
they do not understand and cannot afford.
    I introduced the Small Business Lending Disclosure Act to 
protect small business borrowers from predatory lenders and 
loans carrying unclear terms and conditions. The legislation 
would require disclosures in small businesses commercial 
lending that already required in consumer lending by the Truth 
in Lending Act.
    Director Chopra, do financing disclosures for small 
businesses provide owners and entrepreneurs with information 
they need to understand the terms and conditions of the credit 
product to make an informed decision?

A.3. Small business borrowers are not covered by the same 
protections that exist for household borrowers. Many small 
business owners, especially very small enterprises, use a 
combination of personal credit and small business credit. As 
such some small business owners are unable to make a fair 
comparison of the terms and conditions of credit products. Some 
States have started addressing this issue, but it continues to 
be a problem for many entrepreneurs.

Q.4. Would providing small business owners with uniform term 
disclosures better help them decide if this is the right 
financial product to help their business?

A.4. Yes.
                                ------                                


                 RESPONSES TO WRITTEN QUESTIONS
           OF SENATOR CORTEZ MASTO FROM ROHIT CHOPRA

Q.1. One of the suggestions from the rural report ``Challenges 
in Rural Banking Access'' \1\ was having the Consumer Bureau 
help rural areas access and use the CFPB's complaint tool more 
effectively. How can rural residents improve their access to 
the consumer complaint database?
---------------------------------------------------------------------------
     \1\ https://files.consumerfinance.gov/f/documents/cfpb-data-
spotlight-challenges-in-rural-banking-2022-04.pdf

A.1. Many rural communities face severe issues in the consumer 
financial marketplace, and the Consumer Financial Protection 
Bureau (CFPB) wants to ensure that Americans living in these 
communities can access the agency's tools and resources.
    The CFPB is currently examining the best ways to promote 
utilization of the consumer complaint tool in rural areas, and 
we understand there is significant room for improvement. While 
consumers can submit complaints by phone or by mail, the 
easiest, most convenient method to submit complaints is through 
the CFPB's online complaint form. Yet, many people in rural 
areas still lack access to reliable, high-speed internet. Also, 
because there is less of a presence of direct service providers 
that can inform rural consumers about the resources available, 
rural residents may be less aware of the option to submit a 
consumer complaint to CFPB.
    The CFPB is reaching out to Government partners and other 
organizations that have a presence in rural areas but who may 
not be as familiar with CFPB resources, researching the best 
ways to make direct contact with rural consumers, and traveling 
to rural areas to hear from rural communities directly about 
the issues they face and their suggestions for the best ways to 
reach their communities. On June 14 and 15, I traveled to Great 
Falls, Montana, to host a discussion with local community 
organizations, advocates, leaders, and members of the public 
about challenges faced by rural Montanans and how banking 
deserts adversely impact Montana's financial landscape.
    The CFPB has been collaborating with the United States 
Department of Agriculture Cooperative Extension educators on 
our Your Money, Your Goals program and has already begun to 
promote the utilization of the consumer complaint function more 
actively among that cohort. As part of the new Rural 
Initiative, the CFPB has also initiated rural roundtables and 
outreach to organizations that have a presence in rural areas, 
a component of which is to educate and orient them to the 
consumer complaint function so they can share the resource with 
their members and the people they serve. \2\ The CFPB's user 
research team is also actively working on a project to better 
understand the best ways to reach rural consumers directly by 
looking into the sources of information that have the most 
reach, such as local newspapers, and the best ways to get 
CFPB's resources in front of rural communities.
---------------------------------------------------------------------------
     \2\ On March 10, 2022, the CFPB announced a new initiative to 
focus on financial issues facing rural America. Our effort will 
initially focus on rural banking deserts, discriminatory and predatory 
agricultural credit, and manufactured housing. For more information see 
https://www.consumerfinance.gov/about-us/blog/new-effort-focused-on-
financial-issues-facing-rural-communities/.

Q.2. Another suggestion from the rural report was holding 
roundtables in Native American communities. When will these 
---------------------------------------------------------------------------
listening events be scheduled, and where will they be held?

A.2. The CFPB continues to look for new ways to respond to the 
needs of Native American communities. The CFPB hosted a series 
of discussions with Tribal members, Native American 
associations, and other organizations serving the interests of 
these communities (including the Native Community Development 
Financial Institutions Network and the Federal Reserve Bank of 
Minneapolis' Center for Indian Country Development) to help 
inform its Challenges in Rural Banking Access report \3\ and 
the CFPB's broader Rural Initiative. The discussions have 
explored issues identified by Native American stakeholders, 
including their experiences with products and services in the 
consumer finance market. The CFPB continued these conversations 
during our recent visit to Great Falls, Montana. On June 14 and 
15, I hosted a listening session on the challenges faced by 
rural Montanans and a listening session with Montana's eight 
federally recognized tribes.
---------------------------------------------------------------------------
     \3\ https://files.consumerfinance.gov/f/documents/cfpb-data-
spotlight-challenges-in-rural-banking-2022-04.pdf

Q.3. As the Consumer Bureau implements its rural initiative, 
---------------------------------------------------------------------------
will you reach out to the Nation's 11 Federal Home Loan Banks?

A.3. Yes, as part of our Rural Initiative, we will reach out to 
the Federal Home Loan Banks.

Q.4. Nearly every bank and credit union is a member of a 
Federal Home Loan Bank. The Banks are required to meet the 
liquidity, housing, and community development needs in the 
communities they serve. Will the Consumer Bureau's staff 
consider the annual community lending plans of each Federal 
Home Loan Bank in its outreach to rural areas to address rural 
banking deserts and other issues? \4\
---------------------------------------------------------------------------
     \4\ https://www.fhfa.gov/PolicyProgramsResearch/Programs/
AffordableHousing/Pages/FHLBank-Community-Lending-Plans.aspx

---------------------------------------------------------------------------
A.4. Yes.

Q.5. More than a third of Nevadans own a dog--40 percent of 
Latino households and 60 percent of White households own a dog. 
For many, pets are beloved family members.
    Has the Consumer Bureau issued blog posts, statements or 
other consumer warnings about puppy loans or other pet-related 
consumer finance issues?

A.5. No, but this is clearly a consumer protection issue that 
Federal and State agencies should scrutinize. The CFPB's 
initial market monitoring suggests that certain finance 
companies may be offering loans that are more expensive than 
other options. We will continue to track developments to 
determine how to best protect families in this market. We will 
also collaborate with other agencies, including the Federal 
Trade Commission, which issued an advisory on this issue, and 
Federal banking regulators that regulate depository 
institutions that partner with nonbanks offering these 
products.

Q.6. What role can the CFPB play with State regulators and 
others to protect people from predatory puppy finance schemes?

A.6. In addition to collaborating with the Federal Trade 
Commission, the CFPB works closely with State attorneys general 
and State bank regulators to ensure compliance with the 
consumer financial protection laws. Section 1042 of the 
Consumer Financial Protection Act of 2010 (CFPA) generally 
authorizes States to bring civil actions ``to enforce 
provisions of [the CFPA].'' \5\ One such provision of the CFPA 
states that it is unlawful for any ``covered person'' or 
``service provider'' to ``engage in any unfair, deceptive, or 
abusive act or practice.'' \6\ States can rely on section 1042 
to pursue an enforcement action against a covered person or 
service provider that commits an unfair, deceptive, or abusive 
act or practice under the CFPA. CFPB staff are available to 
discuss the CFPA with State agencies, and the CFPB has frequent 
and ongoing engagement with the States on CFPA enforcement.
---------------------------------------------------------------------------
     \5\ 12 U.S.C. 5552(a).
     \6\ 12 U.S.C. 5536(a)(1)(B).

Q.7. Whistleblowers play an essential role in protecting 
consumers from unfair practices, fraud, and abuse. Unlike other 
agencies, the Consumer Bureau cannot provide financial 
incentives to whistleblowers.
    Does the Consumer Bureau receive tips and assistance from 
whistleblowers?

A.7. Yes, the CFPB has a whistleblower tip process. 
Whistleblowers may contact the CFPB through a number of 
methods: (1) a dedicated email address--
[email protected] is accessible through the CFPB's 
whistleblower webpage and the CFPB's consumer complaint portal; 
(2) a dedicated telephone number that is listed on the CFPB's 
webpage; and (3) postal mail. Other Federal agencies submit 
tips to the CFPB as well.

Q.8. How helpful are tips from whistleblowers to the Bureau?

A.8. Whistleblower tips are very helpful. They bring corporate 
malfeasance to the attention of the CFPB and provide evidence 
for our cases. In December 2021, the CFPB announced updates to 
its whistleblower website and other enhancements to facilitate 
whistleblowing, including by engineers, data scientists, and 
other workers. \7\
---------------------------------------------------------------------------
     \7\ https://www.consumerfinance.gov/about-us/blog/cfpb-calls-tech-
workers-to-action/

Q.9. The previous leadership of the Consumer Bureau asked 
Congress to provide it the authority to provide financial 
compensation to whistleblowers. How would being able to furnish 
rewards to whistleblowers help the Bureau do its job of 
protecting consumers from unfair, deceptive, and abusive 
---------------------------------------------------------------------------
practices?

A.9. Financial awards create incentives to blow the whistle and 
generally enhance the rule of law. The more leads the CFPB 
receives, the better the CFPB will be at prioritizing its 
enforcement staff towards significant cases against large 
entities. I support legislation, first proposed by former CFPB 
Director Kathleen Kraninger, to create a whistleblower award 
program.

Q.10. The consolidation of core service providers--those 
providing digital services, sending payments, etc.--seems to be 
affecting services and costs for community banks and credit 
unions. In previous statements, Director Chopra stated that the 
major core servicer provider contracts make it difficult for 
local financial institutions to switch providers or use add-ons 
from outside technology providers.
    What are some of the steps the Consumer Financial 
Protection Bureau is considering to level the playing field for 
small community financial institutions that need services from 
third parties but are frustrated with complex, restrictive, and 
expansive contracts?

A.10. Small financial institutions need to compete head-to-head 
with the largest banks in the country. The CFPB is concerned 
that, as a result of unchecked consolidation, the core service 
providers these institutions rely on have too much power. We 
have spoken with a number of smaller financial institutions 
about their relationships with the core service providers and 
we repeatedly hear the same complaints: they face high costs, 
including minimum monthly fees that are very expensive relative 
to their size; long-term contracts that make it difficult to 
switch providers; and the need to pay extra to gain access to 
their own or their customers' data. Smaller financial 
institutions also often feel like they are put ``in the back of 
the line'' when it comes to rolling out new products to their 
customers. These challenges make it more difficult for smaller 
financial institutions to serve their customers or to match the 
offerings of their larger competitors.
    The CFPB is currently assessing ways to level the playing 
field by helping smaller financial institutions address these 
challenges. The CFPB will be seeking additional information 
from the core service providers about their pricing, other key 
contractual terms, and the downstream impact these terms have 
on consumers. If we identify patterns of behavior that are 
anticompetitive, we will discuss our findings and potential 
remedies with our partner agencies.
                                ------                                


        RESPONSES TO WRITTEN QUESTIONS OF SENATOR OSSOFF
                       FROM ROHIT CHOPRA

Q.1. What effect will bank branch closures have on residents in 
rural communities?

A.1. America's rural communities face significant challenges in 
accessing reliable financial services. Rural Americans depend 
on physical bank branches and smaller banks. However, these 
same customers are the ones most likely to not live within 10 
miles of a bank with in-person services. The declining number 
of banks in rural communities has forced many to use nonbank 
alternatives that often charge higher fees and interest rates. 
Bank consolidation has also hurt these communities, causing 
banking relationships and credit to disappear, followed by 
small businesses and jobs.

Q.2. In your opinion, what can Congress do to ensure rural 
residents have quality access to banking services?

A.2. The Consumer Financial Protection Bureau (CFPB) will 
faithfully execute any legislation Congress chooses to pass 
that ensures rural residents have quality access to banking 
services. Under our existing legal authorities, we have 
launched a Rural Initiative focused on the needs of rural 
consumers across the country. The Rural Initiative will ensure 
that the ongoing work of the CFPB, that includes issues related 
to mortgages, student loans, credit cards, and a wide range of 
other consumer finance issues applies to the specific contexts 
of rural communities, and we will be addressing issues that are 
specific to rural communities that fall within our authorities. 
The Rural Initiative will initially focus on rural banking 
deserts, issues related to discrimination in the provision of 
agriculture credit, and housing. The CFPB has conducted a 
roundtable with a wide range of rural stakeholders from across 
the country to launch the initiative, has researched and worked 
with partners across Federal agencies on issues related to 
manufactured housing, has undertaken focused outreach to rural 
areas, including a trip to rural Montana focused on rural 
issues, and has released a report, ``Data Spotlight: Challenges 
in Rural Banking Access'', that presents an overview of the 
landscape of issues related to banking services in rural areas. 
The Rural Initiative plans to continue to implement a research 
agenda and field visits to better understand quality access to 
banking services in specific rural regions.
                                ------                                


        RESPONSES TO WRITTEN QUESTIONS OF SENATOR SHELBY
                       FROM ROHIT CHOPRA

Q.1. The CFPB's current proposed rule on small business lending 
data collection includes lenders involved in vehicle financing 
in its definition of covered financial institutions. Yet in 
many instances, vehicle finance companies do not interact with 
small business applicants directly or make final credit 
decisions.
    Under the current proposed rule, in what instances would a 
vehicle finance lender be required to comply with the 
requirement to collect data on small business lending?

A.1. Under the proposal subject to public comment that was 
released prior to my confirmation as Director, section 1071 
obligations would fall on the covered financial institution 
that is making the final credit decision. In some cases, a 
vehicle finance company might make this final decision and 
therefore would have reporting obligations under the proposal. 
In other cases, the final decision might be made by an auto 
dealer that by operation of section 1029 of the Dodd-Frank Wall 
Street Reform and Consumer Protection Act is exempt from 
section 1071 reporting obligations. In that context, no party 
would have section 1071 reporting obligations under the 
proposal.
    The rulemaking is ongoing, and we are still in the process 
of evaluating the comments and weighing the evidence.

Q.2. How does the CFPB anticipate vehicle finance lenders to 
collect such data in cases where the vehicle finance lender has 
no direct interaction with the small business applicant?

A.2. Under the proposal subject to public comment that was 
released prior to my confirmation as Director, in circumstances 
where a vehicle finance lender makes the final credit decision 
and accordingly would have a reporting obligation under the 
proposed rule, such a lender could rely on the dealer to 
transmit any data that the lender may be required to collect 
under a final section 1071 rule. Where the vehicle finance 
lender does not make the final credit decision, however, as 
explained in the response to question 1a above, that lender 
would have no obligation to report section 1071 data under the 
proposed rule.
    The rulemaking is ongoing and we are still in the process 
of evaluating the comments and weighing the evidence.
                                ------                                


        RESPONSES TO WRITTEN QUESTIONS OF SENATOR TILLIS
                       FROM ROHIT CHOPRA

Q.1. Prior to the hearing I was provided information stating 
you only met with three industry groups in your first 120 days 
in office, a charge you strongly denied. I was also provided 
information that Director Cordray met with 40 industry groups 
during his initial 120-day period. You stated that you 
``personally meet with so many industry players.'' There seems 
to be some level of disagreement over whether or not you take 
meetings with the stakeholders of industries that the CFPB 
regulates.
    Please provide a complete list of the organizations and 
dates of every meeting you have personally taken during your 
tenure as Director.

A.1. During the confirmation process, I understand that there 
were concerns that the Consumer Financial Protection Bureau's 
(CFPB's) industry outreach efforts were primarily focused on 
the very largest financial institutions, rather than the broad 
cross-section of businesses affected by the CFPB's actions.
    Since the very largest institutions already have frequent 
interactions with CFPB staff, I have primarily focused my 
outreach on local banks and credit unions. Our primary mode of 
engaging these institutions has been through State-based 
meetings. These meetings are not venues for ``speeches.'' 
Instead, it is an opportunity for financial institutions to ask 
questions and provide their views.
    We primarily organize these meetings through State banker 
association and credit union leagues. To date, we have held 
these meetings with institutions from Florida, California, 
Nevada, Tennessee, Minnesota, Delaware, Pennsylvania, Wyoming, 
and Iowa, with more on the horizon. In most of these 
interactions, the American Bankers Association has also 
participated.
    In terms of large financial institutions, we have held 
similar roundtable discussions, as well as individual meetings 
to discuss targeted issues. For example, the American Financial 
Services Association helped to organize a roundtable with 
leaders in the captive auto finance industry. The Consumer 
Bankers Association organized a discussion between me and many 
of its leaders in consumer banking who serve on the 
association's board. In addition, I have also had the 
opportunity to meet with companies affected by the CFPB's 
actions that would not be considered financial companies, 
including hotel owners and retailers, as well as trade 
associations.
    We have sought to assemble a list of these institutions 
participating in these meetings that I personally participated 
in and are providing this list to your office and the Committee 
Clerk.
    Separate from this list, I have also appeared at industry 
conferences, including the Independent Community Bankers 
Association and the Mortgage Bankers Association.

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

Q.2. You testified that ``the Department of Veterans Affairs 
has dramatically changed its policies concerning reporting 
medical debt for veterans. There's work being done at the USDA, 
and yes, we are in discussions with the FHFA about how they 
should think about medical debt in the mortgage origination 
process. And we need to fix this because this is a central 
consumer pain point. It is the number one collections item now 
on people's credit reports, and we have so many people feel 
coerced into paying something they don't owe when they're 
applying for a mortgage or job or an apartment.''
    If you conclude that it is appropriate to exclude the 
medical debt from a consumer's credit report, what will the 
vehicle be to make that change, and does the CFPB have the 
authority to make that change through rulemaking, or will it 
require an Act of Congress?

A.2. We are looking at whether it is appropriate and lawful to 
include this information and we are still examining whether and 
how to address this issue.

Q.3. In a September 2020 notification, the Federal Bureau of 
Investigation (FBI) highlighted that ``[c]redential stuffing 
attacks accounted for the greatest volume of security incidents 
in the financial sector at 41 percent of total incidents from 
2017 through 2019, according to a 2020 cybersecurity firm 
report.'' The FBI further noted that the ``increasing 
prevalence of credential stuffing attacks since 2017 correlates 
with an increase in leaked credentials available on the dark 
web, which are expected to number in the billions, according to 
a 2020 cybersecurity firm report and open-source reporting.''
    Given the risks associated with credential stuffing 
attacks, do you believe that consumers should be discouraged 
from sharing their account login credentials with third 
parties?

A.3. The CFPB typically seeks to comport its consumer advice 
with agencies leading on cybersecurity issues. For example, 
NIST provides guidance on best practices for cybersecurity. \1\ 
Unfortunately, however, even if consumers perfectly execute 
best practices--from reading a privacy policy in its entirety, 
to only sharing credentials with firms that they trust--you are 
right that security incidents are out of control. The 
Department of Labor highlights that identity theft attacks 
often are executed ''using stolen identities that were accessed 
or purchased from past data breaches.'' \2\
---------------------------------------------------------------------------
     \1\ https://csrc.nist.gov/
     \2\ https://www.dol.gov/agencies/eta/UIIDtheft
---------------------------------------------------------------------------
    In order to complement the hard work done by consumers to 
protect themselves, there is a serious problem when the biggest 
firms are some of the worst repeat offenders of sloppy data 
practices. From Facebook to Google--surveillance by dominant 
firms can be essentially inescapable for consumers--it's 
critical that big tech is held accountable, and that consumers 
are not doing the work alone.

Q.4. In March 2022, the Associate Director of the Federal 
Deposit Insurance Corporation's (FDIC) Anti- Money Laundering 
and Cyber Fraud Division highlighted how banks have reported 
more sophisticated cyberattacks recently and how the FDIC is 
prioritizing potential cyberattacks related to the Russian 
invasion of Ukraine. She discussed how malicious actors are 
attacking bank authentication security to gain access to 
customer information as well as deploy ransomware and initiate 
transactions.
    Given that credential stuffing is the most frequent type of 
cyberattack on financial institutions, what is the CFPB doing 
to ensure that consumers are not putting themselves at risk by 
sharing their credentials with third parties?

A.4. The CFPB typically seeks to comport its consumer advice 
with agencies leading on cybersecurity issues. For example, 
NIST provides guidance on best practices for cybersecurity. \3\
---------------------------------------------------------------------------
     \3\ https://csrc.nist.gov/
---------------------------------------------------------------------------
    In addition, the combination of dark patterns (a range of 
potentially manipulative user interface designs used on 
websites and mobile apps), business models that depend on 
underinvesting in security features, and the targeting of older 
Americans and those with diminished capacity have made it 
really difficult for many consumers to effectively protect 
themselves against security risk. Because credential stuffing 
attacks are most effective against systems without multifactor 
authentication (MFA) implemented at the enterprise level, \4\ 
it's critical that firms work to offer those features to 
consumers, and to help them take advantage of them.
---------------------------------------------------------------------------
     \4\ https://www.nist.gov/blogs/cybersecurity-insights/back-basics-
whats-multi-factor-authentication-and-why-should-i-care

Q.5. Do you agree that consumers should be discouraged from 
sharing their account login credentials with third parties? If 
not, why not? If so, what is the CFPB doing to discourage this 
---------------------------------------------------------------------------
behavior?

A.5. The CFPB believes that consumer data should be safe from 
sale--and that consumers should be able to decide who they want 
to do business with, and when they would like to walk away--
with their data security intact. In particular, Congress 
charged us with section 1033 of the Dodd-Frank Act to ensure 
that consumers have access to their information.

Q.6. While consumers' ability to share their financial data is 
important, it is vital such sharing is done in a safe, secure, 
and transparent manner. What is the CFPB doing to ensure that 
screen scraping, which relies on the sharing of login 
credentials, becomes a practice of the past?

A.6. The CFPB is committed to making financial markets more 
competitive and transparent. Consumers should be able to switch 
firms and to get services seamlessly and safely, and firms 
should be able to have a fair shot to win a consumer with the 
best deal. We are working to use our full authority to ensure 
that consumers are in the driver's seat and don't have to be at 
the mercy of a firm's attempts to raise switching costs. As 
part of that effort, we are pursuing a rulemaking under Section 
1033 of the Consumer Financial Protection Act. We will consider 
whether and in what circumstances screen-scraping should be 
restricted in that rulemaking. The CFPB will be publishing a 
Small Business Regulatory Enforcement Fairness Act (SBREFA) 
outline before the end of this year. That is the first step in 
the rulemaking process.
                                ------                                


       RESPONSES TO WRITTEN QUESTIONS OF SENATOR HAGERTY
                       FROM ROHIT CHOPRA

Q.1. In the hearing, you said ``There is a baseline that 
certainly comes from the Fed, but. it is subject to the 
appropriations process in as much that the agency makes 
requests beyond that. this is so that the CFPB can cover its 
basic functions and for functions that it seeks to go beyond, 
does seek that from Congress, so that is a supplemental 
appropriations process.''
    Between Fiscal Years 2012 and 2022, please provide a 
detailed accounting of any resources, budget authority, or 
Federal funding that the Consumer Financial Protection Bureau 
requested from Congress through the supplemental appropriations 
process you described in the hearing.

A.1. The Consumer Financial Protection Bureau (CFPB) has not 
yet requested or received additional resources, budget 
authority, or Federal funding from Congress through the 
supplemental appropriation process referenced above, or through 
any regular Appropriations Acts, Continuing Resolutions, 
Supplemental Appropriations Acts or other direct spending 
between Fiscal Years 2012 and 2022. To date, the CFPB has 
relied on its base level funding.

Q.2. Additionally, between Fiscal Years 2012 and 2022, please 
provide a detailed accounting of any resources, budget 
authority, or Federal funding that Congress appropriated to the 
Consumer Financial Protection Bureau for a specific purpose and 
amount through any regular Appropriations Acts, Continuing 
Resolutions, Supplemental Appropriations Acts or other direct 
spending.

A.2. The CFPB has not requested or received additional 
resources, budget authority, or Federal funding from Congress 
through the supplemental appropriation process referenced 
above, or through any regular Appropriations Acts, Continuing 
Resolutions, Supplemental Appropriations Acts or other direct 
spending between Fiscal Years 2012 and 2022.
                                ------                                


        RESPONSES TO WRITTEN QUESTIONS OF SENATOR MORAN
                       FROM ROHIT CHOPRA

Q.1. A recent CFPB report entitled ``Challenges in Rural 
Banking Access'' highlighted issues faced by banks and credit 
unions in small towns. It acknowledged that ``access to credit 
for farms and small businesses is essential to the economic 
health of rural communities.'' The report concluded by saying 
that the CFPB is prioritizing outreach to rural areas.
    Has the Bureau under your leadership implemented any 
suggestion or proposal offered by members of the Credit Union 
Advisory Committee or the Community Bank Advisory Committee?

A.1. Yes. For example, on April 7, 2022, the Consumer Financial 
Protection Bureau (CFPB) met with members of the Credit Union 
Advisory Council and the Community Bank Advisory Council where 
CFPB staff asked the members about their thoughts on Age 
Friendly Banking and Rural Relationship Banking. On the topic 
of rural communities, the members of the Advisory Committee 
brought up multiple challenges that they and their customers 
face, including lack of access to broadband internet, volatile 
commodity prices, population loss in many rural towns, and 
other factors that are outside of the scope of the CFPB's work, 
but which are essential to understanding market conditions on 
the ground in rural areas. Rural areas tend to have a higher 
proportion of older residents, and we heard from multiple 
members of the advisory groups that the resources the CFPB 
provides to help older Americans avoid scams have been 
incredibly useful in serving their customers. Members of the 
Advisory Councils also spoke about the necessity of 
relationship banking to avoid fraud and exploitation and alert 
customers, particularly older customers, that they may be a 
victim of a scam.
    The Advisory Councils also encouraged us to consider the 
access needs of immigrant communities and visual and hearing 
impaired communities. The CFPB has provided resources in 
multiple languages and is continuing to work on making our work 
accessible.

Q.2. What specific steps has the Bureau taken to bolster the 
local banks and credit unions that support rural Kansas towns?

A.2. The CFPB has launched a Rural Initiative focused on the 
needs of rural communities. \1\ As part of this initiative, the 
CFPB will continue to do outreach to rural banks and credit 
unions, including in Kansas, to hear their perspectives on what 
is needed. The CFPB has undertaken a research agenda that 
includes the release of a report, ``Data Spotlight: Challenges 
in Rural Banking Access'', that presents critical information 
about the rural towns and their credit needs as well as their 
credit options, as well as information about the critical role 
that local banks and credit unions serve in rural communities. 
Following this initial report, the CFPB will be releasing a 
series of reports that will analyze the needs of specific 
regions, along with field visits. As we get a clearer picture 
of the credit needs of rural places, and the commonalities and 
differences between them, this information will be essential to 
local banks and credit unions to better serve their customers. 
Through research and conversation with a wide range of rural 
stakeholders, including local banks and credit unions, we will 
make a contribution to meeting the challenges that rural 
communities and rural banks and credit unions are facing.
---------------------------------------------------------------------------
     \1\ See https://www.consumerfinance.gov/about-us/blog/new-effort-
focused-on-financial-issues-facing-rural-communities/.

Q.3. Additionally, the CFPB's report on rural financial 
services details the importance of small businesses to rural 
employment. The rural lenders that provide the credit needed 
for small businesses to grow are vital to towns across the 
country. Community banks and credit unions expressed 
apprehension that the CFPB's proposed rulemaking on Section 
1071 will hinder their ability to lend to rural small 
businesses.
    Are you concerned that applying this rule to smaller-sized 
institutions will decrease small business access to credit due 
to the large compliance burden placed on community banks and 
credit unions?
    During your testimony, you praised the effects of 
relationship banking. Do you share community bank concerns that 
applying Section 1071 requirements without carveouts for small 
lenders will damage the relationship banking that so many rural 
areas depend on?

A.3. I recently visited a rural community bank in Belt, 
Montana. Whenever I speak to the management, staff, and clients 
of these institutions, I am reminded of how critical these 
institutions are to support the local community. Community 
banks are three times more likely to locate their offices in 
rural communities than in nonmetropolitan areas and hold the 
majority of banking deposits in rural and micropolitan 
counties. In addition, community banks' lending to small 
businesses in rural communities has a particularly beneficial 
impact, as small businesses (fewer than 50 employees) employ 42 
percent of rural residents (compared to 28 percent of residents 
in metropolitan areas).
    We have received comments from many community banks that we 
will carefully consider as part of the small business data 
collection rulemaking, which is still ongoing.

Q.4. While big banks have the flexibility to adjust the 
expenses paid by customers, community banks and credit unions 
don't always have this luxury. Many of these payments that the 
CFPB labels ``exploitive junk fees'' are what allow small banks 
and credit unions to offer their services to rural towns. At a 
time of hugely increased competition in financial services, 
banks of all sizes compete with each other and fintech 
companies for the same customers. Compared to the Nation's 
largest banks, local lenders simply don't have the revenue 
streams, resources, or regulatory help to remain broadly 
competitive without offering these services, all of which 
consumers opt-in to. Even under former CFPB Director Richard 
Cordray, the Bureau studied overdraft protection and ultimately 
chose not to pursue a rulemaking in this area.
    If the Bureau proposes a rulemaking that impacts the 
ability to offer overdraft fees, how will it ensure that 
consumers will not lose access to other valuable products 
funded by these common fees?
    Do you believe the Bureau's public criticism of banks 
regarding these fees undermine trust in local lenders?

A.4. If the CFPB proposed a rulemaking on overdraft fees, it 
would conduct the appropriate costs, benefits, and impacts 
analysis, including an assessment on any effect on the 
availability of overdraft services, etc. We have not proposed a 
rule.
    Relationship banks benefit when regulators closely 
scrutinize the business practices of nonrelationship banks. 
Relationship banks typically do not point fingers or send 
customers on call center goose chases when customers experience 
problems. Many also have long eschewed high fees. In fact, many 
small and local financial institutions charge lower late fees 
on credit cards than the major issuers, over 2,000 small 
financial institutions have never charged overdraft fees, and 
over 2,000 additional small financial institutions never 
charged overdraft fees on debit or ATM transactions.

Q.5. Instead of regulating through rulemaking and written 
guidance, the CFPB has increasingly used enforcement, blog 
posts, and press releases as mechanisms to create new and 
interpret current standards. The CFPB must provide clarity in 
advance rather than issue guidance through enforcement, as this 
creates unclear precedents that businesses must interpret on 
the fly.
    In light of these ``regulations by press release,'' how 
does the Bureau plan on fully integrating industry and consumer 
feedback given the lack of adherence to the Administrative 
Procedure Act?

A.5. I respectfully disagree with this assertion. Many industry 
stakeholders have urged the CFPB to produce guidance that helps 
institutions understand the obligations of the laws that 
Congress enacts.
    The CFPB invests in soliciting public input far more than 
other banking agencies, going above and beyond compliance with 
the Administrative Procedure Act (APA). The CFPB brings 
enforcement actions when it encounters violations of law on 
matters of importance, and the CFPB is not seeking to replace 
the need to provide guidance using enforcement. In fact, the 
CFPB has dramatically increased the amount of guidance it 
issues. The CFPB's public materials provide transparency and 
clarity to the broader public, but we would like to stay in 
dialogue with your office to discuss any more specific 
concerns.

Q.6. Following your nomination hearing last year, you responded 
to my question for the record regarding the Bureau's history of 
inadequate Tribal consultation, lack of Indian law expertise 
and cultural understanding within its staff, and its exclusion 
of Tribal governments from CFPB MOUs despite Congressional 
intent that Tribes be treated equal to States by stating that 
you are ``committed to ensuring that the views and interests of 
tribal communities are reflected in CFPB policymaking,'' adding 
that you will ``work with CFPB staff to ensure that tribes can 
have their voices heard around key decisions,'' and that you 
``welcome suggestions from [my] office on how to continuously 
improve [tribal] engagement.''
    Since your nomination, how many times have you and/or your 
senior staff conducted productive and meaningful consultation 
with Tribal leaders?

A.6. Since I joined the CFPB on October 12, 2021, the CFPB has 
issued one proposed rule, ``Prohibition on Inclusion of Adverse 
Information in Consumer Reporting in Cases of Human Trafficking 
(Regulation V)''. Prior to issuing that rule, the CFPB hosted a 
virtual consultation with Tribal leaders. The CFPB invited all 
Tribal leaders listed in the U.S. Department of Interior, 
Bureau of Indian Affairs' Tribal Leaders Directory to attend 
the consultation, and the consultation was held through 
multiple sessions over a series of days to provide several 
opportunities for participation and across five different time 
zones.
    Outside of the rulemaking consultation, the CFPB has had 
numerous discussions (at both the leadership and staff level) 
with Tribal nations and their representatives. In December 
2021, we hosted an in-person, Government-to-Government meeting 
with Tribal leaders, which provided an opportunity to discuss 
the challenges they face in furthering sustainable economic 
development and independence in their communities. In February 
2022, I met in-person with Members of the Native CDFI Network's 
(NCN) Board and Policy Committee during the organization's 2022 
Mid-Winter Policy Roundtable. There were approximately 12-15 
NCN meeting attendees throughout the duration of the event.
    This month, I hosted a summit in Great Falls, Montana, with 
Montana's eight federally recognized tribes. The discussion 
touched on a range of issues facing tribes. If you believe 
there is ever an opportunity for the CFPB to engage with tribal 
leaders in Kansas beyond what we are doing, we would appreciate 
any suggestions.

Q.7. What feedback have you received from Tribal nations and 
what changes have you made to improve engagement and support of 
Tribal economic development activities?

A.7. Outside of the rulemaking consultation described above, 
which did not relate to Tribal economic development, during my 
tenure the CFPB has had numerous discussions (at both the 
leadership and staff level) with Tribal nations, Tribal 
members, Native American associations, and/or other 
organizations serving the interests of Native communities to 
learn about consumer financial protection issues impacting 
Native communities. The CFPB has heard many repeated themes in 
these conversations, including information about the lack of 
access to banks, responsible credit, and other financial 
services in Indian Country, and the failure of current 
requirements under the Community Reinvestment Act and its 
implementing regulation to incentivize banks to fill those 
needs. The CFPB has heard from Tribal nations about the role of 
Tribal enterprises, especially the role of Native Community 
Development Financial Intuitions, in attempting to fulfill 
financial services needs and bridge other gaps in community 
needs. Likewise, the CFPB has heard from Tribal nations about 
the lack of consumer education on financial issues, including 
that many Tribal members do not know what the CFPB does. In 
addition, the CFPB has heard that Tribal nations work with 
other Federal agencies to provide services to rural communities 
as well as the shortfalls of some Federal programs that impact 
consumers' finances. The CFPB has also heard from Tribal 
nations on tribal sovereignty and Tribal nations' status under 
the Dodd-Frank Wall Street Reform and Consumer Protection Act, 
predatory lending in Native communities, the difficulty that 
Tribal governments have in holding bad actors accountable, the 
role of Tribal regulators, and partnership opportunities in the 
regulatory and enforcement space.
    These discussions have helped inform the CFPB's regulatory 
work; its partnership and engagement efforts; discussions with 
sister regulators and other Federal agencies; consumer 
education work; enforcement work; and most recently the CFPB's 
Challenges in Rural Banking Access report and the broader, 
ongoing Rural Initiative.

Q.8. Has the Bureau added any staff with Federal Indian policy 
experience and expertise?

A.8. While the ranks of the CFPB's career staff include 
individuals with knowledge and expertise, you raise an 
important suggestion of ensuring that this base of expertise is 
robust. I plan to assess this further and would be happy to 
discuss this with you.

Q.9. The Consumer Financial Protection Act includes federally 
recognized Indian tribes in the definition of ``State,'' yet 
the Bureau continues to discount Tribes' authority as sovereign 
nations as equal to States. The Bureau has exemplified this 
unequal treatment by entering into multiple Memoranda of 
Understanding with State units, such as the American Consumer 
Financial Innovation Network, yet no Tribal government has been 
permitted.
    My office has received feedback indicating that Tribes have 
a sincere desire to work collaboratively with the Bureau on a 
Government-to-Government basis to determine the best policies 
and principles for both parties. Tribes regularly enter into 
MOUs with local, State and Federal entities for this very 
reason, and the CFPB has fallen behind in that regard.
    Under the Consumer Financial Protection Act, what is your 
understanding of how Tribal nations should be treated as 
compared to States?

A.9. Under the Dodd-Frank Wall Street Reform and Consumer 
Protection Act, the term ``State'' includes ``any federally 
recognized Indian tribe, as defined by the Secretary of the 
Interior under section 104(a) of the Federally Recognized 
Indian Tribe List Act of 1994 (25 U.S.C. 479a-1(a)).'' 12 
U.S.C. 5481(27).

Q.10. What is your plan for rectifying the exclusion of Tribes 
from the MOUs and the Consumer Financial Innovation Network 
that the CFPB has entered with multiple States?

A.10. The CFPB has not excluded Tribes from memorandums of 
understanding (MOUs). In 2013, the CFPB entered into an MOU 
with the Navajo Nation Department of Justice that resulted in, 
among other things, a joint CFPB-Navajo Nation action to stop 
an illegal tax refund scheme. The CFPB will continue to engage 
with Tribes to protect consumers. CFPB staff have engaged the 
Native American Financial Services Association and Tribal 
leaders about establishing a CFPB point of contact to discuss 
tribal issues, including an MOU with the CFPB to facilitate 
information sharing between the CFPB and tribal authorities.
                                ------                                


        RESPONSES TO WRITTEN QUESTIONS OF SENATOR DAINES
                       FROM ROHIT CHOPRA

Q.1. Under Title X, Section 1061(b)(5)(D) of the Dodd-Frank Act 
and the MOU between CFPB and FTC, to promote consistency, the 
CFPB and FTC must consult with the other agency prior to 
proposing a rule as well as notify the other agency prior to 
issuing agency guidance. In accordance with this concurrent 
jurisdiction and the MOU, was the FTC consulted or notified by 
the CFPB regarding the recent revised examination guidelines on 
UDAAPs as published by the Bureau on March 16th?
    If so, when?

A.1. The Consumer Financial Protection Bureau's (CFPB's) update 
to the UDAAP exam manual is not a rule. It does not alter 
existing law or create new obligations for covered persons or 
service providers. As such, section 1061(b)(5)(D) of the Dodd-
Frank Wall Street Reform and Consumer Protection Act (Dodd-
Frank Act) does not require the CFPB to consult the Federal 
Trade Commission (FTC) because the exam manual update was not a 
proposed rule. The CFPB's UDAAP examination manual is 
consistent with FTC public statements. In April 2021, the FTC 
stated that the sale or use of biased algorithms, as an 
example, would be an unfair or deceptive practice (Aiming for 
Truth, Equity, and Fairness in Your Company's Use of AI, 
https://www.ftc.gov/business-guidance/blog/2021/04/aiming-
truth-fairness-equity-your-companys-use-ai).

Q.2. If not, why and how will the CFPB account for any 
inconsistencies in enforcement actions taken against covered 
entities under UDAAP?

A.2. The exam procedure update is not a rule. As always, we 
will work with our partner agencies to make sure any potential 
enforcement matters are consistent. The CFPB's memorandum of 
understanding (MOU) with the FTC is designed, among other 
things, to coordinate certain law enforcement activities under 
section 1024(c)(3) of the Dodd-Frank Act. Under this MOU, the 
agencies closely coordinate activities to promote consistency 
in law enforcement and to prevent duplicative or conflicting 
actions. The MOU includes procedures for notice to the other 
agency, where feasible, prior to initiating a civil action.

Q.3. The Bureau's new definition of what constitutes an unfair 
practice is a significant change for all providers of financial 
products and services outside the scope of the traditional 
rulemaking process or Congressional action. Can the CFPB 
explain why this substantive change did not warrant 
Congressional action or rulemaking? Will the CFPB commit to 
engaging impacted stakeholders in an effort to garner 
meaningful input prior to enforcement in the absence of 
undertaking a formal rulemaking process?

A.3. This is not a new interpretation, and the CFPB provided 
additional transparency to supervised institutions about how 
examiners will conduct reviews related to discrimination. The 
CFPB's updates to the exam manual do not change existing law in 
any way; they simply direct examiners to examine potential 
discrimination that may satisfy the preexisting standard for a 
violation of the prohibition on unfair practices.
    The CFPB exam manual's treatment of discriminatory unfair 
practices is not the first exam manual to discuss the topic. 
The FDIC's Consumer Compliance Examination Manual, in its 
section on Unfair or Deceptive Acts or Practices, states that 
discriminatory conduct that violates the Equal Credit 
Opportunity Act (ECOA), the Fair Housing Act, or state and 
local antidiscrimination laws may also violate the FTC Act, 
which prohibits unfair or deceptive acts or practices. The 
Office of Thrift Supervision's exam manual included the same 
language before the agency was disbanded in 2011.
    Importantly, the CFPB did not create a new definition of 
what constitutes an unfair act or practice. The CFPB has 
authority under the Dodd-Frank Act to identify, prohibit, 
supervise for, and enforce for violations of the prohibition on 
unfair practices committed by any covered person or service 
provider in connection with any transaction for, or offer of, a 
consumer financial product or service. The Dodd-Frank Act 
provides the following standard for establishing a violation of 
the prohibition on unfair acts or practices: (1) the act or 
practice causes or is likely to cause substantial injury; (2) 
that is not reasonably avoidable by the consumer; and (3) not 
outweighed by countervailing benefits to consumers or 
competition.
    The CFPB is always looking for ways to engage stakeholders 
and the American public to promote understanding, transparency, 
and accountability, and remains committed to doing so.

Q.4. In addition, it is ambiguous what protected categories are 
relevant for UDAAP discrimination. Will there be parity with 
other lending regulations, such as the Equal Credit Opportunity 
Act (ECOA)? Does the CFPB have a position on what categories 
are relevant for UDAAP discrimination? Will the CFPB provide 
clarity for impacted stakeholders on protected categories? Will 
the CFPB follow up with promulgating a rule identifying the 
specific contours of ``unfair'' discrimination?

A.4. As noted above, an unfairness claim has different elements 
than an ECOA claim, although discriminatory practices that 
violate ECOA could also violate the prohibition on unfair 
practices.
    Discrimination may violate the prohibition on unfair 
practices in instances where ECOA or other antidiscrimination 
laws do not apply. As noted above, the Dodd-Frank Act sets 
forth the standard for determining whether particular conduct 
violates the prohibition on unfair practices. The CFPB will 
apply this statutory standard to determine if conduct violates 
the prohibition on unfair practices. The analysis for 
establishing such an unfairness claim--as it has been under 
Federal law for decades--is whether the conduct causes 
substantial injury that is not reasonably avoidable by the 
consumer without countervailing benefits to consumers and to 
competition.

Q.5. The guidelines fail to extend limited privilege for 
disclosure for impacted stakeholders to self-test for 
discrimination similar to what is afforded lenders under ECOA. 
Could this undermine the goal of preventing discrimination by 
discouraging collection and self-testing? Should there be 
parity with ECOA self-testing protections?

A.5. You raise an important question. Many financial 
institutions go to great lengths to conduct backwards-looking 
analysis to evaluate their marketing, product development, and 
financial performance. Importantly, many also conduct this 
analysis for compliance testing.
    The CFPB has long promoted this type of analysis. When 
institutions perform rigorous analyses and make timely and 
appropriate fixes, compliance issues can generally be avoided 
or resolved without the need for adversarial litigation. As a 
practical matter, institutions generally find compliance 
management systems and testing to be useful for their overall 
business, to ensure that problems are detected early. We would 
be happy to discuss this issue further with you so that 
institutions feel that they can implement the right approaches 
to self-testing.

Q.6. I believe consumers need access to small-dollar credit. Do 
you agree with that statement? If so, what's the best way to 
keep small-dollar credit markets competitive?

A.6. Consumers benefit from a transparent and competitive 
market. A transparent and competitive market will help develop 
lower-cost, small-dollar loan products.

Q.7. Auto financing is a complicated transaction with several 
parties, including the dealer who is not under the CFPB's 
jurisdiction. Will the Bureau specifically address how the 1071 
rule will work in the auto finance market? Will it allow the 
finance companies to rely on info given to them by the dealer?

A.7. You are absolutely correct that the CFPB may not exercise 
any rulemaking, supervisory, enforcement, or any other 
authority, including any authority to order assessments, over a 
motor vehicle dealer that is predominantly engaged in the sale 
and servicing of motor vehicles, the leasing and servicing of 
motor vehicles, or both. The rulemaking is ongoing and we are 
still in the process of evaluating the comments and weighing 
the evidence. We will be closely considering the unique facets 
of the auto financing market before finalizing the rule.
              Additional Material Supplied for the Record
PRINCIPLES FOR RESPONSIBLE CONSUMER AND SMALL BUSINESS LOANS TO PREVENT 
                        PREDATORY LENDING ABUSES

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

                    STATEMENT SUBMITTED BY UNIDOSUS

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]