[House Hearing, 118 Congress]
[From the U.S. Government Publishing Office]
THE SEMI-ANNUAL REPORT OF THE
BUREAU OF CONSUMER FINANCIAL PROTECTION
=======================================================================
HEARING
BEFORE THE
COMMITTEE ON FINANCIAL SERVICES
U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED EIGHTEENTH CONGRESS
FIRST SESSION
__________
JUNE 14, 2023
__________
Printed for the use of the Committee on Financial Services
Serial No. 118-32
_________
U.S. GOVERNMENT PUBLISHING OFFICE
53-180 PDF WASHINGTON : 2023
HOUSE COMMITTEE ON FINANCIAL SERVICES
PATRICK McHENRY, North Carolina, Chairman
FRANK D. LUCAS, Oklahoma MAXINE WATERS, California, Ranking
PETE SESSIONS, Texas Member
BILL POSEY, Florida NYDIA M. VELAZQUEZ, New York
BLAINE LUETKEMEYER, Missouri BRAD SHERMAN, California
BILL HUIZENGA, Michigan GREGORY W. MEEKS, New York
ANN WAGNER, Missouri DAVID SCOTT, Georgia
ANDY BARR, Kentucky STEPHEN F. LYNCH, Massachusetts
ROGER WILLIAMS, Texas AL GREEN, Texas
FRENCH HILL, Arkansas EMANUEL CLEAVER, Missouri
TOM EMMER, Minnesota JIM A. HIMES, Connecticut
BARRY LOUDERMILK, Georgia BILL FOSTER, Illinois
ALEXANDER X. MOONEY, West Virginia JOYCE BEATTY, Ohio
WARREN DAVIDSON, Ohio JUAN VARGAS, California
JOHN ROSE, Tennessee JOSH GOTTHEIMER, New Jersey
BRYAN STEIL, Wisconsin VICENTE GONZALEZ, Texas
WILLIAM TIMMONS, South Carolina SEAN CASTEN, Illinois
RALPH NORMAN, South Carolina AYANNA PRESSLEY, Massachusetts
DAN MEUSER, Pennsylvania STEVEN HORSFORD, Nevada
SCOTT FITZGERALD, Wisconsin RASHIDA TLAIB, Michigan
ANDREW GARBARINO, New York RITCHIE TORRES, New York
YOUNG KIM, California SYLVIA GARCIA, Texas
BYRON DONALDS, Florida NIKEMA WILLIAMS, Georgia
MIKE FLOOD, Nebraska WILEY NICKEL, North Carolina
MIKE LAWLER, New York BRITTANY PETTERSEN, Colorado
ZACH NUNN, Iowa
MONICA DE LA CRUZ, Texas
ERIN HOUCHIN, Indiana
ANDY OGLES, Tennessee
Matt Hoffmann, Staff Director
C O N T E N T S
----------
Page
Hearing held on:
June 14, 2023................................................ 1
Appendix:
June 14, 2023................................................ 77
WITNESSES
Wednesday, June 14, 2023
Chopra, Rohit, Director, Consumer Financial Protection Bureau
(CFPB)......................................................... 5
APPENDIX
Prepared statements:
Chopra, Rohit................................................ 78
Additional Material Submitted for the Record
Barr, Hon. Andy:
Written statement of the Association of Credit and Collection
Professionals (ACA)........................................ 82
Letter to Rohit Chopra from Representatives Barr and Huizenga
re: Freedom of Information Act (FOIA) requests, dated June
14, 2023................................................... 87
Written statement of the Consumer Bankers Association........ 89
Writtten statement of the Credit Union National Association
(CUNA)..................................................... 93
Garcia, Hon. Sylvia:
Letter to the CFPB from the Consumer Bankers Association,
dated July 2, 2018......................................... 101
Consumer Bankers Association White Paper, ``The Case for
Regulation Through Rulemaking & Guidance,'' dated October
2021....................................................... 106
Velazquez, Hon. Nydia:
Excerpt from House Small Business Committee hearing on March
28, 2023................................................... 114
Waters, Hon. Maxine:
Written statement of the Asset Building Policy Network (ABPN) 118
``Who Opposes the Fifth Circuit Decision in CFSA vs. CFPB?... 121
Written statement of UnidosUS................................ 124
Chopra, Rohit:
Written responses to questions for the record from
Representative Barr........................................ 132
Written responses to questions for the record from
Representative Davidson.................................... 157
Written responses to questions for the record from
Representative De La Cruz.................................. 158
Written responses to questions for the record from
Representative Donalds..................................... 163
Written responses to questions for the record from
Representative Flood....................................... 208
Written responses to questions for the record from
Representative Garbarino................................... 212
Written responses to questions for the record from
Representative Hill........................................ 213
Written responses to questions for the record from
Representative Houchin..................................... 215
Written responses to questions for the record from
Representative Kim......................................... 219
Written responses to questions for the record from
Representative Nunn........................................ 225
Written responses to questions for the record from
Representative Pettersen................................... 236
Written responses to questions for the record from
Representative Sherman..................................... 238
Written responses to questions for the record from
Representative Steil....................................... 243
Written responses to questions for the record from
Representative Timmons..................................... 246
Written responses to questions for the record from
Representative Velazquez................................... 250
THE SEMI-ANNUAL REPORT OF
THE BUREAU OF CONSUMER
FINANCIAL PROTECTION
----------
Wednesday, June 14, 2023
U.S. House of Representatives,
Committee on Financial Services,
Washington, D.C.
The committee met, pursuant to notice, at 10:04 a.m., in
room 2128, Rayburn House Office Building, Hon. Andy Barr
presiding.
Members present: Representatives Sessions, Posey,
Luetkemeyer, Huizenga, Wagner, Barr, Williams of Texas, Hill,
Emmer, Loudermilk, Mooney, Davidson, Rose, Steil, Timmons,
Norman, Meuser, Fitzgerald, Garbarino, Kim, Donalds, Flood,
Lawler, Nunn, De La Cruz, Houchin, Ogles; Waters, Velazquez,
Sherman, Meeks, Scott, Lynch, Green, Cleaver, Himes, Foster,
Beatty, Vargas, Gottheimer, Casten, Pressley, Horsford, Tlaib,
Torres, Garcia, Nickel, and Pettersen.
Mr. Barr. [presiding]. The Financial Services Committee
will come to order.
Without objection, the Chair is authorized to declare a
recess of the committee at any time.
Today's hearing is entitled, ``The Semi-Annual Report of
the Bureau of Consumer Financial Protection.''
I now recognize myself for 4 minutes to give an opening
statement.
Thank you, Director Chopra, for being here today. As the
Director, you wear a lot of hats. You are a member of the
Federal Deposit Insurance Corporation (FDIC) and the Financial
Stability Oversight Council (FSOC).
This committee has spent a lot of time understanding how
regulators reacted to the failures of Silicon Valley Bank and
Signature Bank. Given that both the FDIC and FSOC played
critical roles in those failures, I am looking forward to
hearing about your involvement in the decision-making process.
As we said when FDIC Chair Gruenberg and Federal Reserve
Vice Chair Barr testified before this committee, there was and
continues to be a lack of transparency surrounding the
regulators' decision-making that first weekend in March. Was
there an ideological lens that impacted your response? Did your
views regarding bank consolidation lead to a delayed resolution
and greater uncertainty in the financial sector? Let's spend
more time on this when we get to questions.
Turning today to your job as Director of the Consumer
Financial Protection Bureau (CFPB), your agency is responsible
for regulating and enforcing consumer financial laws. Clear
rules and expectations of how to comply with those rules
benefit all participants in the consumer financial marketplace.
Unfortunately, under your leadership, the CFPB is doing the
exact opposite. First, your agency identifies consumer harm in
one instance for a specific product. From there, you
extrapolate that that harm occurred everywhere and everyone
should be under suspicion. In fact, every act is presumed
abusive until the CFPB or a court decides maybe they aren't.
You use compliance bulletin circulars and advisory opinions
to sow doubt and confusion in the marketplace. You vilify
entire industries simply because they are politically unsavory,
in your opinion. The practice of name-and-shame first, verify
later, isn't consumer protection. It is McCarthyism. This harms
consumers and the economy at large while propping up trial
lawyers and consumer activist groups. Let me be clear: That is
not the mission of the CFPB.
Finally, I will turn to what appears to be your most-recent
appointment as an appendage of President Biden's re-election
campaign. When the President started talking about junk fees,
the current hyperpartisan CFPB engaged in a campaign about its
effort to clamp down on--you guessed it--junk fees.
Look, it is an easy target. No one likes fees. And to be
clear, some fees should be questioned to ensure that people are
not getting ripped off. But to indiscriminately label fees as
abusive is a blatant attempt to pander to Americans who have
been hung out to dry in the Biden economy.
My Democratic colleagues will likely turn to their favorite
talking point, corporate greed, to explain away the need for
fees. But do you know who else relies on fees? The government.
The IRS charges late fees on taxpayers. If you want to enter
most national parks, you pay a fee. Even the CFPB charges fees
on Freedom of Information Act (FOIA) requests. So why would the
CFPB believe that the same costs that these fees cover or the
actions they are designed to deter do not exist in the private
sector?
I will finish with this. The current CFPB operates in an
opaque, increasingly-partisan, and analytically-weak manner. We
experienced this under Director Richard Cordray, and his legacy
lives on with you, Director Chopra.
The CFPB is directly overstepping its bounds and serving as
judge, jury, and executioner in the consumer financial
marketplace. That is why committee Republicans advanced a
package of bills to reform the structure and funding stream of
the CFPB to ensure transparency and accountability to the
American people.
And let me just say one thing about the rulemaking on
credit cards. I want you to talk about this, Director, because
we don't understand how it is protecting consumers to force a
subprime credit card borrower who is always on time and never
pays late--which is 74 percent, according to your own data; 74
percent of Americans who have credit cards never pay late--to
pay a higher interest rate by lowering the late fees on
borrowers who never pay late?
And with that, I yield back my time.
And I now recognize the ranking member of the committee,
the gentlewoman from California, Ms. Waters, for 4 minutes for
an opening statement.
Ms. Waters. Thank you very much.
Good morning, and welcome, Director Chopra. I am so pleased
that you are here this morning to share with us the success and
all of the good that your group has been doing, as we
predicted, instead of focusing on how we can strengthen
consumer protections and avoid a catastrophic default of jobs.
Republicans are focused on undermining the CFPB, the only
Federal agency with the singular mission of protecting
consumers. As we speak, extreme MAGA Republicans are teaming up
with predatory payday lenders to challenge the
constitutionality of the CFPB's funding in the Supreme Court,
based on a fringe legal theory.
Every single other court has affirmed the validity of the
CFPB's funding, but just like MAGA Republicans who continue to
deny election results, they are continuing to deny these facts,
also.
So, let me state the facts simply. The Constitution is
clear. Congress can fund the Executive Branch, including the
CFPB, banking regulators, and other agencies however it likes
and has done so for nearly 250 years. This attack on the CFPB
is yet another destructive effort by Republicans to undermine
all types of government programs, including and especially
Social Security and Medicare.
Let's take a look at last month. I was proud to lead an
amicus brief with 144 current and former Members of Congress
supporting the CFPB against this reckless challenge.
Republicans are also advancing legislation to undermine the
operations of the CFPB. These efforts are a direct attack on
consumers and the safeguards that protect them in our nation's
ever-evolving financial system.
Despite these attacks, the CFPB's record under Director
Chopra speaks for itself. The CFPB has successfully combated
junk fees, relieved the burden of medical debt on consumers
credit reports, fought back against housing discrimination and
redlining, and held large financial institutions like Wells
Fargo accountable for repeatedly breaking the law and harming
people across America.
In fact, the CFPB has returned more than $17 billion to 200
million harmed customers. That is why 80 percent of people,
including 75 percent of Republicans, support the CFPB and want
the agency to continue to do its job. Republicans should start
listening to their constituents, who can tell them what a junk
fee is and explain why they need to support this critical
agency's work.
Additionally, the CFPB's new small business lending rule
implementing Section 1071 of the Dodd-Frank Act will go a long
way toward finally rooting out discrimination in small business
lending. It will open up new funding opportunities to help
small businesses start up, grow, and thrive. It will do this in
part by tracking data of minority- and women-owned businesses,
as well as LGBTQ+-owned businesses, which we are especially
focused on during pride month.
Democrats will reject Republican efforts to use the
Congressional Review Act to eliminate this long-overdue rule,
while Republicans refuse to stand up for consumers, including
LGBTQ+ small business owners. They continue to protect the
interests of large corporations.
I yield back.
Mr. Barr. The gentlelady's time has expired.
The Chair now recognizes Mr. Loudermilk, who is also the
Vice Chair of our Subcommittee on Financial Institutions and
Monetary Policy, for 1 minute.
Mr. Loudermilk. Thank you, Mr. Chairman.
And thank you, Director Chopra, for once again coming to
speak with us this morning.
Unfortunately, since the last time you were here, it
doesn't seem like much has changed. The CFPB is still an
unaccountable agency with centralized leadership in a
constitutionally-questionable funding structure. The Supreme
Court is currently looking into the latter, and I am hopeful
their decision will show us a path forward for the agency under
regular appropriations.
Industry feedback has been near unanimous that the Bureau
is acting with little to no regard for the downstream effects
of their rulemaking on consumers or small businesses.
Through its wide-reaching disclosure rules, industry
circulars, and opinions issued across various media, including
enforcement, the CFPB has collected a wealth of consumer data.
And in March of this year, we were informed of a significant
breach at the Bureau that compromised data belonging to
hundreds of thousands of consumers. This raises important
questions over whether Congress and the American people can
trust the Bureau to look out for their own best interests if
they are not even willing to protect the information they
collect.
The Consumer Financial Protection Bureau is deeply flawed,
deeply troubled, and in desperate need of reform. The best time
to hold the Bureau accountable is not today; it was 12 years
ago.
Mr. Barr. The gentleman's time has expired.
Mr. Loudermilk. But the second-best time is today.
Mr. Barr. The gentleman's time has expired.
The Chair now recognizes the ranking member of the
Subcommittee on Financial Institutions and Monetary Policy, Mr.
Foster, for 1 minute.
Mr. Foster. Thank you, Mr. Chairman, and Director Chopra,
thank you for being here today.
In an era where consumer financial transactions have become
increasingly complex and oftentimes daunting, the CFPB serves
as a beacon of protection, ensuring that individuals are
treated fairly in the marketplace, a real example of government
doing things to make people's lives better.
As our technology and ability to transact gets faster and
more efficient, so do the scams and elaborate fraud schemes
that wish to take advantage of our constituents.
The CFPB protects the most-sensitive parts of our
population. You are focused on the protection of older adults,
and on vulnerable groups from servicemembers to LGBTQ+
individuals, and your partnership with advocacy organizations
and your actions against companies violating laws protecting
servicemembers and others demonstrates your dedication to
safeguarding those who may be more susceptible to financial
exploitation. And it does all of this while coming under
constant attack.
With the coming onslaught of deep-fake AI impersonation and
the opaque ChatGPT robo advisors, your job will not get easier.
So thank you, and I yield back.
Mr. Barr. The gentleman's time has expired.
Today, we welcome the testimony of the Honorable Rohit
Chopra, Director of the Consumer Financial Protection Bureau.
Director Chopra, we thank you for your time, and we will
recognize you for 5 minutes to give an oral presentation of
your testimony. And without objection, your written statement
will be made a part of the record. You are now recognized for 5
minutes.
STATEMENT OF ROHIT CHOPRA, DIRECTOR, CONSUMER FINANCIAL
PROTECTION BUREAU (CFPB)
Mr. Chopra. Chairman Barr, Ranking Member Waters, and
members of the committee, thank you for holding this hearing
today.
I am pleased to report that the CFPB continues to deliver
tangible results for the public, ensuring that consumers are
protected, ensuring that honest businesses are safeguarded, and
preparing for the future as Big Tech and artificial
intelligence reshape the industry.
I want to share a few observations about the state of
household balance sheets in the United States as well as some
highlights of our work.
American families continue to benefit from a resilient
labor market. Consumer spending is quite robust, and borrowing
has accelerated. Inflation in key categories such as vehicles
and others has contributed to rising levels of household debt.
Americans now own $17 trillion in mortgages, auto loans,
student loans, credit cards, and other consumer loans. Rates
are higher than they were a few years ago, and some families
are paying much more.
Overall, current indicators of distress on consumer credit
remain fairly muted, although there are modest signs of
increased delinquency. We will continue to monitor the impact
of changes in interest rates and home prices closely as well as
other changes that might impact large segments of the
population.
We are on high alert for shocks to the system that might
unsettle household financial stability. The failures of Silicon
Valley Bank, Signature Bank, and First Republic Bank
highlighted significant vulnerabilities in the banking system,
and regulators took a series of extraordinary actions that
limited the fallout to the broader economy. But it is clear
that policymakers need to take steps to avoid the need for
emergency measures in the future.
With respect to congressional directives, the CFPB has made
major progress on proposing, finalizing, or implementing
required rules on credit reporting for survivors of human
trafficking, small business lending data, PACE lending, the
LIBOR transition, and more.
We are reviewing old rules to find opportunities to
simplify and future-proof them. We built on the work of my
predecessor to publish more advisory opinions and guidance that
helps small and nascent firms looking to develop new products
and services.
We are focusing more heavily on supervision of nonbank
financial firms, which have not always been subject to the same
oversight as local banks and credit unions. We are activating
unused authorities to minimize regulatory arbitrage by nonbank
firms seeking to gain a competitive advantage.
We have shifted the focus of our enforcement program away
from targeting small actors and putting more attention on large
and repeat offenders. And since then, we have recovered $4.6
billion in refunds and penalties. We are handling an average of
10,000 consumer complaints per week and obtaining successful
resolutions for individuals outside of legal proceedings.
But equally important is our work to address how technology
is transforming financial services. I think the U.S. has a
choice. Are we going to harness technology to maintain and
enhance relationship banking, drive more competition, and
protect privacy? Or will we continue our lurch towards a system
marked by surveillance that is fully-automated and controlled
by just a handful of firms?
The CFPB is working to ensure broad benefits for consumers
and businesses alike when it comes to technological progress.
One of our most-important initiatives is to accelerate the
shift in the United States to open banking, allowing consumers
to more easily switch and gain access to new products while
protecting their financial data.
We have been leading a number of efforts in artificial
intelligence, and we are working to bring more technical talent
inside the agency. We are taking steps to guard against
algorithmic bias, and we are working to ensure that data
brokers respect long-standing laws on the books.
The work of the CFPB in an age of Big Tech and artificial
intelligence has never been more important.
Thank you, Chairman Barr, for the opportunity to appear
before you. I look forward to your questions.
[The prepared statement of Director Chopra can be found on
page 78 of the appendix.]
Mr. Barr. Thank you, Director Chopra.
And I will now yield myself 5 minutes to ask some
questions.
As an FDIC Board Member, you were involved in the decision-
making related to Silicon Valley Bank and its resolution.
During the weekend of March 9th, did you express any views to
FDIC Chairman Gruenberg, any member of the FDIC Board of
Directors, any FDIC staff, or any officials in the
Administration regarding the class of banks that should or
should not be considered as a viable buyer of Silicon Valley
Bank?
Mr. Chopra. No. In a bank failure particularly, the most-
efficient way to contain any fallout is to ensure there is
continuity. The Bank Merger Act specifically talks about
financial stability. It was important if we had a viable buyer.
Mr. Barr. Did you express an opinion that a large Wall
Street, too-big-to-fail bank should not be in the class of
institutions that would be eligible to purchase the bank?
Mr. Chopra. I think we would have taken any potential
buyer.
Mr. Barr. Okay.
Mr. Chopra. We did not receive a bid.
Mr. Barr. Okay. I appreciate your answer.
And I ask because when you were FTC Commissioner, you
submitted a comment to DOJ on bank mergers, criticizing those
that occurred during the 2008 financial crisis. You opined
that, ``Policymakers compounded the damage by orchestrating
several more megamergers, forming even bigger banks.'' We also
know you used procedural games in December 2021 to try to force
a bank merger process review.
Did you see the Silicon Valley Bank failure as an
opportunity to take your personal views on megamergers, and
implement them in a real-world crisis?
Mr. Chopra. No. But what you are referring to, I talk about
where there is tremendous government assistance. It was a
different situation. We were faced with one of the fastest bank
failures in history.
Mr. Barr. Director, one more time, did you in any way try
to influence the FDIC analysis of the bids?
Mr. Chopra. We did not receive any bids that weekend for
Silicon Valley Bank. We sought to get as many bids as possible.
The FDIC's law requires minimizing costs to the Deposit
Insurance Fund (DIF), and that is what we did.
Mr. Barr. We talked a little bit about this offline, that
some healthy mergers can avoid losses to the DIF. I want you to
take that back to Chairman Gruenberg, that we need a better
merger process to avoid losses to the DIF. And we can talk
about that further.
Director Chopra, in your new abusive acts and practices
policy statement, do you include the following as fitting into
what will now be considered abusive and a violation of consumer
financial law? And I will ask that you answer yes or no.
A pop-up or drop-down box?
Mr. Chopra. I don't believe that, on its own, is any
violation.
Mr. Barr. Okay. Multiple click-throughs?
Mr. Chopra. I don't believe that, on its own, is any
violation. I think there was a series of examples used to look
at material interference.
Mr. Barr. What about consumer confusion?
Mr. Chopra. That is part of the statutory----
Mr. Barr. What if it is unreasonable consumer confusion?
Mr. Chopra. Unreasonable on the part of the consumer----
Mr. Barr. On the part of the consumer.
Mr. Chopra. ----would not be the issue. That would not meet
the statutory standard. The standard has two prongs with some
sub-prongs. One is material interference with the consumer's
ability to navigate, and the second is taking unreasonable
advantage----
Mr. Barr. What about customer support taking too long? Is
that abusive?
Mr. Chopra. Is that in the proposed----
Mr. Barr. See, your confusion is the problem. Nobody knows
what constitutes, ``abusive.'' We still don't. If you don't
know, and you are the Director, and you issue the guidance----
Mr. Chopra. We have sought in the proposed policy statement
to summarize all of the supervisory actions by State and
Federal law as well as enforcement to say, this is the body of
law we have. We have a common law system in the United States.
We are seeking to provide as much clarity to be responsive to--
--
Mr. Barr. Because I have limited time, these are examples
that you say that you are listing, and you can't tell me
whether or not these examples constitute, ``abusive.'' And
complying with these new additions, these examples to the,
``abusive'' prong, means that companies will now have to change
the way they present information or manage customer services.
This means that these institutions have new obligations, and
you are not following notice-and-comment rulemaking, and you
are imposing new requirements on them by listing these----
Mr. Chopra. I completely disagree with that
characterization, respectfully.
Mr. Barr. I know you do.
If it is not new requirements, here is the problem. It is
kind of like Supreme Court Justice Potter Stewart in 1964 when
he was asked to describe his test for obscenity. He said, ``I
know it when I see it.''
This vague and ill-defined guidance on what, ``abusive,''
means under Unfair, Deceptive, or Abusive Acts of Practices
(UDAP) sounds a lot like Justice Stewart's test for obscenity.
``Abusive'' is whatever you say it is.
Mr. Chopra. It is not. Congress wrote the words. It is in
statute. We have tried our very best to be able to articulate
with fidelity to those words, to give examples and facts.
Mr. Barr. My time has expired. You tried, but respectfully,
I think you failed. Nobody knows what it is. It is what you say
it is, and that is the problem.
My time has expired. The ranking member of the committee,
the gentlewoman from California, Ms. Waters, is recognized.
Ms. Waters. Yes, your time has expired. And I certainly
hope that you recognize that as I start with my questions.
First of all, I want to go back to what the gentleman was
implying when he asked you about what you said. Whatever you
said had nothing to do with what the final results were that
were accomplished when we were able to save this country from
bank runs, et cetera.
Would you like to take a moment to talk about how
successful we were when, over 48 hours, you all worked very
hard to ensure that when we woke up on Monday morning, the
banks would be safe and secure, and that, again, they would not
be bankrupt? Give America some examples of the fine work that
was done.
Mr. Chopra. I think what happened that weekend was
something we should never want to repeat and have to do again.
We had to take emergency steps. The unanimous vote of the Fed
Board and the FDIC Board, with the concurrence of the Treasury
Secretary and the President, was to insure uninsured deposits.
It was extraordinary, and it is something we do not want to
have to repeat. It was one of the fastest bank runs in history
pushed digitally; social media in the modern age was involved.
We are going to have to take steps to make sure that
financial institutions can stay resilient even in these times
of stress. I also think it woke people up to uninsured
deposits, and there are more places where these uninsured
deposits exist for consumers, and we need to make sure people
know how to keep their money safe.
Ms. Waters. I thank you very much for reminding this
committee of the good work that our government did in order to
ensure that our banks are safe and secure.
I want to go to a question that I think needs to be given
some explanation. I applaud you and the CFPB staff for issuing
long-overdue rules implementing Section 1071 of Dodd-Frank to
provide transparency to the small business lending market. I
worked with Congresswoman Velazquez and others to ensure that
this measure was included in Dodd-Frank so that the same kind
of transparency in market lending could be made in small
business lending.
My colleagues on the opposite side of the aisle are quick
to point to the burdens of data collection on lenders. Would
you discuss how you took the concerns of small community banks
and credit unions into account in the final rule?
Mr. Chopra. We made substantial changes from the proposal,
including changing thresholds, which actually led, I believe,
to 2,000 of the smallest banks which do not do much small
business lending, to not have to report.
We also changed the implementation period so the large ones
would go first with much more time for the smaller ones. We
sought to simplify. The final rule allows small banks and
others to work together with their industry associations to
help with reporting. We did a lot to make changes, but we had
to implement the statute as the court directed.
Ms. Waters. Thank you. Now, would you also discuss the
benefits that small businesses of all types will see from this
rule, particularly for LGBTQ small businesses? And will
transparency in this opaque market help make the market more
competitive and reduce costs for all small businesses?
Mr. Chopra. Certainly, the Paycheck Protection Program
(PPP) was a real sign that the government really lacked, and
the market also lacked details about patterns of small business
lending. We see that with more mortgage data, you actually
invite smaller players to enter the market to fit unmet needs.
I hope this dataset is going to be able to be used also to
identify opportunities, meet needs, and really work together
with other rules that are currently on the books, with which
people can achieve compliance.
Ms. Waters. Thank you. One thing I am focused on is getting
more information about the type of government programs
supporting small businesses, including Small Business
Administration (SBA) loans, and loans from Community
Development Financial Institutions (CDFIs). I believe this kind
of data would help Congress to better understand the full
impact of these various programs that have been supporting
small businesses in underserved rural and urban areas and to
help us to strengthen them.
Do you agree?
Mr. Chopra. Yes.
Ms. Waters. If so, would you work with me on how best to
design such a requirement?
Mr. Chopra. We always want to work with you, Congresswoman.
Many of those loans may be captured partially, but we will work
with you.
Ms. Waters. I thank you very much for your presentation
here today, and I thank you for always working with us on
behalf of the people of this country.
I yield back.
Mr. Barr. The gentlelady's time has expired.
The gentleman from Arkansas, Mr. Hill, is recognized.
Mr. Hill. Thank you, Mr. Chairman.
Director, we are glad to have you here before the committee
today. We are doing a lot of work, and we have done that under
the leadership of former Chairwoman Waters and current Chairman
McHenry in the whole fintech space and the digital future for
financial services. It is a major megatrend, of course, across
the world. And the building blocks of that future digital
financial services space include cyber protection standards,
digital identity--a favorite topic of my friend from Illinois,
Dr. Foster--and privacy.
And I want to start out our discussion talking about
Section 1033, the rulemaking that talks about open banking. In
the last 8 months, the Bureau has released the Small Business
Regulatory Enforcement Fairness Act (SBREFA) outline. SBREFA is
the acronym for 1033, which sheds some light into the agency's
thinking about the advance of a rulemaking, I think, that you
are considering for October.
Are you still on track for an October release of that rule?
Mr. Chopra. Yes, sir.
Mr. Hill. Data privacy and enshrining consumer data rights
are a top priority of Chairman McHenry, which is why this
committee passed our Data Privacy Act a few months ago. So, we
have a keen interest in your views on open banking in this
rulemaking.
I thought it was notable that in your initial proposal, you
were only covering deposit accounts and card accounts from
depository institutions, and weren't tackling or applying the
rule to services provided by nonbanks, even though the Bureau
acknowledges that nonbank data providers offer numerous
consumer financial products, including mortgages, auto loans,
et cetera.
Can you tell the committee how you reached the decision to
set the scope only at Reg E and Reg Z for your initial
proposal?
Mr. Chopra. Sure. And just to be clear, open banking is
going to probably be one of the most important things we should
all work on together. It is basically about the future of
finance, and how do we shape it in ways that are good for
consumers, businesses, and others.
Congressman Hill, we did not just include depository
institutions. What we said was--we asked industry, asked
experts, what is the most valuable types of data to get? And
what they said was, it is transaction data. Cash flow data. So
by getting all of that transaction account information--and we
include nonbanks, I believe, in the SBREFA--we got input on
that because that is what is going to give a mortgage lender,
an auto lender, or others the ability to say, maybe I shouldn't
rely on this credit score. Maybe I should look at their actual
income and expenses.
I think that is why we started there. I am very open to
figuring out ways to expand it, and I see this as a sequencing
just like other jurisdictions in the Organization for Economic
Co-operation and Development (OECD) have done.
Mr. Hill. Thanks. We will follow up on that. I want to make
sure we get this right. This is something on which the
committee wants to collaborate.
You also, in your advance notice on SBREFA, did not address
liability for data breaches or data security noncompliance. a
key issue that I am going to talk more about if we have time
remaining. You have gotten a lot of comments on that. Do you
expect the proposed rule this fall to include addressing
liability for data breaches?
Mr. Chopra. Yes. The comments we got--I think institutions
who are providing information want some understanding that if
there is mischief on the other side, they won't be held liable.
When we propose the rule, expect us to address some of that.
Mr. Hill. Okay. Good.
Mr. Chopra. So, that we can make it clear for the entities.
Mr. Hill. And speaking of data breaches, nobody has more
data breaches than the U.S. Government. It is a huge
frustration for all of us on this committee, and recently, even
the CFPB had a former agency employee leak personally
identifiable information (PII) and confidential supervisory
information, which could have potentially impacted 250,000
American consumers and 50 financial institutions.
And whether it is this breach or the one from Office of
Personnel Management (OPM) back in 2015, or the Postal Service,
or the IRS, how in the world can the citizens trust their
government to keep their private information private?
Mr. Chopra. Yes. It is an extremely serious situation. We
were dealing with an insider threat. Our systems were not
breached or hacked, but we identified indicia that an employee
had sent some emails to their personal email account. We
immediately investigated.
Mr. Hill. Is there monitoring now so you can stop that from
happening in the future? Or do you now monitor that more
successfully in the interim?
Mr. Chopra. Yes, sir. We have already been implementing
ways to address this. But I will share with you that the issue
of insider threats is a really serious----
Mr. Hill. Let me share with you that you and the bank
regulators make that a living nightmare for every depository
institution to make sure they do it right through internal and
external penetration testing, and I think the citizens should
demand the same of the Federal Government.
I yield back, Mr. Chairman.
Mr. Barr. The gentleman yields back.
The gentlewoman from New York, Ms. Velazquez, is now
recognized.
Ms. Velazquez. Thank you, Mr. Chairman, and Ranking Member
Waters.
Director Chopra, thank you for being here today.
I want to say that, along with many of my colleagues,
especially Ranking Member Waters, I was proud to sign on to the
amicus brief and support the good work of the CFPB.
I know that there has been some confusion about the
Bureau's recent small business lending rule, also known as
Section 1071, so I would like to clarify a few things. Can you
tell me why the Bureau is doing this rule now?
Mr. Chopra. Congress passed it in 2011, and the Bureau did
not do it, and then a court order demanded the Bureau complete
it by March 31st, and we did.
Ms. Velazquez. So it wasn't just the CFPB's idea or your
idea, Director Chopra?
Mr. Chopra. It was the Legislative Branch's idea.
Ms. Velazquez. Isn't it true that there were major
substantial changes between the regional proposal and the final
rule based on input from industry stakeholders?
Mr. Chopra. Yes. And they have acknowledged that we made
substantial changes, including one that would reduce the number
of local banks that would have to report. We have tried our
best to accommodate and figure out a way to achieve the
statutory objectives, and we tried our best.
Ms. Velazquez. Okay. Does the CFPB's rule require banks to
ask customers about their race and ethnicity and sexual
orientation?
Mr. Chopra. The statute makes clear that a borrower does
not need to provide that information. We did publish a sample
form that institutions can use where borrowers can self-
identify with checkboxes if they would like to, but it is not
mandatory.
Ms. Velazquez. And does the rule allow for customers to
decline to provide that information?
Mr. Chopra. Absolutely.
Ms. Velazquez. Aren't you allowing banks to partner with
other banks and trade associations to fill out and report this
data?
Mr. Chopra. Yes. Many of them can use consortia third
parties. If they don't want to ask, they can direct their
borrowers to, ``Go fill this out over here.'' There is lots of
flexibility because we heard those comments and wanted to make
sure we were responding to them adequately.
Ms. Velazquez. That all sounds pretty reasonable to me.
Is it true that smaller banks have more time to comply with
this rule?
Mr. Chopra. Yes. We gave substantial extra time compared to
the proposal for those that were smaller in the marketplace. We
are actively working with vendors and others to provide and
partner with them to figure out how to make it as smooth as
possible.
Ms. Velazquez. And what else do you do in this rule to ease
the compliance burden on small banks? Weren't some banks
exempted completely?
Mr. Chopra. Yes. We estimate that about 2,000 will not have
to report under this. We visited with a lot of these
associations and banks to figure this out. We were, again,
under a court order to do it. We identified places where we
could simplify. The way in which we are doing it is going to
leverage technology. And, again, we understand this will
require some effort, and we want to work, but we have to
faithfully implement the law that was passed.
Ms. Velazquez. Director Chopra, this requirement was
included in Section 1071 because small business lending data is
a critical tool to help identify and combat this combination in
small business lending. Not only that, but this data can
ultimately help spur investment and programs to support the
needs of America's small businesses.
Can you briefly describe what benefits we expect to see
from this dataset and what benefits we would have seen if these
had been in place several years ago, as Congress originally
intended?
Mr. Chopra. I think due to the fact that this was delayed
so long there has been a cost to that. Efficiencies and other
government small business lending programs like the Paycheck
Protection Program, as I mentioned with Ranking Member Waters.
I think we would have been able to make sure we achieve fair
lending all over the country and know exactly what is happening
to so many small businesses, franchisees, and more.
Ms. Velazquez. As the ranking member on the House Small
Business Committee, I am a strong supporter of the
implementation of Section 1071. Thank you.
Mr. Barr. The gentlelady yields back.
The gentleman from Texas, Mr. Sessions, is now recognized.
Mr. Sessions. Mr. Chairman, thank you very much.
Director Chopra, welcome to the Financial Services
Committee.
The CFPB has been engaged in and is engaged in--as you
mentioned--a lot of data breaches that occur in the private
sector and in banks, financial institutions, and the
government.
What have you learned from those that you have taught the
government?
Mr. Chopra. Yes. One of the things that was very unique to
the recent insider threat at the Bureau was that we have put in
a lot of things over the years--penetration testing and other
things--to make sure systems can't be hacked. We are now at the
point where I think other----
Mr. Sessions. The systems can't be hacked?
Mr. Chopra. That is where the efforts have gone in for
outsiders. But insider threats, I think, is one where there is
more attention that all of the agencies, including the CFPB,
need to guard against--a now former employee emailed themselves
a set of emails, which was in complete violation of acceptable
use policies.
Mr. Sessions. What did you do to that employee?
Mr. Chopra. I am prohibited from talking in specifics about
personnel matters, but I can----
Mr. Sessions. Did you refer the matter for prosecution?
Mr. Chopra. We have referred the matter to investigators,
including the Inspector General and others. We are cooperating
with all of them. They have various authorities that go beyond
our authority, civil, criminal, and others.
Mr. Sessions. So, you think that some of the breaches come
from internal employees?
Mr. Chopra. In this recent incident that we informed
Congress about, it was from a CFPB employee. And that is
something that, especially with more devices, phones, and
recordings, we need to figure out how----
Mr. Sessions. What have you taught the government in your
investigation to help them? Because I recognize that your focus
is entirely on beating the stuffing out of the free enterprise
system.
Mr. Chopra. That is not true, sir.
Mr. Sessions. There is sufficient evidence to suggest that
my statement would be true and yours would be also, sir.
What have you taught the government?
Mr. Chopra. I think in this incident, we have been working
with all of the appropriate agencies, the Office of Management
and Budget (OMB), and others. I think as we have talked to the
other banking regulators, we recognized that we all need to
figure out, how do we ask and allow institutions to give us
data in even more-protected forms, and what can we do to police
insider threats effectively?
I think there is so much that government employees across
the government have access to in terms of sensitive
information, and ensuring that it does not get disclosed is
absolutely critical.
Mr. Sessions. Evidently, Homeland Security and, to a large
part, the Secret Service have large jurisdictions for
investigating and prosecuting these incidents. What are your
regular conversations with them about what you have learned?
Mr. Chopra. Primarily, in these situations, OMB and other
guidance says to work with the Inspector General, and of
course, others, like the Justice Department, and as you know,
the FBI is under the Justice Department. We try and provide all
of the evidence to them. They have to conduct their own
investigation.
But as a policy matter, I do think we want to contribute
our learnings on insider threats, which may be an issue across-
the-board that we all have to carefully combat, especially with
new technologies to which individuals have access.
Mr. Sessions. You are the Director. I am not. You and I
could have different ideas about what we believe the focus
should be. But I would hope that you would put a major focus on
data security, from the things that you have learned, and be a
leader in that field. I am not arguing that you are not today.
But I believe that a major focus of your 1,600 employees could
be almost single-handedly across that until we defeat those who
want to steal our intellectual property, our personal data, and
other things.
Mr. Chairman, I want to thank you for this time.
Director Chopra, thank you.
Mr. Barr. I thank the gentleman.
The gentleman from California, Mr. Sherman, is now
recognized.
Mr. Sherman. I want to strongly endorse one of the
statements the acting Chair made in his opening statement. Mr.
Chopra, you are indeed continuing the legacy of Director
Cordray in your work. Congratulations.
The CFPB's importance is demonstrated every day. Nothing
proves it more than the incredible efforts made here in
Washington to silence and defeat you. You are the most-
effective consumer protection organization I think the world
has seen in the area of financial services. And it is critical
that we win this case before the Supreme Court. I say, ``we,''
because I joined the ranking member and so many others in the
amicus brief to make sure you get the same kind of funding that
the Fed has had for well over 100 years.
As you point out in your opening statement, you have
secured $4.6 billion in refunds and penalties against
violators, and that is just the tip of the iceberg. Because
every time you collect a fee, you get many, many other
companies to change their policies or to not engage in policies
in which they might otherwise engage. And as you point out, you
deal with 10,000 consumer complaints every week.
I want to thank you for focusing in your opening statement
on two issues important to me. First, thank you for your work
on the London Interbank Offered Rate (LIBOR) transition. Some
$16 trillion of instruments, including trillions of dollars of
home mortgages, are going through that transition.
And second, you mentioned Property Assessed Clean Energy
(PACE) lending. As to PACE lending, I want to commend you for
your new regulation as required by law to require Truth in
Lending Act (TILA)disclosures and ability-to-pay
determinations. But the battle is not over. The industry will
fight back, and I hope that you stand strong.
You, under Section 1071, are requiring disclosures on small
business lending to women-owned businesses, minority-owned
businesses, and LGBTQI-owned businesses. And I know you have
pledged to help lenders, especially small lenders, implement
that rule. I am told that some lenders have submitted questions
over a month ago, and they submitted to those designated
mailboxes and are not getting responses. So, I hope you can go
back and get them those responses.
Credit repair scams are not just annoying television
commercials. They charge you a lot of money. They just
blanketly contest everything on your credit report. Your score
then goes up for a little while until they realize that most of
those entries were accurate, and then it goes back down. What
are you doing to deal with the scheme where you get your credit
report improved for a little while?
Mr. Chopra. Yes. We are looking hard at all the ways in
which consumer credit report issues can spawn scams. We have
brought a number of enforcement actions here. We do work with
the Federal Trade Commission (FTC), and State Attorneys General
to bring action. But we don't want to play Whac-A-Mole.
We want to figure out what is the way that consumers
themselves can know how they can dispute inaccurate
information. We want to make sure that fraudsters are not
parking or placing debt on credit reports that is not even
owed. So, there is a lot to work, and I know many on this
committee--
Mr. Sherman. And I will furnish you one idea: When they
start advertising about what percentage of their customers they
improve the score for, they should not be claiming temporary
improvements.
Mr. Chopra. Yes.
Mr. Sherman. Under Section 1031, you are dealing with
privacy. Data aggregators and fintechs are not subject to a lot
of the Federal supervision that banks are, so what steps are
you taking to protect Americans from the misuse of their data
by data aggregators and fintechs?
Mr. Chopra. We have started, as I mentioned in my
testimony, to put more emphasis on nonbank supervision,
especially the firms that sometimes touch millions and millions
of consumers who have not been subject to similar supervision.
We want to make sure that the abuse you mentioned is not
collected for one purpose but monetized for a completely
different one. It is going to be a challenge, but we are
starting by making sure we are targeting our supervisory
resources properly.
Mr. Sherman. And finally, I hope that you would look at
these for-profit debt relief agencies that keep you from
talking to your bank first because often you can revolve it
with the--
Mr. Barr. The gentleman's time has expired.
The gentleman from Missouri, Mr. Luetkemeyer, is now
recognized.
Mr. Luetkemeyer. Thank you, Mr. Chairman.
Mr. Chopra, welcome. Last time you were here, we discussed
your schedule, about the fact that you don't meet with people
from the industry. We showed your schedule to you. You made
some comments about it.
We sent you a letter and asked you to fill in the blanks
and tell us that you actually did meet with people in the
industry. You responded to us with a letter, but in that
letter, you didn't respond and explain the lack of data in that
schedule.
So from that, I can assume two or three things here. Number
one, the letter was to me, Mr. Huizenga, and Mr. Barr. You
thumbed your nose at us and said, you are not worthy of a
response, or else we were correct in that you are not meeting
with industry people as they tell us, or both, which I think is
probably the case. It's very disappointing.
Mr. Chopra. Let me just say that there are many industry
associations. We have done----
Mr. Luetkemeyer. Mr. Chopra, we have been down this road
before. The problem is that you don't meet personally; your
staff does.
Mr. Chopra.No, no, no. I meet personally.
Mr. Luetkemeyer. No, you don't. Your schedule doesn't back
that up.
I want to move on.
Ms. Waters. Please allow the gentleman to answer.
Mr. Luetkemeyer. Reclaiming my time, I want to move on to
another subject here.
Director, you have clearly chosen to regulate by press
release, guidance, and the threat of enforcement action instead
of through rulemaking governed by the Administrative Procedure
Act (APA).
As you know, the APA allows for public notice and comment
on proposed rules, which gives regulated entities an
opportunity to provide feedback and share their concerns or
incorporate an agency's rules in order to produce workable
policies.
Since public statements are not rulemakings or official
actions, and the guidance you issue is not legally binding, are
financial institutions and firms within their rights if they do
not adhere to your proclamations?
Mr. Chopra. I could not hear you.
Mr. Luetkemeyer. Okay. Since public statements are not
rulemakings or official actions, and the guidance you issue is
not legally binding, are financial institutions and firms
within their rights if they do not adhere to your
proclamations?
Mr. Chopra. Yes. Guidance advisory opinions don't create
new obligations. One of the pieces of feedback this committee
has given is concerns about using enforcement only. I have
continued a practice from my predecessor, Director Kraninger,
to issue more informal guidance and opinions because it helps
give transparency about what approach the agency is taking.
Mr. Luetkemeyer. Okay.
Mr. Chopra. But it is not intended to create any new----
Mr. Luetkemeyer. That doesn't answer my question, though.
My question is, are the firms within their rights to not adhere
to your proclamations or to this guidance?
Mr. Chopra. No. They have to follow statute and regulation.
Mr. Luetkemeyer. That is not my question. They are within
their rights, then, to not adhere to your proclamations and
your guidance, is that correct?
Mr. Chopra. I think I am trying to be responsive. I think
the answer is, yes, they only have to look to statute and
regulation as for what is binding.
Mr. Luetkemeyer. Okay. That is right.
Mr. Chopra. These other forms--we got input from the
Consumer Bankers Association a few years ago that they wanted
to see more guidance and----
Mr. Luetkemeyer. Okay. It is clarification, then. It is
clarification that you are using guidance and official actions,
right?
Mr. Chopra. I think what we are trying to do is--the market
is so dynamic, and it changes so much. So, we often have
entities saying, do I need to hire a lawyer to figure this out?
Mr. Luetkemeyer. That is fine to discuss. I know what you
are trying to do, Director. But it is not enforceable. That is
my point.
Mr. Chopra. It is trying to restate existing law and
regulations.
Mr. Luetkemeyer. It is not enforceable. Is that correct?
Mr. Chopra. That is right. I am sorry if I----
Mr. Luetkemeyer. Guidance is not enforceable, correct?
Mr. Chopra. It does not provide any legal----
Mr. Luetkemeyer. Okay. Clarification through official
documents, such as your compliance bulletins, is not
enforceable, correct?
Mr. Chopra. That does not provide any obligation, so there
is nothing to enforce.
Mr. Chopra. Okay. So, it is not enforceable. That is your
statement. You agree with that?
Mr. Chopra. Yes.
Mr. Luetkemeyer. Wonderful. We finally got here.
It is very disconcerting because you have compliance
bulletins here--I think there are 12 compliance bulletins and
opinions, which is great. It gives clarification to folks. But
it is not enforceable.
This is very concerning to me because you turn around and
you threaten different entities all the time. You have become
the greatest extortionist in the history of this country by
what you are doing with these actions when you issue press
releases, and make up new terms like, ``junk fees.''
``Junk fees'' is not a legal term. It is not an enforceable
term. I have checked with attorneys. I have looked at the
people who design and work through financial and legal
dictionaries. This is not an enforceable term. You made it up
to give yourself more authority to be able to have more impact
on things and extort more money from people.
Mr. Chopra. I completely and respectfully disagree with
that.
Mr. Luetkemeyer. Well, I am glad----
Mr. Chopra. Every action we have taken is based on laws
that this body has enacted, but through legislation----
Mr. Luetkemeyer. Director, junk fees is not a legal term.
It is not an enforceable term, period. Just like guidance is
not enforceable. And yet, you try and impose that on people.
You extrapolate from the UDAP authority using the term, ``junk
fees,'' to be able to have new authorities. You can't create
authorities out of thin air. Only Congress can give you that
authority, and you are creating it yourself.
With that, I yield back.
Mr. Barr. The gentleman yields back.
The gentleman from New York, Mr. Meeks, is now recognized.
Mr. Meeks. Thank you, Mr. Chairman, and Ranking Member
Waters.
And thank you, Director Chopra, for being here.
In listening to some of this debate, I can't help but say,
thank God that we created the CFPB, which is singularly
focused, because I hear the interest of other groups who have
people to advocate on their behalf. Most of the industries and
anyone else has someone to advocate on their behalf.
What I don't understand is why it is so bad to have an
agency, which you represent, to advocate on behalf of the
American consumer. Throughout history, we have seen the
consumer be ripped off, taken advantage of--so much, that is
why we have to have labor unions--because we know and we have
seen that folks on their own don't see a move in the benefit of
everyday people.
So, there has to be someone to advocate on their behalf, to
look at it, to make sure that the playing field is level for
consumers. Not to harm businesses, but to level the playing
field so that the consumer has a voice and someone there to
say, don't rip us off.
This is a bad product. I lived it in the financial crisis
of 2008. That is why you are here, because we said we can never
allow that to happen again.
And one of the proudest moments of my career here was
working with Ranking Member Waters and others to create the
Consumer Financial Protection Bureau. So, I thank you for doing
your job. And your job is to advocate on behalf of consumers.
That is your job.], singularly focused on helping the American
people.
And you help all of them. Not just Democrats. You are
helping the American consumer who is a Democrat, who is a
Republican, who is an independent, no matter where they are,
rural or urban. Thank you for doing that.
Now, the recent bank failures of Silicon Valley, Signature,
and First Republic Banks dominated the media and the media
attention, and this committee particularly this spring. We had
an opportunity to speak with the potential regulators
responsible for the oversight of the institutions and continue
to look at what could have been done to prevent the failures,
but we have not yet had the opportunity to speak with you in
the aftermath, the voice and the advocate for the consumer.
So from your perspective, how do the recent bank failures
highlight the need for a strong CFPB, now more than ever?
Mr. Chopra. As you referenced, in your own community and
almost everyone's, the financial crisis was absolutely
devastating. And the victims of financial crises--the first
ones are often those who can least afford the shock.
So, we had to take extraordinary steps to mitigate some of
that damage. But also, people are now learning about deposits
and safety and insurance. And there are places where people may
be holding their money that aren't insured. And we are going to
obviously want to make sure that any instability in financial
markets does not impact the consumer, as you say.
The failure of credit sweeps as well in the forced merger
with UBS was a big concern at the CFPB to figure out, how could
it affect our mortgage markets, our auto loan markets, and
others? So, financial stability and consumer protection
absolutely go hand in hand.
Mr. Meeks. Thank you. We also heard that the CFPB teamed up
with the Federal Reserve, the FDIC, the FHFA, the National
Credit Union Administration, and the OCC to propose a rule
designed to make the automated home valuation process fair. And
I believe that it is going in the right direction.
But I am curious, when we talk about AI, would this rule
promote automated appraisals over human appraisals?
Mr. Chopra. No. I think that it is trying to make sure that
AI and algorithms, when used to automatically compute homes, do
not bake in any sort of discrimination. I think everyone
deserves a fair and accurate appraisal, and that is what the
proposal which implements Federal law seeks to provide.
Mr. Meeks. Thank you.
Mr. Barr. The gentleman's time has expired.
The gentleman from Michigan, Mr. Huizenga, is now
recognized.
Mr. Huizenga. Thank you, Mr. Chairman.
And, Director Chopra, welcome back.
I have a number of things to get to here, but I was
curious, when my colleague, French Hill, was asking you about
the breach, it seemed like you were downplaying it. You said,
``insider threat,'' that that person, ``sent some emails.''
Later, to another question, you indicated it was a, ``set of
emails.''
Would you classify the incident that happened as a minor
incident, a sort of medium-sized incident, or was it a major
incident?
Mr. Chopra. It was an extremely serious and major incident.
There is no question about that.
Mr. Huizenga. Okay. Great. I'm glad to hear you backing
that up.
Mr. Chopra. And I apologize. I don't want to underplay it
in any way. We have looked hard to make sure we are following
all of the steps. We have begun notification of----
Mr. Huizenga. Yes.
Mr. Chopra. Sorry.
Mr. Huizenga. I understand that. And I was back conferring
with our attorneys as to exactly how much we could talk about
publicly because we don't want to get in the way of an
investigation. I know you don't, and I don't, either. But I do
have some concerns.
You were notified in March to let the committee know in May
about what you now call a major incident, and we asked for a
briefing on that. A briefing was granted at the staff level,
however, when our attorneys asked your briefers--I don't know
who they were. Maybe they were attorneys; maybe they weren't.
But when they were asked basic questions like, ``Did anyone at
CFPB speak to the individual?'', staff from your agency could
not answer the question and advised committee staff to speak to
the Inspector General.
Your staff explained the only reason why CFPB knew about
the breach was from a different employee. You have talked about
that. Committee staff asked about the identity of the other
employee and about the circumstances surrounding the employee
raising concerns. Your staff could not or would not give a
single answer to any of these basic questions.
CFPB staff emphasized that there was no reason to suspect
the information was disseminated--which I think we were all
glad to hear--because it is my understanding, from what I have
been briefed on, which I don't believe is public information as
of yet, that this was a major incident with significant
consequences, potentially. However, when they were pressed,
they confirmed that the only evidence to sustain the claim was
that, so far, there had been no suspicious activity.
For a little perspective--I won't go into all that, but we
all have seen what has happened with Equifax and others that
have had serious data breaches, and you have been a part of
punishing others that have had serious data breaches.
And I am glad to hear you say it is serious, and I am glad
to hear that you are cooperating with law enforcement, but we
also expect you to fully cooperate with this committee, and
Congress writ large, and with our Oversight and Investigations
Subcommittee, which is called that for a reason.
These are basic questions that we are asking, and we expect
full and complete answers, and your staff couldn't give basic
answers, and sometimes, there wasn't any answer at all.
I am sorry to be suspicious here, but I know how D.C.
works, and with your sort of dismissive attitude towards
Congress that has come across in previous hearings and previous
interactions, it makes me wonder if you intentionally sent
someone who didn't know what was going on so that they wouldn't
pass that information on to us? Were they somehow opaque in
their answers for some reason?
I am not expecting you to answer that because I am not
looking specifically for a response. But I am making sure, once
again, you are put on notice that we will be following up, and
we expect our questions to be answered.
One last thing I am going to pivot to is the Bureau's
website provides fund transfer request letters that you have
made to the Fed before every quarter of the financial year and
the Fed's response.
To your knowledge, has the Fed ever denied your agency's
funding request?
Mr. Chopra. Not to my knowledge.
Mr. Huizenga. Okay. Has the Fed ever provided feedback on a
quarterly budget request, meaning, has the Fed ever told you
that a request was too high or too low?
Mr. Chopra. I believe the Fed's feedback is usually about
when we should request it because they manage it for liquidity
purposes.
Mr. Huizenga. Okay. The last time that the shared Fed and
CFPB Office of Inspector General (OIG) did an audit of the
Bureau's budget and funding process in July of 2020, it was
done at the request of Chairman McHenry, and that was almost 3
years ago. Are you aware of any other oversight conducted about
the CFPB's budget?
Mr. Chopra. Yes. We do have an audit by----
Mr. Huizenga. Sorry, my time is up.
I do have a letter to be submitted for the record, Mr.
Chairman, a letter that I sent along with your signature, and
we wanted to make sure that that was--regarding the concerns--
--
Mr. Barr. Without objection, it is so ordered. The time has
expired.
Mr. Huizenga. I yield back. Thank you.
Mr. Barr. The gentleman from Georgia, Mr. Scott, is now
recognized.
Mr. Scott. Thank you.
Director Chopra, there are a lot of problems with this
crypto asset fraud business. In November of last year, you all
published a complaint bulletin that dealt with these
complaints, fraud, theft acts, scams. All of them were
significant problems.
And your analysis suggests that the bad actors are
leveraging crypto assets to specifically perpetuate fraud on
American consumers. And from October 2018 to September 2022,
you all received 8,300 complaints.
Director Chopra, has the CFPB determined whether certain
vulnerable groups are at particular risk for these scams?
Mr. Chopra. Yes. I believe we specifically mentioned older
adults. It used to be more common, for example, for a scammer
to ask someone, go buy me some gift cards, but we are now
seeing it shift to more digital, often using crypto assets.
We have also identified a place where it has some
interaction with identify theft, where it is not always crypto-
specific, but servicemembers can be targeted for ID theft in
ways that can really expose them to certain harm----
Mr. Scott. Let me ask you this, because we have to find
some answers to this. The problems are overwhelming. You all
have some great people over there at the CFPB. And we
established this for a purpose, and we have to find some
answers here.
Let me ask you, will financial literacy, financial
education help? This is being put on people who are having
difficulty.
Mr. Chopra. Yes. I think it is actually really important
that we shift financial education and literacy so that it is
really adapted to the digital world. There are lots of
different ways in which digital technologies--and with
generative AI, we could have voice cloning in ways where it can
sound like a family member is calling you. We could have
different ways in which digital images can look like reality,
and we want to make sure we can arm people on how they can spot
some of this.
Mr. Scott. That is very good. With what you said in mind,
Director Chopra, and because we are concerned about this, can
the committee get a clear commitment from you today that the
CFPB will use a portion of the more than $600 million in
unallocated civil penalty funds to support financial literacy,
financial education, for our consumers, in a program?
We have to arm our people with the weapons. They are the
ones who are being targeted. We have to put some arms on them,
soldier them with the full armor of protection. Use this money.
That is what it is there for. Will you commit to doing that
today?
Mr. Chopra. We will commit to using funds for financial
education purposes. We may use other statutory funds to do
that. The fund you referenced is also to be used for victims'
relief for people who are victims of scams, and we want to make
sure that they can receive payouts.
We do have other funds, and we can share with you what some
of our spending will be on financial education, but we may want
to use our general funds, not the victims'.
Mr. Scott. But the priority ought to be to stop them from
becoming victims.
Mr. Chopra. I totally agree. But there are so many people
whose lives are changed when they are able to get----
Mr. Scott. Can we get this commitment from you? I am not
asking you how much to use, I am saying, will you use this
money and----
Mr. Chopra. We will certainly use funds that we have access
to for financial education, but I would like to discuss further
with you the tradeoffs about using the fund.
Mr. Barr. The gentleman's time has expired.
The gentlewoman from Missouri, Mrs. Wagner, is now
recognized.
Mrs. Wagner. Thank you, Mr. Chairman, and welcome, Director
Chopra. I would like to follow up on a line of questioning that
my colleague, Mr. Luetkemeyer, began, discussing the CFPB's
industry outreach and specifically your public calendar.
On February 7, 2023, my colleagues, Mr. Luetkemeyer, Mr.
Barr, and Mr. Huizenga, sent you a letter, requesting specific
information regarding your calendar and industry outreach.
In your response to their letter, dated February 21, 2023,
you stated, ``like my predecessors, I have continued the
agency's commitment to transparency through our long-standing
policy of publicly posting the calendars of senior leaders.''
Director Chopra, it appears that your commitment to
following this long-standing policy has been completely absent
this year.
The CFPB's website states that each month's calendar will
appear at least a few weeks after each month has concluded, but
it has been almost 6 months--22 weeks--since your calendar has
been publicly disclosed. There is nothing here.
Can you please tell me why your calendar has not been
publicly disclosed for half the year?
Mr. Chopra. I am not actually aware that that is the case,
but if it is the case, we will look to make sure that it
happens in a faster way.
Mrs. Wagner. It is, it is absolutely the case, and I am
just reading to you directly from a letter to Congress in
response, dated February 21st. So, there are the quotes. It is
concerning.
Mr. Chopra. I will just share, though, that with respect to
industry outreach, we have----
Mrs. Wagner. I am not asking about that.
Mr. Chopra. Okay, sorry.
Mrs. Wagner. I reclaim my time.
Mr. Chopra. I apologize.
Mrs. Wagner. Would you say a 6-month hiatus of public
disclosure is your way of showing commitment to transparency,
sir?
Mr. Chopra. We would want to do that in a fashion that is
responsive, and I will take a look directly----
Mrs. Wagner. Yes, your own website states, ``due to the
time-intensive preparation process, each month's calendar will
appear on this page at least a few weeks after that month has
concluded,'' and that is just clearly not true.
Moving on, the comment period to the CFPB's proposal to
adjust the safe harbor dollar amount for credit card late fees
was just 36 days. You received more than 55,000 comments, many
of which were submitted weeks prior to the deadline, which was
May 3rd, the majority of which came from real consumers and
retail investors. But they weren't posted in the comment file
until a full month after the deadline closed.
What was the reason for the delay in posting these
comments, sir? Was the Bureau overwhelmed by volume, or did you
intentionally delay the posting of these comments?
Mr. Chopra. No, definitely not. When we receive large
amounts of comments, one of the things that we do have to do,
manually often, is to make sure it does not include account
information. Sometimes, people might be trying to file a
complaint. We do not want it to be a vector of identify theft.
And I will also just share, 36 days from the time we
published the proposal, there were more than 36 days, and I
would be happy to get you those details.
Mrs. Wagner. I will tell you this then, you should have had
more than ample time to begin with, to post some of those over
55,000 comments out there, in real-time, sir, because you don't
wait until after to delay it further. I consider that
intentional, and frankly, Director Chopra, I am just seeing----
Mr. Chopra. No, absolutely not. We are trying to do our
best----
Mrs. Wagner. Reclaiming my time, sir, I am seeing an
extremely troublesome theme here, and that is what I am trying
to get to.
You claim to be for transparency--I am for transparency--
but the blatant lack of timely public disclosure says
otherwise. I don't care whether it is your calendar or you
publishing comments. So, I would like you to take a serious
look at that.
Mr. Chopra. I will make sure--I do believe we are in line
or better than most of our peer agencies, but I will get back
to you, Congresswoman.
Mrs. Wagner. Okay. I am concerned about what is your
responsibility. The CFPB's credit card late fee proposal
ignores the important role that late fees play in deterring
consumers from paying their bills. If late fees are capped at
such a low amount and the deterrent effect is nonexistent, more
consumers will pay their bill late, leading to a higher share
of delinquent accounts, which will be reported to credit
bureaus and result in lower credit scores.
Director Chopra, I am not going to have enough time for you
to answer, but I would like an answer in writing. Why is the
Bureau proceeding with a rulemaking that has no consumer
benefit and would actually result in tremendous harm to
consumers?
Mr. Barr. The Director can answer for the record, and it is
a good question.
Mrs. Wagner. Thank you, and I yield back.
Mr. Barr. I now recognize the gentleman from Massachusetts,
Mr. Lynch.
Mr. Lynch. Thank you, Mr. Chairman.
Welcome, Director Chopra. It's good to see you again. And I
do want to push back on the suggestion that you are not
amenable to meeting with industry representatives and business
concerns, as well as consumer groups. I think you have been
exceedingly accommodating on each and every instance, at least
to my knowledge.
I do want to put one quick issue before you. The Peterson
Institute for International Economics defines junk fees as,
``surprise charges that customers do not discover until they
nearly complete a transaction, such as booking an airline
flight, renting a car, checking out of a resort, or paying by
credit card.''
Is that basically your understanding of what a junk fee
would be?
Mr. Chopra. I think it is a colloquial term, and I also
hear a lot about what are the fees that are not subject to real
competition and competitive pricing.
Mr. Lynch. Right.
Mr. Chopra. Really, ones that may not be subject to the
normal forces of shopping.
Mr. Lynch. Right. And as more and more retail happens
online, is the incidence of those junk fees growing or
becoming----
Mr. Chopra. Each industry is different. I think we see,
based on the empirical research, about where can firms be able
to use, sometimes drip pricing where they can advertise one,
but really the full costs are lifetime costs, and come later in
the process when the consumer has less ability to negotiate.
Mr. Lynch. Right. And I know President Biden identified
that in his State of the Union Address, and he called upon
Congress to eliminate those hidden junk fees from consumers'
transactions.
I want to talk about something else. There has been a real
shift among financial services firms to use chatbots, and I
know you have done some work on this. I know you issued a
memorandum, just an executive summary, on chatbots and consumer
finance.
What are we seeing out there? I guess it is anecdotal, but
my constituents are complaining about the fact that when they
have a problem with the bank, they are getting hooked into
these chatbots, and sometimes their problems are not resolved,
which leads them to call me.
And I am just wondering, are we meeting our obligations to
consumers when we allow banks to put a chatbot in an interface
between them and the consumer that doesn't adequately resolve
their problems?
Mr. Chopra. I think this is one use of generative
artificial intelligence we are going to start seeing more and
more. And one of the things we identified is, when a consumer
has a very straightforward question--where is the closest
branch, something that has a defined answer like in a FAQ--they
may be able to get it.
There are places where consumers have to provide a lot of
account information, personal information, and it is important
that that information, if it is used to train AI, how is it
being protected? When the consumer has to invoke a right to
dispute under the Fair Credit Billing Act, can the chatbot
actually handle it?
So, we are just reminding institutions that if they are
moving everyone to this, they still have to adhere to these
important legal protections and make sure that they are not
violating privacy and more. And it can really undermine
relationship banking if not tailored appropriately.
Mr. Lynch. Right. I understand that the more basic
questions could be dealt with by a chatbot, and I am sure that
there are personnel savings there and efficiency issues that
are certainly favorable. But as you mentioned, when matters
become more complex, it doesn't seem at this point that the AI
chatbots are capable of resolving those complex issues.
Is there any thought of providing an opt-out for when the
issue becomes so complicated that the consumer would have an
ability to go to a default which would provide a human being on
the other side of that?
Mr. Chopra. Yes. I think that is a place where financial
institutions need to be careful about denying access to a human
in some form because it can lead to real frustration and a doom
loop.
Mr. Lynch. Okay.
Thank you, Mr. Chairman. I yield back.
Mr. Barr. The gentleman yields back.
The gentleman from Texas, Mr. Williams, is recognized.
Mr. Williams of Texas. Thank you, Mr. Chairman. And thank
you, Director Chopra, for being here.
I was just sitting here thinking that the consumer needs to
be protected from the Federal Government, from all the things
we are talking about.
And another thing, as we have been talking about these bank
failures, I am from Texas, as you know, and I don't like well-
run Texas banks--I want to go on record with this--bailing out
badly-run California banks. I think that is really bad policy.
Director Chopra, the first time you came here before this
committee, you said you would protect the interests of small
businesses. I proudly serve as the Chair of the House Small
Business Committee, and I can tell you that we don't feel too
protected. And ever since you joined the CFPB, your agency
continues to add burdensome requirements without any
consideration of their impact on small businesses and small
lenders.
When talking to community bankers back in my district in
Texas and, quite frankly, all over and across the country,
every single person tells me how miserable and terrified they
are about the CFPB's Section 1071 small business data
collection rulemaking. They are concerned that the complicated
reporting requirements will tie up loan officers and increase
compliance costs, plus compliance officers, costs which will be
passed down to the consumer, guys like me who borrow every day.
We will pay for all this.
And they are concerned this will push the industry towards
a standardized small business loan product and kill
relationship banking, what free enterprise and capitalism are
based on.
And everybody is concerned, too, that it is going to push
the industry toward a standard-size small business loan and
kill relationship banking, as I said, and they are concerned
that this will force their employees to treat privacy as an
afterthought and collect more data than necessary on small
business loan applications, which is what we don't want to have
happen. Right now, small businesses are struggling with rising
costs due to inflation, increased interest costs, and ongoing
labor shortages, and this out-of-touch rule will only build on
these issues.
This is a hard time for small business. And the Section
1071 rule is an attack on Main Street America--that is the only
way you can look at it--which is why I introduced the
Congressional Review Act, with Congressmen Barr and Ogles, to
halt the implementation of the CFPB's final 1071 rule.
Senator Kennedy is leading the Senate companion of this
resolution and has the support of over 45 State and national
associations, further proving the urgent need to block this
regulatory overreach and make sure it does not take effect.
It is bad business, it is bad for Main Street, it is bad
for consumers.
Now, Director Chopra, how have you been working with small
businesses? How have you been helping them to ensure that your
regulations are not causing any undue burdens on our country's
small business owners? How have you been doing that? Because
there is real concern that they don't hear from you.
Mr. Chopra. One of the things we have done is, we have
focused a lot of our engagement on institutions that we don't
supervise. I have met with, I believe, 28 State bankers
associations, each of which have dozens of members. We have
done the same thing with credit union leagues. I believe we
have hit 20 States and the District of Columbia. I just want to
say I take your points very, very seriously, and we tried to
adjust the rule in ways that would reduce some of those costs.
Mr. Williams of Texas. Reclaiming my time, you don't think
it creates a burden for these financial institutions? Do you
think it eases it?
Mr. Chopra. Oh, we certainly publish what we believe will
be some of the costs. We tried our best to figure out what are
the ways in which we can limit it, and we also created and made
significant changes so that the smallest banks, 2,000 of them,
will not have to do it. I hear you completely. We don't want
standardized small business lending----
Mr. Williams of Texas. And it does trickle down to the
consumer like me, the borrower.
Let me ask you this. The CFPB's funding mechanism that we
talked about leads to very little congressional oversight of
the budget, and instead your budget is given to you by the Fed.
There are many more court challenges out there regarding your
funding mechanism, and the actions of the Bureau do not comply
with regular order, therefore, creating more uncertainty in
markets as everyone waits for the courts to decide.
In order to ensure your accountability and transparency to
Congress, it is imperative that your operation be subject to
congressional appropriations. So, Director, if the Supreme
Court strikes down your funding mechanism, will you be
accepting of being subject to congressional appropriations?
Mr. Chopra. We will comply with any Supreme Court decision
and make sure that we are following the law and doing so
accordingly.
We don't agree. The Solicitor General has filed a petition
seeking reversal. There are conflicting opinions in the circuit
courts, and we will look forward to the results in that matter.
Mr. Williams of Texas. Lastly, the CFPB fined Equifax for a
data breach. Did you fine yourselves?
Mr. Chopra. I was not part of that. I am happy to tell you
in more detail----
Mr. Williams of Texas. But have you fined yourselves for
what you----
Mr. Chopra. This is an insider threat. It is a different
situation, but it is a very serious one.
Mr. Williams of Texas. My time is up. I yield back.
Mr. Barr. The gentleman's time has expired.
The gentleman from Illinois, Dr. Foster, is now recognized.
Mr. Foster. Thank you. And I would like to thank my
colleague for his admiration of the Texas banking system.
Although we, in Illinois, have not forgotten the tens of
billions of dollars that we spent bailing out corrupt and
mismanaged banks in Texas and California during the savings-
and-loan crisis.
Director Chopra, some have argued that innovations in the
financial services space, such as open banking, have the
potential to facilitate consumer choice and increase access to
credit for many underserved Americans in ways that our broken
credit reporting system cannot. For example, open banking could
provide access to a much wider range of consumer data than the
credit bureaus currently access, which could give a more
accurate picture of an individual's financial history, but it
also provides the possibility for all kinds of bias to creep
in.
The last time you appeared before our committee, you shared
an update on the CFPB's small business review panel to advance
proposals under Section 1033 of the Dodd-Frank Act. Could you
give an update on that rulemaking?
Mr. Chopra. Yes. We will be proposing it. It is scheduled
for October. We have released more on this, including the
important role that industry standard-setting will play. We
want to make sure that standards are giving the ability to
switch, to consumers and all market participants. And I will
tell you, it is not just more access to credit, lower interest
rates for borrowers, and higher interest rates for savers. I
think it is also going to have an impact on customer service
quality. When a consumer has the power to vote with their feet,
you will see how our system will give them better service as
well.
Mr. Foster. Thank you, and thank you also for going on the
alert early over the threat of generative AI being used for
identity fraud. This is coming at us like a tsunami.
People who have looked at this identify two possible
government interventions that could help consumers. One of them
is to simply provision citizens who wish to have one, with the
means of proving they are who they say they are online, with a
secure digital identity, sometimes referred to as a Mobile ID
or a digital driver's license. These are things that allow you
to present you and your cell phone and your Real ID-compliant
driver's license to present digital proof in an online or an
offline environment that you, in fact, are who you say you are.
And that is one avenue that we can, I think, make a difference
on.
The other one are these so-called, ``Blade Runner'' laws.
There is simply a requirement that any electronic communication
coming from a machine must start by identifying itself as being
machine-generated.
Do you have any comments on either of those two and their
effectiveness?
Mr. Chopra. I completely agree that if we can solve this
identity verification issue, as a core part of infrastructure
in our country, we could actually reduce a lot of fraud as
well. The benefits would also be big for market participants.
How we actually do it, obviously, is the question, but you
see jurisdictions that have solved that identity verification
layer get a lot of benefits of it.
In terms of stating who it is, it is very interesting. You
are seeing a lot of generative AI, including chatbots and
others, give themselves human names. This is, in some ways, to
make it appear that they are an actual person. And with voice
cloning, it really can simulate a human interaction.
I do agree that there may be places where, across the
economy, some of this generative AI, there is a lot more we
need to do, but people should at least know, are they talking
to a human or not.
Mr. Foster. Certainly. And you are going to see things
where the regional accent or the ethnic accent is matched to
what the consumer will trust. And this is a huge problem.
First off, I want to thank you for the work that you did on
the early versions of AI, trying to to deal with the fairness
versus accuracy problem. You did some really high-quality work
on that.
But the problem we are now facing with generative AI and
chatbots that learn as they evolve is much more complicated. It
is sort of analogous to, you raise your child perfectly, but
then they get exposed to new things as they grow up that will
make them do evil things that you never would have suspected.
So, how do you anticipate you are going to be looking at AI
that evolves and learns?
Mr. Chopra. Yes. For machine learning and other ways in
which AI evolves, one of the things we are trying to do at a
base level is to be able to give information about how existing
law applies. For example, AI needs to be able to determine, if
you get an adverse credit decision, what the reasons are. If it
is constantly changing and it can't do that, it is not able to
comply with existing law, there is not a generative AI
exemption in our consumer protection laws.
Mr. Foster. Thank you.
Mr. Barr. The gentleman's time has expired.
The gentleman from Georgia, Mr. Loudermilk, is recognized.
Mr. Loudermilk. Thank you, Mr. Chairman. Director Chopra,
thank you for being here.
Chairman Barr mentioned something in his opening statement
that I would like to start out with, which is that according to
your own data, 74 percent of Americans pay their credit cards
on time. That is to say, they never pay the late fees.
According to your own proposed rule, however, cardholders
who do not pay late fees will be paying higher fees and higher
interest on interest-paying accounts, and will receive lower
rewards because of the cross-subsidy.
Under Section 1022 of Dodd-Frank, you are required to
consider the cost of all CFPB rulemakings. I can't see how this
rule that rewards irresponsible cardholders at the expense of
responsible ones is a net benefit.
With that said, how did this rule survive a rigorous cost-
benefit analysis?
Mr. Chopra. I appreciate the question, Congressman. What
you mentioned, those were not predictive. That was potential
scenarios we looked at. And the core of what we are doing----
Mr. Loudermilk. What was not predictive?
Mr. Chopra. The idea that there are potential ways in which
the market could shift. What I am trying to explain is the core
of what that real review is doing, that is reviewing a
congressional prohibition on unreasonable penalty fees. What we
are trying to accomplish is making sure, yes, if institutions
have costs, how can they make sure that it is a reasonable
cost? And we are specifically looking at the Fed's rule they
put into place, that we inherited, which did not have much data
backing it, in order to make sure it fits the modern realities.
No, there are still going to be late fees. It will just--
how they make sure that they are in line with the congressional
prohibition. That is our----
Mr. Loudermilk. Reclaiming my time, you said that the fees
are reasonable. That is very subjective. Now, these are fees
that the user agreed to when they took the credit card because
the fees, as you mentioned, do recoup costs, but they are also
designed to be slightly punitive to stop bad behavior from
happening again.
What you are proposing is basically taking that away and
then giving the punitive charge to those who are obeying the
contract or the agreement they made with the credit card
company.
Mr. Chopra. No, that is not right, and I just want to make
sure something is clear. ``Reasonable,'' is not the CFPB's
word. That is actually what is in the statute. The statute says
that the penalties must be reasonable and proportional to the--
--
Mr. Loudermilk. But did they not agree to whatever fee
structure it was when they agreed to take the credit card?
Mr. Chopra. That is true, but the reasonable and
proportional is a separate prohibition. So, again, one of the
things that is in there is, institutions can certainly be able
to show why there is reasonable--and we have proposed a
framework----
Mr. Loudermilk. But why are you even going this direction?
Mr. Chopra. The reason is what we have found across
consumer credit markets is that it is not a fair and
competitive market when an institution has an incentive for
someone to default or be late. We learned the hard way about
this with subprime mortgages, where an originator actually
could benefit even if the borrower defaulted.
Most credit card companies, especially small ones, don't
have that business model, and our review is that they don't
actually build a business model or profit more when someone is
late.
In some cases, a borrower might just be a day late or a few
dollars off and get a very large fee. That is what Congress was
seeking to prohibit, and we want a market where a creditor
really wants the person to pay back.
Mr. Loudermilk. Really what I see is, we are intruding in
what should be the responsibility of the consumer, because they
agreed to go into this agreement.
Earlier this year, FHFA finalized changes to the loan level
price adjustment tables that resulted in borrowers with good
credit scores paying higher rates for their home. This is
obviously unpopular with consumers.
Aren't you concerned that you are sending the same message
to consumers with this rule?
Mr. Chopra. No.
Mr. Loudermilk. Because 75 percent pay theirs on time.
Mr. Chopra. In fact, I think what this will do is actually
help consumers compete on up-front pricing. Consumers are
really smart in the credit card market. As soon as an issuer
starts raising annual fees, they look to switch. It is easier
for them to know the full price that way.
So, what we are hoping to do is adhere to the congressional
prohibition on unreasonable fees, which is--the word,
``reasonable,'' is in the statute--while creating that ability
for more competition up front.
Mr. Loudermilk. Thank you. My time is expiring, but I would
think that consumer education would be more effective.
Mr. Chairman, I yield back.
Mr. Barr. The time of the gentleman has expired.
The gentlewoman from Ohio, Mrs. Beatty, is recognized.
Mrs. Beatty. Thank you.
Director, thank you for being here, and I would like start
by thanking you for your work, your integrity, and your
leadership at the CFPB to protect consumers.
We have heard about the billions of dollars in consumer
relief to the hundreds of thousands of Americans, and those
Americans, would you say, are in all districts, Democrat and
Republican districts?
Mr. Chopra. All across the country.
Mrs. Beatty. Thank you. And that means that it ensures
fairness, transparency, and competition in our financial
system.
Let me say for the record, Mr. Chairman, there is no doubt
in my mind that consumer protection problems are rampant in our
financial system, and I want to go on the record saying,
Americans would be much worse off if the CFPB was no longer
able to continue its work.
I have two questions I would like to get through, but
first, since there has been a lot of attention to your schedule
and your time, it seems like we alternate terms or Congresses
when we decide to pick on the individual or the CFPB.
Mind you, since I have been here and many of my colleagues
on this committee, I remember when former member of this
committee, Congressman Mulvaney, said some of the most
disparaging things about the CFPB and about the Director at
that time, Mr. Cordray, whom he was replacing. Operative words.
He went here, yet he took a job to be in the same position you
are in.
If we want to talk about integrity, if we want to talk
about putting politics over people or maybe even money, but to
his calendar in the committee, he said he worked 3 days a week.
Now, people are questioning you on a calendar. Do you work more
than 3 days a week?
Mr. Chopra. Yes.
Mrs. Beatty. And he said when he wasn't working, he loved
watching baseball, and he put a TV in one of his offices so he
could watch baseball and protect our people.
So if we want to talk about you being an, ``extortionist,''
as somebody said, I want to use the word, ``hypocrisy,'' and
enter it into the record for everyone on the other side of the
aisle who chose to support beating you up over a calendar when
you work more than 3 days a week.
Now, let me get to my questions. We sent you a letter that
I signed onto about the Section 1033 rule of including EBT and
other government benefit accounts in that rule. First of all,
let me say thank you for responding to the letter, and
acknowledging that it was an issue and that you would continue
to look into it. I don't know if you have anything you would
like to add for the committee about these types of benefits
being considered within the scope of the final rule?
Mr. Chopra. One of the things we are going to do is, a
bunch of these rules for mortgage products and others were
raised before. With EBT and other government benefits, part of
what we are doing is, we want to talk to the Department of
Agriculture and others that administer these, because we really
want to understand any technical issues. But I completely share
your view that for all transaction accounts, we want that data
to be able to be used to help----
Mrs. Beatty. Thank you. Let me move to my next question.
Since our Chairman McHenry said we were going to put diversity
in every committee--I am the ranking member on a subcommittee--
we haven't had a diversity hearing yet. But I would like to
commend you for 53 percent of the CFPB executives being women,
and 40 percent identifying themselves as minorities.
Would you be willing to work with us or respond in writing
where you are with contracting out to diverse groups, whether
that is in legal services, contracting, et cetera? And that is
a yes or a no for my time.
Mr. Chopra. Yes.
Mrs. Beatty. Okay. Thank you.
And in fairness, since I am giving equal opportunities, the
Director prior to you, Republican-appointed, did hold meetings
with Democrats and Republicans, and did talk about diversity.
So, I wanted to thank her for the work that she did do, and
I also think she worked more than 3 days a week. I don't know
what her calendar was, but I want to commend you for the work
that you are doing.
And also, one of my colleagues said that not much has
changed. For the record, let me say, you could not receive
10,000 complaints weekly that you respond to. You could not do
what you have done with AI. You could not do what you have done
with algorithms. You could not do what you have done with bank
failures. So, again, thank you, and my time is up.
Mr. Barr. The gentlelady yields back.
The gentleman from Tennessee, Mr. Rose, is recognized.
Mr. Rose. I want to thank Chairman McHenry and Ranking
Member Waters for holding this hearing, and Director Chopra,
thank you for being with us today.
I want to begin by responding to Mrs. Beatty by saying I
actually preferred the way that Director Mulvaney ran the
agency.
Director Chopra, in CFPB v. Brown, the 11th Circuit Court
of Appeals found the CFPB's assertion of work product
objections to avoid identifying witnesses or facts supporting
claims against the defendants to be egregious. The court held
that the CFPB clearly violated Federal Rule of Civil Procedure
30(b)(6), and severe sanctions were warranted.
Director Chopra, do you believe that the Federal Rules of
Civil Procedure apply to the CFPB and its attorneys?
Mr. Chopra. Absolutely, and----
Mr. Rose. Thank you, yes, of course, they do. So, Director
Chopra, would you commit to reminding your staff and counsel
that they are not exempt from the Federal Rules of Civil
Procedure and that they must abide by them like the rest of us?
Mr. Chopra. Yes.
Mr. Rose. Thank you.
Mr. Chopra. And can I just address that really quickly?
Mr. Rose. I will give you just a second.
Mr. Chopra. Litigation often can be very, very heated. That
was brought many years ago. There was this decision, of course,
in an overwhelming number of matters, and we have completely
been respected by the courts for our----
Mr. Rose. Thank you. I appreciate that commitment to make
sure your staff understands that the basic Rules of Civil
Procedure do apply to the agency
Following passage of the Dodd-Frank Act, then-Special
Advisor to the Secretary of the Treasury for the CFPB,
Elizabeth Warren, testified that the Bureau would be
accountable to Congress.
I have her testimony right here in front of me, and first,
then-Special Adviser Warren said that the CFPB is subject to
the requirements and limitations of the Administrative
Procedure Act (APA).
But, Director Chopra, isn't it true that you have routinely
acted unilaterally and arbitrarily without engaging rulemakings
in compliance with the APA like you did with the update to the
UDAP section of the examination manual or by using the
Paperwork Reduction Act to seek approval for a junk fee timing
study, just to name a couple?
Second, then-Special Adviser Warren stated that the CFPB,
``is the only banking regulator that is required to conduct
small business impact panels to gather input from small
businesses about the potential impact of proposed rules.''
Director Chopra, isn't it true that you have routinely
bypassed the Small Business Regulatory Enforcement Fairness Act
(SBREFA) process like you did in your Notice of Proposed
Rulemakings for non-bank registries for repeat offenders and
terms and conditions of form contracts?
Mr. Chopra. No. We completely comply with all of it, and,
in fact, we published the analysis. We have solicited comments
on the analysis.
You also mentioned the Administrative Procedure Act. All of
our work is reviewable under that law. To suggest--and I have
heard this suggestion now a number of times--that we don't
comply with that is absolutely false. What we seek to actually
do is provide more information, based on feedback from this
committee, about how to make sure entities know what is
expected of them----
Mr. Rose. Specifically, though, I would actively discourage
you from using the Paperwork Reduction Act when the APA would
be, I think, a more fair and responsible way for proposing new
rulemakings, and would criticize the Bureau for not doing that.
Mr. Chopra. The Paperwork Reduction----
Mr. Rose. Third, then-Special Adviser Elizabeth Warren said
that the, ``checks on the CFPB's rulemaking are more stringent
than the checks on other banking regulators because FSOC can
veto any rule issued by the CFPB.''
Director Chopra, has the FSOC ever overruled a CFPB
rulemaking, and don't you serve on the FSOC?
Mr. Chopra. I believe the FSOC did begin a review many
years ago of one, but that rule was set aside for other
reasons. We have not had a voluminous number of them, but FSOC
absolutely has the power to do so.
Mr. Rose. They may have the power, but the truth is, the
threshold that has to be met is effectively impossible to meet.
Mr. Chopra. It is unique among banking agencies, though.
There is no other agency that is subject to FSOC----
Mr. Rose. But those other agencies have other checks and
balances.
Finally and fourth, then-Special Adviser Warren said the
CFPB's funding structure is a significant source of
accountability because it faces certain constraints by having
to request funding from the Federal Reserve.
Has the Fed ever denied or scrutinized the CFPB's
Director's budgetary requests? I will let you respond in
writing for the record. My time has expired, and I yield back.
Mr. Barr. The gentleman's time has expired, and the
Director can answer for the record. And I would just remind
Members to direct their comments to the Chair.
With that, the gentleman from California, Mr. Vargas, is
now recognized.
Mr. Vargas. Thank you very much, Mr. Chairman. I direct my
comments to the Chair. You look great up there, sir, and of
course, the ranking member always does. I would prefer her to
be in the other seat, but it has been a pleasure to be here.
Director, I think you have done a great job, I really do,
and I think we owe you a great debt of gratitude.
The hyperbole today has actually been rather remarkable. I
have been here for quite some time, and sometimes people say
rather ridiculous things, but today was particularly fun. They
said that you were the greatest extortionist to the country of
all time. Is that true, are you the greatest extortionist?
Mr. Chopra. Obviously, that is offensive.
Mr. Vargas. Of course, it is offensive.
Mr. Chopra. But I want to just say that we and our staff
try to discharge our public service obligations faithfully and
to the best of our ability as we swear an oath to our
Constitution and our country.
Mr. Vargas. I wanted to give you an opportunity to react to
that.
Now, are you beating the stuffing out of the free
enterprise system?
Mr. Chopra. No. And in fact, we have made an emphasis about
the importance of new entry, nascent entry, the ability for new
players not to have to stumble through and hire so many high-
priced lawyers.
Our country benefits when consumers have more choices and
when honest businesses are protected from those who violate the
law.
Mr. Vargas. Of course. Now, here comes a tougher question.
You were accused of, ``McCarthyism.'' Is it, ``Kevin
McCarthyism,'' or, ``Joseph McCarthyism,'' and what is the
difference?
Mr. Chopra. I will withhold responding, Mr. Chairman.
Mr. Vargas. Okay, we will leave that for another time.
Mr. Barr. The gentleman will suspend. The Speaker is
protected, so the gentleman will refrain from disparaging and
using personalities.
Ms. Waters. I hope that will include----
Mr. Vargas. I certainly will, but the accusation was of,
``McCarthyism.'' You heard it, I heard it, and it wasn't
defined, so I wanted the definition.
But I will be happy to move on. I do not want to disparage
the Speaker in any way. In fact, we have been friends for 23
years, and I respect him greatly. Thank you.
I do want to ask you about this. Most of the questions
today on the other side have been about the industry. They seem
to think that the industry is not pleased with you, that you
don't meet with them enough, that they don't like you because
of some of your policies. Is it your job to please the
industry?
Mr. Chopra. My job is to execute the objectives of the law,
to enforce the law and supervise for it fairly. We go
overboard, and I think I have exceeded the types of engagement
that some of my predecessors have engaged in. But, yes, there
are certain times, particularly when there are law violations,
that there will be disagreements.
Mr. Vargas. Of course, there will.
What is your duty to the consumers?
Mr. Chopra. Our duty is to ensure, as the statute said, a
fair, transparent, and competitive market and to faithfully
discharge----
Mr. Vargas. And I think you are doing a great job.
How much money has your Bureau redirected back, gotten back
to consumers, how much?
Mr. Chopra. Over $17 billion.
Mr. Vargas. And how many people has that affected?
Mr. Chopra. Hundreds of millions.
Mr. Vargas. Of course. And it is interesting that I don't
get complaints from consumers, just the opposite, they say that
you guys are doing a great job. And I appreciate the job you
are doing.
Now, I want to talk about remittances. Remittances, I
think, are a problem, and the reason for that is hardworking
Americans and other U.S. residents send money overseas. And
when they do that, they don't know the full cost of those
remittances--they are not easily understandable--and I think it
is something important for your agency to work on.
Mr. Chopra. One of the things when you go get a disclosure,
sometimes these remittances can be charged--or, sorry--as no
fee, but in reality the exchange rate might be adjusted, so it
doesn't look like there is a fee, but there is really a cost to
it.
I also want to say, Congressman, that other nations,
developed countries, have started thinking about, through their
central banks, ways in which consumers and small businesses can
transfer money more easily. There is some work between--I
believe the Fed has an agreement with the Central Bank of
Mexico. We should look at more partnerships like that, to have
lower costs.
Mr. Vargas. And lastly, we did talk about diversity. I did
look at the numbers, however, and it looks like when it comes
to--I think this is your Semiannual Report--when it comes to
Latinos, the percentage is actually quite low. And I hope that
you are taking a look at that.
Mr. Chopra. Yes.
Mr. Vargas. And I will let you answer if I have enough
time, but I do want to make this comment. It is interesting,
every time I come here, I hear the accusations that are placed
against you or others on the other side. There is never
protestation from the Chairs. I never hear it.
And then, when you are defended, there seem to be
protestations. I don't think that that is fair. I think you are
doing a great job, and I hope that we are a little more careful
with our language around here when we accuse people of
McCarthyism, extortionism, and all of these other things for
respected people like yourself.
I yield back.
Mr. Barr. The gentleman yields back. The time has expired.
The gentleman from Pennsylvania, Mr. Meuser, is now
recognized.
Mr. Meuser. Thank you, Mr. Chairman. And thank you, Mr.
Chopra. I talk to a lot of banks--small banks under a billion
dollars, $5 billion, regionals, and super-regionals throughout
Pennsylvania, and big guys on Wall Street--and they are really
not happy with your agency. So, let's just start there. Across-
the-board, banks, from the largest banks down to the smallest,
have many concerns.
So, the idea that the CFPB is doing a great job is foreign
to me, because every single bank I talk to--I am not talking
about 3 out of 5; it is more like 19 out of 20. I assume you
have some sort of reviews taking place, taking information in
on your final rules to be responsive to the clientele that you
are supposed to be helping.
Mr. Chopra. Just to be clear, the clientele of the CFPB is
not banks. The clientele is the public, and often, it is true
that there will be differences with entities that we
supervise----
Mr. Meuser. Who serves the public? Do the banks serve the
public?
Mr. Chopra. Of course, they are important public----
Mr. Meuser. So, they are a link in the chain.
Mr. Chopra. Of course. And we want those who follow the law
to be able to not get disadvantaged by those who don't. I hear
your concerns, but at the end of the day, we have to make sure
that our consumer protection objective----
Mr. Meuser. You are going too far.
Now, let's talk about Section 1071 that keeps coming up,
how somehow, that is wonderful. I had a Small Business
Committee hearing the other day, and we had four Republican and
Democrat witnesses, and they all thought it was terrible, the
type of questions that needed to be answered.
Now, I know in the final rule, you have retracted some of
the insane information that you wanted to derive, not making it
required, but you are asking banks to ask for really personal
information about people's race, and their sexual preferences.
Where does that fit into looking out for the public good?
Mr. Chopra. That is a statutory directive. We were under a
court order to implement Section 1071 of the Dodd-Frank Act. It
requires collection of information on race and other
categories.
Again, I appreciate that those are types of questions that
sometimes are difficult. We tried to work with the industry to
figure out what is the best way to limit some of that----
Mr. Meuser. If you actually would do that, work with the
industry to figure out the best way to provide guidance and
oversight so they can handle and serve their customers best,
but honestly, it doesn't sound as if you are doing that. I was
in the business world, and the more you talk to your customers,
the better of a company you become.
So that is on 1071, but there is also 13 data points. The
statute requires the collection of 13 data points while the
rule requires 81. So, there is a lot of concern from banks,
small business banks, primarily community----
Mr. Chopra. Let me just make clear, there is not 81 data
points. There is a difference between data fields. So, what we
are trying to do is create----
Mr. Meuser. I am going to reclaim my time. And if it is not
81, then is it 50?
Mr. Chopra. No. I believe it is about 19, 20-something----
Mr. Meuser. Okay. Then, perhaps, I stand corrected. That is
the information I have.
Let me ask you about screen scraping. It should be
addressed in the 1033 rulemaking. Fraud is a serious problem,
as we all know. Can you update the CFPB's approach to screen
scraping, and can the 1033 rulemaking address this practice?
Mr. Chopra. Yes, I actually think we can. I think we can
set the stage for making sure screen scraping is not going to
be part of our financial infrastructure in the future. I think
it is something we should all talk about, because I do think
that screen scraping is not really a viable long-term way for
data-sharing.
Mr. Meuser. Great. I'm very happy to hear that.
And I am just going to go back to 1071 quickly, if you all
could just do some sort of analysis on the compliance costs,
primarily for small banks because that is where they amount and
they are more a percentage of their operating costs, if you all
could do that and maybe we could talk about that, I would
appreciate it.
Mr. Chopra. I am happy to talk to you about it, including
where we have created some changes in hurdles, but, yes, let's
talk about it.
Mr. Meuser. Great.
Thank you, Mr. Chairman. I yield back.
Mr. Barr. The gentleman yields back.
The gentlewoman from Texas, Ms. Garcia, is now recognized.
Ms. Garcia. Thank you, Mr. Chairman, and thank you,
Director Chopra, for being here with us today. It is always
good to see you. I am always glad to get an update from you,
given your relentless--relentless--commitment to protecting our
nation's consumers.
Under your leadership, the CFPB has successfully worked on
junk fees, medical debt, credit scoring, housing
discrimination, and many other major issues. I have enjoyed
reviewing your report. It is excellent and certainly is
reflective of the fine work that you are doing.
I would like to make sure that all Americans understand
just what it is you are charged to do. I reviewed a useful fact
sheet about the services that you offer our constituents, like
free credit reports, protection from scams for older adults
which is really key in my district, help with surprise medical
billings that impact so many Americans across our country, and
resources on mortgages and borrowing.
I want to make sure that the word is getting out
effectively, and I wanted to know how the Bureau makes sure
that all Americans are aware of all the services, because there
seems to be some confusion here as to exactly whom charged to
advocate for.
Can you provide us some more information on just exactly
what your mission is?
Mr. Chopra. Yes. We are there to make sure that the
consumer financial protection laws are followed. We are there
to make sure that consumers can file complaints and get them
resolved.
We are there to take enforcement actions to help those who
have been ripped off. We have gotten refunds for tens of
millions of Americans, and our work has helped so many more.
Our job really is to give consumers the ability to have a
market that really works for them.
Ms. Garcia. So, you are there to help consumers when they
get into a challenge with any retail outlet or a bank. This is
not an anti-bank operation. You are there to help a consumer
with a number of entities in all of their transactions.
And I want to tell you, I am thoroughly impressed that you
handle 10,000--10,000--complaints a week, and I know that you
reviewed 745,400 complaints, just to make sure that the
companies that you make the referrals to are responding
effectively and really responding to the complaint. So, thank
you for that.
And I can tell you that I would hope that all of our
agencies are that responsive to complaints and get to them as
quickly as you do, so thank you for that.
I also, like Mr. Vargas, however, did note in your
workforce report, that Latino representation does fall short.
The CFPB workforce is only 7-percent Latino compared to 13
percent to the benchmarks of the United States Census National
Survey of Labor Force. Further, Latino employees make up the
lowest percentage of new hires, at 3.6 percent, compared to all
the other groups. Can you tell me today, Director Chopra, what
you will be doing to fix this problem?
Mr. Chopra. Yes. We have a number of things in motion to
make sure that we are attracting a diverse workforce at all
levels, and we are very proud that we have senior Latino
employees at the highest levels as well.
I am happy to discuss that with you in more detail, but we
want to make sure we are reaching everybody, that everyone has
an opportunity to work for us. And I will say, making sure our
workforce is reflective of the country will also help give us
more connection to the people that we serve.
Ms. Garcia. Great. Well, Latinos are the fastest-growing
minority group in this country, and certainly have a big market
share in terms of the growth as consumers, so thank you for
that.
I would also like to make sure that you are committed to
working on this problem, and I will follow up with you, of
course, in the future.
Let's turn now to the small businesses, because that is
another area where Latinos, especially Latinas, are the
highest-growth area.
The issues with your lending rules, can you please clarify
why it is critical for the CFPB to advance rulemakings on
lending?
Mr. Chopra. Part of the reason we implemented the statute
as required is to make sure that we have good data and the
government and the public has good data about those trends.
You are right, there are so many immigrants, minorities,
and others who start businesses, franchises and others, and
that data, I think, would have been critically helpful in the
Paycheck Protection Program.
Ms. Garcia. Okay. Just a quick one, how are we doing on the
language barrier issues?
Mr. Chopra. I will update you, but we are making progress.
Ms. Garcia. Okay. Good. Thank you.
I yield back.
Mrs. Houchin. [presiding]. The Chair now recognizes the
gentleman from South Carolina, Mr. Timmons, for 5 minutes.
Mr. Timmons. Thank you, Madam Chairwoman.
I want to get back to the data breach that Congressman
Huizenga discussed with you earlier. Can you describe how the
CFPB found out about this breach?
Mr. Chopra. Another employee identified a specific
indicator. It was reported to our team. We brought them
together----
Mr. Timmons. The breacher cc'd their manager in an email,
and the manager caught it? Is that correct?
Mr. Chopra. I don't want to go into anything related to the
investigation, but it was another manager who identified----
Mr. Timmons. Okay. And how long between that manager
pushing this breach up the chain did you notify the quarter
million Americans and 45 companies involved in the breach about
their exposure? How long did it take?
Mr. Chopra. We found some documents that did have consumer
names. No information like Social Security----
Mr. Timmons. Was it 24 hours, was it 72 hours, or was it 2
months?
Mr. Chopra. We didn't have their contact information.
Mr. Timmons. So, you had their personally identifiable
information, but you didn't have their contact information?
Mr. Chopra. Yes, we just had very few pieces of----
Mr. Timmons. But you didn't notify the companies, like you
probably should have? Is that correct?
Mr. Chopra. We did. What we did is, we partnered with the
companies whose----
Mr. Timmons. How long did it take you to partner with them?
Mr. Chopra. I can look at the timeline, but as soon----
Mr. Timmons. Was it 72 hours? The answer is no, it wasn't
72 hours.
Mr. Chopra. I think we tried our best to identify where we
had any potential----
Mr. Timmons. It wasn't 72 hours, and, again, you are
responsible for enforcing cybersecurity breaches, and if a
company----
Mr. Chopra. We are not actually----
Mr. Timmons. Well, you have sued----
Mr. Chopra. But we do not enforce breach notification laws.
Mr. Timmons. Correct. But when you fine companies for
violating best practices, those companies are considered to be
in egregious breach if they do not notify the consumers who
were breached within 72 hours.
Mr. Chopra. No, that is not accurate, but I am happy to
follow up with you on that.
Mr. Timmons. Okay. So if a company is breached and they
don't notify anybody within 72 hours, you are not going to
consider that an aggravating factor in whether to fine them and
how much?
Mr. Chopra. Generally speaking, the safeguards rule that
governs financial institution breaches is enforced by other
agencies. They are separately----
Mr. Timmons. Okay.
Mr. Chopra. This is a serious issue.
Ms. Waters. Please allow the gentleman to answer the
question.
Mr. Timmons. If you would answer the question.
Mrs. Houchin. [presiding]. It is the gentleman's 5 minutes.
Mr. Timmons. Okay. I find it an egregious breach of best
cybersecurity practices to have this information available to
this individual in the way that it is.
Do you believe, in retrospect, that the information should
have been siloed, and it should not be that easy to email a
document?
Mr. Chopra. Yes. We are looking at making sure--we already
have systems in place so that there is not the ability to
transfer that. The issue can sometimes be when there are
communications with the entity.
Mr. Timmons. How many people have been fired because of
this data breach?
Mrs. Houchin. Will the gentleman pause for just a moment
while we fix the clock?
Mr. Timmons. Sure. I think I was at, like, 2:40.
Ms. Waters. Do we know how much time was left?
Mrs. Houchin. The gentleman can continue.
Mr. Timmons. Okay. Thank you.
Mr. Chopra. Do you want me to answer?
Mr. Timmons. It is really concerning that you have this
color of law, this theoretical authority to force these
businesses to give you this information, and then you are
unable to protect it, and the individuals who have been
breached have no recourse. They are not going to get a
settlement. They are not going to get any money.
I already have a number of instances where people whose
data was breached--these criminals have filed unemployment
insurance claims, and they have already been damaged, and there
is no recourse, because you are a governmental entity operating
under the color of law. And I say, ``operating under the color
of law,'' obviously, because there is a Supreme Court decision
that we are expecting here pretty soon.
What would you tell the individual who has been damaged by
the CFPB's incompetence as it relates to the cybersecurity
breach? What is their recourse? How will they be made whole?
Are you going to write a check?
Mr. Chopra. This is a very serious issue. And one of the
things we are doing for consumers who are customers of the
entity, is we are working with the financial institution to
figure out----
Mr. Timmons. Are you going to make them pay for the breach?
Mr. Chopra. No, of course not.
Mr. Timmons. Okay. Of course not? You make other companies
pay for the breach.
Ms. Waters. Please allow the gentleman to answer the
question.
Mrs. Houchin. It is the gentleman's time.
Mr. Timmons. So, you are not going to write a check to make
these people whole?
Mr. Chopra. We are working with the institutions, and
fortunately, the information that was transferred on an
unauthorized basis did not have indicia of risk of identity
theft.
But I take your point that, of course, the data that is
collected must be protected. This was a serious problem. The
employee who was responsible--I can't go into details there--is
not currently an employee anymore.
Mr. Timmons. I will reclaim my time. Is that the best way
to do it?
So, Director Chopra, you are required to appear before this
committee twice a year, meaning we will likely see you again in
about 6 months. And with the pending Supreme Court decision on
the constitutionality of the CFPB, it may very well be your
last appearance before our committee. Please try to do the
least amount of damage as possible between now and then. The
American people would really appreciate it.
Consumer Protection Financial Bureau: the quarter million
consumers are not protected. You cause them damage, and they
will never be made whole.
With that, Madam Chairwoman, I yield back.
Mrs. Houchin. The gentleman's time has expired.
The gentleman from Illinois, Mr. Casten, is now recognized
for 5 minutes.
Mr. Casten. Director Chopra, it's nice to see you again.
Thanks for coming in today.
This is, in some ways, not at all germane to today's
hearing, but now we have a whole subcommittee focused on crypto
issues and lots of bills that we are discussing about how and
where to regulate the crypto industry. I am not going to ask
you to opine on all that.
But it did catch my eye that you just issued a 2022
complaint bulletin looking at complaints related to digital
assets. And if I have this quote right, it says that you found
that, ``fraud, theft, hacks, and scams are a significant
problem in crypto asset markets that appears to be getting
worse.''
That was a year ago. And I would welcome your thoughts on,
is that still true, and would you care to elaborate on what you
found in that bulletin?
Mr. Chopra. We are going to take another look at that
dataset again.
I guess I would say that fraudsters are trying to use
methods of payment that are hard to track. Gift cards were a
really common one before. There are other ways in which they
have been used.
But more in the digital world, we are seeing that crypto
assets--in some ways, they might tell an elderly person, go buy
this and transfer it to me. It can be done without the person
going to a superstore or department store to buy a gift card,
which means it can be faster. It can be bigger amounts of
money. And that is certainly something we want to figure out
how we to stop so we can protect those individuals who have
been defrauded in a world where identity verification is
challenging.
Mr. Casten. When you say, ``we,'' I assume you are
referring to the CFPB?
Mr. Chopra. Yes. Frankly, law enforcement, the DOJ,
others--as you know, fraud against older Americans in
particular has been a pernicious problem.
Mr. Casten. But are the crypto asset platforms working with
you? Are they constructive partners in this?
Mr. Chopra. That hasn't been a place where we have invested
much effort. The way I understand it, and I can ask our staff,
it that is being transferred outside of those platforms. So,
that has not been a place where we have engaged.
Mr. Casten. Following up on the prior question, I would
assume that they have a lot of the data and they could either
be constructive or not. Is there anything we can do to help?
And you mentioned the elderly. Is the concern primarily
with elder consumers who are being targeted, or are there other
consumer groups that you are watching?
Mr. Chopra. Yes. It is disproportionately those who are
older. That is not to say that people of all walks of life are
not at risk, especially when voices can be cloned. There are
lots of ways to impersonate now.
But certainly, romance scams, dating websites--that is a
place where elderly and others are targeted. We have some
evidence to suggest that those who are widows and widowers are
more likely to be targeted.
Mr. Casten. I appreciate your support. I am reminded that,
I think probably about 3 years ago, your predecessor sat here,
and in spite of repeated questions, refused to acknowledge that
the CFPB has an obligation primarily to look out for the
interests of consumers. I am grateful that we are prioritizing
those interests.
Out of curiosity, have you ever done the math on how much
money do you think the Bureau has saved consumers since its
conception?
Mr. Chopra. Just in refunds, it has been $17 billion. But
in terms of the reforms of the mortgage market and others--the
ability now to get a competitive mortgage, it is totally
different now, and it is hard to put a number on it.
The ways in which I think we have stopped certain actors
from engaging in system-wide harm--we don't have a dollar
figure, but the benefits are very, very big.
Mr. Casten. And in our office, we hear stories from
constituent services about the veterans who are helped, the
elderly, that you mentioned, and the folks who are not as
proficient at working through these.
Are there particular classes of consumers whom you think
most depend on the work you do?
Mr. Chopra. It's funny, the other weekend, I was in
Virginia and was stopped at a restaurant. We had done an event
at a local military base. And someone in the group who attended
had mentioned that they had just gotten a $5,000 check. We
occasionally hear from people who really were ashamed and
thought that it was all their fault, but they were actually
sometimes a victim of a scheme and got over $10,000 back. Some
people have had their homes saved. So, it is not just the
financial piece; it is also a huge amount of dignity for them.
Mr. Casten. I appreciate it. I am out of time. But I hope
you don't take personally some of my colleagues' attacks on
you. The idea of looking out for veterans and students and the
elderly may be partisan, but I am glad you are----
Mrs. Houchin. The gentleman's time has expired.
Mr. Casten. I yield back.
Mrs. Houchin. The gentleman from South Carolina, Mr.
Norman, is now recognized for 5 minutes.
Mr. Norman. Thanks for coming, Director Chopra.
On the civil investigative demands, a lot of the businesses
that have been subject to it have said it was ill-defined, and
it was onerous. Do you have an idea of, for actions that do not
result in enforcement actions, the amount of money and time
that the firms have had to bear to produce the information?
Mr. Chopra. Yes. I don't have that offhand. But you raise a
good point, which is, what are the ways in an investigation to
get the information to ascertain if there is a violation
without it being costly or, frankly, taking a lot of time? This
is especially concerning for----
Mr. Norman. Is CFPB required to provide the company with
credible evidence that there has been a violation of the law
prior to serving a criminal investigation?
Mr. Chopra. The statute is consistent, I believe, and
actually may be enhanced compared to other civil investigative
demands (CID) authorities around the government. We are
required, I believe, to state a notification of purpose that
really gives a sense of what we are looking for.
Mr. Norman. Is it law? Can you cite the law that has been
violated before you do a CID?
Mr. Chopra. Yes. In the notification, we will sometimes be
able to describe the particular type of violation that----
Mr. Norman. All the time or just sometimes?
Mr. Chopra. I would need to check.
Mr. Norman. Could you get back to me in writing on that?
Mr. Chopra. Sure.
Mr. Norman. Now, on the Fair Debt Collection Practices Act
and the Fair Credit Reporting Act, they are basically silent on
the treatment of medical debt and if that differs from any
other debt. The CFPB has drastically altered the collection of
unpaid medical debt.
What in the Fair Credit Reporting Act gives the CFPB
authority to encourage furnishers to report inaccurate
information about legally-owed and legitimate debt?
Mr. Chopra. Actually, no. It is just the opposite. Our push
is accuracy. The Fair Credit Reporting Act requires reasonable
procedures to ensure maximum possible accuracy. There actually
is a provision that is related to health as well in there.
Mr. Norman. So, the CFPB has not made any efforts to
rewrite portions of the Fair Credit Reporting Act as far as the
reporting of unpaid medical debt?
Mr. Chopra. The statute is Congress' to change. When it
comes to accuracy of furnishing on credit reports, that is an
incredibly important responsibility for the enforcement
agencies, the States, and others. We do not want the credit
report being a way to coerce people into paying something they
already paid or didn't owe in the first place.
Mr. Norman. So, you basically are hands-off with trying to
rewrite that, as I stated?
Mr. Chopra. We cannot rewrite statute. We are trying to
administer the Fair Credit Reporting Act, enforce it fairly,
and there are real problems when it comes to----
Mr. Norman. Let me ask you this. On the $8--I think they
have been called junk fees--but the credit card late fees, in
your rulemaking, you say that it is not a cap, but people need
to show their work to get--to approve the fees that are
charged. How do you define that? What process?
Mr. Chopra. Yes. It is not a preapproval. What we have done
is put in the proposal--and the same thing exists currently in
the Fed's rule promulgated over a decade ago--that if you don't
want to use the immunity provisions, where you don't have to
show any work at all, you will have to spell out your
calculations based on what it is. As one of your colleagues
mentioned, the statute says the fees must be reasonable and
proportional.
Mr. Norman. ``Reasonable,'' as defined by whom?
Mr. Chopra. It could be through case law. But one of the
things we are trying to do is to provide clarity and
predictability for businesses to spell out how they can make
sure they can comply with it.
When Congress passes laws with words like, ``reasonable,''
it can be a benefit to businesses that they know how that is
going to be interpreted.
Mr. Norman. How is that different----
Mr. Chopra. That is what we try and do all the time.
Mr. Norman. Yes, but, ``reasonable,'' is kind of like,
``beauty is in the eyes of the beholder.'' The criticism of the
CFPB is the fact that it is vague. People are getting hit with
CIDs that they don't understand. It is just vague as
interpreted by the CFPB.
Mr. Chopra. That is exactly why we have tried to provide
more advisory opinions and guidance so that people know what is
expected of them without creating new obligations.
Mr. Norman. In this country, small businesses are under
tremendous stress now, and I would just--please don't----
I yield back.
Mrs. Houchin. The gentleman's time has expired.
The gentlewoman from Massachusetts, Ms. Pressley, is now
recognized for 5 minutes.
Ms. Pressley. Thank you, Director Chopra, for joining us
today. And thank you for the critical role that the CFPB plays
in protecting consumers and holding bad actors accountable. I
am grateful to you and your dedicated 1,500-plus employees.
Tomorrow is actually World Elder Abuse Awareness Day. And
my mother, for many years, was a social worker to the elderly,
trying to protect them from elder abuse. So, I did just want to
take a moment in particular to thank you for all that the CFPB
does specifically around fighting elder fraud, exploitation,
and abuse. Thank you for all that you do for our most-
vulnerable veterans, seniors, and students.
Speaking of another vulnerable group, Director Chopra, a
recent New York Times review of hundreds of Federal lawsuits
filed against tenant screening companies highlighted how a
pattern of inaccuracies in these reports led to the denial of
rental housing for people across the United States.
What problems has the CFPB found with tenant screening
reports and the impact they can have on finding affordable,
quality housing?
Mr. Chopra. I think when someone is falsely matched with
the wrong report, it is almost like they have been given a
different identity. And that can be relied on to foreclose them
from even accessing rental housing, and in some cases, we have
heard of it leading to homelessness.
We have to make sure that, when there are these third-party
dossiers collected about people, that they are actually
accurate. We have found, Congresswoman, that people with common
surnames are more likely to be victims of this, and we have to
make sure the law is being followed.
Ms. Pressley. Thank you. Clearly, a lack of regulation in
the tenant screening industry is resulting in inaccurate
reports and false information, particularly about people's
criminal backgrounds. However, even when the reports do include
accurate information, housing providers often use them to deny
housing to people with a record: 70 million people in the
U.S.--one in 3 adults--have a criminal record, which means the
impact of this discrimination is severe and widespread.
Formerly incarcerated people are 10 times more likely to be
homeless than the general public. And this is not a
coincidence. It is a policy choice, one with dark consequences.
Director Chopra, is the issue of denying housing to people
after they have completed their sentences a problem that you
have heard about?
Mr. Chopra. It is. And I think that is something that the
Department of Housing and Urban Development, and the Justice
Department, have also been working on.
Ms. Pressley. Thank you. When formerly incarcerated people
do not have stable housing, it is hard for them to access
healthcare, secure a job, or pursue greater education.
Additionally, a lack of stable housing can lead to crimes of
necessity to meet basic needs. So, the cycles of recidivism
repeat.
That is why today, I, along with Representative Tlaib, am
introducing the Housing for Formerly Incarcerated Reentry and
Stable Tenancy Act, or the Housing FIRST Act. Our legislation
would disrupt the prison-to-homelessness pipeline by regulating
what information relating to a person's criminal background
should appear on a tenant screening report.
Director Chopra, do you agree that by regulating the tenant
screening industry on this matter, we can improve access to
affordable quality housing and confront the prison-to-
homelessness pipeline?
Mr. Chopra. I think what you have said about the
disruptions about returning home and not being able to access a
home are so serious. I look forward to working with you on
that. And there is so much at stake to make sure that people
who have served can really successfully reenter.
Ms. Pressley. Thank you. Again, thank you for what you do
day in and day out to protect consumers and to hold bad actors
accountable for the harm they cause our most-vulnerable people.
And thank you for your expressed partnership on this matter.
Housing is a human right, period. And when we deny stable
housing to people with criminal records, we wrongfully punish
them after they have already completed their sentences. Our
bill would remove unjust barriers to housing and affirm that
safe, stable housing is essential. Thank you.
And I yield back.
Mr. Fitzgerald. [presiding]. The gentlelady yields back.
We will now go to Congressman Davidson for 5 minutes.
Mr. Davidson. Thank you, Director, for being here.
And I thank my colleague for her concerns about people who
have served their sentences and done the time for their crime.
It wasn't the question I was planning to lead with, but it is a
good segue to something I had sent a letter to you on in April,
and I appreciate your response.
Your response really dealt with the accuracy, and I think
everyone wants them to be accurate. We don't want someone to be
falsely denied residence. We also don't want someone to come in
who maybe should have been screened out. So, we want accuracy.
But fundamentally, do you believe that tenant screenings
are valuable to landlords?
Mr. Chopra. I think when they are fully accurate, it has a
very different benefit. There are ways in which people can get
information about a tenant. But I will tell you, the Fair
Credit Reporting Act has accuracy standards, and I want the
tenant screening industry to follow them carefully.
Mr. Davidson. Yes. I agree they should be accurate. But
sometimes, the quest for accuracy is really just using the law
to prevent people from doing screenings in the first place.
We had a great Second Chance Program in the businesses that
I owned prior to coming to Congress. I am passionate about the
Second Chance Program. Once you have served your sentence, you
need to be fully integrated into society; otherwise, they got
the sentencing wrong.
So, it is a valuable thing. And it started with trust.
Somebody was honest about their background. We checked it. It
matched. Now, we have built trust. I think it can be important.
Turning to things that we probably are more aligned on, I
was pleased, even in your opening remarks, that you talked
about data brokers. And when you look at common concerns that
we have had that have been bipartisan about privacy, American
citizens have had their data stolen, hacked, sold, and
otherwise exploited.
So, I was encouraged that on March 15th, the CFPB announced
a Request for Public Input regarding how data brokers collect
and sell personal consumer information. Last week, I saw that
you even extended the comment period to July 15th.
Could you give us an overview of what you are seeing so far
regarding the data broker industry and how they collect and use
personal consumer data?
Mr. Chopra. In the 1960s, this committee, I believe--it had
a different name--was concerned, and other committees were
concerned about all of these firms creating dossiers about us.
And the Fair Credit Reporting Act sometimes focuses a lot on
the three big credit bureaus.
But there are more and more companies now that are
assembling this information, especially collecting it
digitally. They are selling it, and it is being used for all
sorts of purposes, including employment insurance and so much
more.
We are trying to make sure we know what the new business
models are that they are using? We do know that there is a lot
more of them, and many of them may be doing things that are
covered by the Fair Credit Reporting Act.
So, I hope this committee really thinks about privacy data
brokers altogether because what we did, I think 50 years ago,
was important, but it has to be modernized for the age of Big
Tech.
Mr. Davidson. Absolutely. I think there is definitely an
urgent need for legislation. I think the Fourth Amendment
protection of privacy is probably the most-abused current
portion of the Bill of Rights, not that there aren't other
portions that are under stress.
You recently noted in remarks at Money20/20 last year that
the Bureau will be, ``exploring safeguards to prevent excessive
control or monopolization by a handful of firms. Over the last
several years, a consortium of the largest financial
institutions in the U.S. has sought to exert governance over
data ecosystem and sometimes serving as mandated intermediaries
between peer-to-peer consumer transactions, thus decreasing
competition and consumer choice in the marketplace.''
How do you assess this situation as you address the
Bureau's goal of providing consumer choice, and frankly, the
ability of people to protect the privacy of their own financial
data?
Mr. Chopra. What you should expect about how we implement
the statute--and I have shared this with some of you--is we
want to propose that there are going to be some restrictions on
secondary uses, so if you are moving your data to someone, they
should only be using it for the purposes that are permitted. We
have to figure out how to enforce this properly. We also want
to think about how to make sure that an intermediary doesn't
take the data, send the data, but then use it themselves.
It is not going to be totally easy, but I think we have a
framework that will get support, and I expect we will propose
it for comment in October. But the data protection element of
this is huge.
Mr. Davidson. Yes. Thank you. And the enforcement mechanism
is really the challenge. We have our own bill, the It's Your
Data Act, that recognizes the property right in your individual
data. So, I look forward to continuing to work with you on
privacy.
I yield back.
Mr. Fitzgerald. The time has expired.
I will now recognize the gentlewoman from Michigan, Ms.
Tlaib, for 5 minutes.
Ms. Tlaib. Thank you so much.
Director, thank you for being here. Your agency--I won't
call it an organization--is the only financial regulator that
is laser-focused on consumer protection, correct?
Mr. Chopra. That is right.
Ms. Tlaib. You were created, why? Because there were all
these bad actors. They were out of control. We had to do
something about it because people were calling us. It wasn't
just mortgage fraud. It was so many other things. Is that
correct?
Mr. Chopra. And there was a global financial crisis caused
by that.
Ms. Tlaib. That is right. I read somewhere that the CFPB
enjoys overwhelming bipartisan support outside of Congress.
Something like 75 percent of Republicans actually support the
work that the Consumer Financial Protection Bureau does.
I think it is because you did about $17 billion in relief
for over 200 million consumers through the Bureau's enforcement
and supervisory activities. And that is why I don't think I am
surprised by those statistics.
I actually wanted to look it up, because I know I have
referred constituents to the Bureau, and the Bureau has been
very incredibly helpful, especially because I think you all
actually read the small print of things that get sent out to
our consumers. Our residents just don't know what their rights
are.
I want to talk about the credit card fees, because ever
since you told me what you are doing on that, I have been
bragging about it, because I think it is so important to show
that the Federal Government has your back. That there is this
agency that we are independently funding that specifically is
working on this.
I think the proposed rule on Regulation Z would likely save
cardholders billions of dollars each year. I read something
around, what, roughly $12 billion annually?
Mr. Chopra. That is right.
Ms. Tlaib. Director Chopra, when I read that for some
credit card agencies, it is kind of part of their business plan
that 40 percent of their profit or something crazy--I don't
know, you might have to correct me--is from late fees. They
literally have built a profit line specifically all about
generating profit from late fees. Can you talk about that?
Mr. Chopra. I just think what Congress wanted when passing
that law over a decade ago is just some common-sense
safeguards, that the credit card industry can charge interest,
can charge fees, make a profit, but when it is designed to
build a business on penalties, lenders should want their
customers to pay back and pay on time. We don't want a system
where people are happy when someone doesn't pay on time or if
they missed it by a day. All we are looking for is something
balanced and reasonable.
Ms. Tlaib. I know I looked, and it really does impact some
of our working poor communities regarding the late fees. They
are paying twice as much as any other cardholder.
I also have been incredibly thankful that--and, again, the
Bureau didn't have to do this--your report on medical debt
literally triggered all three of the major the credit reporting
agencies to do something.
Can you talk about the fact that you did this study that
basically said, this is the impact of having medical debt on
people's consumer reports, and it was pretty drastic. I think I
saw something like $88 billion in medical debt is on consumer
credit records, which impacts housing, employment, you name it.
The credit score and report is used for so many things,
including auto insurance rates, as we talked about.
Can you talk about that study? And, I think, days after you
released that study, what happened?
Mr. Chopra. Yes. Shortly after the three credit reporting
conglomerates agreed to really drastically limit what is
showing up, they also delayed when it would show up. Because
often the consumer is just sort of debating and dealing between
the insurance company, the provider, the facility.
I just think we want to make sure that that credit report
is not a place that you could threaten someone to pay something
that they don't owe. But we still have to make sure we look at
accuracy standards across-the-board. I also hear there are
other types of bills that show up, that may not actually be
accurate.
Ms. Tlaib. Yes. That is the thing in the report I read.
Something around--over the last decade or so--maybe from 2005
to now--that there has been a 31-percent increase in inaccuracy
of medical debt because, basically, people are being misbilled
and all this stuff and that this is happening.
Do you support prohibiting and banning medical debt on
people's credit reports?
Mr. Chopra. I think we are going to be proposing some more
safeguards on it.
It is interesting, medical debt is ill-defined because it
is also medical credit cards. Also, medical debt can show up in
other types of debt. So, we are trying to work on the
specifics.
Ms. Tlaib. Yes. Director, I was shocked to find out that
our VA sends medical debt of our veterans to credit reporting
agencies--collection agencies.
Mr. Chopra. Yes, although they have made some dramatic
changes.
Mr. Fitzgerald. The gentlelady's time has expired.
Ms. Tlaib. I know. But it is very, very disturbing.
Thank you. I yield back.
Mr. Fitzgerald. Next, we will go to the gentleman from
Wisconsin, Mr. Steil, for 5 minutes.
Mr. Steil. Thank you very much, Mr. Chairman.
Thank you for being here, Director Chopra.
I want to dive right in. As you know, FSOC's SIFI
designation is a serious authority that carries with it
significant regulatory supervisory burdens. That is why
Congress and the courts underscore the importance of the
analytical rigor and due process as part of the designation
decision.
In your statement accompanying the announcement that FSOC
would change its approach to the SIFI designation, you wrote
the following, ``In 2019, FSOC effectively repealed the ability
to designate systemically important nonbank financial
institutions by adding an array of dubious process
strictures.''
In your view, do these strictures include cost-benefit
analysis?
Mr. Chopra. The guidance is up for comment right now, the
changes. Of course, there should be a fair process and a very
analytically-driven process.
Mr. Steil. I appreciate that. There absolutely should be.
You said it added an array of dubious process strictures. I
am trying to get an understanding of what you view as these
strictures, and do those strictures include the cost-benefit
analysis?
Mr. Chopra. I wasn't referring to that. I believe what I
was referring to--in the 2019 guidance, it set up a number of
additional hoops.
Mr. Steil. Understood. But specifically, is the cost-
benefit analysis inside your dubious process analysis or
outside?
Mr. Chopra. No, I wasn't referring to that when I was
referring--I was referring to the stages at each level of
review. And my concerns, I believe, are shared in writing by
the Secretary of the Treasury.
Mr. Steil. Okay. I just want to make sure that you don't
view the cost-benefit analysis----
Mr. Chopra. No, I was not referring to that.
Mr. Steil. ----as dubious, because I think that cost-
benefit analysis is a really important component of our
regulatory oversight.
Let me shift gears to a slightly different topic but one
you speak a lot about, your term, ``junk fees.'' There has been
a lot of discussion today about that and your efforts to extend
CFPB's reach into everyday American lives, using what I believe
is a very vague term. And it is still not clear to me what the
term, ``junk fee,'' is based on.
In previous explanations, you argue that our government
sometimes charges its own citizens junk fees. And I am
concerned here that the CFPB's proposed restrictions on credit
card late fees--whether or not that is your term of a junk fee.
Nobody likes paying late fees, and you don't want people to
get into financial distress. But I am also trying to look at
what the trade-offs are here in your cap on fees. I know one of
your proposals has an $8 cap on fees.
And I think the question is, do you acknowledge there are
potential significant trade-offs associated with setting a cap
on late fees?
Mr. Chopra. First, to be clear, the $8 proposal is not a
cap on late fees.
Mr. Steil. Okay.
Mr. Chopra. That is the immunity provision, so that
companies that charge $8 or less do not have to worry----
Mr. Steil. So, you are creating a safe harbor, $8 or less,
under that proposal?
Mr. Chopra. Exactly.
Mr. Steil. So, it is not a cap. But you are saying, hey, if
you are under $8, you are safe. Safe harbor. If you are over
$8, we may or may not come after you.
Mr. Chopra. No, that is actually not how it is. If you are
not on the $8, we explain what you should be prepared to
calculate so you can get certainty.
Mr. Steil. Okay.
Mr. Chopra. Congress prohibited unreasonable and
disproportionate penalty fees. We are trying to provide
clarity. And it was clear the rule we inherited was way overdue
for review. There was so much technological progress and
changes in the credit card market that had to be reflected.
Mr. Steil. Understood. Going back to my original question
on this topic, do you believe there are potential trade-offs in
setting a cap?
Mr. Chopra. Yes. What I think will happen is that we will
start seeing things--rather than a business model built on
penalties, they will compete just like other banks and small
banks do who offer credit cards, which is really upfront on
annual fee, on interest rates, and others. I think the
competitive process will work better. Consumers are smart, more
likely to switch, and will be healthier over all.
But we are looking----
Mr. Steil. So, you don't think that by setting a cap--just
as we play this out analytically, doing a pure economic
analysis on this--that you are going to lead to more-expensive
credit?
Mr. Chopra. It depends on the competitive factors. You will
see consumers switched based on that. It really depends on the
econometric model. But we are looking at all the comments, and
we will look at it very carefully and analyze it before
finalizing it.
Mr. Steil. In my final 15 seconds--and I have asked you
this before--do you believe the CFPB possesses regulatory
oversight authority over insurance products or insurance
companies?
Mr. Chopra. We do not regulate the business of insurance.
Mr. Steil. Thank you very much.
Mr. Chairman, I yield back.
Mr. Fitzgerald. The gentleman's time has expired.
We will now go to the gentleman from North Carolina, Mr.
Nickel.
Mr. Nickel. Thanks so much, Director Chopra, for being
here. I know with these 5 minutes for questions, it is tough to
kind of get everything out in the time that you have. I am
going to say a few remarks, but I want to just give you a beat
to think about it. After I say a few things, if you want to
jump in and supplement some of the comments you have made on
some other things, I am happy to give you some time.
But I want to just start off by saying that I was proud to
sign on to the amicus brief led by Ranking Member Waters
supporting the CFPB at the Supreme Court. I know you have been
under attack here today, so I want to just thank you for all
the work you are doing to protect consumers.
Do you want to take any time to talk about--get a little
more time on some of the----
Mr. Chopra. Yes. I know we have talked about the work we
have been doing, but I also want to make sure we are thinking
about the future, too.
We are seeing very big players, especially tech companies,
come in. We are seeing the future of money look different.
Digital payments. Artificial intelligence. It is so important
that we think about tomorrow and make sure that we don't have
problems in the future that we can address today.
Mr. Nickel. Thanks so much. North Carolina has 13
congressional districts. I represent 49,000 veterans in my
district. And I want to thank you, again, for the work that the
CFPB is doing to protect servicemembers and veterans. I think
it is our duty to support and care for the men and women who
have served our country. We owe them a debt of gratitude, and
we have to ensure that they have access to the resources and
support they need to lead fulfilling and healthy lives after
their service.
In June 2022, the CFPB issued a report highlighting
complaints by servicemembers and veterans about problems with
coercive credit reporting and false medical bill collections. I
am very concerned that veterans and servicemembers that I
represent, just like anyone, have a tough time navigating the
credit reporting system. If a member of the military has been
injured or hospitalized while in service, I don't think it is
right for a medical bill to affect their creditworthiness.
What trends did the CFPB observe in its report, and what
type of relief or remedies would you recommend to support
veterans?
Mr. Chopra. Yes. Credit reporting--and let me just share
that we do see differences between active-duty servicemembers
and their families, and Guard and Reserve versus veterans. Each
has unique issues.
I would say with active duty, the implications for problems
on their credit report are very real. It can even harm their
career. Many of them are subject to Permanent Change of Station
(PCS) orders, and have to move frequently, which makes it
really challenging to make sure that they don't suffer problems
when they need to move or sell their home. With veterans' VA
mortgages and other VA benefits, we always want to make sure
they don't become a haven for abusing people.
We have done a lot of work on the Servicemembers Civil
Relief Act, which has a 6-percent cap on pre-service
obligations. We found Guard and Reserve families aren't always
taking advantage of it and may not be--financial institutions,
we want them to work more to honor those rights.
Mr. Nickel. Thanks. I am also very concerned about the rise
in abusive debt collection practices, including those that
target low-income seniors, such as, ``zombie mortgage'' debts.
Zombie mortgages are those that consumers thought were forgiven
or satisfied long ago but still exist.
I was pleased to see that the CFPB held a field hearing on
this issue in April. Can you tell us what you learned at the
hearing and more about the CFPB's work in this area to protect
homeowners targeted by these unfair collection practices?
Mr. Chopra. We heard from a lot of experts, including one
homeowner who testified about how they got a mortgage--one of
those 80/20 piggyback mortgages--before the financial crisis.
She got it modified, and the second mortgage was satisfied. But
then fast-forward, with no communication, I believe, for over a
decade, and now she is getting threatened with foreclosure.
I think these second mortgages, which many people believe
were satisfied, are now coming back. And we have tried and
issued some guidance to make it very clear that when there is
time-barred debt, there are certain responsibilities. We do not
want to see this unlawful debt collection behavior especially
targeting those whose wealth is mostly their home equity.
Mr. Nickel. Thanks so much.
And I yield back.
Mrs. Houchin. [presiding]. The gentleman yields back.
The gentleman from Wisconsin, Mr. Fitzgerald, is now
recognized for 5 minutes.
Mr. Fitzgerald. Director, thanks for being here today. I
wanted to just go to two different topics, the first being
something that has already been talked about ad nauseam, but
the credit card late fees. Specifically because I have
corporations in my district, and Kohl's Department Store is
probably the best example.
I am worried that the rule could have a negative impact
because I don't know if the differentiation is there between
bank cards and what you might see with retail, and I am
wondering if you all have looked at it from that perspective?
Mr. Chopra. It is a great question.
With store credit cards, you are right, the market is a
little bit different than the generally-available bank cards.
They do work with the financial institution to issue it, to
provide all the statements and the underwriting. A department
store like Kohl's will probably work with them. There is
different demographic--different loan characteristics of it. We
certainly tried to look hard at those differences when shaping
the rule.
At the end of the day, though, a reasonable late fee and
making sure that there are incentives for consumers to pay, I
think will be good.
I will also tell you, those retailers incur some real
damage sometimes when their customers are not being treated
fairly by their financial institution partner. So, I am hoping
that the retailers themselves can also see some benefits from
this.
Mr. Fitzgerald. Okay. Thank you for that.
And then, I am not sure if other members touched on this,
but I think for some members of the committee--maybe they have
the answers they want. But regarding the SVB failure, kind of
that whole weekend that happened--we are 100 days out now. The
FDIC, the Fed, the Treasury--I don't think we got the answers
we need from them.
My question would be, what was your role? Maybe, it was ad
hoc and kind of developing as that weekend played out?
Mr. Chopra. Certainly, as a board member--there are five
members of the board that have to steward the Deposit Insurance
Fund and take those emergency actions. We were often meeting
late and taking votes in the middle of the night. It was a very
fast-moving situation. These entities, I am all familiar with,
because they are also large banks subject to the CFPB's
oversight.
Mr. Fitzgerald. Right.
Mr. Chopra. We had real issues, and the decision to insure
uninsured depositors on an emergency basis was a very, very
serious one. We do think it created some stability in the
system, but we need to make sure that we are ready for future
runs like this and that the system is resilient and
appropriately capitalized.
Mr. Fitzgerald. Specifically, what is your memory about
what happened on March 12th at that FSOC meeting? What happened
during that meeting?
Mr. Chopra. Was that on a Sunday, maybe? We were all
working around the clock. We were regularly in touch--the FDIC,
the Fed--with the Treasury because those emergency powers
required the consent of the Secretary.
Anytime there is major movement like this, obviously, there
is the worry about credit sweeps as well, and we did exchange
information about the latest intel that we had. I don't know
the specifics of it, but we certainly like to share
information.
Mr. Fitzgerald. Do you feel like decisions were made in
that there were already--there was already movement on trying
to sell or save the banks at that point by the time the FSOC
meeting happened in mid-March?
Mr. Chopra. I don't remember when the FSOC meeting was, but
certainly, the failure of Silicon Valley Bank happened at
around 11:00 a.m. on Friday. It didn't even make it to the end
of the day. Signature Bank barely made it through and ended up
failing on Sunday.
It is not like a normal bank failure where there was clear
awareness well in advance and the entities can prepare for the
resolution in the same fashion and find buyers.
The First Republic resolution was quite different. The
closure and sale happened over the same weekend, but the speed
in which SVB occurred was lightning fast. And we did not get, I
believe, a valid bid submitted that weekend. But over time,
after the emergency actions, we were able to.
Mr. Fitzgerald. Okay. Let me ask you a huge question. It
will be difficult to answer in half a minute. But what is your
opinion now of where we are at, not just related just to banks,
but all financial institutions? Is the market stable? And are
regional banks in a good position as well?
Mr. Chopra. I think what we have seen is that deposit
outflows have really stabilized. We are not seeing broad
movement. We did see a big pool--a big hunk of deposits move to
money----
Mrs. Houchin. The gentleman's time has expired.
Mr. Fitzgerald. Thank you.
Mr. Chopra. I am happy to talk to you further.
Mr. Fitzgerald. Thank you.
Mrs. Houchin. The gentleman from New Jersey, Mr.
Gottheimer, is now recognized for 5 minutes.
Mr. Gottheimer. Thank you, Madam Chairwoman.
And thank you, Director.
Director, I have previously shared my concern that the
CFPB's consumer complaint database may be a breeding ground for
consumer misinformation, where competing small businesses can
file false complaints about competitors. In 2022 alone, the
CFPB reported receiving nearly 1.3 million complaints.
I understand that companies have an opportunity to respond
to complaints that are filed with the database, but is there a
vetting process in place at the Bureau to weed out false
complaints submitted to the website so that these small
businesses aren't playing defense for those competitors who are
trying to get them?
Mr. Chopra. Yes.
Mr. Gottheimer. Can you talk a little bit more about that?
Mr. Chopra. Sure. You actually raised this in a previous
hearing, and I went back to the staff to make sure I fully
understood it.
When a company is enrolled in the complaint database, when
a complaint is received, they are actually able to determine,
is this even our customer or not? So, that is a key check to
make sure that there is not any kind of false identification.
In some cases, more information is needed.
After you raised it, I also looked to see if there were any
other indicia of this happening, and we did not see any, but we
are always looking to make sure that is processed----
Mr. Gottheimer. So before it is posted, they can stop it
from being posted?
Mr. Chopra. It is only posted under certain circumstances,
and I believe one of the circumstances is that it is actually
the customer.
Mr. Gottheimer. Got it. So before it is even posted, you go
back to the business and say, is this a customer of yours?
Mr. Chopra. Actually, the way it works is if a consumer
files it, it almost immediately goes to the entity enrolled in
our portal. They are able to respond. And it doesn't show up in
the database until well after. So, there are a bunch of checks
to limit this.
Mr. Gottheimer. Got it. So if it is a competitor and not a
customer, they can stop it from being posted?
Mr. Chopra. Yes. I don't think it could even show up
because it is not a customer.
Mr. Gottheimer. Okay. That is good to hear. And I will
follow up----
Mr. Chopra. I will verify, but----
Mr. Gottheimer. I would like to follow up with you on that.
That would be great.
The CFPB's Office of Servicemembers Affairs helps military
families overcome unique financial challenges and ensures they
make the best financial decisions.
Late last year, the CFPB reported that members of the
Reserve and the National Guard are paying an extra $9 million
in interest every year because they are not provided their
rights under the Servicemembers Civil Relief Act (SCRA) to
request interest rate reductions on loans during active duty.
Since that report was published in December of last year,
can you tell me a little bit about what steps you have taken to
inform servicemembers and financial institutions of the
benefits provided under the SCRA?
Mr. Chopra. We did share that report with the financial
institutions. And it is tricky--many people may not know that
the Guard and Reserve, when activated, get the benefits
afforded to active duty. There is a database that the
Department of Defense makes available. We have shared
information about how financial institutions can use that.
In some cases, many of them are automatically given those
benefits, and I think that is a huge benefit, especially for an
individual who has been activated, they want to minimize the
amount of bureaucracy they have to go through.
Mr. Gottheimer. Of course. Thank you.
The Supreme Court is expected to rule on the
constitutionality, as you know, of the Bureau's funding
mechanisms in the coming months. I believe the Bureau plays an
important role in protecting consumers from illegal activities
in the marketplace, and I think it is vital that we be prepared
for all potential decisions of the court.
If the Supreme Court rules against the Bureau, what will
the impact be for consumers? And do you think it is important
that Congress start to act now to be prepared to promptly
address a potentially unfavorable outcome?
Mr. Chopra. We have heard from many corners of the industry
that if there is a decision that throws uncertainty into--many
industry players rely on the certainty afforded by, especially
our mortgage rules. We do not want to see disruption in our
mortgage markets, especially in the environment in which we are
in.
I am happy to talk to you further about it. But the
Solicitor General has filed a brief with the Supreme Court and
laid out the argument about why they would--
Mr. Gottheimer. Do you think we need to start taking
congressional action to prepare in case the mechanisms change?
Mr. Chopra. I will take that back. I am happy to take a
question for the record. But really, we are focused on the
litigation and how----
Mr. Gottheimer. Okay. I would like that. Because I don't
want to find that suddenly the court rules, and then we have to
scramble. You know, we don't exactly always move very fast
here.
I have heard stories about consumer financial services
offered by unregulated scammers, some of whom operate online,
and offshore, beyond the reach of State and Federal regulators.
Does the Bureau place a priority on detecting and deterring
unregulated financial services operators, and can you give me
some examples of the steps you are taking in the last few
seconds here?
Mr. Chopra. Sure. One of the key things is, outside of the
insured bank and credit union system, it is our job to protect
against those entities that violate the law. We are devoting a
lot of energy, using authorities Congress has given us to
supervise some of them. When it comes to offshore, that is a
very challenging problem, especially using digital technology.
Mrs. Houchin. The gentleman's time has expired.
The gentleman from New York, Mr. Garbarino, is now
recognized for 5 minutes.
Mr. Garbarino. Thank you, Madam Chairwoman.
And thanks, Director, for being here.
I just want to get some clarification. I know you talked a
little bit already about the small business data collection
rule. I have heard from the private sector that the CFPB's
small business lending data collection rule would impose 81
overly-burdensome and complex requirements, and 81 new data
fields for each loan by some counts. I think you said 15 to 20
is possible before.
Mr. Chopra. Yes. I think there is a little bit of apples
and oranges between data points. I believe there are about 20
data points. The fields is a little bit of a different issue.
It is kind of how they input it.
Mr. Garbarino. So, could 81 be correct, 81 data fields?
Mr. Chopra. Yes. It is in the way in which it is sent, but
it is not the points that is in the statute.
Mr. Garbarino. So, about 81 new data fields for each new
loan, along with a timeframe of 18 months for some companies,
and 36 months for others. I have heard from the industry that
18 months to set up a collection data, protect it, and get
everything ready with its lenders is going to be too short of a
time period. And I don't see why it is 18 months when other
companies are getting 36 months. Are you concerned that the 18
months could set some of these lenders up for failure? And why
not just do everybody for 36 months?
Mr. Chopra. I think we wanted to look at how smaller banks,
local banks, others--they have different issues that they have
to deal with when implementing some of this. So, we focus the
18 months on the largest lenders, which have very large books
of this and which are often big institutions themselves. That
is part of the reason we had this phased-in implementation.
Mr. Garbarino. I understand the reasoning for doing it for
the smaller banks, or for the smaller lenders, but I am hearing
from the bigger lenders that 18 months is still not enough time
to get this done.
Is the CFPB considering delaying the 18-month timeframe?
Mr. Chopra. Not at this point. We are working to make sure
that the system is well prepared for it.
I will say that many of these are quite large entities and
have told us they have put in a lot of preparation. But I am
happy to hear more from those about any challenges. We have set
up a group that is working with them on implementation.
Mr. Garbarino. Okay.
Mr. Chopra. And, again, the reason we phase it in--there
will be learnings from the first phase that will help us make
sure that, when the much larger group reports, it has less
kinks.
Mr. Garbarino. I understand. And I know you have also
talked--bless you, by the way--about the data breach. What is
the CFPB doing to protect against future data breaches?
Mr. Chopra. Insider threats are something that we are going
to be putting a lot of effort in. We are also putting
technological solutions in place. This was a very serious
incident. We want to make sure not just that our systems are
safeguarded from being penetrated by outsiders, but that even
insiders have limited access and are not having to transfer
things outside of the systems that are most secure.
We are working with the established guidance on making sure
that we mitigate and take steps. There are a lot of changes
that were already in progress. But certainly, it is a serious--
--
Mr. Garbarino. How many employees do you have who are
focused specifically on cybersecurity?
Mr. Chopra. It is pretty substantial. I don't have the
exact number. But within our technology and innovation group,
not only do we have a chief privacy officer, we have
information security professionals. We also get outside
support. Outside auditors work with our Inspector General as
well.
Mr. Garbarino. Okay. And one last question. This was a
major cyber incident. When a major cyber incident occurs in a
Federal agency, they are required to notify the Cybersecurity
and Infrastructure Security Agency (CISA). Do you know if and
when CFPB notified CISA about this breach?
Mr. Chopra. We certainly notified--and I believe we
notified DHS and CISA. I would have to look at the timeline,
but----
Mr. Garbarino. But you did notify them?
Mr. Chopra. We notified everyone in the OMB guidance, and I
believe they are listed explicitly.
Mr. Garbarino. Okay. Director Chopra, unfortunately, the
CFPB has disbanded the Office of Innovation and offers very few
collaborative avenues for innovative companies to work with the
CFPB to gain regulatory clarity on the myriad of announcements
coming from the Bureau.
A huge issue in my district is home affordability. The
average cost to originate a residential mortgage has doubled
from $5,000 to over $10,000 in the last 10 years. What exactly
is the Bureau doing to try to lower the cost of homeownership?
Mr. Chopra. There is so much we are doing. We have actually
put out and gotten information about how we can streamline----
Mrs. Kim. [presiding]. The gentleman's time has expired.
Now, I would like to recognize the gentlewoman from
Colorado, Ms. Pettersen, for 5 minutes.
Ms. Pettersen. Thank you, Madam Chairwoman.
And thank you, Director, for being with us today. This is a
difficult committee, and you have done a great job. I want to
thank you for the work that you do every day advocating on
behalf of our constituents and making sure that some of the
most-vulnerable people are not being taken advantage of and
that they have a voice and a backstop.
I really enjoyed meeting with you in my office to talk
about the specific services that you are able to provide. And I
think many people don't even know that some of these tools
exist. They don't know what is available.
So, I want to just give you some time to kind of highlight
the programs and the opportunities that constituents have just
to--what we should tell our constituents to make sure that they
know the services that you provide.
Mr. Chopra. Yes. I think the focus of where we can provide
so much individual help is our consumer complaint line. It was
established in the law. We are doing, as it was said, 10,000 a
week. And we hope that, even if you don't know the name of any
individual agency, that you know there is a place you can go if
you are having trouble with a consumer financial product or
service, you can file a complaint, and it won't go into a black
hole. It will actually--and in most cases, I believe--transfer
to the institution.
And it is such a way that we have been able to get people
help, but also for the financial institutions to know the
challenges that are being experienced so that they can make
tweaks to their processes and mitigate harm going down. I urge
you all to get the word out about our complaint line.
Ms. Pettersen. We plan on doing that with some of our
constituent outreach. Thank you for highlighting that.
One of the concerns that we have heard come up is with
limiting the junk fees. And I want to thank you for taking this
on. While I recognize you don't have the authority to highlight
these practices, you were able to set a limit.
And this is something that all of us have experienced,
where we think that we are going to buy something, and then on
the back end, we see all of these additional fees of which we
are unaware. This especially hurts people who are lower income,
and our elderly. So, thank you for taking this on.
One of the concerns that has been raised, though, is that
when we are limiting fees like this, that there won't be the
financial options for people with lower incomes where--the
unbanked areas, I guess you could say.
What can you address in this area on what you are doing to
make sure that is not the case?
Mr. Chopra. We have seen a lot of good movement and
competition to offer lower, no-fee products with no surprises
to really anybody. Sometimes, we don't necessarily need to jump
through a bunch of hoops.
It really is one of the benefits of competition here, and
we see so many institutions offering these products now. I
believe thousands--maybe it is hundreds of banks--these no-fee
accounts. And it is a big benefit to those who live paycheck to
paycheck.
Ms. Pettersen. That is great. That is another thing that we
can highlight for our constituents.
I know that there were a lot of questions asked of you with
limited time to respond. I want to know if you have any other
pieces that you would like to address on some of the concerns
that have been raised and the questions that my colleagues have
asked.
Mr. Chopra. I think there was a question I didn't get to
fully answer about the Financial Stability Oversight Council. I
think there were elements of the guidance from 2019 that were
not related to the law at all. It indicated that there were
certain procedural hurdles that I think were not appropriate.
But, of course, we have to carefully consider what Congress
wanted, and obviously, we do not want there being big nonbank
institutions who cause a collective calamity for the rest of
the market.
I also will say again, there has been a lot of talk about
our motives. Our motives are to carry out and fulfill the
objectives you have specified in the law, and I take great
pride in the work of all of the public servants at the CFPB who
have helped so many people.
Ms. Pettersen. Thank you for recognizing that. I also want
to thank your team for doing their work. I know that it is a
difficult job. It couldn't be more obvious with the hearing
today. So, thank you for what you are doing every day.
And with that, I will yield back.
Mrs. Kim. Thank you. The gentlelady yields back, and I now
recognize myself for 5 minutes.
Director Chopra, I am disappointed that your written
testimony did not mention financial literacy or education as
one of your priorities. Consumer education is one of six
primary functions of the Bureau. It is essential for consumer
protection.
I serve as the Co-Chair of the Financial Literacy and
Wealth Creation Caucus, so I would like to urge you to make use
of the public-private partnerships to enhance financial
literacy.
According to the Civil Penalty Fund annual report published
in November 2022, the total unallocated balance was more than
$481 million, and recent reinforcement actions may have
increased the fund's unallocated balance to exceed $2 billion.
Why haven't you used the fund for its intended purpose, to
enhance financial literacy, since you took office as Director
of the CFPB?
Mr. Chopra. Let me just say that financial education and
literacy is a real cornerstone of what we are doing. In the
annual report that is part of our testimony, we----
Mrs. Kim. Well, I am glad we agree.
Mr. Chopra. The Civil Penalty Fund has two purposes: victim
redress; and financial education, financial literacy programs.
We actually expend resources on financial literacy through our
general funds which cannot be used for victim redress.
Mrs. Kim. Sure.
Mr. Chopra. But we also want to make sure that those funds
expended are smart, and that they are not wasteful, that they
are effective.
Mrs. Kim. I am glad to hear that, and I also want to echo
the urgency of my colleague across the aisle, Mr. Scott, to use
the fund for its intended purposes.
And can I ask that you, rather than focusing on blog posts
and press releases, I would remind you that you have other
tools in your toolbox, like that fund, to prevent fraud and
scams. So, please, let's use more of them.
Now, are you concerned about the amount of credit card debt
held by Americans?
Mr. Chopra. I don't tend to think about the overall amount,
but it certainly has accelerated. I worry more about
delinquency costs, and having a competitive cost of credit.
Mrs. Kim. I would like to address that issue. In the credit
card fee proposal, you cite the research that was co-authored
by two former Bureau economists who use the Bureau's own card
data. That study states that when the credit card late fee
decreases, it incentives higher usage and greater likelihood of
paying late. Is that right?
Mr. Chopra. I don't know the specific study you are
referring to, but if you are saying that a late fee may have
some impact----
Mrs. Kim. That is a study that is based on peer-reviewed
academic publication. Are you aware of that?
Mr. Chopra. Okay. And I apologize, I don't have all the
facts from that individual study cited, but of course we think
a lot----
Mrs. Kim. Right. Despite that, the Bureau--disregarded that
research and instead you conducted your own analysis, but that
analysis wasn't peer-reviewed or published in a journal. That
is our understanding.
Mr. Chopra. We certainly look at a lot of data sources
studies on consumer credit. I know you are mentioning one. I am
happy to take questions for the record on that specific one,
but the overall goal----
Mrs. Kim. Your credit card fee proposal is not going to
reduce prices for consumers. Instead, the reduction in fees
will lead to an increase in borrowing costs and potentially
higher debt for families and individuals.
The CFPB also acknowledged in the credit card fee proposal
that customers who never pay late, which is about 74 percent of
all Americans with credit cards, will not benefit from the
reduced fees and could face higher maintenance fees, lower
rewards, or higher interest-paying accounts. I just wanted to
point that out to you, and then, I want to move on to the next
matter.
I agree with you that open banking has the potential of
unleashing innovation and more options for consumers. But the
CFPB recently issued a Request for Information soliciting
public feedback about the data broker market. The request uses
a definition of, ``data broker'' that essentially covers every
consumer-facing business in existence--firms that collect,
aggregate, sell, resell, license, or otherwise share consumers'
personal information with other parties.
Do you believe that small businesses in Southern California
like hair salons, gyms, and flower shops should be subject to
the Fair Credit Reporting Act since they collect personal
information from consumers?
Mr. Chopra. No, I think the purpose is about companies that
are assembling dossiers just like other background screening
companies or as other tech companies and others. So, we are
actually soliciting input. That was not a proposed rule. We are
trying to make sure we get the right type of input.
Mrs. Kim. Sorry, my time has expired.
Before I ask the next person to ask questions, I would like
to enter into the record the Washington Post Fact Checker that
was dated June 12, 2023.
Without objection, it is so ordered.
And I now recognize the gentleman from Missouri, Mr.
Cleaver, for 5 minutes.
Mr. Cleaver. Thank you, Madam Chairwoman. And thank you for
being here, Mr. Director, and I personally appreciate your
availability to all of us.
In my real life, I am a United Methodist Pastor, and I deal
with people mainly when they are in trouble. Rarely does
someone come by and say, I just wanted to come by and tell you
that the world is great and everything is really, really nice
in my life.
One of the things that people have as a major problem, more
than anything else, are their finances. And there are those who
have sought to take advantage of people. In fact, they are
generally targeted by the so-called credit repair companies,
organizations which are so fraudulent that they make Bernie
Madoff seem like the Dalai Lama.
And they specialize in making people who are hurting, hurt
more. They are inverted ATM machines. And we are being
victimized--when I say, ``we,'' I mean that Americans are being
victimized by other Americans who are running these fraudulent
organizations, promising to fix bad credit, when in reality,
they are going to fix you for coming in there.
So, I am thinking right now that something more needs to be
done. I am not sure exactly what we can do to stop the
financially-distressed consumers from being hurt worse, but
many of those consumers, as I mentioned earlier, are targeted,
and they are trying to get their financial lives on track.
What is the Bureau doing? Are you getting a large number of
complaints about these credit repair companies which are, from
my perspective, almost committing thievery?
Mr. Chopra. I don't have the exact numbers, but certainly
people who are trying to repair their credit, many of them have
been targeted by those who are fraudsters or scammers.
There have been a number of enforcement actions. I
definitely welcome any input on how we can more holistically
deal with this, because sometimes going after one by one well
after they have run off with the money won't fix the problem.
I think accuracy in credit reports, and figuring out how
people can rebuild is obviously important, but we want there to
be honesty and compliance with the law.
Mr. Cleaver. Yes, I don't think it is something that you or
your agency can repair alone. But there needs to be something
that we can do with the CFPB and local organizations, maybe
Ministers, because they hear these ads on the radio. They are
not on TV much anymore, they are advertising on the radio, and
I am hoping that we can maybe work together on something.
I don't want the Bureau sued, but I am just wondering, can
we do Public Service Announcements, talking about the mortgage
thievery that is going on, and of course, these credit repair
organizations, can the agency get involved in trying to get
public----
Mr. Chopra. Yes. Actually, even the financial industry has
helped with warning about some of these things. We try our best
to help people understand and give them objective information,
what should you do when you have a potential issue like this.
It can be hard to get out the word sometimes because people can
be micro-targeted very specifically. But there is certainly
more we need to do to make sure people are protected from this.
Mr. Cleaver. Thank you. I may have some ideas that I will
share with you later. Thank you very much.
I yield back, Madam Chairwoman.
Mrs. Houchin. [presiding]. The gentleman yields back. We
will now take a 5-minute recess to allow the witness a brief
break. The committee stands in recess.
[brief recess.]
Mrs. Houchin. The committee will come to order. The Chair
now recognizes the gentleman from Florida, Mr. Donalds, for 5
minutes.
Mr. Donalds. Thank you, Madam Chairwoman.
Director Chopra, thanks for coming in. You have said
previously that markets work best when rules are simple, easy
to understand, and easy to enforce. Would you agree that
markets work best when rules are actually relevant to today's
marketplace?
Mr. Chopra. Yes.
Mr. Donalds. I want to go into a couple of things about
payment portions of the CFPB's small dollar--I know that this
is at the center of litigation and that none of us know for
sure where it will end up.
Section 1022 of Dodd-Frank requires the CFPB to conduct a
5-year assessment of each significant rule or order adopted by
the Bureau under Federal consumer law. This assessment is
supposed to address the effectiveness of the rule in meeting
the purposes of the objectives of the Bureau under Dodd-Frank,
as well as specific goals stated by the Bureau.
The public would also be allowed to comment on the
recommendations for modifying, expanding, or eliminating a
rule.
If this rule had gone into effect and had not been delayed
by all the legal challenges, I believe the Bureau would have
had to complete such assessments of this rule, this year.
When you look at the data, the alternative credit
marketplace has shifted dramatically over the past 5 years. So
if the court were ultimately to decide with the Bureau on the
legality in question, wouldn't it be prudent to evaluate
whether the rule is relevant in today's marketplace and is
really going to meet the objectives that the Bureau intended?
Mr. Chopra. Yes. One of the things I have done is, I have
really opened up and increased the analytical rigor of justice.
So many times they create rules, and it is not future-proofed.
I am always open to collecting more information to see if there
are any adjustments that need to be made.
I don't know the specific provisions you are referring to
that may have been subjected to technological change. There are
certainly many rules that were transferred to the CFPB from the
Fed and the FTC that were not future-proofed and were way too
complex. And certainly, simplicity is a lodestar. We can't
always get there, but we want to get there.
Mr. Donalds. Would you acknowledge that it is prudent for
the CFPB to periodically review all of its existing rulemakings
and decide whether they are even necessary in today's
environment?
Obviously we know that banking is moving by leaps and
bounds, becoming far more technical for a myriad of reasons,
regulation being one of them. Wouldn't it be prudent forCFPB to
actually review these things periodically, make adjustments, or
cancel previous rules altogether?
Mr. Chopra. That is some of what you are seeing me doing
during my tenure. We are reviewing some older ones, and putting
them out for public comment. Even the one on credit cards is
really a rule review at its core, to make sure it is based in
realty.
I think you are raising this point, though, on digital,
that is really important, and we need to make sure that we are
not just thinking about the human world, but how will it work
in the metaverse, how will it work in other contexts, because
otherwise it creates problems if people don't----
Mr. Donalds. I am glad you raised it for two reasons, one
with the revision--the re-look at the credit card rule. You
have talked about--and I think comments from my colleague from
California brought it up in earlier questioning--the changing
of late fees from $30 to $8. You are on the record saying that,
``By our estimate, 75 percent of late fees, $9 billion, have no
purpose beyond padding the credit card companies' profits.'' Do
you stand by that statement?
Mr. Chopra. Yes. That is based on our estimate, and that is
based on a point in time where late fees might have been lower
than they otherwise would have been.
Congress was clear: Those penalties are supposed to be
reasonable and proportional, and we do not want loopholes from
rules being used to evade the law.
Mr. Donalds. Director Chopra, do you think that it is
prudent that the CFPB has the abilities to unilaterally decide
what are going to be late fees on consumer financial products,
notwithstanding the ability of cost shifting as a result of
capping fees?
Mr. Chopra. We don't have unilateral ability. Congress sets
out the framework in law----
Mr. Donalds. Director Chopra, I would argue that the CFPB
is making broad use of their powers, which, by the way, to be
clear, I do believe wholeheartedly that your agency is
unconstitutional. I think it was unconstitutional when it was
created in Dodd-Frank. I think you were given broad latitudes
under, frankly, partisan government at the time, to not even
really be accountable to the people's branch of government, the
legislative body, and so I do have issues with CFPB.
But let's be clear, you all have taken broad latitude on
many issues over time----
Mr. Chopra. And it is always consistent with the laws that
Congress passes.
Mr. Donalds. And I would argue that those laws have always
been----
Mrs. Houchin. The gentleman's time has expired.
Mr. Donalds. ----subject to Congress' ability to oversee
you.
I yield back.
Mrs. Houchin. The gentleman's time has expired.
The gentleman from New York, Mr. Lawler, is now recognized
for 5 minutes.
Mr. Lawler. Thank you, Madam Chairwoman, and Director
Chopra, thanks for being here.
A huge issue in this hearing has been the egregious lack of
accountability of the CFPB and the lack of clarity and poor
process that has been followed in your rulemaking and
enforcement processes.
What is your understanding of the Administrative Procedure
Act (APA)?
Mr. Chopra. The Administrative Procedure Act has a lot of
different provisions. It touches on everything from citizens'
ability to petition their government, to rulemaking--I think it
is about rulemaking.
Mr. Lawler. Yes, let's not waste time. What is your
understanding of the Administrative Procedure Act with respect
to your job duties and how you do rulemakings?
Mr. Chopra. Absolutely. It requires that the decisions not
be arbitrary and capricious. For rulemakings, legislative
rulemakings, it requires a notice-and-comment period. It
requires a response in consideration of those comments, a
proposed rule, and a final rule, and all of those rules are
subject to court review under that standard.
Mr. Lawler. And how should that rulemaking process be
followed? How should the notice-and-comment period operate?
Mr. Chopra. Based on the other relevant statutes that
apply, there is a period for which you publish the notice in
the Federal Register. There is a comment period of 30 or 60
days, or what have you. After that time, comments need to be
considered.
In any final rule, we analyze the comments, and actually,
substantial parts of the final rule discuss those and explain
where there were changes made from the proposal to the final
rule.
There are other parts of the APA as well, but, again, we
are subject to quite a bit of review on that.
Mr. Lawler. And where in the APA does it talk about being
able to rule-make through blog posts and speeches?
Mr. Chopra. It doesn't, and the concept of rulemaking
through blog posts, I don't know where that term came from, but
when we issue a blog post, we get feedback from various
industry associations. They want more information about what
the CFPB is doing, to have more notice to understand specifics
about programs----
Mr. Lawler. Right. But you seemingly are using these blog
posts to issue more information, thereby issuing more rules,
correct?
Mr. Chopra. No, those aren't rules. Rules have to go
through, as you are suggesting, the Administrative Procedure
Act.
Mr. Lawler. Right. So why are you using blog posts and/or
giving speeches talking about what the industry should be doing
if you are not following the exact rulemaking process?
Mr. Chopra. Blog posts are something that we put on our
website as information for consumers and the public. Those are
not rules. Statutes and regulations, codified in the Code of
Federal Regulations, are what creates obligations.
Again, we received input from entities like the Consumer
Bankers Association who asked us to continue what my
predecessor, appointed by President Trump, had done on issuing
advisory opinions, and informal guidance. And that is what we
have continued to do.
I am getting two different, conflicting messages about, we
are trying to transparent and open. Those blog posts for the
consumers and the public are not rules and not creating new
obligations.
Mr. Lawler. Okay. So that we are all clear, your blog posts
do not have the weight of law, and nobody should follow them?
Is that what you are saying?
Mr. Chopra. No one has suggested, I think, that blog posts
are rules. So, again, we have tried to provide guidance, other
advisory opinions, very consistent with my predecessor, and
also what almost every other agency does. There has been a
request for more of it over the years, so that you don't need
lawyers as much, and you have more plain-language support. This
seems like something that is a good government----
Mr. Lawler. Okay. So going forward, we all agree you will
be using the Administrative Procedure Act for rulemaking? You
won't be using blog posts or speeches to put any obligations on
anybody within the industry going forward?
Mr. Chopra. There has been no blog post that created a new
obligation on the industry.
Mr. Lawler. Good. Okay. Great. We are in agreement.
Do you agree that you will commit to publicly releasing all
of the facts and data that are used to support your decisions
during the rulemaking and enforcement process? There have been
numerous requests by this committee----
Mrs. Houchin. The gentleman's time has expired.
Mr. Lawler. Thank you.
Mrs. Houchin. The gentleman from Nebraska, Mr. Flood, is
now recognized for 5 minutes.
Mr. Flood. Thank you, Madam Chairwoman. Director Chopra,
thanks for your testimony today.
I want to talk about student loan repayment. In March,
Nelnet, the largest Federal student loan servicer, submitted
SEC filings disclosing a significant modification to its
Federal contract with the Office of Federal Student Aid, or
FSA, showing that the Biden Administration has slashed its
funding for student loan servicing operations as 40-plus
million borrowers return to repayment on September 1st.
Nelnet disclosed these layoffs due to the rate cut. Across-
the-board, Federal student loan servicers are entering return-
to-payment significantly understaffed. That is a concern. The
contract modification also shows FSA's acknowledgement that it
is paying less for student loan servicing as borrowers return
to repayment.
At this time, I would like to submit both of Nelnet's 8-K
filings related to the contract modification for the hearing
record. They are dated March 22, 2023, and March 27, 2023.
Mrs. Houchin. Without objection, it is so ordered.
Mr. Flood. Director Chopra, can you commit to me here today
that your agency will not enforce against Federal student loan
servicers for providing service levels commensurate to their
compensation as articulated in their current contracts?
Mr. Chopra. They are only responsible with respect to the
CFPB for Federal consumer financial protection laws. They have
to adhere to those laws based on--and if they enter into
contracts with third parties, with governments--I do take
your----
Mr. Flood. With all due respect, Mr. Chopra, they are
entering into a contract with the Biden Administration's FSA
office. I think I maybe interrupted at a point where you were
going to acknowledge----
Mr. Chopra. Yes, I was just going to say that there is no
question that the resources of the Office of Federal Student
Aid to hire contractors--I understand that it is a very dire
situation, and that if they can't adequately get the right
support, the return to repayment will not be successful.
But I just want to be transparent and open with you. We
can't consider--there are contract negotiations when it comes
to compliance with the law. They are a private party which is
free to enter into contracts as they deem appropriate, but I
hear your point.
Mr. Flood. I am really sounding an alarm here as 40 million
borrowers come back into repayment. This is a bad situation if
the FSA does not provide the resources and this Congress does
not provide the resources to make that happen.
And would you agree with me, it is going to be the most
difficult for those re-entering repayment, who need an extra
level of support and service to ensure that they don't have an
adverse effect on their credit report, so that they understand
how to make those payments? Do you share that concern?
Mr. Chopra. I agree with you, we need to make sure that--
and in some ways, if there is not adequate support, the
problems we could incur could be very, very big.
Mr. Flood. You and I agree.
The decisions by this Administration to politicize the
student loan program through extended unnecessary pauses in
pursuit of illegal loan forgiveness has harmed borrowers, and
has resulted in a confluence of events that all but guarantees
repayment to be exceedingly difficult. And no one but this
Administration is to blame when and if return to repayment is a
disaster.
I have more than 3,000 student loan servicer employees in
my district. When the FSA decides to cut rates, they are
jeopardizing jobs in my district, but as we have discussed
here, they are cutting down on the service that are provided to
people who are going to work, who got an education, and who
have to pay back these loans.
And I don't want them to miss the opportunity to figure out
how to get that money back to the creditor and make sure they
don't suffer any ill effects on their credit reports, and that
we get them back on the road to repayment in a good way.
Mr. Chopra. And an appropriate level of service is probably
good for everybody. It increases the likelihood of longer
repayment--or appropriate repayment, and as you mentioned,
avoids the consequences of default that can be very significant
for an individual and the system.
Mr. Flood. Absolutely. And it would be a disaster if the
Federal Government refuses to pay adequate rates to servicers
on the one hand, and then starts going after them for service
quality on the other. And I think that is the point that I
really want to make.
And with that, I yield back.
Mrs. Houchin. The gentleman yields back.
The gentleman from Iowa, Mr. Nunn, is now recognized for 5
minutes.
Mr. Nunn. Thank you, Madam Chairwoman, and Madam Ranking
Member. And thank you, Director Chopra, for being with us
today.
We are almost to the end of the testimony. I know this has
been a marathon, and I appreciate you being forthright with us
and having this conversation.
I am going to ask you some questions that are coming from
my small businesses, and a lot of my local bankers. These are
folks from the Midwest and Iowa who are trying to do the best
they can. They have been very successful in the past, but there
have been some challenges coming from an agency which, in their
words, they feel is opaque, potentially increasingly partisan,
and analytically weak.
Several of these same colleagues today, on both sides, have
brought up the funding structure, and its lack of oversight in
terms of not having an executive board or an independent
Inspector General, that they find concerning.
I am going to leave it to the Supreme Court and its highly-
qualified judges to determine the future on that front, but I
would like to talk about some of the tactical issues that are
facing your organization right now.
I want to start by following up on what Representative Pete
Sessions highlighted here on the issue of a cybersecurity
incident that occurred under your watch. Your agency had a
major breach of personal information just a few months ago.
I want to share, as a guy who has worked national
counterintelligence, as a Director of Cybersecurity, that these
issues have a huge impact on those people who are directly
impacted.
I would like to begin by asking, when did the CFPB first
find out about a data breach?
Mr. Chopra. The exact timeline, I don't want to get any of
the dates wrong, but when we identified a potential email that
was sent to a personal email account that included confidential
information, we brought together our response team to
investigate it.
Mr. Nunn. Approximately when was that?
Mr. Chopra. I want to say that that was--I don't want to
get the dates wrong, but late February.
Mr. Nunn. So, in February. When were you able to inform
Congress about that?
Mr. Chopra. I don't have the exact date, but we----
Mr. Nunn. Approximately?
Mr. Chopra. I don't want to even give an approximation. I
want to say it was about a month or maybe a little less.
Mr. Nunn. So, the individual who was----
Mr. Chopra. But that was from the time of the suspicious
email.
Mr. Nunn. Right.
Mr. Chopra. So obviously, we had to look to see if there
was any other----
Mr. Nunn. Absolutely. Data forensics was required. I fully
agree with you on that. As an independent organization, though,
I want to make sure that Congress is getting alerted to these
things happening.
Specifically, how many individuals were targeted?
Mr. Chopra. Targeted?
Mr. Nunn. Yes. In the data breach.
Mr. Chopra. Do you mean how many individuals' information
was----
Mr. Nunn. No. First, I want to know how many people were
targeted. Was this solely focused on one individual, or was
there a mass approach----
Mr. Chopra. Oh, I see. The issue with the unauthorized
transfer was with one employee, who is now a former employee.
Mr. Nunn. Copy. So, one point of entry of which we are
aware.
How many individuals had their information hemorrhaged as a
result of this breach?
Mr. Chopra. What we did was, we looked at the unauthorized
transfer of emails, and we looked at the specific documents or
information that went to their personal emails----
Mr. Nunn. Director, was it over 100,000?
Mr. Chopra. Yes. It was approximately 250,000.
Mr. Nunn. Okay, so a quarter of a million. How many
consumers and institutions were impacted by this?
Mr. Chopra. I don't have the exact number of institutions.
Mr. Nunn. Do you know how many Social Security Numbers were
compromised?
Mr. Chopra. It could be zero, but the 250,000----
Mr. Nunn. Or it could be all of them?
Mr. Chopra. Oh, no, no, no, the 250,000 did not include any
Social Security Numbers, or things that might create identity
theft.
Mr. Nunn. Dates of birth?
Mr. Chopra. I don't believe so, but I can check.
Mr. Nunn. So, no personally identifiable information (PII)?
Mr. Chopra. Their name was there, and that is PII, and that
is why we take it so seriously.
Mr. Nunn. Right.
Mr. Chopra. And so----
Mr. Nunn. I was a victim of PII this past January when my
personal information was hemorrhaged just with the release of
my name.
When were these Americans informed that their information
had been leaked?
Mr. Chopra. We started notifications, I believe, around
last month, but, again, we don't have----
Mr. Nunn. Copy. So we are at a 5-month period here, and
here is where I think this is so important. We are asking the
American public to have faith in an institution that is now
asking my local banks and my lenders to provide up to 21, or
even more, up to 81, according to them, data points of
information that you are keeping in a Federal server that has
been breached. It took a month to notify Congress, and then we
are going on 5 months now before the individual even knows that
they are compromised.
I have a real concern here with not only the data
management piece of it, but that your organization, by not
having an independent Inspector General, is now compromised for
any type of review on this.
If Congress doesn't have the ability to control your
budget, if the Federal Reserve is the one in charge of
monitoring you, and then there is no Inspector General,
wouldn't you agree that an independent Inspector General has
made these other organizations stronger as a result of having
an independent source?
Mr. Chopra. Because the Fed has so much sensitive
information, our IG has a strong capability on cybersecurity
and----
Mrs. Houchin. The gentleman's time has expired.
Director Chopra, you can answer the remainder of the
question in writing for the record.
Mr. Chopra. Okay.
Mr. Nunn. Thank you, Madam Chairwoman.
Mrs. Houchin. The gentleman from Nevada, Mr. Horsford, is
now recognized for 5 minutes.
Mr. Horsford. I want to thank the chairman and the ranking
member for holding this hearing, and thank you, Director
Chopra, for coming to discuss consumer protection efforts that
your Bureau has undertaken.
I am amazed every time that I am reminded that your agency
is the only Federal agency focused solely on protecting
consumers from unfair or deceptive practices in our financial
marketplaces, the only one in all of the Federal Government.
The imbalance of information between sophisticated
financial scammers and individual consumers has provided ample
opportunity for predatory behavior in our financial sector.
My constituents certainly remember a short time ago before
we had the CFPB, and they remember how financial institutions
were able to saddle them with destructive and, in many cases,
discriminatory loans that caused untold damage to them and to
our economy.
Under your leadership, I have been pleased to see that the
CFPB is standing up for consumers, combating the negative
effects of medical debt, breaking down barriers to credit, and
holding the credit reporting companies accountable.
I have also been interested in your actions to combat
discrimination in entrepreneurial lending and to allow every
American a fair shot at starting a small business.
Here in America, in my opinion, especially in Nevada, the
enterprising spirit of small business formation is alive and
well. We have been given the opportunity to succeed. Our
constituents are industrious and hardworking, with the
determination necessary to create their own store or service.
And yet, so many of my constituents, everyday Nevadans, who
have the dream of being their own boss, have continued to be
discriminated against simply because of the color of their skin
or their gender.
Owning their own business is a crucial way for individuals
to build wealth and thus a key part of the conversation on how
to close the racial wealth gap. Unfortunately, for so many of
our minority and women-owned entrepreneurs, discrimination in
small business lending has cut that dream short.
That is why in March, I applauded your finalized rule to
increase transparency in small business lending as an effective
way to promote both equity and economic development.
Director, would you please highlight the benefits for our
nation's women-owned and minority-owned businesses now that
this final rule is finalized?
And additionally, as you look back over previously-
administered programs such as the Paycheck Protection Program,
would you consider the data collected under this rule helpful
to ensure an equitable implementation of those programs in the
future?
Mr. Chopra. Just like homeownership, small business
ownership has been such a vehicle for families and communities
to build wealth. We do not want to distort it by discrimination
or other bad practices, which we have seen in our country
routinely for many years.
You raised the Paycheck Protection Program, and so many
minority- and women-owned businesses were not able to access
those critical funds, and the data will help programs to be
designed better so that we can make sure these programs are
working as they are intended.
Mr. Horsford. And the CFPB also is tasked with enforcing
financial protections such as provisions of the Military
Lending Act, which provides indispensable protections for the
thousands of active duty servicemembers who live and serve
within my district.
Nevadans in uniform deserve to devote their entire energy
to defending our country and should not have to worry that they
are being taken advantage of by malicious actors. Whether it is
preventing illegal high-interest loans, standing up to
aggressive debt collectors, or ensuring adherence to legal
protections, the CFPB is standing up for our servicemembers
when and where it counts.
Within your report and in various blog posts, the CFPB
mentions that servicemembers are more likely to report certain
types of consumer harm. Could you detail what those were likely
to be and whether they filed complaints on those matters, and
how has the CFPB been able to take that up?
Mr. Chopra. Credit reporting is very big. Like for the rest
of the population, it's one of the top areas of concern. And as
I mentioned before, an inaccurate credit report or being
hounded for debt that you don't actually owe, for a
servicemember or a military family is particularly pernicious,
and we are doing what we can.
We have brought multiple Military Lending Act enforcement
action----
Mrs. Houchin. The gentleman's time has expired.
Mr. Horsford. Thank you, Director.
Mrs. Houchin. I will now recognize myself for 5 minutes.
Thank you, Director Chopra, for your testimony and your
time today in this lengthy hearing.
As my colleagues have expressed, many of us have heard from
our constituents about concerns regarding the Bureau, its
regulatory overreach, and its lack of transparency. From
regulation by enforcement, to undue burdens for small
businesses, it is clear the CFPB, as it is currently operating,
is not serving consumers or small business owners.
Director Chopra, the CFPB is unique among Federal agencies.
Not only is the Bureau not subject to the appropriations
process, it also does not have an executive board to weigh in
on decision-making and does not have an Inspector General to
root out waste, fraud, and abuse. Effectively, you oversee the
Bureau without any meaningful or direct oversight. As a result,
there is a remarkable lack of transparency with the CFPB, which
is something I and many of my colleagues would like to see
fixed.
Director Chopra, in May of 2022, you unilaterally issued an
interpretive rule, without statutory authority, expanding the
authority of States to pursue and enforce violations of Federal
consumer protection laws under the Consumer Financial
Protection Act (CFPA).
The CFPB further promoted this additional enforcement
activity by assuring States they may bring an enforcement
action to stop or remediate harm that is not addressed by a
CFPB enforcement action against the same entity.
And the CFPB announced it would enter into more than 20
agreements with State Attorneys General. While Congress
intended for the CFPB to enforce Federal consumer financial
laws and protect consumers in the marketplace, it did not
intend for the CFPB to intimidate companies by conspiring with
State agencies to pursue duplicative and sometimes competing
and confusing enforcement actions.
The Dodd-Frank Act limits attorneys general in bringing
Federal enforcement actions, and while State attorneys general
may enforce the CFPA in cases where the CFPB has not, the law
does not allow for a State attorney general to become a party
to an existing CFPB enforcement action. It is, therefore,
inappropriate for the CFPB to recruit a State Attorney General,
who is not otherwise investigating a company, to pursue
enforcement as a means of intimidation.
Moreover, the effect of your May 19, 2022, interpretive
rule is different from solely enforcing the law. It is more
akin to deputizing State attorneys general to enforce the CFPA
on behalf of the CFPB, something Congress did not authorize.
How many actions has the CFPB initiated with State AGs
since the issuance of your interpretive rule?
Mr. Chopra. I don't have an exact number, but I don't think
it deviates from prior practice across multiple Directors.
Mrs. Houchin. Reclaiming my time, would you check to see
and confirm in writing how many actions the CFPB has initiated?
Mr. Chopra. Yes.
Mrs. Houchin. Okay. Of these actions----
Mr. Chopra. When you say, ``initiated,'' do you mean,
initiated an enforcement action?
Mrs. Houchin. Since the issuance of your interpretive rule
with State AGs.
Mr. Chopra. Okay.
Mrs. Houchin. Of these actions, can you explain to me why
you involved the State AG as opposed to prosecuting the action
solely under your own authority?
Mr. Chopra. We saw in the lead-up to the financial crisis
how preemption deleting State law had very negative effects on
protecting inside State borders.
It is very common. The DOJ, the FTC, and others regularly
partner with State AGs and State agencies. Our statute requires
us to coordinate. We have memorandums of understanding (MOUs)
with States and others.
Mrs. Houchin. Okay.
Mr. Chopra. I think we are trying to do exactly what the
law is saying.
Mrs. Houchin. Reclaiming my time, first of all, I just want
to reiterate that Congress did not authorize the outside use of
attorneys general in this instance.
Does the CFPB----
Mr. Chopra. Congress explicitly authorized----
Mrs. Houchin. Excuse me. Does the CFPB engage in forum
analysis when determining whether to institute an action in its
own capacity or to engage a State AG?
Mr. Chopra. We look at enforcement actions based on the
company's place of business, and whether we have any co-
plaintiffs. We do exactly, I think, what every other law
enforcement agency does.
Mrs. Houchin. The result of this interpretive rule, in some
instances, has resulted in competing enforcement actions
between the State's actions and the CFPB's actions.
The Administrative Procedure Act provides interested
parties with notice and an opportunity to be heard and the
right to seek judicial review of agency action. Why did you
choose to issue an interpretive rule regarding actions by State
AGs as opposed to engaging in a notice-and-comment rulemaking?
Mr. Chopra. It restated what the law already authorized, so
this was not creating any new obligations on the public.
Mrs. Houchin. Okay.
Mr. Chopra. But we were trying to be very clear that the
CFPB does not have a monopoly on consumer protection----
Mrs. Houchin. Director Chopra, I have one last question for
you.
Mr. Chopra. Sure.
Mrs. Houchin. By using the mechanism of an interpretive
rule, haven't you avoided the requirements and the procedural
protections of the Administrative Procedure Act?
Mr. Chopra. No.
Mrs. Houchin. I strongly disagree. I do want to say that
members of this committee, including myself, will continue to
provide oversight to the Bureau and ensure that we make the
Bureau responsive to the American people.
My time has expired.
The gentleman from Tennessee, Mr. Ogles, is now recognized
for 5 minutes.
Mr. Ogles. Madam Chairwoman, thank you. Mr. Chopra, we are
in the home stretch.
The data breach has been mentioned, and we have seen
breaches across the industry, in both the private and the
public sector. So obviously, I think we all have concerns
there.
The CFPB's small business lending final rule states that
covered financial institutions are required to collect and
report to the CFPB data on applications for credit for small
businesses, including those that are owned by women or
minorities.
As it pertains to the data on women and minorities, what is
the purpose of collecting that data?
Mr. Chopra. That is in the statute. The statute requires
the collection for minority-owned businesses, and women-owned
businesses.
I believe the statute has a number of objectives, including
things related to community development, fair lending, and
more, but that was not something that the CFPB decided. We were
under court order to implement that.
Mr. Ogles. Okay. Now, when it comes to that--and
understanding that some of this was perhaps pushed on the
agency, correct--do you think part of the intent is to prohibit
or track discrimination but also fraud and abuse?
Mr. Chopra. I think the primary purpose is like the Home
Mortgage Disclosure Act, which collects similar data for
mortgages, and it is used, again, for community development,
and data analysis, but also to detect and deter potential
discrimination.
Mr. Ogles. Part of that is identification, and I will
borrow from Senator Blackburn. As we are collecting this data,
definitions are important. So, from the agency's perspective,
what is a woman?
Mr. Chopra. The way in which the rule is specified is that
a borrower--we even published a sample forum--can self-identify
as to--there will be options for race and ethnicity. It is
really up to them. They don't have to provide that information.
Mr. Ogles. Sure.
Mr. Chopra. There is a specific statutory right to refusal.
Mr. Ogles. You explained the process, but if data
collection is important, and it is a data point that is going
to be used and verified, whether it is in statute or not in
statute, what, from the agency's perspective, what is a woman,
and how do you define it?
Mr. Chopra. We don't get into those questions.
Mr. Ogles. Then, why would you need that data?
Mr. Chopra. The agency was sued for not implementing----
Mr. Ogles. Have you come back to this committee, to
Congress, and said, Hey, we need some relief here, because this
data point, this data that we perhaps shouldn't house, nor is
it relevant to our core mission, have you made that request?
Mr. Chopra. Fair lending is a part of our mission. The
Equal Credit Opportunity Act----
Mr. Ogles. But the data point that you have yet to define
doesn't seem to be germane to----
Mr. Chopra. The way it is defined is that a borrower gets
to self-select. We receive comments in the--the proposal was
proposed before I was in office.
Mr. Ogles. I understand that, but you are explaining the
process of someone checking boxes. Again, you are collecting
data. It would seem----
Mr. Chopra. We are actually reporting it.
Mr. Ogles. ----that that data is not relevant to your core
mission.
Mr. Chopra. I don't agree.
Mr. Ogles. I understand fair lending is part of your core
mission, but if you can't even define the definition of a
woman, it is a data point that you can't use in any analysis
that you might otherwise make.
And so, you should be coming back and saying, we need
relief from this, this, this in particular.
Mr. Chopra. To be honest, that data is important for fair
lending, and we try to put together and implement the statutory
directives as faithfully as we could. I do think having
knowledge on women-owned businesses which did have challenges--
--
Mr. Ogles. Women-owned businesses is an important data
point, just as you just said. So, what is a woman again,
please?
Mr. Chopra. I don't really know what you are suggesting
here, but the idea is that people are able----
Mr. Ogles. The idea is that----
Mr. Chopra. ----to self-identify what----
Mr. Ogles. I will reclaim my time. In subcommittee, and
when we were talking about the CFPB, it was one of those
moments. And this is nothing personal against you, you were not
the person who put this in place, so please don't take this
personally.
Is the core mission of your agency, as has previously been
done by other agencies, and if there was an agency that should
be disbanded, I will paraphrase Hamlet, ``To be or not to be,
yours should die a painful death, '' because I do believe it is
irrelevant. I do believe you have gone outside your core
mission and you have abused the authority that otherwise
Congress should take back from you.
And I would argue in agreement with Mr. Donalds that you,
your agency--not you, sir, but your agency is unconstitutional.
With that, Madam Chairwoman, I yield back.
Mr. Chopra. There was a financial crisis----
Mrs. Houchin. The gentleman's time has expired. The
gentleman yields back.
The Chair now recognizes Ms. Garcia.
Ms. Garcia. Madam Chairwoman, I have a unanimous consent
request. I would like to submit two documents from the Consumer
Bankers Association, which clearly requests the CFPB to not
only issue rules but also issue guidance to help industry
comply with the law.
This seems to contradict what many of my colleagues on the
other side of the aisle are claiming, that the CFPB should not
be issuing guidance. In fact, the document reads, the case for
regulation through rulemaking----
Mrs. Houchin. Without objection, it is so ordered.
Ms. Garcia. Thank you.
The Chair notes that some Members may have additional
questions for this witness, which they may wish to submit in
writing. Without objection, the hearing record will remain open
for 5 legislative days for Members to submit written questions
to this witness and to place his responses in the record. Also,
without objection, Members will have 5 legislative days to
submit extraneous materials to the Chair for inclusion in the
record.
I ask you, Director Chopra, to please respond no later than
July 14, 2023.
This hearing is adjourned.
[Whereupon, at 1:57 p.m., the hearing was adjourned.]
A P P E N D I X
June 14, 2023
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