[Senate Hearing 118-511]
[From the U.S. Government Publishing Office]
S. Hrg. 118-511
THE CONSUMER FINANCIAL PROTECTION
BUREAU'S SEMIANNUAL REPORT TO CONGRESS
=======================================================================
HEARING
before the
COMMITTEE ON
BANKING,HOUSING,AND URBAN AFFAIRS
UNITED STATES SENATE
ONE HUNDRED EIGHTEENTH CONGRESS
FIRST SESSION
ON
THE CONSUMER FINANCIAL PROTECTION BUREAU'S SEMIANNUAL REPORT TO
CONGRESS
__________
NOVEMBER 30, 2023
__________
Printed for the use of the Committee on Banking, Housing, and Urban
Affairs
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
Available at: https://www.govinfo.gov/
______
U.S. GOVERNMENT PUBLISHING OFFICE
57-729 PDF WASHINGTON : 2025
COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS
SHERROD BROWN, Ohio, Chair
JACK REED, Rhode Island TIM SCOTT, South Carolina
ROBERT MENENDEZ, New Jersey MIKE CRAPO, Idaho
JON TESTER, Montana MIKE ROUNDS, South Dakota
MARK R. WARNER, Virginia THOM TILLIS, North Carolina
ELIZABETH WARREN, Massachusetts JOHN KENNEDY, Louisiana
CHRIS VAN HOLLEN, Maryland BILL HAGERTY, Tennessee
CATHERINE CORTEZ MASTO, Nevada CYNTHIA M. LUMMIS, Wyoming
TINA SMITH, Minnesota J.D. VANCE, Ohio
RAPHAEL G. WARNOCK, Georgia KATIE BOYD BRITT, Alabama
JOHN FETTERMAN, Pennsylvania KEVIN CRAMER, North Dakota
LAPHONZA R. BUTLER, California STEVE DAINES, Montana
Laura Swanson, Staff Director
Lila Nieves-Lee, Republican Staff Director
Elisha Tuku, Chief Counsel
Amber Beck, Republican Chief Counsel
Cameron Ricker, Chief Clerk
Shelvin Simmons, IT Director
Pat Lally, Assistant Clerk
(ii)
C O N T E N T S
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THURSDAY, NOVEMBER 30, 2023
Page
Opening statement of Chair Brown................................. 1
Prepared statement....................................... 32
Opening statements, comments, or prepared statements of:
Senator Scott................................................ 3
Prepared statement....................................... 33
WITNESS
Rohit Chopra, Director, Consumer Financial Protection Bureau..... 5
Prepared statement........................................... 34
Responses to written questions of:
Chair Brown.............................................. 36
Senator Scott............................................ 37
Senator Britt............................................ 52
Senator Butler........................................... 59
Senator Lummis........................................... 61
Senator Warnock.......................................... 68
Senator Warren........................................... 74
Additional Material Supplied for the Record
Semi-Annual Report of the Consumer Financial Protection Bureau--
Spring 2023.................................................... 77
Letter submitted by Consumer Bankers Association................. 155
(iii)
THE CONSUMER FINANCIAL PROTECTION
BUREAU'S SEMIANNUAL REPORT TO CONGRESS
----------
THURSDAY, NOVEMBER 30, 2023
U.S. Senate,
Committee on Banking, Housing, and Urban Affairs,
Washington, DC.
The Committee met at 10:15 a.m., in room SD-538, Dirksen
Senate Office Building, Hon. Sherrod Brown, Chair of the
Committee, presiding.
OPENING STATEMENT OF CHAIR SHERROD BROWN
Chair Brown. The Banking, Housing, and Urban Affairs
Committee will come to order. Welcome back, Director Chopra.
Thank you for joining us again and making your case well, as
you always do. Since CFPB first opened its doors, we have had
more than a decade of progress toward rooting out abuses and
injustices for consumers in all types of markets, from
mortgages to credit cards to payday loans. It matters for
consumers. It matters for the vast majority of businesses that
do the right thing, because when an honest business follows the
rules, it is forced to compete with a predatory business that
does not follow the rules. We know who is going to win most of
the time.
CFPB levels the playing field so that honest people do not
get penalized for running a business the right way. When
consumers interact with fair and transparent businesses, they
can make decisions without worrying about scams or predatory
practices. Since 2011, the CFPB has returned $20 billion to 200
million consumers. That is real money in real people's bank
accounts, or it is real reductions in debt, money back in the
hands of working families, where it should have stayed in the
first place.
We have talked extensively about CFPB, how you stand up to
special interests and scammers on behalf of servicemembers and
veterans. The Director and I were just talking about that
before we started. Protecting servicemembers, protecting
veterans is one of the most important things that we have
charged you to do and that CFPB does. When we created the CFPB,
we made sure it included the Office of Servicemember Affairs.
The first head of that office was Holly Petraeus, the spouse of
a servicemember, someone from a family with generations of
military service, who understood the challenges facing
servicemembers and their families. These are families for whom
service and sacrifice to our country are part of who they are.
It is ingrained in them.
The CFPB, with its Office of Servicemember Affairs, takes
on special interests to protect the bank accounts and the jobs
of our servicemembers, our veterans, and their families. Due to
their steady paychecks and constant moves, servicemembers are
often targets for predatory financial companies and scammers.
Every year, tens of thousands of servicemembers come to you,
come to the CFPB, seeking assistance reporting a complaint. The
CFPB goes to bat for them and works to get their money back or
works to fix the problem.
You would think that people in Congress would be lining up
to make sure the agency could effectively do this important
job, but sadly that is not what we are seeing. Many of the same
politicians who like to talk about supporting veterans and
military families have spent more than a decade trying to tear
down the agency that protects those workers', those
servicemembers' finances, and helps them get their money back.
To be clear, financial literacy is not an alternative to
the CFPB. Financial literacy is not an alternative to the CFPB.
Some of my colleagues say, ``If only our servicemembers could
spend more time learning how not to be scammed.'' The men and
women who serve our country, or any American, should not need
special training to keep their own money. It should not be on
our servicemembers to protect themselves from scammers; it
should be on companies not to scam them. That is why we need
the CFPB.
No other Federal agency with this level of responsiveness
and efficiency, and the ability to take on greedy, big
corporations and shady lenders. It is how CFPB has returned
more than $175 million to servicemembers and veterans--$175
million. Earlier this year, CFPB took action against TitleMax
for violating the Military Lending Act passed by Congress, by
charging nearly three times what the statutory cap on interest
rates calls for. CFPB ordered TitleMax, a repeat offender, to
return millions to servicemembers and their families.
Whether you are a servicemember or you are a senior or you
are a worker, the CFPB goes to bat for you. Last year, CFPB
clarified that nursing homes cannot go after family members for
debt. CFPB works toward removing all medical debt from credit
reporting agencies, something I have called for repeatedly.
Medical debt can happen to anyone. It is not an effective
measure of creditworthiness, has no business being on a credit
report, and consumers should not be harassed for falling sick.
Then there are the actions the CFPB takes to stop Wall
Street abuses. Maybe that is the reason corporate interests and
their lapdogs in this town hate the CFPB. The work CFPB is
doing to stop junk fees is a top target for Wall Street. I
think there will be several Members of the Committee asking
about that. CFPB has proposed a rule that the agency estimates
will reduce credit card late fees by as much as $9 billion a
year. An additional $9 billion to American households every
year would make quite a difference in their lives. If CFPB is
successful, that means $9 billion less on Wall Street profit
statements, so of course they are not going to give up without
a major and well-funded lobbying fight.
That is always the biggest difference between most
Americans and Wall Street--Wall Street has a well-funded army
of lobbyists; the rest of us do not. That is why too often,
Wall Street gets its way and the American public does not. CFPB
is their voice to take on the powerful special interests that
cost them time and stress and money. It is why Wall Street and
its allies have spent more than a decade trying to destroy the
CFPB. So far, this is one fight that they have lost. I will
never stop fighting to ensure consumers continue to have a
strong CFPB in their corner. As long as I am Chair of this
Committee, the Committee will continue to fight for the work
that you do. Senator Scott.
OPENING STATEMENT OF SENATOR TIM SCOTT
Senator Scott. Thank you. Let me start off by saying it is
certainly good to be back with the Committee. I want to thank
my fellow Members for their support, and specifically, in
particular Senator Rounds for all of this support during my
absence. I would also like to welcome our newest Member,
Senator Butler, to the Committee.
Now, turning back to business. Just 2 weeks ago, our
financial regulators testified before this Committee and faced
bipartisan concerns about the impact on everyday American
families that these misguided and partisan regulatory proposals
would have if implemented as proposed. While those independent
regulators have become increasingly politicized under the Biden
administration, the CFPB has a much longer history of skirting
statutory mandates and avoiding congressional oversight.
Director Chopra, you know these concerns well, and you have
heard from me about those concerns. You have heard from my
fellow Members of the Committee, as well as House colleagues,
and yet the CFPB is no more accountable today than it was at
its inception. And I fear, under your leadership, the agency is
straying even further from its mandated mission. I will wait
until they finish.
[Discussion off the record.]
Senator Scott. The abuse of enforcement powers, rulemakings
driven by politics instead of policy, and a lack of oversight,
which only leads to less economic opportunity, have become
hallmarks under your leadership. The law is clear--when it
comes to consumer finance, the CFPB should consistently and
fairly enforce Federal consumer finance law, safeguard access
to markets for consumer financial products and services, and
ensure that such markets are fair, transparent, and
competitive. Sadly, the CFPB's actions do not match up with
this mandate.
Under your leadership, the CFPB has operated in blind
pursuit of additional power, and has become the hallmark of
Government overreach to the point where I am concerned the
Bureau is doing more harm to consumers than good. That is why
in July, I led a bicameral group of 132 Members of Congress in
filing an amicus brief to the Supreme Court, urging the Court
to affirm the lower court's decision that the CFPB's funding
structure is constitutionally defective.
When you last testified before us in June, we discussed
your efforts to regulate, through speeches and blog posts, your
public pressure campaign on fee income, and your attempts to
stifle innovation. Instead of correcting course, it seems that
you have only accelerated toward the exact opposite direction
of your statutory mission. Recent reporting even suggests that
your agency will be releasing an aggressive fee proposal very
soon. I really hope the old saying that a tiger cannot change
its stripes will not be true of the CFPB. And yet we have seen
that the CFPB recently proposed regulating access to consumer
data by consumers and authorized third parties. As with
anything, the devil is always in the details, but as this
proposal advances through finalization, I hope you weigh the
new regulator costs against any benefits that this rulemaking
may provide.
And on top of all of that, the CFPB is even proposing new
supervisory authority over nonbank providers of consumer
payment apps. However, the rationale supporting this proposal
ignores the real costs of compliance likely to stifle
innovation, costs that also will undoubtedly be paid for by
hardworking American families. I wish I could stop there, but
of course the list goes on. Your agency is even pushing for
sweeping changes to regulation under the Fair Credit Reporting
Act, ignoring the longstanding interpretation of clear legal
authority by courts and other regulators. How do any of these
costs and the costly actions actually protect consumers? I hope
you help me understand your perspective on that, where we
likely will disagree.
I meant it when I said at our last hearing, the best way to
provide economic opportunity and protect consumers is to
encourage competitive markets and set clear rules of the road
for participants. These principles protect our system by
fostering competition and innovation rather than vilifying it.
I will stand by these principles, and I certainly have
experienced the benefits of having a system where the rules of
the road are fair and consistently applied. As a kid who grew
up in poverty and understood that the American Dream was
available, having access to that for the next generation of
youngsters is so important from my perspective.
Unfortunately, we see a common theme from the left, that
somehow lower-income families lack the wherewithal to manage
their own affairs and determine what is best for their families
without some sort of Government intervention. While the Federal
Government ought to protect consumers from unscrupulous
practices, bureaucrats in Washington should not dictate what
families can and cannot have, simply by regulating products out
of existence and pricing people out.
As I wrap up, I want to address one final important topic.
A few weeks ago, several reports were published about the toxic
work environment and the culture at the FDIC. A few weeks ago,
we talked about the importance of making sure that employees at
the FDIC, where you sit on the Board, have a safe, healthy work
environment. I hope that you will have an opportunity to
address some of the challenges that we have seen at the FDIC as
well. Thank you.
Chair Brown. Thank you, Senator Scott, and welcome back to
the Committee.
Senator Scott. Thank you, sir.
Chair Brown. The Honorable Rohit Chopra has served as a
director of CFPB since October, 2021. He worked for CFPB in its
early days, serving as assistant director and student loan
ombudsman shortly after the agency opened its doors. He has
also been an FTC commissioner. Welcome, Director. Thank you for
being here.
STATEMENT OF ROHIT CHOPRA, DIRECTOR, CONSUMER FINANCIAL
PROTECTION BUREAU
Mr. Chopra. Chairman Brown, Ranking Member Scott, and
Members of the Committee, thank you for holding this hearing
today. This is my tenth appearance before Congress since
becoming Director in October of 2021. I am grateful to many of
you on this Committee on both sides of the aisle who have taken
time to meet with me, provide advice to the CFPB on the
challenges and opportunities we must face. There are so many of
them--protecting sensitive personal financial data, dealing
with big tech companies and their entry into finance, reducing
credit reporting errors, preserving relationship banking, and
so much more.
Since I was here in June, I am pleased to share that the
CFPB has reached many milestones, like accelerating open
banking in the U.S., protecting financial privacy, and just as
Senator Scott mentioned, continuing to enforce the law fairly
and consistently, with clear rules of the road. These deliver
results for consumers and law-abiding businesses, but I want to
share a few observations about household financial stability
and highlight some progress.
Americans now owe more than $17 trillion in household debt.
Outstanding credit card debt has eclipsed a trillion dollars
for the first time since the CFPB began tracking it. Auto loans
have also grown quickly, to an estimated $1.6 trillion. Our
analyses have found that rates and fees are contributing to
persistent credit card debt for a growing number of consumers.
Americans paid $130 billion in interest and fees on credit
cards alone last year, with annual percentage rates rising far
above the cost of offering credit. The CFPB is taking a number
of steps to increase competition here. The return to repayment
for Federal student loans continues to be an area we are
looking at closely. Outstanding auto loan debt has also grown,
given the higher cost of vehicles, especially during the
pandemic, and the higher rate environment. And interestingly,
auto loans are now eating up a bigger portion of monthly
budgets than they used to do, before the pandemic. We are
actively monitoring credit performance, repossession activity,
and more. And of course, residential mortgage activity has
declined precipitously due to the rate environment.
We do see that fees, discount points, and other costs have
increased, and many people question how they will be able to
refinance in the future. We are looking at ways to facilitate a
lot more refinancing activity, if and when prevailing mortgage
interest rates subside, to ensure that the borrowers who
experience any financial distress can navigate alternatives to
foreclosure with their mortgage servicer, by streamlining rules
and procedures for servicers to offer loan modifications.
Since our last report, we have proposed a rule under
Section 1033 to shift to open banking in the United States. We
have initiated a process to improve accuracy and accountability
in credit reporting, especially for data brokers. We are taking
steps to address widespread inaccuracies on Americans' credit
reports when it comes to medical bills. Our Supervision and
Enforcement program is protecting both consumers and the honest
financial firms who must compete against those who egregiously
violate the law. In the last 2 years, we have obtained orders
totaling $8 billion in redress and penalties. We are tackling
junk fees that have been creeping across sectors of the economy
that interfere with the competitive market. We have shifted our
supervisory resources toward nonbanks to account for the
growing role they play in financial services, including a
proposed rule to ensure that the big tech companies and other
payment providers adhere to the same rules that banks and
credit unions are following.
In August, our complaint data base reached four million
submissions, and I am proud of the CFPB's work in getting
consumers the resolutions they deserve, often through referrals
from your offices, local organizations, and much more. I want
to thank you again for the opportunity to appear before you
today, and I look forward to your questions.
Chair Brown. Thank you, Director. Thank you for your
ongoing work on protecting workers' hard-earned money. I want
to discuss something that we have talked about privately and
many in this Committee have asked about, and one of the real
highlights of what CFPB does is the Servicemembers' Civil
Relief Act. We passed it to provide active-duty
servicemembers--just generally what you are doing with
servicemembers, but specifically passed it to provide active-
duty servicemembers with the financial relief, guarantee
servicemembers and their families a reduction in interest rates
on any pre-service loans.
My first question is, Director, would you say that all
servicemembers are receiving the benefits that Congress
intended for them to have?
Mr. Chopra. No, they are not, and in fact we saw the
destructive impact of that years ago with the illegal
foreclosures of active-duty military families, in violation of
the Servicemembers' Civil Relief Act. You know, with a higher
rate environment, they are entitled to a 6 percent cap on
preservice obligations, and we do not see many of them always
getting it. We estimate that fewer than 10 percent of eligible
auto loans and 6 percent of personal loans to activated members
of the Guard and Reserve were getting those rate reductions.
Chair Brown. So what can financial institutions be doing to
ensure that they get the financial benefits that Congress
intended?
Mr. Chopra. Well, certainly many of them are starting to
just give it automatically. They can often know if a
servicemember is activated, and they can do it rather than
making the servicemember go through an obstacle course of
paperwork.
Chair Brown. OK, thank you. I am going to work toward
ensuring financial institutions proactively check for SCRA
reductions. Our servicemembers and families should be able to
keep their money, as you have continued to fight for. Thank
you.
Mr. Chopra. And on the Military Lending Act, we have
pursued more actions, and we are litigating there to go after
the egregious repeat offenders. The Military Lending Act is one
of the most important protections, not only to protect those
families, but as the Department of Defense would share, our
force readiness as well.
Chair Brown. OK, thank you. This Committee, particularly
with credit agencies, have talked a lot about medical debt and
what we do. The complexity of medical billing, coupled with the
vulnerability of consumers seeking to obtain and finance
medical services, creates opportunities for abusive--maybe that
is the wrong word--for abusive practices by predatory medical
debt collectors. Discuss what actions CFPB will take to hold
medical debt collectors accountable when they attempt to
collect bills that are not owed, or engage in other unfair,
deceptive, and abusive practices.
Mr. Chopra. Well, we have already been taking some actions
on the enforcement front, but there is going to be more. We
have conducted quite a bit of analysis about medical debt, and
you know, this is not like a normal loan. You do not sign up
like a credit card or a mortgage. It happens to you, and then
often a bill is put on your credit report, even if you have
paid it, even if the insurance company has covered it, and you
are stuck in the middle. Many people end up just paying it to
get rid of it, and we are exploring whether it is even
appropriate, given the widespread inaccuracies with credit
reporting, whether it should be on credit reports at all. Many
financial institutions will tell you, that data is often not
even predictive at all, and it should not be used to coerce
people into paying something they do not owe.
Chair Brown. So walk through--I mean we have, we have had
the three major credit agencies in front of this Committee. We
have done it 2 years in a row. It is a practice we started and
will continue to do, talking especially--one of the main topics
has been medical debt and what it does to consumers, as you
just explained. Some 10 million Americans have had their credit
histories harmed by medical debt. Talk more specifically--this
is my last question--walk through what that rule, what you are
working on to fix that. If we cannot get the credit agencies to
do the right thing--they have taken steps, but not enough--tell
me what you would do.
Mr. Chopra. So the three credit reporting conglomerates
have already taken steps to remove certain amounts of the debt.
We are proposing or exploring rules that would limit credit
reporting of certain medical bills. We are collecting feedback
from small businesses right now about it. We have been talking
to the medical industry--hospitals, medical debt collection,
providers--and we may, although we have not made any firm
conclusions, propose a rulemaking to restrict the reporting of
medical bills on credit reports.
Chair Brown. OK. Thank you, Director. Senator Scott.
Senator Scott. Thank you, sir. Last month, the CFPB
announced that it was proposing to expand its own authority to
supervise technology companies, a move that should be called
out for what it is--another attempt to stifle financial
technology and financial innovation. I firmly believe
innovation in finance has made it easier for lower-income
families to access financial services, such as basic checking
and savings accounts, as well as even more complicated products
like mortgages. Private sector competition and new, innovative
technologies can bring financial opportunity to all Americans.
While new technology needs appropriate supervision and
guardrails, American innovation should be encouraged, not
crushed by bureaucratic red tape, and yet the CFPB ended its
Financial Innovation Sandbox, which offered safe harbors to
firms attempting to further democratize finance in a safe
manner.
While I understand the need to ensure consumers are not
targeted or taken advantage of by bad actors, what rationale
supports preventing responsible, well-regulated companies from
releasing new products within the confines of a safe harbor
program?
Mr. Chopra. So let me address everything you have said. So
first of all, let me just share--you said something earlier
that I totally agree with, that the competitive markets really
deliver a lot, especially when there is clear rules of the road
that are consistently enforced. I actually am a huge believer
in the role of technology to really bring a lot of benefits. It
is why we proposed our Open Banking Section 1033 rule. But you
mentioned oversight of the large tech companies, payment apps.
We are not expanding our authority. They are currently subject
to our enforcement authority, and I think in our judgment,
rather than resolving issues through litigation, we should look
at those large firms serving tens of millions of people, and
make sure that they are following the law just like small banks
are doing. Supervision of nonbanks and banks is a key way that
makes those laws consistently enforced. So I am trying to make
sure that where we see fraud--and there is, on some of these
payment apps, huge amounts of fraud--where we see collection
and surveillance of data, we need to make sure that it is
compliant with the law. But I totally agree with your question,
that we want firms to be able to get products out to the
market, if they are with the right guardrails. And you asked
about the safe harbors--we conducted an analysis of these
special no-action letters, and here is what we found. Some of
the companies receiving them claimed that they were endorsed by
the Government, or that they were the exclusive provider. So
what we have done is we want some of those programs to be
applicable to lots of organizations, not just crowning one
member of the industry. That is really what competition is
about. It is not about picking winners and losers, sir.
Senator Scott. Well, I certainly wish that were true for
the Government, but certainly our Government, particularly the
Biden administration and particularly the CFPB, seems to want
to pick winners and losers. As a guy who was in business for
several years and started several businesses from scratch, the
one thing you need from your Government is not competition; it
is certainty and predictability. When you set the rules of the
road, step back and give the market time to actually absorb the
changes. Innovate, be creative, take the calculated risk, and
come to a conclusion whether it works for the business. If it
does not work for the business, it is because the consumers are
not benefiting from the products or the services in the
marketplace. When that happens, the brilliance of a free market
system works. When the oppressive nature of your agency and the
Biden administration comes in and starts tweaking the rules of
the road, as you would suggest, thousands of fintech firms
working in the marketplace, and some--that could be 5; it could
be 500--I would love to see what that looks like from your
perspective. But the reality of it is that when you have an
opportunity to engage in a free market system with the rules of
the road, without the Government being oppressive and stifling
innovation, then the consumer benefits.
If you want to have access to more opportunities for the
poorest Americans, the way that you get there is by having a
framework and a playing field that does not discriminate. Well,
the beauty of the financial technology innovation engine is
that you have more people accessing more products, more
services with an app. That is what brilliance looks like. But
when you have----
Mr. Chopra. And I agree with everything----
Senator Scott. Let me finish.
Mr. Chopra. ----that you have said.
Senator Scott. When you have the uncertainty brought into
the marketplace by agencies, the challenge that we see is that
the ROI goes down, the cost-benefit analysis goes up, and so
players in the market space, they leave. And what that leaves
poor families to do is to go into brick-and-mortar only and
make decisions. There is just a better way, and hopefully we
will have a second round to get some more questions.
Chair Brown. Thank you, Senator Scott. Senator Reed of
Rhode Island is recognized.
Senator Reed. Well, thank you very much, Mr. Chairman, and
Director, thank you, particularly for your support of the
Servicemembers' Civil Relief Act. I think Senator Brown's
questioning is right on target, and you are right--it does
contribute to the readiness. As someone who served for 12 years
in the Army and had to deal with these issues as an executive
officer, you have to be on guard constantly against lenders who
do not respect, except in their advertising and in the multiple
flags they have on their property, but they do not respect the
soldiers as much as they should. So thank you, and please keep
it up.
By the way, when I was on active duty, it was called the
Soldiers' and Sailors' Civil Relief Act, but then with the end
of the Civil War, they changed it. I am joking now.
Mr. Chopra. Yes.
Senator Reed. Sorry.
[Unknown.] I got it, Jack.
[Laughter.]
Senator Reed. A little levity. Credit rating bureaus sell
so-called trigger leads, which are essentially a tip that a
consumer is shopping for a mortgage. The trigger lead can
generate hundreds of contacts, and some of them more confusing
than helpful. And you have a responsibility for both the
mortgage lending process and also the credit reporting bureau.
Is there anything you could do to help clear up the situation,
under existing authority, to protect consumers from
misinformation and just the deluge of----
Mr. Chopra. So one of the things that a prospective
homeowner will talk to a mortgage lender, and then all of a
sudden they will start getting a barrage of calls, and they
actually think that the original mortgage lender told everyone,
and they wonder what is going on. This is something that I
think our authority is somewhat limited, but I think we are
happy to look at different solutions to make it clear that that
is not happening because the mortgage lender is really telling
everyone; it is because the credit reporting company is really
making that information available.
You know, you have raised the issue of SCRA and data on
credit reports. We have a lot more of these companies
collecting sensitive information, not just what loan you apply
for--your geolocation, you know, where you go, and that data is
increasingly being weaponized, and so we are looking at all of
these data issues and figuring out how to make sure we are
protecting the public.
Senator Reed. Well, a simple approach might be to--and this
would require our action--is to give the consumer the right to
erase all the data, or only hold it for----
Mr. Chopra. A period of time.
Senator Reed. ----a limited period of time, or prevent the
sale of data, with some exceptions. We have to think about that
as more of these situations take place. Buy now, pay later is
becoming very popular, and we are now seeing that essentially
the regulation is State-based. I think there really is a area
of responsibility that your bureau could assume in order to
make sure that this buy now, pay later situation does not
really hurt the consumer, as it could. Any comments or thoughts
on that?
Mr. Chopra. Yes, I agree. We issued a report with a number
of actions. We have started acting on all that, including
supervision of some of these firms. I have been checking day to
day when it came to Black Friday, Cyber Monday, what is
happening with the growth on buy now, pay later, and I hope to
report more to you about that. The bottom line on this is,
there is a lot more buy now, pay later providers. We cannot
have a race to the bottom. We have to have some basic standards
for which they will not try and use regulatory arbitrage to
cheat people. They too are also harvesting quite a bit of data,
and we are going to be looking at that. So I want to make sure
that whether you use a buy now, pay later loan or a credit
card, that you can have your Federal protections and it is not
arbitrage.
Senator Reed. And I think what would be helpful to us, if
you could generate some information about the insidiousness of
this data that is collected, because I am sure there are some
very graphic examples. And what that would give us, I hope, is
the motivation to give you the authority to take appropriate
steps.
Mr. Chopra. Well, I worry that actually State and non-State
actors are going after this data. We saw with the Equifax data
breach that it ended up in indictments of members of, you know,
the Chinese Army. So we have to look at this not just as
consumer, but really our data and our security.
Senator Reed. Thank you very much, Mr. Director.
Mr. Chopra. Thank you.
Chair Brown. Thank you, Senator Reed. Senator Rounds of
South Dakota is recognized.
Senator Rounds. Thank you, Mr. Chairman. Director Chopra,
welcome. Let me just begin by talking a little bit about
Regulation Z. Overdraft protection helps consumers in making
ends meet when a deposit account balance is low, particularly
for those consumers who are unable to qualify for traditional
credit products. News broke this week that the CFPB would soon
be releasing its much-anticipated rulemaking on overdraft
protection. When the Federal Reserve constructed Regulation Z
almost 50 years ago, it intentionally excluded overdraft,
because it was clear that applying the Truth in Lending Act and
Regulation Z to overdraft would be impractical. However, the
Spring 2023 Unified Agenda indicates the CFPB intends to do
just that. When will this rule be published?
Mr. Chopra. To be clear, that is not what the regulatory
agenda says. We are looking at what the Federal Reserve did
many years ago, in the era of paper checks and mailing checks.
We have not made any conclusions, but I am hoping--we continue
to get industry feedback that they would actually like some
clear rules. I do not have an exact timing on it, but I will
share this. I agree with you that people need to be able to
access liquidity. You know, with respect to when they have a
deposit account shortfall, there is lots of ways we are looking
to address that. In fact, borrowing is really how families and
businesses survive. So I do want to assure you, there is not an
effort to eliminate, or make that need not able to be
fulfilled, but again----
Senator Rounds. So it is----
Mr. Chopra. ----we have not proposed a rule yet.
Senator Rounds. ----there is not a rule that you are
anticipating releasing with regard to----
Mr. Chopra. Well, we are, we are working on something, and
I think what we are trying to address is a number of issues
that if you look at some of our past work on this, there is
certain data and enforcement work where we reached an
enforcement action with Regions Bank and Wells Fargo where some
of it involved moving around the payments in order to generate
not one overdraft fee for the day, but sometimes four. So we
have to address the harms, while still allowing consumers to be
able to access the liquidity when they have a shortfall.
Senator Rounds. I guess the reason why I bring it up is,
number one, you know, you have released data that indicates a
major reduction of overdraft fees over the last several years.
In fact, overdraft revenue in the 4th quarter of 2022 was 48
percent lower than overdraft revenue in the 4th quarter of
2019. It just seems to me that as a part of any study that you
are doing, before you release a new rule, I would hope that you
would look at whether or not--if you decided to do something on
it, whether or not it would actually limit access to overdraft
protection if it is subject to Regulation Z's requirements, and
the impact that that would have on consumers. I hope that that
would be included in any proposed rule that you may very well
come up with.
Mr. Chopra. Well, let me share with you, we actually do see
quite a bit of differences between the relationship banks and
the non-relationship banks. I do want to commend a lot of the
banks, the industry for really starting to compete now on
overdraft. Many of them are showing their lower fees or the
buffers that are provided. So I agree with the spirit of
everything you said, and we are continuing to work on it.
Senator Rounds. You mentioned earlier the issue of medical
bills and whether or not they should be included in a report,
or at least if someone is identified as not making a payment on
one. As part of your analysis, are you looking at how the
health care industry is responding and what they are doing if
the folks that normally would be the collection services for
them----
Mr. Chopra. Yes.
Senator Rounds. ----if they cannot put that on the report,
it seems to me that there is a possibility that some of those
health care providers, who have to pay their bills, too, may
very well look at cash only or payment up front on some of
those services that these folks may not be able to afford. Will
that be included as a part of the analysis that you do?
Mr. Chopra. Yes. So we have been talking to a lot of
players in the market. There is a heterogeneity. We see a lot
of places do not do reporting; we see some that do reporting.
We do have very serious concerns about inaccuracy and coercion,
and I think that is really a big problem, but I am pretty
sensitive to the issue you said. For what it is worth, we do
see a lot of the health care industry already shifting to a
credit card up front, and I think that some of those are issues
that are really outside the scope of the CFPB, but it is
certainly something we are looking at very carefully to
determine how we proceed with this.
Senator Rounds. If it makes it more difficult for them to
collect on a bill, some of these folks who do not want to are
looking at this, saying, look, if we cannot get our bills paid,
chances are we are going to have to take a different approach,
and that puts a bigger burden on some folks that probably can
least afford it. And I would simply hope that if you do any
rulemaking on this, that you take that into account and are
able to share that with this Committee.
Mr. Chopra. And I am happy to discuss this with you
further, because we want to get it right.
Chair Brown. Thank you, Senator Rounds. Senator Tester of
Montana is recognized.
Senator Tester. Yes, thank you, Mr. Chairman. I want to
welcome Senator Scott back to Committee. Even though Senator
Rounds did an outstanding job, he is no Tim Scott. You know
what I mean?
[Laughter.]
Senator Tester. And I would also say that I am sad that you
got out of the race, because I think you are fundamentally a
good man, and----
Senator Scott. Thank you very much.
Senator Tester. ----and we appreciate your efforts.
Senator Scott. Well, you will serve in one of my future
Administrations.
Senator Tester. Sure, absolutely. And I also want to
apologize, because Senator Brown and I were talking about the
China--and I--when you were giving your opening statement. We
have got some issues. This is a bill that Senator Rounds and
you are familiar with, as well as the Chairman--that comes out
of this Committee. Exactly. And just to release a little
frustration I have, there are some over in the House, a
chairman in particular, that does not think the Chinese
Communist Party is a threat to this country, and that bothers
me a lot. And I have visited with the good senator from South
Dakota on this already, and we will figure out a path forward.
But the truth is is that it is better to deal with stuff before
it happens than afterwards.
Senator Scott. Yes, I appreciate that. I appreciate your
apologies. I hope that your Chairman is kind enough to you to
extend a little extra time to you. I know how hard he is to
deal with sometimes, so----
[Laughter.]
Senator Tester. I just----
Chair Brown. I will always give extra time when people say
nice things about Tim Scott.
Senator Tester. Exactly. He is a tough character.
Senator Tester. Director Chopra, thank you for being here.
I appreciate your work. I chair the Veterans' Affairs
Committee. I have been working with Chairman Brown to protect
the folks after they get done with their service to the
country----
Mr. Chopra. Yes.
Senator Tester. ----the veterans, and we have had an issue
with Home Loan Guaranty Benefits and veterans losing their
homes due to foreclosure. The VA took quick action--I applaud
them for that--after we sent a letter off on the VA Home Loan
issue, and hopefully they are able to work for a permanent
solution moving forward. But I am concerned about how these
folks got into the situations to begin with. We need to make
sure that our veterans, the servicemembers, as Chairman Brown
said, and their families are being served in the right way by
the VA, by the lenders, and by the mortgage servicers. So do
you know if this is something the CFPB has been hearing about
from our veterans and our servicemembers?
Mr. Chopra. Yes, and in fact, if you will recall, we had
some things that rhymed with this many years ago with the VA
Home Loan churning, with refinancing. And I also want to agree
with you; I am happy the Department of Veterans Affairs, the
actions they are taking. The VA Home Loan program is enormous,
it is critically important, but of course we do see bad actors
targeting beneficiaries.
Senator Tester. And what tools do you have to stop that?
Mr. Chopra. So our authority is really on the lenders and
the servicers. So we have to police for our laws, but of course
the Department of Veterans Affairs, we work with them on their
program guidelines to make sure that the homeowner is
protected. And I will tell you, a wrongful foreclosure of a
veteran, especially an older one, it is a very, very
devastating consequence to deal with, and we are looking at
ways to prevent avoidable foreclosures like that.
Senator Tester. Thank you for that. Last month in the VA
Committee, we had a hearing on financial protection for our
veterans and their families, and discussed ways that the folks
in our military community, our veterans, have been taken
advantage of, and the responsibility that the VA has, that the
CFPB has, that the FTC has to protect them. Just for a little
background, there are accredited Veteran Service Organizations
out there that help veterans access or earn benefits, but there
are also a growing number of organizations trying to take
advantage of our veterans for money. This always tends to be
the case when you have a steady flow of income into a
community.
A lot of this I believe is in your bailiwick, like watching
the companies trying to collect on debt related to unaccredited
VA claims consultants. Number one, is this on your radar
screen? Number two, what trends are you seeing?
Mr. Chopra. Yes. So in our regular sessions that I
participate with our VSOs and military family advocates, the
unaccredited consultants, I think a major way they are getting
in is often through social media advertising, and I think we
have to figure out how they are using, you know, TikTok, others
to reach those veterans, make claims. I worry about how we will
be able to detect perpetrators there, but it certainly is
something of ongoing discussion in our Office of Servicemember
Affairs and the VA, and I have to be honest with you--I think
it is going to maybe also need to involve criminal law
enforcement.
Senator Tester. OK. One of the things that crossed my mind
during the hearing is, are we seeing the cases of these folks
being taken advantage of more prevalent in the veterans'
community, or the active-duty community, or is this stuff
happening regardless, that there is no difference between those
two?
Mr. Chopra. Well, generally speaking, I think you will see
more in the veterans' community, because there is often a
target of a Government benefit, so that is a place that people,
you know, will see dollar signs----
Senator Tester. Yes.
Mr. Chopra. ----and immediately go after it. In many ways,
it is pretty easy to identify a military family or veteran,
often through social media and the data broker world that now
exists.
Senator Tester. And I think you have already touched on
this, but I wanted to flesh it out a little more. What do you
see as the biggest risk that the CFPB can help with as it
applies to the financial solvency of our veterans?
Mr. Chopra. Well, certainly I think home ownership, and
being kicked out of your home, and being able to get a loan
modification. By sheer dollars, it is a huge amount of money,
and that is why we are looking at streamlining some of our
mortgage servicing rules to allow more people to more easily
get loan modifications and be able to avoid foreclosure.
Senator Tester. OK. Thank you.
Chair Brown. Thank you, Senator Tester. Senator Vance from
Ohio is recognized.
Senator Vance. Thank you, Mr. Chair. Thanks, Mr. Chopra,
for being here. So I want to talk about a couple of issues, one
of which is the Department of Justice and CFPB's joint
statement, effectively discouraging banks from asking about
immigration status in loans. Here is what worries me about
this. So first of all, of course we have a historic human- and
drug-trafficking crisis on the Southern border. I worry about
the Biden administration effectively signaling to banks that
they should make it easier to lend to folks who have come into
the country illegally, and I worry that could frankly
exacerbate the crisis that we already have.
The second point that I make on this is just if I look at
this from the perspective of a bank, it seems totally plausible
and reasonable to me that if you are lending to an illegal
alien, that is maybe a riskier loan than lending to a legal
alien or a citizen of the country. So just to sort of strongly
discourage you guys from going down that route, and I think we
should try to make it easier, maybe, for the financial system
to discourage the immigration crisis that we have before us.
I actually wanted to ask about a separate question, and I
know, Mr. Chopra, you share some of the concerns that I have
about the concentration in the financial system. And you know,
I still do not think the American people have gotten a full
accounting and understanding of what happened with the Silicon
Valley and First Republic bank collapses. And I want to kind of
lean in there and maybe just start with the very basic question
of, when First Republic was acquired, we have heard a number of
different arguments, or a number of different claims, publicly
and privately, about what the spread was between the PNC offer
and the JPM offer, which eventually was of course the
successful offer to buy First Republic. Are you willing to tell
me on the record, what was the spread between the JPM offer and
the PNC offer?
Mr. Chopra. There were multiple bidders.
Senator Vance. Of course.
Mr. Chopra. I do not know if I am permitted under law to
say the specifics, but let me just say this, which is that
JPMorgan Chase's purchase would have ordinarily been completely
prohibited by law.
Senator Vance. Yep.
Mr. Chopra. That was not a decision of the FDIC. The FDIC
had to look at what the least cost was, and there was a
determination that JPMorgan's bid was higher, and then that
went through Bank Merger Review by the other agencies. But we
will try our best to give you more information on the multiple
bids.
Senator Vance. Yes, I would appreciate that, because one
claim that I have heard is $20 billion, right? A spread of $20
billion is significant, and obviously we want to minimize the
risk to taxpayers and to the depository insurance program. I
have also heard the claim of $1 billion, and if the difference
between the bids was $1 billion, that seems like a small price
to pay relative to the massive concentration problem raised by
First Republic going to the largest bank as opposed to a
significantly large but still fundamentally regional bank.
Let me sort of ask this question, Mr. Chopra. Let's say--
understanding you cannot give me an answer right now, and I
would appreciate you following up--if the spread was a billion
dollars, do you think that raises some pretty significant
concerns about how that bid and purchase process unfolded?
Mr. Chopra. Well, yes, although the statute as written does
require the FDIC Board to accept the least cost, but of course
the Federal Reserve Board, the other regulators, they have the
ability to disqualify under the Bank Merger Act.
Senator Vance. Right.
Mr. Chopra. So I think that is really the two pieces, and
we would be happy to share with you how the statute could be
tweaked to avoid this.
Senator Vance. And I appreciate that, and just the last
question here. So you mentioned this earlier, but FDIC Chair
Gruenberg waived the requirement that would effectively cap any
purchaser from putting the financial system at a situation
where a single entity contained more than 10 percent of
national deposits.
Mr. Chopra. No, the FDIC cannot waive that. That is the
other regulators----
Senator Vance. That is the other regulators, OK.
Mr. Chopra. Yes.
Senator Vance. OK, OK, thank you. Did you have any concerns
with waiving that requirement? Recognizing that was not your
decision, do you have concerns with waiving that requirement?
Mr. Chopra. Well, certainly I think you have talked about
the tradeoffs between the cost to the deposit insurance fund
and how the increases in concentration should be weighed.
Senator Vance. Yes.
Mr. Chopra. I personally have great worries that the
largest institutions, if they are able to scoop up all the
failed institutions, even when there is other bidders, it
raises some real issues.
Senator Vance. Great. Thanks, Mr. Chopra. Thank you, Mr.
Chairman.
Chair Brown. Thank you, Senator Vance. Senator Menendez of
New Jersey is recognized.
Senator Menendez. Good to see you, Mr. Chopra. While some
banks have either decreased or eliminated overdraft fees
altogether, in large part due to increased scrutiny and
oversight, banks still collected an estimated $7.7 billion in
2022 in overdraft and nonsufficient fund fees. Furthermore, a
recent report from California State regulators showed that 30
credit unions earned half or more of their net profit just from
overdraft and NSF fees. Director, who typically pays for the
expensive overdraft fees that banks and credit unions charge?
Mr. Chopra. It is typically families who live paycheck to
paycheck, the lowest income.
Senator Menendez. So from your perspective, what can be
done at the CFPB to rein in these excessive fees?
Mr. Chopra. Well, we have taken a number of actions on the
enforcement side, supervision. We are also looking at where
there may be rules to rein in some of these abuses. At the end
of the day, we know we want people to be able to access credit,
but sometimes it is not subject to the normal competitive
forces, and they can really be gouged. And so there has been
many institutions that have shifted. The vast majority of
institutions I think are doing a good job, but there are many
bad actors that we have to deal with.
Senator Menendez. So you are considering a rule.
Mr. Chopra. Yes.
Senator Menendez. Well, overdraft fees are one major reason
why so many Americans are still hesitant to enter the formal
financial system, so I look forward to what you do in this
regard. I was pleased to see the CFPB's proposed rule earlier
this month establishing supervisory authority over large
nonbanks with person-to-person payment apps such as Venmo,
PayPal, Cash App, mobile peer-to-peer payment applications
which are growing evermore popular and are expected to
facilitate transactions worth over a trillion dollars this
year.
You and I and several other Members of this Committee have
spoken and written letters about the rampant scams and frauds
on these apps, as well as the difficulty consumers can face in
being made whole as a result of these activities. Can you
explain how the proposed rule will make these apps more secure
and protect users?
Mr. Chopra. Well, we have seen a number of issues with
these big apps. You mentioned fraud, but there is also very
significant data collection occurring on them. In many ways, it
resembles what we see in China with WeChat Pay and Alipay. So
we have proposed a rule to be able to supervise them for these
existing Federal laws--no new one, there is no expansion--and
we think that that will help level the playing field and make
sure that these consumer payments companies operating outside
of the banking system are protecting consumers the way they
ought to be under Federal law.
Senator Menendez. Well, I look at the rule as an important
first step in creating a fair and more secure digital payment
ecosystem, and I look forward to your continued work in this
regard.
Mr. Chopra. Well, thank you so much. And as I have
mentioned with many of you, we are also thinking about how
these apps are trafficking remittances, and I think we will
continue to look there to make sure that those sending
remittances get a low, competitive cost, and they have the same
consumer protections.
Senator Menendez. Let me turn to student loan repayment,
which has restarted. Borrowers have experienced a multitude of
issues with their services. I have heard from constituents who
have noted extremely long wait times to hear from a service or
representative, and incomplete and unhelpful information from
automated systems. On top of that, millions of borrowers have
been moved to a different servicer. Earlier this year, I sent a
letter to the Department of Education asking that they get
answers from MOHELA, the servicer who manages the Public
Service Loan Forgiveness Program, regarding the issue borrowers
were confronting with a return to repayment.
Given these and many more issues, I am pleased to see the
CFPB open an investigation into MOHELA, Nelnet, EDFinancial,
and Aidvantage's customer service practices in October. Can you
speak more to what the CFPB is doing to hold student loan
servicers accountable and support borrowers?
Mr. Chopra. Well, we know that many of the servicers during
the pandemic made a business decision to lay off, or to
otherwise no longer employ a number of employees. They now are
ramping up, and there has been issues where people are
experiencing very long wait times or getting incorrect bills. I
cannot comment too much further other than to say, we are
certainly working with the Department of Education and the
States to address any violations of law.
Senator Menendez. Well, the repayment process has begun; it
is hitting many heavily. Getting the right answers and being
able to speak to a servicer that actually services you is
critical. Thank you, Mr. Chairman.
Chair Brown. Thank you, Senator Menendez. Senator Hagerty
of Tennessee is recognized.
Senator Hagerty. Thank you, Mr. Chairman. Welcome,
Director. I have three quick things to cover with you. First is
looking at the recent SBREFA outline that you have released on
the FCRA rule. Some of the changes proposed strike me as
particularly aggressive, and it is unclear how they can be
justified as necessary or appropriate as the law requires.
First, the outline uses a new term, data broker, that as
proposed would significantly expand what constitutes a consumer
report, and consumer reporting agency. But it does not
reference or explain the specific FCRA authority for this
expansion.
Second, the outline states that the CFPB is considering a
proposal to, quote, ``clarify the extent to which credit header
data constitutes a consumer report.'' And given the
longstanding recognition by both Congress and the FTC that this
data does not constitute a consumer report--they have always
been treated separately in legislation--it is puzzling to me
how such a drastic change of course is necessitated,
particularly when you think about how putting limits on credit
header data would have serious impacts on community lenders'
antifraud efforts, and it would seriously hamper law
enforcement's ability. You may have seen the article in the
Wall Street Journal yesterday from an FBI agent who used credit
header data to block a terrorist attack. Can you explain to the
Committee specifically what statutory language gives the CFPB
the authority to make these changes to the----
Mr. Chopra. Sure. It is in the Fair Credit Reporting Act,
and let me give you some more context. So data brokers, they
are some of the same types of firms that Congress was concerned
about when passing the Fair Credit Reporting Act, assembling
very sensitive dossiers about each of us, for sale. And I think
it is not just for sale to commercial companies, but to even
foreign agents. So we want to make sure that the business
models that exist today, we are providing the appropriate
clarity rather than just doing law enforcement investigation.
Senator Hagerty. I want to make sure that there is clear
regulatory authority, too, and I want to make certain that you
take into account these areas of concern as well.
Mr. Chopra. We will, and I am happy to discuss it with you.
And we will share with you specifically, if we do propose a
rule, the actual authority for which we would promulgate.
Senator Hagerty. Yes. Let me turn to a different issue now,
and this is deeply concerning to me in my home State. Prior to
the release of the Basel Endgame Proposal, which as a member of
the FDIC, you voted on, a letter was sent to the heads of the
three regulators in charge of this proposal by a number of
groups, including the NAACP. They were concerned about the
impacts of this rule on credit availability, especially to less
affluent Americans. In their letter, they say, and I am going
to quote this, quote, ``Such a significant increase in capital
standards will lead to reduced credit availability for all
types of lending, and undermine economic growth. If these
standards are adopted, they will have a devastating impact on
our efforts to increase Black home ownership, and disadvantage
all first-time, and in particular, first-generation homebuyers,
who do not have the benefit of multigenerational wealth or
higher than average incomes.'' Do you agree with these
concerns, Director Chopra, and what would you intend to do
about it?
Mr. Chopra. Well, let me share with you long-term. One of
the things that was so devastating to those underserved
communities you mention was when there was a financial crisis
because banks held inadequate capital. A financial crisis
that----
Senator Hagerty. So you are talking about raising capital,
and making that capital available. We have been through the
financial crisis. We have been through reregulating after the
financial crisis. We have been through a stress test like we
have never seen before with the pandemic. You are talking about
taking capital away----
Mr. Chopra. Well, no----
Senator Hagerty. ----from this group.
Mr. Chopra. ----what we are trying to do is avoid bailouts,
avoid massive taxpayer----
Senator Hagerty. And at the same time depriving first-time
owners, Black American homeowners. My constituents----
Mr. Chopra. Well, what we are doing----
Senator Hagerty. ----in Memphis, Nashville----
Mr. Chopra. Is we are collecting----
Senator Hagerty. ----Chattanooga, Knoxville----
Mr. Chopra. ----we are collecting comment on that, the
three bank regulatory agencies, and I can assure you I will
personally look into that issue, because----
Senator Hagerty. I appreciate that assurance.
Mr. Chopra. ----there is nothing I would want to see--I
want our financial system working to serve everybody fairly.
Senator Hagerty. As do I, and this cuts against that very
clearly, in my mind. Last question for you, Director Chopra,
and this is a grave concern to all of us in terms of the
competence that is being demonstrated here, or not being
demonstrated, and the lack of confidence that the American
public has in our agencies. In April, the CFPB notified
Congress of a data breach. From within the CFPB, this data
breach occurred where over 250,000 consumers' personal data was
sent to a staffer's personal account. That presents a massive
security risk, and it also really endangers the public's
confidence in your agency. So I would like to give you the
opportunity to update us today on what has taken place there.
Was that person compromised by any foreign authority? Was the
data sold or transferred? Can you give us assurances that that
has not happened?
Mr. Chopra. Yes. So the insider threat issue was extremely
serious. That employee is no longer working at the CFPB. We
have taken a whole host of steps to figure out how to--it
should never recur. Consumers have been notified. But I can
confirm that----
Senator Hagerty. Was the data sold or transferred? Have you
been able to get to----
Mr. Chopra. Well, we are working with all appropriate law
enforcement, but I have no evidence to suggest in any way that
it was related to a foreign agent or intelligence operation. We
have some----
Senator Hagerty. You can see the threat that I am concerned
about.
Mr. Chopra. Oh, of course. I mean I worry so much about
insider threats, because there is data across our ecosystem and
online and others that can be misused and abused, and we take
it very seriously.
Senator Hagerty. I think you should. The confidence of the
American public is critical here, and I think we continue to
see it erode when we see mismanagement like that.
Mr. Chopra. Well, thank you for raising that.
Senator Hagerty. Thank you. Thank you, Mr. Chairman.
Chair Brown. Thank you, Senator Hagerty. Senator Warner of
Virginia is recognized.
Senator Warner. Thank you, Mr. Chairman. Director, it is
good to see you again. I want to raise an issue I do not
believe has been raised today, and that is how you are thinking
about artificial intelligence. And let me acknowledge, as I
have in this Committee before, I cannot think of a topic that
is less linear, at least with me, in terms of the amount of
time I spend does not mean I am getting any smarter on this. It
obviously is changing everything around us. I particularly sit
from my perch as Chairman on the Intelligence Committee looking
at some of the national security risks. I think there are huge
risks in terms of discrimination. I want to give a shout-out to
Lisa Rice in the National Fair Housing Alliance, the good work
they have been doing on making sure some of these AI tools do
not----
Mr. Chopra. Agree.
Senator Warner. ----add to discriminatory practices. Where
I have talked with lots of Members on this Committee are two
areas where AI, not in terms of next generation but in today's
generation tools could have dramatic effect in undermining
public confidence. One all of us as elected officials I think
immediately get is potentially undermining faith in public
elections. The other, though, is public trust in our markets.
And candidly, I have been surprised that we have not seen more
massive use of AI tools, beyond kind of the fake tools, to
manipulate our markets. And this can happen at such scale and
speed using AI that it could have dramatic, dramatic effects. I
know you have been thinking about this a lot----
Mr. Chopra. Yes.
Senator Warner. ----as well as you have kind of gone down
your own self-learning path. How are you thinking about framing
any sense of guardrails around AI as we think about public
trust in the public markets?
Mr. Chopra. So I think of two vectors this could occur. One
is where there is extremely opaque AI that magnifies
disruptions in a market that turn tremors into earthquakes. We
actually have seen some of this in the past with high-frequency
trading in securities, but I could see it being dramatically
magnified, particularly if many firms are depending on the same
foundational model, which is likely, I think, potential to
occur.
The second is a deliberate use of mimicry of human
communication, or other ways of fakery and fraud to create a
financial panic at a particular financial institution, or at a
financial market utility, an exchange. There are many ways this
could happen, even a credit reporting agency. I think we have
to look very hard about the financial stability effects of
this, because this may not be an accident; this may actually be
a purposeful way to disrupt the U.S. financial system, and we
should look at it with that mindset.
Senator Warner. This is one of the things I have been
wrestling with and talked to some of my Republican friends on
this is, you know, a lot of times in terms of market
manipulation, in our existing structure, you come back to
intent. But I would argue that you could have some of these AI
tools that someone could hide and say, I had no intent; I
simply told the tool----
Mr. Chopra. Yes.
Senator Warner. ----to make money, and if the process of
making money led to----
Mr. Chopra. Blowing up the system.
Senator Warner. ----blowing up the system, or creating fake
accounts. So what level of liability, even if there is not
proven intent? Have you thought about that?
Mr. Chopra. Yes. Well, it is one of the reasons why the
U.S. has always had, for over a century, prohibitions on things
like deception, unfairness, that have multiple prongs but do
not necessarily require intent, because you can create a huge
amount of harm. It is in some ways like data breaches. You have
put some obligations on firms to make sure they are secure to
stop the downstream harm. So I share your view that intent-
based standards will be almost useless when it comes to certain
uses of generative AI.
Senator Warner. One thing that we have been working on, and
again in a bipartisan way, is using one of the tools created by
Dodd-Frank that I think has been--candidly, its record is a
little bit mixed in terms of FSOC. The notion that, you know,
how do you get the regulators looking beyond their individual
area, to look across the whole system? And boy, oh boy, if
there was ever something that seems tailor-made for an FSOC
examination. I know we have shared some of our ideas with you
guys. Got any thoughts on----
Mr. Chopra. Well, I agree with you. I do think that the
entry of big tech companies into finance and other large pools
of data, as well as the use of advanced computational models
and generative AI, including in the cloud, I think that is very
worthy of the FSOC to look at whether it needs to use any of
its tools. I take seriously the concern from many of you that
the FSOC has become over time a book report club, rather than
using the tools that were passed into law to protect the
system.
Senator Warner. Thank you, Mr. Chairman.
Thank you, Senator Warner. Senator Britt from Alabama is
recognized.
Senator Britt. Thank you, Mr. Chairman. Thank you, Director
Chopra, for being with us today. A number of questions that my
colleagues have already hit on, but wanted to start with one
that I asked some of the bank regulators before this Committee
a few weeks ago. And I asked them whether they believed our
banking system to be strong, and every one of them said yes. So
my question to you is, do you agree with them, that in your
opinion, the U.S. banking sector is strong?
Mr. Chopra. Yes, I think it is a strong system, and one
where we occasionally see some places where there could be
resilience issues. Senator Warner just mentioned one of them.
Senator Britt. So----
Mr. Chopra. But certainly we always have to be looking to
ensure that resilience.
Senator Britt. Yes, and I do, I appreciate that all of you
believe that. In my opinion, I look across the board, I look at
some of the new rules, I look at some of the new
implementations, and in my opinion, while everyone says it is
strong, I feel like we are doing things simultaneously that are
actually going to weaken the system overall, and particularly
for the end user. Particularly for the small businesses,
particularly for everyday, average Americans. And so I am
concerned by what I have seen, both at the Fed, at the FDIC,
which I hear you play a significant role in, and at the SEC.
So there are countless examples of regulators reaching
beyond the mandates that we have given, and seem to be rushing
into very complex rulemaking, not thinking about how these
things work together and then what that impact overall is going
to be. And I believe it will be detrimental to our economy, and
more importantly, when I am looking at the people that I
represent, I think small-town Alabama is going to pay the
price.
So I want to start with the 1071 Rule. So community banks
provide over 60 percent of small businesses' credit needs, and
that is nearly two-thirds of all small business loans. And to
give you an insight into me, both of my parents were small
business owners, so to me, this stuff matters. These banks
offer a reliable and available source of credit to all of our
small business community, and I am sure that you agree that you
want to see those people thrive as well. So Mr. Chopra, do you
believe that this rule, as currently written, will help support
small banks' ability to continue being the primary lender for
small businesses?
Mr. Chopra. Well, I want to make sure--I share your view
that we want local banks to be able to provide small business
credit----
Senator Britt. But do you think that this is going to----
Mr. Chopra. ----to everyone.
Senator Britt. Continue to----
Mr. Chopra. Well, let me share more, which is that we do
know that there has been a lot of questions about who is
getting small business loans, who is not, and that really
undermined PPP. So we were under a legal mandate, a court order
to complete the rule. We exempted, I believe----
Senator Britt. And you----
Mr. Chopra. ----an additional 2,000 banks from it. We
reduced the number of data points----
Senator Britt. ----and so court orders do matter to you. So
what the Supreme Court says goes kind of thing.
Mr. Chopra. Well, of course, but we----
Senator Britt. Of course.
Mr. Chopra. ----were also under----
Senator Britt. That is good to know.
Mr. Chopra. We were sued because the rule was not----
Senator Britt. Yes, and so----
Mr. Chopra. ----complete a few years ago.
Senator Britt. ----but real quick, when you are talking
about this rule, you have said that you are going to post these
things online, if I understand correctly, some of the findings
that you get from this expansive rule----
Mr. Chopra. So just like the Home Mortgage Disclosure Act,
there is going to be analyses of the data----
Senator Britt. So will it like show where we could tailor
it down to who, in what community, how many people are asking
for certain loans, who got them, who did not?
Mr. Chopra. Well, certainly we cannot allow it in any way
to identify a small business owner.
Senator Britt. Right, so that is my question. Like so will
it be broad-brush, or will you say, in Franklin County,
Alabama, this is who got it and this is who did not?
Mr. Chopra. Well, that sounds way like it could re-
identify. So here is what----
Senator Britt. Well, it----
Mr. Chopra. ----we have outlined in the rule. We will not
be able to post things for probably years. We will look at the
data, and we will go through the process of making sure that we
are publishing analyses. Many of them may be aggregated at the
State level, regional level----
Senator Britt. So you are saying, though, that you will
not--because you are from, is it Plainville? Is that right?
Mr. Chopra. No.
Senator Britt. Where are you from?
Mr. Chopra. I am from outside Philadelphia.
Senator Britt. Outside of Philadelphia.
Mr. Chopra. Yes.
Senator Britt. And so how big of a community is that?
Mr. Chopra. It is a pretty large metropolitan area.
Senator Britt. So I just think to this, and it is
interesting to hear you say it will be years, because we have
small community banks that are struggling with how they are
going to do this, and they serve a community of 3,000 people--
Red Bay, Alabama----
Mr. Chopra. Well, then that would not be published, just
like the Home Mortgage Disclosure Act----
Senator Britt. Right, so----
Mr. Chopra. ----does not publish that.
Senator Britt. ----because there are certain things that
you are asking for that--well, it goes from protecting a
consumer to invading their privacy.
Mr. Chopra. Yes, I agree with that. You do not----
Senator Britt. And then----
Mr. Chopra. ----you do not want especially demographic----
Senator Britt. ----do you promise that----
Mr. Chopra. ----data to be----
Senator Britt. Exactly.
Mr. Chopra. ----published that way.
Senator Britt. So you are saying that you will request it,
but you are not going to publish it. Is that right?
Mr. Chopra. Well, you know there is often data that is used
by law enforcement in order to determine----
Senator Britt. And I have----
Mr. Chopra. ----whether laws have been followed----
Senator Britt. ----I only have 10 seconds. I am so sorry--
--
Mr. Chopra. So that is why--if you can let me finish--I do
not want there to be any sense----
Senator Britt. Please let me ask one more question.
Mr. Chopra. ----that we are going to publish, kind of, and
identify individual borrowers.
Senator Britt. Great, because in 3,000 people, it
certainly----
Mr. Chopra. Agree.
Senator Britt. ----100 percent would, and I think that that
is a deterrent. The last question that I wanted to ask you was
about community banks. Have you sat down with community banks
to talk about the implementation of this rule and what they
believe it means, or NFIB, small business owners? Have you done
that?
Mr. Chopra. Yes, so I have actually met, I believe, with
community bankers from every single State represented on this
Committee. I think we have met with maybe over 1,000 in small
group meetings to talk about all the issues.
Senator Britt. OK.
Mr. Chopra. We are actually on a--most small banks, so you
are aware, will have a much-delayed implementation date. The
large banks will go first, and we have devoted some----
Senator Britt. Yes, because the small banks----
Mr. Chopra. ----some more resources to that.
Senator Britt. ----do not have the resources to do----
Mr. Chopra. I agree.
Senator Britt. ----this kind of stuff. And if you have not
met with Alabama community bankers, if we look at this and you
have not, would you----
Mr. Chopra. Oh, of course.
Senator Britt. Would you sit down with them for me?
Mr. Chopra. Of course. I think we may have met with Alabama
credit unions, but we will check, and please help us organize--
--
Senator Britt. And I would love for them to have a face-to-
face with you. Would that be OK?
Mr. Chopra. Of course.
Senator Britt. OK, thank you.
Chair Brown. Thank you, Senator Britt. Senator Warren from
Massachusetts is recognized.
Senator Warren. Thank you, Mr. Chairman. So I want to talk
about junk fees. You know, Americans are getting hit with junk
fees over and over and over. Try to book a flight or rent an
apartment or buy a home or pay a phone bill, even pay off a
loan, and a consumer can get hit with junk fees. I am really
glad that the Biden administration has made eliminating junk
fees a central part of its agenda, to try to lower costs for
working families. And the CFPB is on it. You have already
forced big financial institutions to cough up $140 million in
refunds on junk fees, mostly on overdraft charges. And now, the
CFPB is taking on credit card late fees.
Now nobody picks a credit card because they know how much
the company will charge if you are 2 hours late getting your
payment in, but those junk fees can really add up. Credit card
late fees run as much as $41 for being even 2 hours late, and
it gives big payoffs to these credit card companies. Last year,
the junk fees scooped up more than $14 billion in late fees.
Now the CFPB says it is fine for credit card companies to make
customers pay additional collection costs on late payments, but
they cannot use late fees just to boost company profits. That
is gouging.
CFPB says that if a credit card company is charging more
than $8 in late fees, the company is actually going to have to
show its work, that is, show that it costs the bank more than
$8 to deal with these late fees. Otherwise, $8 is the most that
they can charge. Now the banks have responded to this proposed
rule with their usual approach, howling about regulation and
unleashing an army of lobbyists to swarm Congress. And why not?
After all, there is $14 billion in late fees at stake, fees
that are either all going to go to the banks, or some of which
might be saved by the families.
So Director Chopra, industry lobbyists claim that these
sky-high late fees are necessary--and here is what they say--to
punish and deter borrowers so they will pay on time. Does your
analysis support the lobbyists' view, or does it show that this
is just one more junk fee that is mostly used to boost bank
profits?
Mr. Chopra. Our analysis shows that they have many ways to
punish borrowers. They can jack up their rates. They can put a
bad mark on their credit report. They can even sue them. So
there is plenty of ways, and honestly, if it was not a major
part of their profit model, our proposal allows them to collect
back their costs. They should be supportive of that if it is
not a core part of their profit model.
Senator Warren. Thank you. So in fact, the data show that
companies make five times more from late fees than it costs
them to collect late payments, so I guess it is no surprise
that the industry lobbyists are out there going hard against
this rule--they want to keep that money. Now earlier this year,
I wrote to ten of the largest credit card companies, and I
asked why their late fees were so high. Not one single company
provided any evidence that they needed to charge $41 to deter
late payments. In fact, Wells Fargo provided data showing that
the late fees it collected exceeded the cost of collections by
tens of millions of dollars. Now meanwhile, we are also seeing
record-high interest rates for credit cards. Director Chopra,
how much did credit card companies make in interest last year?
Do you know?
Mr. Chopra. It is roughly $105 billion.
Senator Warren. Wow. And did credit card companies
generally hike up their interest rates last year?
Mr. Chopra. So we found that credit card companies
increased rates far beyond the increase in the Fed Funds Rate,
even as charge-offs declined.
Senator Warren. So the Fed raised its rates, but the credit
card companies raised their rates far higher? Is that----
Mr. Chopra. Even as their performance was doing OK.
Senator Warren. OK, so here we are. We have got credit card
companies that are raking in record profits, and they are
determined to keep junk fees as one more way to make money,
more than $14 billion here. I support the CFPB's proposed rule
on credit card late fees, and I urge the CFPB to finalize this
as quickly as possible. You know, getting rid of junk fees is
just one more example of the CFPB working for the American
people. So thank you, Director Chopra, for your work protecting
older Americans. Thank you for your work protecting our
veterans. Thank you for your work protecting active-duty
servicemembers, student borrowers, and families all across this
country. Thank you.
Chair Brown. Thank you, Senator Warren. Senator Daines from
Montana is recognized.
Senator Daines. Chairman Brown, thank you. Director Chopra,
thanks for appearing before the Committee today. I continue to
hear from folks across my State of Montana about the adverse
impact your agency's actions are having, from increased
compliance costs to one-size-fits-all mandates that just do not
work in rural communities. And it appears to me the CFPB under
your leadership has become a political arm in the Biden
administration, rushing through progressive actions that in
many cases have bipartisan opposition here in Congress. One
example of this is the 1071 Rule, which I will get to
momentarily, but first I want to start with credit card late
fees. I saw Senator Warren was asking some of the same
questions.
In February, CFPB proposed a rule to reduce late fees that
credit card issuers can charge customers, but your own data at
CFPB shows that 74 percent of customers make payments on time
and will not see any positive impact from this proposal. They
will, however, see potential impact on increased annual fees,
reduced rewards, lower credit limits, because prudential
regulators require banks to offset the credit risk so as to
maintain safety and soundness.
Further, I have serious concerns that this rule will lead
to more consumers paying bills late, which will in turn
negatively impact their future creditworthiness. In other
words, they are going to stop or lower the penalties paid for
those who are not paying bills on time, in tradeoff for
increasing costs or reducing rewards for those who do pay on
time. So my question is, why would your agency proceed with a
rule that would potentially cause hardship to those it actually
seeks to help?
Mr. Chopra. So respectfully, that is actually not how the
credit card business works. The way credit card underwriting
works is it is an individualized interest rate. So it is
underwritten based on your own individual data. They do not
have one price or one rate that they give everyone and cross-
subsidize amongst them. Our goal is to make sure that the CARD
Act is being followed. The CARD Act prohibits unreasonable or
disproportionate penalty fees. Our proposed rule, which we are
still working through, allows a company, an issuer, to recoup,
and as Senator Warren just mentioned, they just have to be able
to show the math. And of course, it does not take away the
ability of the card issuer to lower their credit limit if they
are late, to increase their interest rate, or if they never
pay, to sue them.
Senator Daines. So let me ask you this. As you say, you are
still in the deliberative phase, perhaps, on this rule. To what
extent did your agency engage with the prudential regulators
while crafting this proposal?
Mr. Chopra. Well, we certainly communicate and consult with
the prudential regulators on these types of rules. In fact, I
believe we may even be required to. There is many ways in which
various banking regulations intersect with each other, so we--
--
Senator Daines. Yes. What kind of feedback did you get from
those regulators?
Mr. Chopra. I need to really check, because I am sure we
talked to each individual one as well as in a group, but I
would generally say----
Senator Daines. Did they have any concerns about it
generally?
Mr. Chopra. I would need to check. I am happy to answer for
the record for you, but as I said before, because the credit
card industry does not have one price, it does underwriting, I
think the effect----
Senator Daines. But----
Mr. Chopra. ----that you are mentioning----
Senator Daines. But----
Mr. Chopra. ----is unlikely----
Senator Daines. But do you have like a top-line summary? I
mean you said you have to check. I mean that is pretty
important feedback from the prudential regulators----
Mr. Chopra. Yes, I think that the overall feedback is that
it would not have an impact on safety and soundness of
financial institutions.
Senator Daines. Have any adverse effect on some credit card
holders?
Mr. Chopra. Well, I think again, our consultation with them
I think is on safety and soundness, but I am happy to check and
answer more for the record. And just so you know, I am with
you. I do not want to create a situation where some people are
incentivized to not pay, but we also need to make sure that
this is reasonable. When I talk to smaller credit card issuers,
they are not building a business model where they are rooting
for their customers to be late.
Senator Daines. Let me switch gears on the 1071--and thank
you, Director Chopra. I have got serious concerns of the impact
of your regulation on small businesses. In fact, it is
something I hear pretty much across the board from folks back
home, virtually unilaterally. I am not alone, because as you
know, a bipartisan majority of both the House and the Senate
voted recently to scrap the rule. The final rulemakes certain
data reporting requirements optional, but you have also noted
that low response rates could lead to supervisory problems for
lenders. My question is this. I know that many small businesses
are not going to want to report this data, so what will you do
to ensure that lenders are not penalized solely due to a low
response rate?
Mr. Chopra. Yes. That is not the intent, and in fact, no
one is forced to complete this information. They have an
absolute right to refuse it. But of course, if you think about
it, we have to make sure that it is actually being provided and
not saying, oh, you can just throw this out. So we are really
trying to be reasonable about it.
Senator Daines. OK. Mr. Chairman, thank you.
Mr. Chopra. Thank you, Senator.
Chair Brown. Thank you, Senator Daines. I believe no one
else is coming, so thank you, Senator Daines. I have one more
question; then we will adjourn. About big tech, we know that
people have major concerns about how much control over American
lives and information. Big tech enjoys encroaching on our
financial lives, too. We are seeing digital payment products
serve as a substitute for traditional bank accounts, but we
know that new tech does not have the same consumer protections
and oversight that traditional banking does. What are you doing
to ensure that big tech offers the same consumer protections as
traditional banking services?
Mr. Chopra. Well, like I said to your colleagues, too, we
do not want to see the market move just by exploiting loopholes
or regulatory arbitrage. So if we have very, very large firms
competing in the same market, we want to make sure that they
are held to the same standards as the medium- and small-sized
banks. We have seen issues with some of these apps, that the
money may not be insured. We have seen other places where the
data is being harvested. So I do think we all need to be
careful and make sure that those large tech firms are playing
by the same set of rules.
Chair Brown. OK, thank you. And Senator Warnock is on his
way, so I have one more question. I am concerned about the
risks posed by AI, and in lending decisions, CFPB recently
issued guidance reaffirming that current laws apply to credit
denials, including those utilizing artificial intelligence.
Specifically, you all reaffirmed that financial institutions
are required to provide accurate explanations for adverse
actions like credit denials. How is CFPB ensuring that these
explanations faithfully reflect the actual reasons for the
credit denial when AI is used?
Mr. Chopra. Yes. One of the things we have done is making
sure that it is clear--there is no fancy technology exception
to Federal law. Federal law requires you to inform a consumer
about the reasons for an adverse action or denial. You cannot
make up the reasons. You cannot just put it in a form if it is
not true. So we will be making sure that when there is uses of
AI or other technology, that it is not side-scaping existing
law, and we will be using our authorities to make sure that
people are complying.
Chair Brown. OK, we will hold for a minute. Senator Warnock
is close.
Mr. Chopra. Senator, may I address a previous question?
Chair Brown. Sure, sure, of course.
Mr. Chopra. You know, I really respect, actually, Senator
Vance's concerns. I do want to be clear that the Justice
Department-CFPB statement actually affirmed that creditors can
use immigration status when lending, but of course they have to
avoid national origin discrimination. And of course, you know,
all of the authorities under the Bank Secrecy Act, Anti-Money
Laundering, to ensure that that they know who that person is,
and for non-U.S. persons, the Bank Secrecy Act requires certain
documents. You know, again, immigration status, according to
the guidance, can be used, but just not with illegal
discrimination against national origin.
We have seen in our recent enforcement action against
Citibank a whole, and in some ways deliberate, attempt to
discriminate against Armenian Americans. Citibank essentially
denied people with the suffix of the last name of -yan and -
ian, and then provided them notices essentially fabricating the
reasons for denial. So all we are trying to do is make sure
that we are in accordance with the law, and faithfully
enforcing the prohibition on national origin discrimination.
Chair Brown. Another comment, again awaiting--Senator
Warnock is on the way. You had said in a response to Senator
Britt that you would be willing to meet with Alabama community
bankers. I would just like to put out there that there may be a
number of people on this Committee who would make the same
request, and that you honor it. For whatever State, large and
small, that community bankers want to meet with you, that you
would be willing to do that.
Mr. Chopra. Yes, and in fact, I may have beaten you to it.
I believe that I have reached almost all 50 States when it
comes to either their State banker association or credit union
association. But if we have missed anyone, we would be happy
to.
Chair Brown. OK. And in Ohio, the community bankers, for as
long as I have been on this Committee, 15 years, have come to
meet, usually in this room. In Ohio, there are maybe 100 that
come, and there are maybe 40 or 50 from credit unions, and you
have always been open. I do not think you have come
specifically to meet with them, but I may call on you for that
later.
Mr. Chopra. Of course. My staff is sharing, we met with the
Alabama Bankers Association in September of 2022, and also the
Southeastern Credit Union League, which includes Alabama,
Georgia, and Florida, also in 2022.
Chair Brown. OK, one last question. I normally do not end
the Committee this way, but by special request. Talk about your
work with allotments and our servicemembers.
Mr. Chopra. Yes. So allotments, just so everyone is aware,
this is where a consumer is really paying for an obligation
through the DoD payroll system. So DoD's payroll system allows
an active-duty servicemember to identify certain payees. This
is really to assist them if they are away, or if they are
unable to manage their finances, to not miss out on bills. Over
the years, we have seen some lenders and others abuse that
allotment system. We have been working with the DoD over time
to make sure that the allotment policy is not an invitation for
predatory actors and scammers.
I actually worry about this, Chairman Brown, too, because
there is a lot of surveillance on servicemembers and their
families. A lot of information is collected about them,
targeted, and I think that is something that raises a lot of
risks in how they might be manipulated or otherwise harmed.
Chair Brown. Speaking of that, you may have heard my
opening statement--I think you appeared to be listening--about
TitleMax.
Mr. Chopra. Yes.
Chair Brown. Any elaboration on that, the several-million-
dollar fine and----
Mr. Chopra. Yes, so----
Chair Brown. ----the size of the company and what they
might be doing?
Mr. Chopra. ----and restitution. I do not have the exact
statistics in front of me, but there has been several actions
we have taken--FirstCash, TitleMax, others--specifically
related to the Military Lending Act, or other perpetrations of
fraud or misconduct against servicemembers.
Chair Brown. OK. Senator Warnock of Georgia is recognized.
Senator Warnock. Thank you so very much, Mr. Chair. Under
your leadership, the CFPB has done a lot to address the burden
of medical debt that families fall into as a result of illness
or unexpected trips to the emergency room. This issue matters
because so many Americans are crushed under high health care
costs, and they usually do not have a choice about whether or
not they need that medical attention. Whether it is in the
budget or not, sometimes you just need to go to the doctor. And
this is particularly true for those who are living with
diabetes, especially in a State like Georgia that sadly has not
expanded Medicaid, and as a result, many of the counties in
Georgia are a part of what I called in a recent report released
by my office, insulin deserts.
We released this bipartisan report earlier this month.
There are some 813 counties all across our country with high
rates of Americans who are uninsured and they have diabetes,
and thus they are left unprotected from high insulin costs, and
particularly vulnerable to medical debt. In fact, in
preparation for this hearing, my office found that 365 insulin
deserts, nearly half, also have high rates of medical debt. So
Director Chopra, what is the CFPB doing to address medical
debt, particularly unfair medical debt collection and credit
reporting practices? I know that we have already had some
conversation about that today, but 813 insulin deserts, or
counties across our country, a lot of them in Georgia, and all
across the country. So these are folks who are dealing with a
chronic disease, and we are seeing the impact of that on them,
both in terms of their health, but also financially. And so as
you think about a disease like that, if you would say a little
bit more about your work addressing this issue.
Mr. Chopra. Well, I think we have all been able to see some
of the individuals. I recall one teenager who overheard his
parents struggling financially because of his insulin expenses.
I think he was 13, and he decided to self-ration----
Senator Warnock. Yes.
Mr. Chopra. Because he was worried so much about his
parents and their financial situation. You know, in my past
work, I looked hard at the issue of potential price-fixing by
insulin providers. I think when we talk about medical debt, we
also have to remember that this might ultimately lead people to
not get care that they need to live. When a teenager is self-
rationing insulin and then hospitalized, we know we have a
system that is not working. And then on top of it, Senator,
when I went to Georgia and met with some of your constituents,
one was Liz Coyle, talked about how medical debt is affecting
people locally, and really, it is now the largest item of
delinquency on credit reports. We have studied this
exhaustively, and we are currently initiating the process to--
and we may end up proposing that medical debt be ineligible for
reporting on credit reports, given the unique dynamics and the
widespread inaccuracies. I really hate to see that medical
debt, especially when people are sick, being forced to pay even
when they may not even owe, almost coerced to pay, and we want
to really address that.
Senator Warnock. On the question of rationing that you
raise with this particular 13-year-old, about 1 in 4 folks who
are on insulin--1 in 4, in our country--have reported that they
have rationed their insulin at some point or another. And so I
am interested in exploring how Congress can work with CFPB to
protect consumers, especially those with chronic illnesses,
from medical debt. So thank you for your work. I think that as
a start, we can pass my bipartisan bill that I put forward with
Senator Kennedy and others, to cap the cost of insulin for
everybody. That would help prevent people with diabetes from
going into medical debt in the first place. And I look forward
to continuing to work with you on this important issue, and
exploring medical debt more in my subcommittee in Congress.
Thank you very much.
Mr. Chopra. Thank you, Senator.
Chair Brown. Thank you, Senator Warnock, and thanks for
your comments about medical debt. We have had a number of
conversations, privately and publicly, on this Committee. As
you know from our hearing with--you had a really good term with
the rating agencies. You used--what word did you use to
describe the rating agencies?
Mr. Chopra. Well, they are the three conglomerates.
Chair Brown. The conglomerates, yes.
Mr. Chopra. Yes.
Chair Brown. Thank you for that, and we will continue to
bring them in, and continue to work with Senator Warnock and
others to get medical debt off of credit reports, so thank you
for that.
Senators who wish to submit questions for the hearing
record, they are due 1 week from today, Thursday, the 7th of
December. To the witness, please submit your response to
questions for the record 45 days from the day you receive them.
The Committee is adjourned. Thank you.
[Whereupon, at 11:50 a.m., the hearing was adjourned.]
[Prepared statements, responses to written questions, and
additional material supplied for the record follow:]
PREPARED STATEMENT OF CHAIR SHERROD BROWN
Welcome back, Director Chopra.
Since the CFPB first opened its doors, we have had more than a
decade of progress towards rooting out abuses and injustices for
consumers in all types of markets, from mortgages to credit cards to
payday loans.
It matters for consumers, and it matters for the vast majority of
businesses that do the right thing--because when an honest business
that follows the rules is forced to compete with a predatory business
that doesn't follow the rules, we know who's going to win.
The CFPB levels the playing field so that honest people don't get
penalized for running a good business the right way.
And when consumers interact with fair and transparent businesses,
they can make decisions without worrying about scams or predatory
practices.
Since 2011, the CFPB has returned over $20.2 billion to more than
205 million consumers.
That's real money in real people's bank accounts, or real
reductions in debt--money back in the hands of working families, where
it should have stayed in the first place.
We've also talked extensively about how the CFPB stands up to
special interests and scammers on behalf of servicemembers and
veterans.
Protecting servicemembers and veterans is one of the most important
things the CFPB does.
When we created the CFPB we made sure it included the Office of
Servicemembers Affairs.
The first head of that office was Holly Petraeus--the spouse of a
servicemember, someone from a family with generations of military
service, who understood the challenges facing servicemembers and their
families.
These are families for whom service and sacrifice to our Country
are part of who they are. It is ingrained in them.
The CFPB, with its Office of Servicemember Affairs, takes on
special interests to protect the bank accounts and the jobs of our
servicemembers, veterans, and their families.
Due to their steady paychecks and constant moves, servicemembers
are often targets for predatory financial companies and scammers.
Every year, tens of thousands of servicemembers go to the CFPB
seeking assistance or reporting a complaint--and the CFPB goes to bat
for them, working to get their money back or fix the problem.
You would think that people in Congress would be lining up to make
sure the agency could effectively do this important job.
But sadly, that's not what we are seeing.
Many of the same politicians who like to talk a lot about
supporting veterans and military families have spent more than a decade
trying to tear down the agency that gets them their money back.
And to be clear: financial literacy is not an alternative to the
CFPB.
Some of my colleagues say, if only our servicemembers could spend
more time learning how to not be scammed.
The men and women who serve our country--or any American--shouldn't
need special training to keep their own money.
This shouldn't be on our servicemembers to protect themselves from
scammers--it should be on companies not to scam them.
This is why we need the CFPB.
There is no other Federal agency with this level of responsiveness
and efficiency and the ability to take on greedy big corporations and
shady lenders.
It's how the CFPB has returned more than $175 million to
servicemembers and veterans.
$175 million.
For example, earlier this year, the CFPB took action against
TitleMax for violating the Military Lending Act by charging nearly
three times more than the statutory cap on interest rates.
The CFPB ordered TitleMax--a repeat offender--to return millions to
servicemembers and their families.
Whether you're a servicemember or you're a senior or you're a
worker, the Consumer Financial Protection Bureau goes to bat for you.
Last year, the CFPB clarified that nursing homes cannot go after
family members for debt.
And the CFPB is working towards removing all medical debt from
credit reporting agencies--something I have called for repeatedly.
Medical debt can happen to anyone. It is not an effective measure
of creditworthiness. It has no business being on a credit report and
consumers should not be harassed for falling sick.
And then there are the actions the CFPB takes to stop Wall Street
abuses. Maybe that's the reason corporate interests and their lapdogs
in this town hate the CFPB.
The work the CFPB is doing to stop junk fees is a top target for
Wall Street.
The CFPB has proposed a rule that the agency estimates will reduce
credit card late fees by as much as $9 billion each year.
An additional $9 billion to American households every year would
make a big difference.
But if the CFPB is successful, that means $9 billion less on Wall
Street profit statements. So of course, they're not giving that up
without a major--and well-funded--lobbying fight.
And that's always the biggest difference between most Americans and
Wall Street. Wall Street has a well-funded army of lobbyists.
The rest of us don't.
That's why too often Wall Street gets its way, and the American
public doesn't. The Consumer Financial Protection Bureau is their voice
to take on the powerful special interests that cost them time and
stress and money.
And it's why Wall Street and its allies have spent more than a
decade trying to destroy the CFPB.
So far, this is one fight they've lost. And I will never stop
fighting to ensure consumers continue to have a strong CFPB in their
corner.
______
PREPARED STATEMENT OF SENATOR TIM SCOTT
Thank you, let me start off by saying, it's certainly good to be
back with the Committee. I want to thank my Members, fellow Members,
for their support, specifically in particular Senator Rounds for all of
his support during my absence.
I would also like to welcome our newest Member, Senator Butler to
the Committee.
Now turning back to business, just 2 weeks ago, our financial
regulators testified before this Committee and faced bipartisan
concerns about the impact on everyday American families that these
misguided and partisan regulatory proposals would have if implemented
as proposed.
While those ``independent'' regulators have become increasingly
politicized under the Biden administration, the CFPB has a much longer
history of skirting statutory mandates and avoiding congressional
oversight.
Director Chopra, you know these concerns well and you've heard from
me about those concerns, you've heard from my fellow Members of the
Committee, as well as House colleagues.
And yet, the CFPB is no more accountable today than it was at its
inception--and I fear under your leadership, the agency is straying
even further from its mandated mission.
The abuse of enforcement powers, rulemakings driven by politics
instead of policy, and a lack of oversight--which only leads to less
economic opportunity--have become hallmarks under your leadership.
The law is clear. When it comes to consumer finance, the CFPB
should consistently and fairly enforce Federal consumer finance law;
safeguard access to markets for consumer financial products and
services; and ensure that such markets are fair, transparent, and
competitive.
Sadly, the CFPB's actions don't match up with its mandate.
Under your leadership, the CFPB has operated in blind pursuit of
additional power and has become the hallmark of Government overreach--
to the point where I am concerned the Bureau is doing more harm to
consumers than good.
That is why in July, I led a bicameral group of 132 Members of
Congress in filing an amicus brief to the Supreme Court, urging the
Court to affirm the lower court's decision that the CFPB's funding
structure is constitutionally defective.
When you last testified before us in June, we discussed your
efforts to regulate through speeches and blog posts, your public
pressure campaign on fee income, and your attempts to stifle
innovation.
Instead of correcting course, it seems that you have only
accelerated towards the exact opposite direction of your statutory
mission.
Recent reporting even suggests that your agency will be releasing
an aggressive fee proposal very soon.
I really hope the old saying that a tiger can't change its stripes
won't be true for the CFPB.
And yet, we've seen that the CFPB recently proposed regulating
access to consumer data by consumers and authorized third parties.
As with anything, the devil's always in the details, but as this
proposal advances through finalization, I hope you weigh the new
regulatory costs against any benefits that this rulemaking may provide.
And on top of all that, the CFPB is even proposing new supervisory
authority over nonbank providers of consumer payment apps. However, the
rationale supporting this proposal ignores the real costs of compliance
likely to stifle innovation. Costs that also will undoubtedly be paid
for by hardworking American families.
I wish I could stop there, but of course the list goes on. Your
agency is even pushing for sweeping changes to regulation under the
Fair Credit Reporting Act, ignoring the longstanding interpretation of
clear legal authority by courts and other regulators.
How do any of these costs and the costly actions actually protect
consumers? I hope you help me understand your perspective on that where
we will likely disagree.
I meant it when I said at our last hearing--the best way to provide
economic opportunity and protect consumers too is to encourage
competitive markets and set clear rules of the road for participants.
These principles protect our system by fostering competition and
innovation rather than vilifying it.
I will stand by these principles, and I certainly have experienced
the benefits of having a system where the rules of the road are fair,
consistently applied, as a kid who grew up in poverty and understood
the American Dream was available, having access to that for the next
generation of youngsters is so important from my perspective.
Unfortunately, we see a common theme from the left, that somehow
lower income families lack the wherewithal to manage their own affairs
and determine what's best for their families without some sort of
Government intervention.
While the Federal Government ought to protect consumers from
unscrupulous practices, bureaucrats in Washington should not dictate
what families can and cannot have simply by regulating products out of
existence and pricing people out.
As I wrap up, I want to address one final, important topic.
A few weeks ago, several reports were published about the toxic
work environment and the culture at the FDIC. A few weeks ago, we
talked about the importance of making sure that employees at the FDIC,
where you sit on the Board, have a safe, healthy work environment. I
hope that you'll have the opportunity to address some of the challenges
we've seen at the FDIC as well.
Thank you.
______
PREPARED STATEMENT OF ROHIT CHOPRA
Director, Consumer Financial Protection Bureau
November 30, 2023
Chairman Brown, Ranking Member Scott, and Members of the Committee,
thank you for inviting me to this hearing to present the Consumer
Financial Protection Bureau's (CFPB) submission of its Semiannual
Report to Congress.
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Statement Required by 12 U.S.C. 5492: The views expressed herein
are those of the Director and do not necessarily reflect the views of
the Board of Governors of the Federal Reserve System or the President.
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I am pleased to share that the CFPB has reached important
milestones on critical priorities, including personal financial data
rights and credit reporting, while continuing to enforce the law and
deliver results for consumers and law-abiding businesses. Today, I will
share some observations about household financial stability and
highlight our progress on important areas of work.
As we enter the holiday season after a sustained period of high
interest rates, the CFPB is sharpening its focus on the evolving
patterns of household debt. Over the past few years, borrowing has
accelerated across many key products, including credit cards and auto
loans, and consumers are increasingly utilizing new ways to borrow,
like buy now, pay later.
Americans now owe more than $17 trillion in household debt. Total
outstanding credit card debt eclipsed $1 trillion last year for the
first time since the CFPB began tracking it. Auto loans have grown
quickly to an estimated $1.6 trillion.
The CFPB's analyses have found that rates and fees are contributing
to persistent credit card debt for a growing number of consumers.
Americans paid $130 billion in interest and fees on credit cards last
year, while annual percentage rates rose far above the cost of offering
credit. The CFPB is taking a number of steps to increase competition in
this highly concentrated market.
The return to repayment for Federal student loans continues to be
an area of concern for many borrowers, causing families to reallocate
funds toward student loans after a 3-year pause. We are carefully
monitoring the practices of loan servicers, given their influence on
borrower outcomes. We will also be evaluating the effects of student
loan repayment on consumers' other obligations to better understand the
full impact of the return to repayment and the payment pause itself.
Outstanding auto loan debt has also grown, particularly given the
higher cost of vehicles and higher interest rates. Auto loan payments
are consuming a greater share of income for many consumers, and we are
actively monitoring credit performance and repossession activity.
Residential mortgage activity has declined precipitously during the
last few years, while interest rates, fees, discount points, and other
costs have increased. The result is that homebuyers are paying much
more: average monthly payments on 30-year fixed rate loans increased by
more than 46 percent from 2021 to 2022. We believe these trends
persisted during 2023 given the rate environment.
The CFPB is examining ways to facilitate more refinancing activity
if and when prevailing mortgage interest rates subside to ensure that
borrowers who experience financial distress can navigate alternatives
to foreclosure and to streamline rules and procedures for servicers to
offer loan modifications.
Since our last Semiannual Report, the CFPB has proposed a rule to
accelerate the shift to ``open banking'' in the United States, giving
consumers the ability to more easily switch to new providers, while
taking care to safeguard their personal financial data. We have also
initiated a process to improve accuracy and accountability in credit
reporting, especially for data brokers. We are also taking steps to
address widespread inaccuracies on Americans' credit reports when it
comes to medical bills.
The CFPB's supervision and enforcement program is protecting both
consumers and honest financial firms who must compete against those who
egregiously violate the law. In the last 2 years, we have obtained
orders totaling $8 billion in victim redress and penalties. We have
focused on large, repeat offenders. Families across the entire country
are benefiting from this work.
The CFPB has also tackled the scourge of junk fees that have been
creeping across sectors of the economy and interfering with normal
market forces. We have even uncovered a number of illegal junk fee
practices across consumer financial products.
As Director, I have made it a priority to ensure that the CFPB
continues to modernize its approach to keep pace with a fast-changing
financial services industry. The CFPB has shifted supervisory resources
toward nonbanks to account for the significant role they play in
financial services today. For example, in payments, Big Tech companies
and nonbank payment apps have become ubiquitous in the United States.
The CFPB has taken steps this year, including a proposed rule, to
ensure that these companies adhere to the same rules as large banks,
credit unions, and other financial institutions.
In August, our complaint database reached four million submissions.
Every week, we send more than 20,000 complaints to companies for
responses. I am proud of the CFPB's work in getting consumers the
resolutions they deserve, often through referrals from local
organizations, Congressional offices, and many others.
Thank you for the opportunity to appear before you.
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Additional Material Supplied for the Record
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