    [Senate Hearing 118-558]
    [From the U.S. Government Publishing Office]

                                                            S. Hrg. 118-558

        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

                                 SECOND SESSION

                                       ON

        THE CONSUMER FINANCIAL PROTECTION BUREAU'S SEMIANNUAL REPORT TO
                                    CONGRESS

                                   __________

                                 JUNE 12, 2024

                                   __________

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

        [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

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

                                       _______

                     U.S. GOVERNMENT PUBLISHING OFFICE

    58-678 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

                           Elisha Tuku, Chief Counsel

                  Catherine Fuchs, Republican Policy Director

                          Cameron Ricker, Chief Clerk

                          Shelvin Simmons, IT Director

                           Pat Lally, Assistant Clerk

                                      (ii)

                                C O N T E N T S

                                  ----------

                            WEDNESDAY, JUNE 12, 2024

                                                                       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.....     4
        Prepared statement...........................................    34
        Responses to written questions of:
            Chair Brown..............................................    36
            Senator Scott............................................    38
            Senator Warner...........................................    46
            Senator Rounds...........................................    49
            Senator Hagerty..........................................    53
            Senator Britt............................................    55

                  Additional Material Supplied for the Record

    Semi-Annual Report of the Consumer Financial Protection Bureau--
      Fall 2023......................................................    64
    Letter submitted by ACU..........................................   154
    Letter submitted by CBA..........................................   167

                                     (iii)

                       THE CONSUMER FINANCIAL PROTECTION
                     BUREAU'S SEMIANNUAL REPORT TO CONGRESS

                                  ----------

                            WEDNESDAY, JUNE 12, 2024

                                           U.S. Senate,
              Committee on Banking, Housing, and Urban Affairs,
                                                        Washington, DC.
        The Committee met at 9:45 a.m., via Webex and in room 538,
    Dirksen Senate Office Building, Hon. Sherrod Brown, Chair of
    the Committee, presiding.

                OPENING STATEMENT OF CHAIR SHERROD BROWN

        Chair Brown. The Senate Committee on Banking, Housing, and
    Urban Affairs is called to order. Thank you all for joining us
    last month. We defeated the latest in a long, long, never-
    ending, it seems, line of attacks on the CFPB by corporate
    interests that want the agency off their backs. In the end, the
    American people won and Wall Street lost. Now that the CFPB is
    finally done fighting a ridiculous, ridiculous lawsuit, it can
    focus on what it does best, getting people their money back,
    not that during the lawsuit they didn't keep fighting to get
    their money back, of course.
        The Supreme Court's ruling upholding the CFPB is a victory
    for hardworking families in Ohio, for military families
    managing their finances, for students trying to pay back their
    loans, for older Americans trying to guard against financial
    predators. Most people do not have fancy lawyers, do not have
    high-priced lobbyists to fight for them. CFPB works on behalf
    of everyone else, fighting for their rights and their hard-
    earned money.
        That includes their latest action this week, eliminating
    medical debt from credit reports. Thank you for that, Director.
    This is something many of us have pushed for that will protect
    the credit scores of millions of Americans. Medical debt is
    particularly damaging to consumers, as many on this Committee,
    including Senator Smith, have pointed out. Fifteen million
    Americans still have medical bills on their credit reports, but
    people don't choose to get sick or injured, obviously. Medical
    debt can happen to anyone. It does not matter if you are doing
    things right in your life. Anyone can get sick; anyone can get
    in a car accident. It has nothing to do with your ability to
    pay your bills, which shouldn't have anything to do with your
    ability to pay your bills. Medical debt doesn't correlate with
    credit risk, it correlates with illness and injury. It has no
    place, no place in credit reports.
        When this rule is finalized, all Americans will have
    medical debt removed, wiped off their credit reports for good.
    No one should be rejected for a car loan because of a sick
    family member or forced to pay higher mortgage rates because of
    a medical emergency. Our credit score should reflect our
    financial health, not our physical health.
        The medical debt rule isn't the only thing CFPB is working
    on to save people money. It's doing important work reducing
    costs for consumers by targeting junk fees. Junk fees are the
    surprise, often last minute, charges, just one more add-on that
    drive up the cost of products. They have no justification or
    connection to anything other than corporations' thirsts for
    profits. Junk fees obscure the true cost, preventing consumers
    from shopping around to find the lowest price.
        Earlier this year, CFPB took a major step in reducing junk
    fees and costs for consumers with its credit card late fee
    rule. According to one report, one in five adult Americans paid
    a credit card late fee last year. In 2022, that meant credit
    card companies charged consumers more than $14 billion in late
    fees. When the CFPB ran the numbers, they found that credit
    card companies were charging consumers more than five times,
    more than five times the cost associated with late payments,
    including collections. These are massive, trillion-dollar Wall
    Street companies. The idea that you are missing your payment
    due date by a day or two is imposing some huge cost on the
    credit card company is just patently ridiculous. CFPB is
    putting an end to this and lowering fees.
        Another major source of out-of-control unfair costs in
    financial services is payday lenders. We have pushed for years
    to crack down on these shady lenders that target my State's
    working families, including military servicemembers and
    veterans, with high-interest predatory loans designed to trap
    them in a cycle of debt. Many Americans have to renew their
    payday loans so many times, they end up paying much more in
    fees than the amount they borrow. We have seen that time and
    time again. In 2021, we took on the payday lending lobbyists
    fighting to protect State laws that limit the interest these
    financial predators can charge, and we won.
        The CFPB is doing important work to protect consumers from
    payday lenders. The agency's payday lender rule will curb some
    of the worst practices, and it will help consumers avoid
    abusive debt traps.
        Finally, I want to talk about one of the most important
    things CFPB does: stand up for servicemembers and veterans.
    When we created the CFPB, we made sure it included the Office
    of Servicemember Affairs. Every year, tens of thousands of
    servicemembers seek the CFPB's assistance or report a
    complaint. I particularly hear about those in Miami Valley
    around Wright-Patterson Air Force Base. The number of
    servicemembers getting help has increased for each of the last
    3 years. That has a whole lot to do with your work.
        CFPB goes to bat for them, works to get their money back or
    fix the problems threatening their finances, but also
    threatening their jobs. CFPB has returned more than $183
    million to servicemembers and veterans, money that companies
    took straight from servicemembers' and veterans' pockets.
    Overall, in the last dozen years, CFPB has returned $21 billion
    to more than 205 million consumers. These numbers are not
    hypothetical. They are real checks the land in real people's
    mailboxes, dollars might mean a little extra breathing room to
    buy groceries or fill up a tank of gas.
        That is why it is so critical we have the Consumer
    Financial Protection Bureau. Wall Street has lawyers and
    lobbyists. Working people have the CFPB, something we all
    should remember. I will always fight for its work because it
    gets money back into people's bank accounts, it stops bad
    actors from cheating on its families that stand up for
    consumers when they may have nowhere else to turn.
        Senator Scott.

                 OPENING STATEMENT OF SENATOR TIM SCOTT

        Senator Scott. Thank you, Mr. Chairman. Director Chopra,
    thank you for being here with us today. I will say that,
    listening to Chairman Brown's comments, it sounds like we are
    talking about two completely different agencies, and frankly, I
    am sure our view is completely different.
        The CFPB has not been idle in its pursuits. Based on the
    pace and scope of announcements I see coming out of your
    agency, it looks like full steam ahead. I think the celebratory
    cheers from 17th Street echoed all the way over here after the
    Supreme Court ruling. However, I want to be clear that their
    decision on CFPB's funding structure only increases my concerns
    about the agency's lack of accountability. Time after time,
    your agency brushes aside congressional concerns, forges ahead
    with political agendas, and pushes well past the boundaries of
    its authority.
        This ruling is not a green light for your progressive wish
    list. And when we look at the reaction to your regulation, it
    is a litany of lawsuits, all of which take time, attention, and
    resources away from the laws you should be implementing and
    enforcing, as well as the American consumers you should be
    protecting.
        So, frankly, it makes me wonder what consumers are you
    protecting. The CFPB is supposed to be an independent agency,
    but under your leadership, it seems to the Bureau works hand-
    in-hand with the White House and appears more interested in
    scoring headlines for the Biden administration than doing its
    job.
        Whether it is standing with President Biden as he unveiled
    the junk fees campaign or, as we saw yesterday, with the vice
    president announcing your new proposal to ban medical debt from
    credit reports, the political coordination is crystal clear.
    You are not protecting consumers or saving people money.
    Instead, you are peddling a false narrative that the Biden
    administration is doing something to reduce the actual costs.
        But then reality hits, and we realize this Administration's
    actions simply shift who saves and who pays. It is well past
    time we end this junk fees narrative and focus on the junk
    philosophy behind them. With every action taken, there are
    tradeoffs, and those tradeoffs have consequences.
        In this case, the Administration is trading a punchy
    headline for claiming they are saving families money today
    while actually building higher costs down the road. Take, for
    example, your credit card late fees rule. While the rule may
    save some folks around $20 each time they make a late payment,
    how much will it cost these same consumers when they no longer
    qualify for a credit card because they haven't paid their
    balances on time? How much will it cost them when their credit
    score drops as a result of these late payments? How much will
    it cost them when the rate for their car loans and their
    mortgages go up, not down?
        You can't just keep erasing the bad facts to fit your
    political narrative. The bill always, and unfortunately always,
    comes due. You have made a choice to try to curry political
    favor with little regard to the harm it will cause Americans
    down the road.
        You have done this to America's small businesses, as well.
    Small businesses tell me the same story over and over again,
    and that story is simply a Washington shakedown designed to be
    little more than a gotcha exercise, just like the CFPB's Civil
    Investigative Demands, or CID, process. Under your CID process,
    the Bureau may issue without any court order a subpoena to a
    business when you are looking into potential violations of the
    law. Now, once that subpoena has been issued, the CFPB can
    demand nearly anything they want, from reams of documents to
    executive testimony.
        So what does that mean for a company that draws the ire of
    your agency? It means years of costly investigation with little
    hope of relief or, in other words, a bureaucratic witch hunt.
        One small business recently described the process to me,
    and I thought this was really incredible to see what the
    Government can do to you, as opposed to for you. For 3 years,
    the CFPB audited this company, but this audit resulted in no
    fines, no reprimands, and no additional CFPB action. Then in
    2022, 4 years later, the CFPB issued the first CID, which
    resulted in 12,000 pages of document production and testimony
    under oath for the CEO. But, again, you took no action.
        Then in 2023, the CFPB issued another CID, broadening the
    scope further and requesting millions of pages of documents.
    This time, the firm attempted to fight back and appeal; but
    unfortunately for this small business, the only option for
    appeal is through the CFPB itself. Not surprisingly, the agency
    rejected the appeal.
        To date, after countless hours of employee time and
    hundreds of thousands of dollars of outside legal fees, the
    CFPB has taken no action. And this is just one example of a
    story which is playing out across the country every day for far
    too many small businesses.
        American consumers and businesses deserve better. They
    deserve protection by their Government from bad actors and to
    be left alone when they are simply trying to make a living.
        Chair Brown. Thank you, Senator Scott. The Honorable Rohit
    Chopra has served as the Director of the Consumer Financial
    Protection Bureau since October 12th, 2021, when he was
    confirmed. He has worked at CFPB in his early days, serving as
    assistant director in student loan ombudsman shortly after the
    agency opened its doors. He has also been an FTC commissioner.
    Director Chopra, you are recognized.

        STATEMENT OF ROHIT CHOPRA, DIRECTOR, CONSUMER FINANCIAL
                           PROTECTION BUREAU

        Mr. Chopra. Chairman Brown, Ranking Member Scott, thank you
    for holding this hearing today. Since its creation, the CFPB
    has returned $20.7 billion to consumers through law enforcement
    activity and created unquantifiable returns for the over 205
    million Americans and honest businesses harmed by the illegal
    practices we have stopped. We are currently on track to save
    customers $20 billion in junk fees every year, and we also
    expect to process over two million complaints this year. Since
    my last report, we have advanced a number of key initiatives on
    financial data, medical debt, and credit cards.
        First, we are making major progress when it comes to
    financial privacy in an increasingly digital marketplace. The
    U.S. has to lead when it comes to a competitive and innovative
    market. At the same time, this can't be at the expense of
    unchecked surveillance, like we see in China and other markets.
    We are progressing toward finalizing open banking rules to
    develop data-sharing standards and privacy protections when
    people transfer their financial data to competing companies. We
    finalized a key part of this framework last week, which will
    set the stage for finalizing the rest of the rule required by
    Congress this fall.
        We are also moving forward to propose a rule under the Fair
    Credit Reporting Act to restrict uses of certain sensitive data
    by data brokers as part of a broad Government effort to protect
    our national security and servicemembers from countries of
    concern that might seek to purchase and exploit sensitive data
    on Americans.
        While the CFPB is taking important steps on protecting
    financial data, it is critical that Congress acts, too. Since
    my last appearance, there have been reports that large
    financial firms, like PayPal and JPMorgan Chase, are planning
    to use sensitive data about people's income and spending to
    fuel surveillance-based targeting and advertising. These plans
    to monetize sensitive financial transaction data are a reminder
    that the U.S. is slowly lurching toward more surveillance and
    even financial censorship.
        We are eager to work with you to do more to protect against
    abuse and misuse of data, including by enshrining stronger
    protections into law. We also believe there is opportunities to
    advance legislation to accelerate open and decentralized
    banking in our country.
        Second, we proposed a rule to prohibit the inclusion of
    medical bills in credit reports and credit scores. This will
    prevent debt collectors from using the credit reporting system
    to coerce patients into paying erroneous bills. Last, we are
    continuing to focus on the trillion-dollar credit card market.
    We have closed a loophole exploited by large credit card
    companies, lowering most of those fees to $8. Credit card
    companies will still be able to penalize their customers, and
    they will still be able to charge a fee exceeding $8 if they
    can show their math.
        But we know there is much more to watch here. The CFPB is
    looking at how to protect people's points and rewards from
    devaluation and bait-and-switch tactics. We are taking steps to
    jumpstart more competition so that small banks and credit
    unions offering credit cards with lower rates can gain share.
    All of these efforts will lead to billions of dollars in
    savings every year.
        These are just some of the many initiatives the CFPB is
    pursuing, many of them specifically required by Congress. And
    there is also so many areas we are watching to ensure that the
    financial system is helping American families and businesses
    get ahead.
        I have appeared before this Committee, Mr. Chairman, many,
    many times, and I have had the chance to meet with so many of
    you on both sides of the aisle. I do think there is so much
    more we can do together to tackle the problems that our country
    faces.
        Thank you, and I look forward to your questions.
        Chair Brown. Thank you, Director, for your concise
    testimony. Medical debt, as we know, as you have said, as many
    of us on this Committee has said, does not reflect spending
    habits or help lenders predict risk. Medical debt places
    patients at risk of downgraded credit, costs them money, and
    they can fall victim to predatory debt collection practices. We
    have seen cases, perhaps unbelievably, of companies
    repossessing people's wheelchairs and, in some cases, even
    repossessing their prosthetic legs. So I was happy to see CFPB
    just announced its proposed rule to prohibit medical debt from
    being included on credit reports, removing medical debt for
    more than 15 million American's credit reports.
        Talk about, if you would, how this rule will affect
    consumers, and will it eliminate--will eliminating medical debt
    also help those kinds of abusive debt collection practices?
        Mr. Chopra. Well, you said it earlier, there's a big
    difference between taking out a mortgage or a credit card or an
    auto loan versus a medical bill appearing on your credit
    report. There has been over a decade of empirical evidence to
    show the much higher rates of inaccuracy and also the lack of
    predictive power of medical bills to determine repayment on
    other loans.
        We have seen the credit reporting system turn into a
    weapon, often to coerce people into paying things they already
    paid or never owed in the first place. We think this is going
    to go a long way, this proposal, to alleviate some of those
    abuses. And, of course, there will still be many ways to
    collect on those debts, but using the credit report system to
    coerce people, I think it goes beyond what Congress intended.
        Chair Brown. Thank you. The credit card late fee rule
    lowers the typical credit card late payment from $32 to $8 for
    larger card issuers. Those who it applied to, they claimed this
    rule wouldn't cover the cost associated with late payments, as
    you know. Americans can't afford these high fees, fees far in
    excess of the cost of service provided. These include credit
    card late fees. During the CFPB's comment period, companies had
    time to justify, to attempt to justify their high fees.
        Did any large credit card issuer show their math justifying
    a $32 late fee?
        Mr. Chopra. No.
        Chair Brown. They just simply didn't. They can't prove that
    such a high fee was necessary. Are large card issuers making
    huge profits from late fees, I assume?
        Mr. Chopra. Yes. We estimate that this loophole in the
    rules has led to $10 billion in extra revenues for those
    issuers. Congress prohibited disproportionate and unreasonable
    penalties, but this loophole has been seized upon and abused,
    and I think it is overdue that we close it.
        Chair Brown. It is pretty obvious to all of us that are
    fair-minded on this podium that credit card issuers shouldn't
    be extracting profits from consumers through late fees, first
    of all because it is just simply, on the face of it and beyond,
    unfair. Second, because these fees are required to be
    reasonable and proportional to costs, and I think you've
    illustrated that both with your actions and with your answer to
    these questions.
        I will ask a question. For the millions of Americans who
    use apps like Cash App, Zelle, and Venmo, fraud is a growing
    problem. For servicemembers and their families, fraud on
    payment apps is particularly concerning. Their steady income,
    their frequent moves, make them targets for scammers. I have
    seen that, especially around Wright-Patterson Air Force Base
    but also YARS in Youngstown and Toledo and Mansfield, where I
    grew up in Springfield. Their steady income, as I said, and
    frequent moves, makes them more of a target. CFPB is something
    Senator Reed has worked on pretty much his whole career. The
    CFPB identified several risks to military families, including
    serious financial harm from fraud and from unauthorized access
    on apps.
        You have proposed a rule that would establish the Bureau's
    authority over some payment companies by defining them as
    larger participants. Explain this. How will this rule help
    prevent fraud? How will it protect servicemembers and their
    money on payment apps?
        Mr. Chopra. Well, sadly, military-connected families report
    identity theft at way higher rates than the general population.
    They are often targeted for their data, for their money, and
    more.
        So we do think we have very large payment apps operating
    outside of the banking system. The law really asks us to make
    sure that there is even-handed oversight. Those entities are
    already subject to enforcement. We think some level of
    supervision, given the enormous number of people in our country
    using them, is modest and appropriate and will prevent some of
    the fraud that you discussed.
        Chair Brown. Thank you. I have 12 seconds. A yes or a no
    question: does CFPB's research suggest that credit card
    companies could lower their interest rates and still be
    profitable?
        Mr. Chopra. Yes.
        Chair Brown. Thank you. Senator Scott.
        Senator Scott. Thank you, Mr. Chairman. Director Chopra, as
    I am sure you heard during my opening comments, the CFPB's
    Civil Investigative Demand, or CID, process is a prime example
    of your agency's vast attempts at regulatory overreach in an
    effort to chase obscure objectives and pet interests. A
    company, a small business, subject to one of your CIDs can
    spend years and hundreds of thousands, if not millions, of
    dollars attempting to comply with never-ending CFPB demands.
        Adding insult to injury, a company subject to CID
    compliance can be left hopeless for change since any appeal is
    ultimately described and determined by you, the judge and the
    jury. In fact, under your leadership, all CID appeal requests
    have been denied. And just a few months ago, you eliminated the
    role of the associate director of the Division of Supervision,
    giving yourself even greater control over all appeal decisions.
        How many CIDs has the CFPB issued under your leadership?
        Mr. Chopra. So let me say up top that enforcing the law
    doesn't just protect consumers. It protects honest businesses.
        Senator Scott. How many CIDs have you----
        Mr. Chopra. And let me just also correct that it is not
    true that----
        Senator Scott. How many have you----
        Mr. Chopra. I don't have the exact number.
        Senator Scott. Ten, fifty, five hundred?
        Mr. Chopra. During my time as director, we have, I think,
    recovered around $8 billion----
        Senator Scott. So how many CIDs have you----
        Mr. Chopra. ----So that has been a lot of enforcement
    actions.
        Senator Scott. There is no doubt that you have been busy.
    No doubt about that.
        Mr. Chopra. Senator, I would be eager to meet with you. I
    would like to really discuss this with you. Our enforcement
    program has shifted away from small actors to large repeat
    offenders.
        Senator Scott. Well, frankly, that isn't very----
        Mr. Chopra. There is certainly the need to use Civil
    Investigative Demands----
        Senator Scott. Director Chopra, let me just say this, I
    would love to see your process work, but it is like having a
    bully in a school that keeps beating on----
        Mr. Chopra. This is how every other agency works, as well,
    so----
        Senator Scott. Actually, your one agency is the one agency
    that does not flow through Congress. Your resources do not
    actually go through the Federal Reserve.
        Mr. Chopra. That is also not true. Most other financial
    regulatory agencies do that, so we are going to keep doing our
    enforcement work----
        Senator Scott. The bottom line is you have consistently
    abused your power----
        Mr. Chopra. That is totally not true, Senator.
        Senator Scott. I asked you a specific question as it
    relates to the CIDs, and I get no answer. So let me go onto a
    different question, because I like the marketing strategy from
    the Biden administration as it relates to junk fees because,
    frankly, if you say the word junk fees, you assume that those
    junk fees are just unnecessary. I am not sure that the average
    businessperson and/or the consumer would see the late fees, the
    overdraft fees, and nonsufficient fund fees as junk fees. There
    is no question that the Biden administration has done a
    fabulous job of trying to highlight and market to the American
    people that these fees are unnecessary. Well, you say it is $10
    billion. I will take your word on that.
        Bottom line is simply this: as a business functions, if you
    do not collect those fees from people who are delinquent on
    their payments, then you find those fees someplace else. So the
    fee structure may go away, but the revenues must be replaced by
    something else and they are consistently replaced by either
    higher interest rates on credit cards or higher fees on
    accounts or the elimination of those accounts because, if you
    can't find the revenues to maintain profitability from that
    sector of your business, what you will essentially do is you
    eliminate them. Having been in business for 20-plus years, I
    can tell you that the bottom line is a simple line: that if
    your lowest-performing consumers aren't incentivized to
    continue to perform better, you typically stop offering those
    products and services to those consumers. And when that
    happens, they don't just stop asking for the resources. They go
    to a different market where the interest rates are higher and/
    or where there is no regulation whatsoever.
        Why are late fees OK for Government agencies like the IRS,
    but not OK for businesses?
        Mr. Chopra. Well, so there is a congressional ban on
    unreasonable credit card penalties. And when the rules were
    implemented over a decade ago, there was a loophole which the
    credit card industry's lawyers have just driven a truck through
    to the tune of $10 billion a year. I think junk fees are a huge
    problem in our economy. I think it is one that is bipartisan in
    nature in terms of reform. People are really sick and tired of
    not seeing the full cost upfront but rather being nickel-and-
    dimed on the back end.
        The thing about capitalism that is great, when you can
    compare the prices clearly, the best offeror will win out. But
    when you make the pricing so complex and convoluted, that is
    not good for the honest businesses. And, frankly, our smaller
    banks and credit unions don't build a business model off of
    this loophole, and we should be doing more to support them, I
    think.
        Senator Scott. I would simply say that speaking with a
    forked tongue is common in the Biden administration, number
    one. Number two, I would simply say this, as my time is running
    out according to the Chairman's red button, I wish we had
    congressional bans on the IRS charging late fees and interest
    on balances due. I wish we had a consistent standard applied to
    the public sector as we do the private sector. We would
    probably have a better outcome----
        Mr. Chopra. We should work on that together.
        Senator Scott. Thank you.
        Chair Brown. Is that an offer, Mr. Scott?
        Senator Scott. Is it an offer for us to have a conversation
    about the inability for folks on the left to make common sense
    with the high oppressive nature of Government? I am happy to
    have a dialogue----
        Chair Brown. Senator Reed from Rhode Island is recognized.
        Senator Reed. Thank you very much, Mr. Chairman. And
    welcome, Director. We are seeing a rise of a new fintech
    product that provides consumers with cash advances, and these
    loans are marketed as having no mandatory fees and charging no
    interest and also but soliciting tips and donations, which is
    an interesting model. And while these fees are supposedly
    voluntary, in fact, you will not get the loan unless you ante
    up. And these are typically short-term loans. When we do the
    math, in terms of their voluntary tips or donations, the
    percentage interest rate is astounding, like 511 percent.
        Do you believe that these tips and donations should be
    treated as interest charges, which would trigger consumer
    protections, particularly military who have been protected by
    the 36-percent limit.
        Mr. Chopra. Well, we recently, Senator, we charged a
    company with violating the law on specifically those grounds.
    In fact, when the consumer sought to get the loan, it was
    impossible to not leave a tip. It was just a fake tip.
        So I think we are looking for all the ways in which
    companies are trying to sidestep these longstanding protections
    that have been around for 50 years. Some of these companies
    brand themselves with different types of terms. We are looking
    at the facts, and, if they are pushing people into a finance
    charge, Federal law is pretty clear that they need to disclose
    it clearly with an interest rate so that people can compare.
    And as Senator Scott was mentioning, we need to be able to look
    and compare, so the best player wins.
        Senator Reed. Thank you. I was very pleased to see the CFPB
    issue an interpretative rule last month clarifying that many of
    the rules of credit cards also apply to buy now, pay later
    loans. And now that the CFPB has clarified which rules to
    apply, the CFPB should bring the biggest BNPL lenders under
    Federal supervision in order to spot violations. That's my
    view.
        Do you have an update on the progress toward examining
    these buy now, pay later firms on a compulsory basis?
        Mr. Chopra. Yes. We do have certain authorities to
    supervise those types of lenders. Some of them we can work with
    States who license them. In other cases, we can issue them a
    notice for which they can reply, and we can determine whether
    supervision is warranted. But I want to be clear, I take your
    point very seriously that the CFPB cannot be behind the 8-ball
    when it comes to buy now, pay later. We have tried to stay
    ahead of it. It is fast-growing, and it is an important part of
    our consumer credit market, and we need to make sure it is
    growing on the merits, not based on regulatory loopholes.
        Senator Reed. In that sense, do you need any additional
    authorities to keep ahead of it?
        Mr. Chopra. Well, certainly, if you would like to make sure
    that they are subject to Federal supervision, we can work with
    you. We do have some authorities, but, if you'd like to see
    more dedicated to that, we are happy to work with you on it.
        Senator Reed. And with the effect of another aspect of the
    BNPL market, unlike credit card companies, they do not
    uniformly report consumer repayments to the major credit
    reporting bureaus, and this could raise a host of problems.
    Consumers may not get the benefits of responsibly using credit
    in terms of improved credit scores, and the industry cannot see
    a consumer's full debt load.
        So what are your tools to incentivize the credit reporting
    bureaus to include BNPL?
        Mr. Chopra. Yes. One of the things that is worth noting is
    the auto lenders and mortgage lenders, they are very concerned
    that buy now, pay later is not on the credit report because
    they are saying to me how are we supposed to know if the person
    is able to afford this if we don't know what all these buy now,
    pay later loans are? And for buy now, pay later companies
    themselves, you know, we have asked them how do you know what
    other loans people have?
        So I think we would want to talk to all of you to figure
    out. Right now, it is not a requirement of Federal law to
    report, but it is something we have some worries about.
        Senator Reed. Credit card use is going up dramatically, and
    people are reaching their limits quickly and, particularly, Gen
    X--Gen Z rather. Given the situation with credit cards, do you
    believe there are similar dynamics in the market for buy now,
    pay later loans, i.e., that they will be overused by the
    customer?
        Mr. Chopra. I think, just like credit cards, there are some
    serious concerns about over-indebtedness and people getting in
    over their head. It is something that we all need to pay close
    attention to.
        Senator Reed. Thank you very much, Mr. Director.
        Chair Brown. Thank you. Senator Rounds from South Dakota is
    recognized.
        Senator Rounds. Thank you, Mr. Chairman. Good morning,
    Director Chopra. In questions for the record following an April
    of 2022 Senate bank hearing, Senator Menendez asked you whether
    Regulation E of the Electronic Fund Transfer Act required
    refunds for consumers who are scammed, as opposed to victims of
    fraud. Your response I viewed as rather vague, and I want to
    clarify it, because it suggested that certain Regulation E
    provisions apply to peer-to-peer services but not directly
    addressing the question.
        So to clarify it, does the CFPB believe that consumer-
    authorized but fraudulently induced transfers are considered
    unauthorized electronic fund transfers under the EFTA?
        Mr. Chopra. It is a pretty technical question. We are also
    happy to take that question again for the record. But the
    general sense is that, with respect to fraud and scams, the
    line is a little bit blurry. And it is true that there has been
    an increase in what has been called push payment fraud. And so
    one of the places--there is the Regulation E framework, but
    there is also the network rules that govern, for example, ACH,
    other things. Typically, those network rules have set some of
    the parameters for the responsible party with it.
        So I think this has been a place where the nature of
    electronic funds fraud has evolved, but it is hard for me to
    give you--and I would like to give you a more black-and-white
    answer----
        Senator Rounds. And I am going to ask for it for the
    record, but I just want to make--under Regulation E, it sounds
    like, and you can clarify this right now, it doesn't sound like
    it is Regulation E that you would look at this. Perhaps under
    other areas specifically with regard to ACH activity.
        Mr. Chopra. Well, there is some places where Regulation E
    would certainly apply.
        Senator Rounds. Give me an example.
        Mr. Chopra. It is something that I don't want to misstate,
    but I am happy to really answer that for you and meet with
    you----
        Senator Rounds. Yes. I mean, this is a pretty big deal----
        Mr. Chopra. I agree.
        Senator Rounds. ----because it is one thing, the way that
    it was originally intended was that, if it is the fault of the
    organization, you know, the system is set up where if somebody
    actually gets in and is defrauded out of a loss, that is
    different than if somebody makes a decision and then uses the
    system to transfer, even though the fraudster on the other side
    of it is responsible and the individual has decided that they
    want to transfer it.
        Mr. Chopra. Yes.
        Senator Rounds. I don't see how an organization, you know,
    in the middle of it----
        Mr. Chopra. So here is the issue: I think sometimes the way
    in which the money moves, just like when a financial
    institution's information might be taken, a consumer's
    credential information may be taken from the financial
    institution. So there are places where you are able to simulate
    an outbound transfer that may actually be fraudulent.
        Senator Rounds. I am going to ask you to put that to the
    record because this is a really important----
        Mr. Chopra. No, I appreciate this so much. Electronic
    frauds are getting more complicated with use of generative AI,
    so we do have to think about what do we want to make sure we
    are offering guidance so that it is clear how we deal with
    these things. But I completely appreciate the sensitivity on
    this.
        Senator Rounds. OK. And I am going to ask you a little bit
    about AI in a minute, but I want to get to one more item first.
    I have to admit that I was very disappointed yesterday to see
    the CFPB's proposed rule to eliminate medical debt from credit
    reports. Just 6 months ago, when you were last before the
    Committee, I expressed my concerns with simply excluding
    medical debt from credit reports, as medical professionals may
    simply switch to cash-only transactions. I asked you if you
    were looking at how the health care industry would respond, and
    you assured me that you were. However, after reviewing the
    rule's analysis, I did not see any stakeholder outreach to the
    health care provider community.
        That said, there is a section in the analysis on the cost
    to health care providers. My question is how many physicians
    did the organization actually consult before issuing the
    proposal and how many members of a health care industry or
    providers in general did you consult with and was any of their
    input actually integrated into the rulemaking?
        Mr. Chopra. Just to be clear, this is a proposed rule, so
    it is not final. But I think we did do a lot of outreach in
    terms of understanding the different dynamics between
    hospitals, between independent providers, between other types
    of facilities, the integration with the health insurance
    system.
        So I remember your question last time. It is something I,
    too, have been really wanting to make sure we get right because
    we don't want to see this be something that is abused, but we
    also want to understand all the potential effects.
        Senator Rounds. I think it is critical that you follow and
    take into account what will happen to these folks that send out
    a bill and then they have to pay their bills, as well. And I
    think that has to be taken into account----
        Mr. Chopra. Oh, absolutely. And as a general matter, we see
    that not all medical providers do this. There is a lot of
    differences, and there is some important differences when there
    is insurance companies involved.
        Senator Rounds. OK. And I know I am out of time, but I have
    just one very quick, and I think he can answer this with a yes
    or a no, Mr. Chairman.
        Director Chopra, does a company have to abide by the Fair
    Credit Reporting Act, the Fair Housing Act, and the Equal
    Credit Opportunity Act, regardless of what technology they use,
    AI or otherwise?
        Mr. Chopra. There is no AI exemption in any of those
    statutes.
        Senator Rounds. They all are subject to existing
    regulation. Thank you.
        Chair Brown. Thanks, Senator Rounds. Senator Smith of
    Minnesota is recognized.
        Senator Smith. Thank you, Chair Brown. And welcome. It is
    great to have you here, Director Chopra.
        I want to ask a question first about kind of issues around
    tenant screening. This is something that I have been really
    concerned about, how landlords can use algorithms and other
    kinds of black box technology that could be built on bad
    information. And I have heard from my constituents in Minnesota
    stories of prospective tenants who have had their rental
    applications rejected because the application review was based
    on outdated or erroneous or just incomplete data. For example,
    one of my constituents was denied an apartment because a tenant
    screening flagged an incorrect criminal record.
        So my question is, I know that the CFPB has been actively
    engaged on this issue, could you just briefly talk a little bit
    about what actions that you have taken so far to improve the
    accuracy of these reports and increase transparency for
    consumers?
        Mr. Chopra. Yes. We have taken enforcement actions,
    including against TransUnion, for violating the Fair Credit
    Reporting Act in its tenant screening. We have issued a number
    of guidance documents to really make sure that this business is
    adhering.
        You know, Senator Smith, you, Senator Kennedy, others,
    people who might have common surnames are particularly
    victimized by this. They are matched with someone who is not
    them, and then it is almost impossible sometimes to figure out
    how to get it fixed.
        We are also making clear to landlords and others that, you
    know, if they are using one of these credit reports, they
    really need to make sure that they are complying with the Fair
    Credit Reporting Act, too.
        Senator Smith. Because even, I mean, even though it might
    be a black box to even the landlord, that doesn't matter,
    because they are still held accountable, as I understand it,
    for whether they are making fair decisions or not.
        Mr. Chopra. Yes. Depending on the circumstance, the AI
    company, the tenant screener, the landlord, we really worry
    about how the data and the algorithms are being deployed,
    especially when it is just matching the wrong person or using
    outdated information.
        Senator Smith. Right, right. And that has a huge impact
    when people are already struggling to figure out how to find an
    affordable place to live and what happens next with that.
        I want to move to another topic quickly. The CFPB's most
    recent report on mortgage activity found that, in 2022,
    mortgage applications of Black and Hispanic borrowers were
    denied at higher rates than White and Asian borrowers. And I
    understand that, even if they were approved, they typically
    were receiving smaller loans at higher rates with more upfront
    fees.
        Now, of course, the report acknowledges that Black and
    Latino borrowers may typically have lower credit scores, which
    could have contributed to this disparity. But a recent study
    done by the Minneapolis Fed found that, even if you correct for
    those disparities, even after adjusting for those factors, such
    as credit scores and incomes and wealth, we are still seeing
    disparities in what is happening with mortgages.
        So, Director Chopra, how can we better identify and capture
    what factors are driving these disparities and what is the CFPB
    doing maybe with the Justice Department to enforce fair lending
    laws in this context?
        Mr. Chopra. Well, certainly, both the Justice Department
    and the CFPB have taken a number of actions when it comes to
    redlining. We took the first action in Delaware, New Jersey,
    and Pennsylvania related to a nonbank redlining company. But,
    you know, these are hard to do case by case, so part of the way
    I think we are trying to work with the industry is figure out
    where are there barriers when it comes to offering loans fairly
    to everybody. I think the Community Reinvestment Act plays a
    certain role. I think some companies and lenders are using
    other programs. But it is clear we have work to do here.
        Senator Smith. Well, thank you. I think that this is,
    again, as issues of housing are so crucially important across
    the country and as people are struggling to find an affordable
    place to live, to find that you are just not, you know, somehow
    the door to getting a mortgage for your first home possibly is
    just closed to you is such a huge limit on the opportunity that
    people have to build wealth and to have a great place to live.
        Mr. Chopra. And if you are paying so much more than what
    you should for your credit risk, that has a big impact on your
    monthly budget.
        Senator Smith. Exactly. Well, thank you. Thank you very
    much, Mr. Chair.
        Chair Brown. Thank you, Senator Smith. Senator Kennedy from
    Louisiana is recognized.
        Senator Kennedy. Thank you, Mr. Chairman. Mr. Director,
    good to see you. Thanks for coming. I always enjoy your
    testimony. When I look for a common thread running throughout
    your testimony and I look at your agency's behavior, one of the
    common threads I see is, and I am not going to ask you to
    comment on this, is that, in your judgment, some companies in
    America are making too much money.
        Now, you analyze their financial statements, do you not?
        Mr. Chopra. Sure.
        Senator Kennedy. Do you distinguish between revenue and
    earnings when you analyze a financial statement?
        Mr. Chopra. Well, sure. We look at all things. And I would
    say that we don't think too much money----
        Senator Kennedy. What is the different between revenue and
    earnings?
        Mr. Chopra. Well, these are all used colloquially.
    Sometimes, those are similar. In GAAP accounting, which is what
    most U.S. companies use----
        Senator Kennedy. No, don't tell me about GAAP. Just tell me
    your understanding of the difference between revenue and
    earnings.
        Mr. Chopra. Well, I can share with you revenue and net
    income. So those are the two factors that when you say are on
    financial statements----
        Senator Kennedy. Well, earnings is another word for net
    income.
        Mr. Chopra. Well, earnings can be used for many different
    things, but, in generally accepted accounting principles, net
    income is what all of our banks are really using.
        Senator Kennedy. OK. Well, revenue is before expenses and
    earnings, net income, is after expenses----
        Mr. Chopra. No. I think, like, when people go to work, they
    say my earnings were this. I mean, their salary. So I think we
    tend to look at accounting definitions----
        Senator Kennedy. No, I'm not talking--they may say that,
    but when you analyze a financial statement, you look at
    expenses, don't you? You don't just equate revenue with
    earnings, do you?
        Mr. Chopra. Well, totally. And I think your suggestion that
    we think companies are too profitable, we think about
    competition.
        Senator Kennedy. I understand.
        Mr. Chopra. What are the options people have in order to--
    --
        Senator Kennedy. Well, here is what is confusing me. We all
    know, unless you were playing frisbee in the quad during Econ
    101 or Accounting 101, there is a difference between revenue
    and earnings.
        I want to ask about the way you are funded. I have looked
    at Congress' statute. I am looking for it here. It says here is
    how you are funded, and you just won your lawsuit in the
    Supreme Court. Each year, beginning on the designated transfer
    date, in each quarter thereafter, the Board of Governors of the
    Federal Reserve where you get your money shall transfer to your
    agency from the combined earnings of the Federal Reserve system
    the amount determined by the director to be reasonably
    necessary to carry out the authority of the Bureau. It says the
    combined earnings, not the revenue.
        Now, for the longest time, the Federal Reserve was earning
    money, but that stopped in what? September of 2022. Now, they
    are losing money. They don't have any earnings. They are no
    longer transferring earnings to the general fund. And the
    Supreme Court based its decision on saying that this funding
    scheme is constitutional under the appropriations clause by
    saying that these earnings would go to the general fund from
    the Federal Reserve, so getting them directly from the general
    fund is no big deal.
        How are you entitled to any money right now? The Federal
    Reserve doesn't have any earnings.
        Mr. Chopra. Well, we have heard of this theory. I think it
    is one of the latest----
        Senator Kennedy. It is not a theory. It is a
    congressional----
        Mr. Chopra. Well, I think you raised a difference between
    revenue and net income. There are other places throughout our
    laws. I can tell you we have looked at this issue. We do
    believe wholeheartedly everyone is complying with the statute--
    --
        Senator Kennedy. I know you believe that, but if you look
    at what----
        Mr. Chopra. I am aware with what you said. Revenue and net
    income----
        Senator Kennedy. If you read the--if I could just finish my
    question.
        Mr. Chopra. Sure.
        Senator Kennedy. If you read the opinion, and I did, and
    you read the statute, it says here bigger than Dallas you can
    only get your money from the Federal Reserve out of earnings.
    Now, the Federal Reserve has not had any earnings since
    September of 2022; isn't that correct?
        Mr. Chopra. No, that is not correct.
        Senator Kennedy. Sure it is correct.
        Mr. Chopra. From a net income perspective, you are right--
    --
        Senator Kennedy. All you have to do is go----
        Mr. Chopra. ----but they have generated lots of fees and
    income and--I appreciate what you are saying. I am happy to
    discuss this with you, but I think we have looked at this----
        Senator Kennedy. But my point is everything, every penny
    you have gotten under this congressional----
        Mr. Chopra. I don't think Congress wanted CFPB to be
    suddenly----
        Senator Kennedy. And if I could finish my thought.
        Mr. Chopra. Sure.
        Senator Kennedy. I know you don't like to hear this, but
    the law is the law. You have been operating illegally.
        Mr. Chopra. No, that is not true, sir.
        Senator Kennedy. Yes, you have. There have been no
    earnings. Doesn't this put in jeopardy every one of your
    rules----
        Mr. Chopra. We have heard this theory----
        Senator Kennedy. ----and every one of your----
        Mr. Chopra. ----before and I'm to happy to discuss it.
        Senator Kennedy. Well, you are going to hear it again
    because it is the law. We didn't say revenue in the statute, we
    said earnings. How can you possibly argue that the Federal
    Reserve has had earnings? They are losing money.
        Mr. Chopra. I am happy to discuss this with you, but we
    have looked at this theory before.
        Senator Kennedy. I know you have. But I am over. I am
    sorry. Tell me why you are mad at Chase Bank?
        Chair Brown. You are not that sorry, Senator Kennedy. But
    go ahead.
        Senator Kennedy. You are made at PayPal and Chase Bank. Can
    you tell me real quickly before Sherrod cuts me off why you are
    mad and how----
        Mr. Chopra. I think the concern is that we have seen an
    incident at PayPal where there was an attempt to censor people
    based on their speech. We have also seen that those companies
    are now going to be offering, reportedly, advertising based on
    your individual transaction data. I feel some of this is
    something we all need to figure out together.
        Senator Kennedy. Are you going to punish every company that
    has censored people's speech?
        Mr. Chopra. No. I do think----
        Senator Kennedy. I applaud that part. Mr. Chopra. Oh, I
    think censorship is a big----
        Chair Brown. Senator Kennedy, your time has expired.
    Senator----
        Senator Kennedy. Do you have to approve the speech first?
        Mr. Chopra. No. I think we are on the same page.
        Senator Kennedy. I am over. I am sorry. Thanks for your
    indulgence, Mr. Chairman.
        Chair Brown. You are not sorry, and I wasn't indulging you.
    But thank you, Senator Kennedy.
        Senator Kennedy. Well, I am sorry as I can be. I will send
    you----
        Chair Brown. Senator Warner of Virginia.
        Senator Kennedy. ----later a fruit basket to make up for
    it.
        Senator Warner. Thank you, Mr. Chairman. And I was about to
    say all kinds of nice things about Senator Kennedy. I still am
    in a moment. I think I have not crossed over yet where I can
    still claim I spent more time making earnings as a business guy
    than I have as a politician, although that timeframe may have
    switched over. And I was with you on the whole direction you
    were going on revenue/earnings until you brought up the Fed.
        Senator Kennedy. I know you know the difference between
    earnings and----
        Senator Warner. I do know the difference, but, on this one,
    Senator----
        Senator Kennedy. ----revenue because I have seen your
    house. It is bigger than a Costco. Have you seen Warner's
    house? Bigger than a Costco.
        Senator Warner. You know, earned from the sweat of Spectrum
    and cell phones and VC activity. But I do think the case the
    Director is making, it would be a fulsome debate to talk about
    whether the Fed has generated earnings or not because I think,
    as we all know, the Fed operates on its own set of rules
    distinct from us, and maybe we ought to--I think we have got
    Chair Powell coming in, and we ought to have that conversation.
        And I do think, you know, I am glad, frankly, that the
    Supreme Court ruled that funding appropriation, the funding
    process was appropriate. I would remind you I was here when
    Dodd-Frank was taking place, and the whole way the CFPB came
    about was because, candidly, some of my Republican friends
    didn't want to set up a traditional new agency, so it was kind
    of put into this unusual framework and unusual funding
    mechanism. But I think, again, I count on the validity of what
    the court upheld.
        I do want to, though, compliment the fact that Senator
    Kennedy and I both have been, I think, trying to figure out how
    we grapple with AI. That is something, Director Chopra, you and
    I have talked about, as well. We introduced the Financial
    Artificial Intelligence Risk Reduction, FAIRR Act. And the
    notion was, you know, if there was ever a case again out of
    Dodd-Frank, we came up with FSOC. If there was ever a case in
    an area that was tailor made for FSOC to look at holistically,
    it is AI. And I guess the good news is maybe just the threat of
    this legislation has actually pushed them a little bit because
    I know FSOC recently released a request, an RFI, for
    opportunities and risks of financial services. FSOC stood up a
    staff with a working group. FSOC had a major conference.
        I know you have thought about this, as well, Director
    Chopra. How do we make sure that, you know, as we think through
    AI, when we think about all the benefits, we also try to build
    in those consumer protections, which are integral to your
    entity. And have you, you know--I continue to grapple, and let
    me be the first to acknowledge I spent a lot, a lot of time on
    this subject and there is, I mentioned this before in
    Committee, no linear relationship, at least with me, in terms
    of more time spent on AI and actually getting smarter. Maybe
    the only guy that is getting smarter on this is Senator Rounds
    because he has probably spent more time even than me.
        But can you talk about how we make sure consumer protection
    is built in and those systemic-risk issues get addressed?
        Mr. Chopra. Well, I am really worried about the use of
    generative AI when it comes to voice cloning, other ways in
    which humans can be simulated to create enormous amount of
    fraud in the financial system and the weaponization of people's
    personal data.
        I would say this: on the systemic issues, Senator Warner, I
    am really worried about these foundational AI models. I think
    there will probably be just a handful of them for which most of
    the industry is built on top of that. And when there are
    problems with one of those foundational models, we could really
    see issues that occur throughout sectors of the economy,
    including the financial system.
        There is a big integration, I think, of the big cloud
    providers. There are really just three of them: Google, Amazon,
    and Microsoft. We have got to think about their role in all of
    this and whether they are adequately overseen. Otherwise, one
    little tremor could cause a huge shock to the financial system.
        Senator Warner. Yes. I'm, frankly, surprised that we have
    not seen AI tools already lead to market manipulation. I think
    if there was ever a set of tools that could, I mean, we spent a
    lot of time on the intel committee looking at outside foreign
    use of interference in our elections, but AI tools, not just
    deep fakes but the ability to manipulate images, file fake
    consumer concerns, I would be amazed if we don't subsequently
    find out that, maybe not Fortune 100 companies but Fortune 100
    to 500 companies, that there is a lot of manipulation going on
    here.
        I have gone through my time, and I will not----
        Senator Kennedy. I will yield you my time.
        Senator Warner. The extra 4 minutes. I do want to have--I
    will come back and submit for the record, Director Chopra, one
    of the things I am concerned about are some of the rise of the
    large firms that are nonbank. We talked about this in the past.
    And how, you know, same activity on it, maybe have some same
    level of regulatory structure. And when you think about the
    nonbank wallets that are going to be in this sector, I don't
    think we have gotten near enough notional framework. And I am
    all for financial innovation. I think great, great things will
    come, but I do think we have got to put some ground rules in
    place.
        And I will not further impugn on the Chair because I know
    my colleague, Senator Warren, who may have similar type of
    questions.
        Chair Brown. Thank you, Senator Warner. Senator Warren of
    Massachusetts, once she is reseated, politely not sitting down
    when her colleague was talking. Senator Warren.
        Senator Warren. Thank you, Mr. Chairman. So, Director
    Chopra, the last time you were here, the Supreme Court was
    considering a lawsuit championed by predatory lenders and their
    Republican allies challenging the constitutionality of the CFPB
    funding. Now, fortunately, the Supreme Court followed the law,
    and the CFPB is here to stay. Now, the Bureau can keep doing
    its work to deliver on President Biden's agenda: slashing junk
    fees, policing Wall Street, and, so far, returning over $20
    billion to consumers.
        But Republicans just can't seem to quit you, Director
    Chopra. It is another day that ends in Y, so Republicans are
    concocting even more absurd legal argument and taking even more
    extreme steps to try to stop the CFPB from doing its work on
    behalf of American families.
        Let's start with junk fees. For some reason, Republicans
    just love them. A few months ago, a Republican congressman
    said, and I quote, ``Junk fees don't exist, OK? That is a
    figment of Rohit Chopra's imagination.''
        So, Director Chopra, we have you here. I figured I would go
    straight to the source. Are junk fees a figment of your
    imagination, you know, like Bigfoot?
        Mr. Chopra. I don't know who said that, but I think, for
    everyone who has experienced a junk fee, it is incredibly
    insulting because they are paying out for things that are
    providing sometimes no service whatsoever, and I am really
    proud of the work we have done to wipe out billions of dollars
    in junk fees.
        Senator Warren. Do you have an estimate on how much
    Americans are paying in junk fees?
        Mr. Chopra. I don't have the latest update, but it is tens
    of billions of dollars. Our work, I think, is already
    delivering, taking out a huge chunk of that. It is making the
    economy more competitive and making pricing clearer upfront,
    rather than scattered on the seventh screen.
        Senator Warren. You know, it is a lot of money that
    American families are losing to junk fees, but, since
    Republicans are falling over themselves to defend these junk
    fees, I wonder if Republicans are hearing something different
    from the American people that I am just not hearing.
        Director Chopra, the CFPB has a hotline for consumer
    complaints. People actually call you directly. So has anyone
    ever called the hotline to complain that they are not getting
    charged enough in junk fees on their credit cards or their bank
    accounts or their car loans?
        Mr. Chopra. I have never heard of that ever.
        Senator Warren. Fair enough. You know, my sense is
    Americans are not clamoring for more junk fees. But Senate
    Republicans are ready to do the dirty work for their corporate
    pals. After the CFPB finalized its rule to limit exorbitant
    credit card late fees, Senate Republicans introduced a
    resolution to reverse the CFPB's rule and take $10 billion away
    from Americans.
        Now, fortunately, it doesn't seem to be stopping the CFPB
    from working on behalf of American families. Just last month,
    the Bureau launched an investigation into mortgage junk fees,
    including the closing costs that families pay when they buy a
    house.
        Director Chopra, can you say a little more about why the
    CFPB is focusing on junk fees in housing right now?
        Mr. Chopra. Well, those fees can really drain someone's
    downpayment and really bump up a monthly payment if they are
    able to get the mortgage, or it could foreclose them from even
    getting a home. This is something where the mortgage lenders
    are also upset about because they are being price-gouged and
    having to pass on some of those costs to consumers.
        Senator Warren. Right. And do you have any sense of whether
    those junk fees are holding level, going down, or going up?
        Mr. Chopra. They have been going up. We have been seeing,
    at least I can say about closing costs, a market increase in
    closing costs in the past several years.
        Senator Warren. So I saw one source citing that from 2021
    to 2023 that closing costs rose by 36 percent. Do you have any
    explanation for that, other than junk fees?
        Mr. Chopra. Well, there is certainly some aspects, it is
    possible there are more individuals doing points, rate buy-
    downs. But, certainly, there are other places where fees have
    been inflated that mortgage lenders and consumers are both
    pretty mad about.
        Senator Warren. So I understand that in 2022 a typical
    borrower paid nearly $6,000 in extra fees to close on a home
    and that, right now, the CFPB is working on trying to put at
    least a chunk of that money back in the buyer's pocket; is that
    right?
        Mr. Chopra. That is right. I think that will help the
    entire economy.
        Senator Warren. All right. So if you are wondering why
    Republicans are introducing legislation to protect junk fees
    and working over time to come up with fantastical legal
    theories to kill the CFPB, I think the answer is pretty clear.
    Republicans are in bed with big business to rip off families
    and to protect corporate bottom lines. Director Chopra and
    President Biden are cracking down on junk fees so that they can
    help lower costs for American families, and I thank you for
    your work. Thank you, Mr. Chairman.
        Chair Brown. Thank you, Senator Warren. Senator Britt from
    Alabama is recognized.
        Senator Britt. Thank you so much, Mr. Chairman. And thank
    you so much for being here, Mr. Director. I wanted to touch on
    several issues that you and I have discussed and I wanted to
    see if you could provide some updates.
        So, first, I have noted with you both publicly and
    privately my serious concerns about 1071, concerns on both the
    privacy front and then the actual cost burden on the smallest
    community banks. So I wanted to kind of sort--let's just start
    on privacy first. You mentioned that the CFPB plans to publish
    the information it collects on this rule. Last time, I kind of
    sort of asked what your plans were for that. You said you had
    not gotten there yet. Do you have any update on that?
        Mr. Chopra. So the data collection that would be reported
    has been significantly delayed. Some of it will be as late as,
    I think, maybe late 2026. We are not going to make any
    determinations until after we really are able to conduct a
    first, you know, world-class privacy assessment.
        Senator Britt. OK. Good.
        Mr. Chopra. So the key is we don't want anyone to have--re-
    identification risk, we don't want there to be any concerns
    about that because that will really undermine enormously----
        Senator Britt. Absolutely. Yes. And so you were
    essentially--will you commit to me that the CFPB will not
    publish any identifying information?
        Mr. Chopra. Correct, yes.
        Senator Britt. Wonderful. Thank you so much. OK. Now, with
    regards to the cost. CFPB estimated that banks will face an
    upfront cost of around $45,000 to $78,000. Do you believe that
    is still an accurate depiction of the upfront compliance costs
    that banks should expect?
        Mr. Chopra. Many of those banks are going to be using
    third-party vendors in order to be able to implement this,
    those core service providers. So we are working with them.
    There is going to be a bit more time. But to the best of my----
        Senator Britt. But do you think that cost is correct?
    Because----
        Mr. Chopra. To the best of my knowledge, we use the best
    data as possible.
        Senator Britt. So that data, so if you look to it, it says
    these things have to cover things like new computer software to
    collect and store data, to hire and train new compliance and
    legal staff, the expenses of possibly third-party audits and
    legal teams. And so that just seems like there is no way that
    you could do all of that with just that amount of money.
        And then I looked back at to when that estimate was done,
    and the estimate was done in 2020. And, obviously, since 2020,
    we have had a change in economic conditions, change in a number
    of things, whether it is inflation or hiring costs or any of
    those things.
        And so when you kind of take a step back and then,
    additionally, and you and I have talked about this, you know,
    Dodd-Frank required 13 data points. It is my opinion that you
    have now expanded that to 81. I know that you and I can quibble
    about some of those things, but, no doubt, it is certainly more
    than 13. And so there is also an additional compliance
    mechanism that people, in 2020, we weren't accounting for, so
    economy, additional data, et cetera.
        So when you look at that, I think, when you take a step
    back, there is no way that they are going to be able to do all
    of that for just $45,000 to $78,000. And so my question to you
    is: will you commit to taking a look and making sure that that
    is an accurate cost analysis of what it is going to cost these
    banks?
        Mr. Chopra. Well, I think we are trying to follow all
    appropriate provisions of the law when it comes to this. This
    was not a discretionary rule. We were under a court order to
    complete it. We followed all the necessary steps to do it.
        Senator Britt. But you did, you did expand it, though. I
    mean, there is----
        Mr. Chopra. Well, actually, we didn't--I wouldn't
    characterize it as expanding it. The statute is pretty clear
    about what sort of data points had to be in there and where
    might it better contextualize the information. In fact, we got
    input from some industry members to include some data points to
    make sure that it is appropriately contextualized.
        Senator Britt. Well, but did you even think about things
    that people are going to have to put in there, denial reasons
    obviously, a more extensive explanation there; pricing
    information, including interest rates applied, prepayment
    penalties, financial cost, et cetera. There is no doubt that,
    in 2020, prior to you even being, obviously, at the CFPB, that
    that analysis of how much that was going to cost doesn't take
    all of these things into consideration. And I would just ask
    you, you have said that, obviously, it is not your goal to put
    small community banks out of business and you have said that
    you understand that they provide an essential service on our
    Main Street, that they allow people to achieve the American
    dream. What I am asking you is don't put them out of business.
    Make sure that you are taking a step back, really looking at
    how much this is going to cost them in 2024, in 2025, in 2026,
    that you are giving them that assessment on the front end so
    that they can plan so that it actually doesn't hinder them in
    the long run.
        So I would great appreciate it if you would do that, make
    sure that that is accurate, because I think that that is what
    is ultimately best for everyday Americans, everyday Alabamians,
    as people work to comply with this. So thank you very much.
        Mr. Chopra. I appreciate that.
        Senator Britt. Thank you.
        Chair Brown. Thanks, Senator Britt. Senator Van Hollen is
    recognized.
        Senator Van Hollen. Thank you, Mr. Chairman. Director
    Chopra, it is great to see you. And like the Chairman, I was
    pleased to see the Supreme Court's decision, 7 to 2, supporting
    the CFPB structure, and most of us on this Committee support
    its mission, as well. I was listening a little bit into the
    hearing. I know people are now looking for other ways to try to
    dismantle the CFPB, but I am absolutely confident that it will
    remain intact and its mission for years to come to protect
    consumers.
        And I do want to start with some thank you's, especially
    the newly announced proposed medical debt rule. This is
    something many of us, including myself, have been working on
    for a very long time. There is no reason any American should be
    punished on their credit rating because they got into a car
    accident or got sick and incurred medical expenses. So your
    proposed rule to make sure they are not penalized for
    unexpected events in their life I think is very important and
    look forward to monitoring that closely.
        Thanks also for your efforts on the overdraft fees. It is a
    form of predatory lending. I have often made the point that a
    $35 late fee on a $25 purchase that is repaid in 2 days is
    equivalent to an annual percentage interest rate greater than
    2,500 percent so appreciate you moving forward on that.
        I want to dig a little bit into your proposed rules on
    nonbank supervision because, as you know, right now, the
    nonbank financial institutions have, roughly, $20.5 trillion in
    assets. The banking industry, by comparison, $23.7 trillion, so
    comparable in terms of the impact on the economy and assets
    anyway.
        A number of years ago, I had a constituent who had a
    checking account with Chime, a nonbank entity. When she tried
    to get her money out, she could not. Our office worked with her
    to file a complaint with the CFPB. Thank you for working to get
    her money back, and that, of course, happened to lots of other
    Marylanders and other people around the country, and so I was
    glad to see the enforcement action that you took against Chime.
        But if you could just use that as sort of a kicking off
    point to describe your proposals to make clear that the CFPB
    has jurisdiction in these nonbank areas, in fintech areas, and
    that you intend to assert that jurisdiction to protect
    consumers and that you, you know, intend to do this carefully
    and smartly and wisely and are not, you know, trying to use a
    hammer, but you are trying to protect consumers in accordance
    with your mission. Could you just talk about that----
        Mr. Chopra. Yes. That is exactly right. I think one of the
    things we learned from the 2008 financial crisis was that it
    was those nonbank companies that were not subject to the same
    type of oversight that really led to the economy crashing. So
    one of the things that Congress is very clear with us is that
    we have to look at the whole financial system, not just banks
    and credit unions. I think that makes sure that consumer
    protection is even, and a consumer doesn't need to know the
    corporate organization form when they are doing business. We
    want consumers to be able to trust all these entities. I think
    that is good not just for consumers but for honest businesses,
    as well.
        Senator Van Hollen. I appreciate that. And as you say,
    consumers sometimes don't know the ins and outs, they don't
    know what is an insured depository institution, and the whole
    purpose of the CFPB was to fill this very big gap. And, again,
    when you look at the asset holdings of the nonbank sector in
    the finance space, it is virtually equivalent to the banking
    sector, which we spend a lot of time, understandably, on this
    Committee focused on depository institutions and the like, but
    we need to be spending more time, I think, on the other, as
    well.
        Briefly, in the remaining time, I know that CFPB recently
    filed a lawsuit against student loan servicer PHEAA for
    illegally pursuing borrowers whose loans have been discharged.
    A number of us on this Committee have been very focused on the
    issue of really predatory practices by some of these student
    loan servicers. Could you talk about other measures you are
    taking to help students in this space?
        Mr. Chopra. Well, one we have been monitoring very
    carefully the return to repayment. We have taken other actions,
    too: ed financial services, also other types of student loan
    collections, debt relief. I hate to see that the servicing
    industry, when it spawns other scams, it just adds insult to
    injury to so many people who were just trying to get an
    education to better their own life.
        Senator Van Hollen. Yes. Well, thank you for looking out
    for exactly those people through your efforts. And thank you,
    Mr. Chairman.
        Senator Warnock [presiding]. Thank you very much to the
    Senator from Maryland, Senator Van Hollen. Senator from
    Wyoming, Senator Lummis.
        Senator Lummis. Thank you, Mr. Chairman. And Director
    Chopra, welcome. I have got some questions about some of your
    policies that you are pushing forward.
        It looks to me like just about everything that you are
    proposing is to label closing costs junk fees, almost every
    closing cost. And banks need to understand a borrower's ability
    to repay, so let me give you one example. Are you aware of a
    CFPB staff working paper that found that rural borrowers report
    less understanding of the mortgage process at the outset, but
    the gap is completely closed by the time the purchase is
    complete? Now, this paper credits this to the extra education
    that banks in rural areas provide their customers and describes
    the importance of strong relationships in rural banking. And I
    can assure you, in these small communities, they want to know,
    they want to sit across the table from the president of the
    bank, they want to know who they are borrowing money from.
        So is the consumer education a valuable service provided by
    community banks?
        Mr. Chopra. Yes, hugely. One of our goals has been to
    preserve relationship banking in this increasingly digital age,
    and I worry, Senator Lummis, that has been drifting away.
        But on this issue, I don't think there has been any attempt
    to label all closing costs as junk fees. In fact----
        Senator Lummis. Well, is this one, is this one being
    labeled a junk fee, the cost to educate consumers, the cost to
    educate borrowers?
        Mr. Chopra. No, not at all. And, in fact, that is actually
    typically not as a closing cost. I think, when we talk to
    mortgage lenders, mortgage lenders are not able to, you know,
    hike the price on those closing costs. They actually have to
    put forth bona fide costs and educate offer disclosures. What
    we do see mortgage lenders complaining to us about is they have
    often been getting ripped off on certain types of things that
    they have to pass on to consumers, and we are really worried
    that this may lead them to reduce the number of applications or
    even the number of individuals they can talk to about it.
        Senator Lummis. And we are worried about that, too. So it
    sounds like a disconnect between some of the Wyoming bankers I
    am hearing from and your agency, so we need to bridge that. We
    need to bridge that gap.
        Mr. Chopra. And we have met with them, and I will meet with
    them again if there is concerns about it because I think one
    of----
        Senator Lummis. You know, there is concern about it. I have
    got a couple more questions.
        Mr. Chopra. Please.
        Senator Lummis. OK. The cost of providing financial
    services has to be borne somewhere, so overdraft fees, like the
    cost of maintaining safe and secure and convenient consumer
    banking systems, you know, overdraft fees can help pay that. So
    consumers now have access to free checking, free online
    banking, free debit cards, and that is because of overdraft
    fees and interchange fees bearing that cost, so they can make
    these free offerings.
        What percentage of low-income consumers would no longer be
    able to afford a bank account if they had to pay for each
    service, not just overdraft fees? It costs.
        Mr. Chopra. Well, the main way banks make money is,
    obviously, off of lending out deposits. But, certainly, I would
    say this----
        Senator Lummis. And lending, and that is an area where they
    can lend out deposits based on what the market will bear.
        Mr. Chopra. Oh, totally. And what we are saying with
    respect to overdraft is, one, we have exempted small banks from
    any proposal we have made. But what we have said is that, if
    you are going to be offering an overdraft loan, it is
    impossible to compare that with another type of loan. So we
    looked at a 1969 regulation implemented by the Fed, which is
    really designed for a paper check-in-the-mail world. And we are
    trying to create a framework that really promotes a competitive
    structure on lending while also limiting some of the abuses. We
    have seen cases where sometimes the consumer should have gotten
    one overdraft fee but got four instead, and that is what we are
    trying to fix.
        Senator Lummis. OK. I have got one more question that I
    want to get in. Your recent rule proposal on digital consumer
    payment applications is of concern to me. Why did the staff not
    gather the data and information necessary to complete a more
    thorough analysis? The CFPB estimates the cost of being
    examined by the CFPB at $25,000. So let's compare that to what
    it costs the bank to be examined. And when you make the
    comparison, the CFPB is charging 50 times more to conduct an
    exam than it costs for a company to be examined. That sounds
    like a huge----
        Mr. Chopra. To be clear, unlike the OCC, we don't charge
    fees for our examinations. But we have proposed that rule. We
    want to get a lot of feedback on all of our estimates. And,
    Senator Lummis, I am very happy to talk it all through with you
    because I do want to make sure, when it comes to the future of
    consumer payments, we want to make sure that, whether it is
    bank or nonbank, that those core Federal laws that consumers
    have, that it is all on the up-and-up.
        Senator Lummis. I will look forward to that conversation.
    Thank you. Thanks, Mr. Chairman.
        Senator Warnock. Thank you very much, Senator Lummis. I
    will ask my question but let me start by sharing how glad I am,
    Director Chopra, that the CFPB's funding structure is still
    intact. I join my colleagues, was happy to join my colleagues
    in an amicus brief to the Supreme Court protecting the Bureau,
    and I am glad that they got that right and that the Supreme
    Court upheld the structure of the CFPB so that we can continue
    this very, very vital and important work.
        Director Chopra, yesterday, the Consumer Financial
    Protection Bureau announced a proposed rule that would block
    medical debt from appearing on most Americans' credit reports.
    The last time you appeared before this Committee, we discussed
    this bipartisan report that I released not long ago on insulin-
    desert counties with both high rates of Americans who are
    uninsured and high rates of Americans who have diabetes. We see
    these counties all across the United States, concentrated
    largely in the South but, by no means, exclusively in the
    South. High rates of uninsured people, high rates of diabetes.
        Director Chopra, do you know how many of these insulin
    deserts also have high rates of medical debt?
        Mr. Chopra. So we do believe that this is
    disproportionately harming some of those communities,
    especially in the South. I think it is pretty tragic that we
    have a system where people can be really punished over and over
    again for health issues and in a way that can destroy their
    financial life. Medical debts can contribute to bankruptcy. It
    can contribute to so much loss of income, and I do think what
    we have proposed is an important step to just a little bit put
    a stop to some of this.
        Senator Warnock. Yes. And my data shows that nearly half,
    nearly half of these insulin deserts also have high levels of
    medical debt. So you have got places like, let's say, Georgia
    that is still digging in its heels refusing to expand Medicaid.
    You have got the working poor who are burdened by all of this
    medical debt, uninsured, all of these issues converging upon
    families at the same time.
        In Georgia, 27 percent of rural residents had medical
    collections on their credit report, 27 percent. That is 6
    percentage points higher than the rate among all Georgians and
    10 percentage points higher than the national average. So 27
    percent of rural residents with medical collection debt.
        Director Chopra, how would folks in the South especially
    benefit from a CFPB-proposed rule banning medical debt from
    credit reports?
        Mr. Chopra. We expect that it will materially help their
    lives. In many cases, if medical debt is their only thing on
    their credit report, it will also materially increase their
    credit score. That means really the cost of so many other
    loans, auto loans, credit cards, would go down for them; and,
    more importantly, I think they wouldn't be dealing with adding
    insult to injury when it comes to their own health conditions.
        Senator Warnock. So this would have a material impact,
    obviously, on the lives of families. I often say that it is
    expensive to be poor, and this is an example of that. People
    burdened by medical debt dragging down their credit scores, and
    so then the cost of money----
        Mr. Chopra. Goes up.
        Senator Warnock. ----goes up.
        Mr. Chopra. This is a cycle that we have to stop.
        Senator Warnock. Right, right. So thank you so very much.
    This is something that we have been pushing on this, and so I
    applaud you for proposing this rule, which would be life-
    changing for so many people across the country but certainly
    throughout the South who are drowning, drowning in medical debt
    and bad credit, often while dealing with health challenges on
    top of all of this. This is enough to make anybody sick and
    sicker.
        So I will continue to push my bipartisan bill to cap the
    costs of insulin for everyone. That would prevent people with
    diabetes from going into medical debt in the first place, and I
    look forward to continuing to work with you on medical debt
    issues and addressing challenges and solutions in my
    subcommittee.
        Mr. Chopra. And let me thank you for working with me on
    this. I know we had a number of discussions. I know how much it
    uniquely affects some of the people you serve, so I appreciate
    all of your engagement on this.
        Senator Warnock. Thank you so much. And since it is just
    two of us here, you are stuck with me. I have got some more
    questions I am going to ask. There is a saying that if it looks
    like a duck, walks like a duck, and quacks like a duck, it is
    probably a duck. The CFPB studied the buy now, pay later market
    and saw that it had the features of a credit card that
    consumers should get key credit card protections when they use
    this option. Director Chopra, thank you for issuing a
    commonsense interpretative rule that lets consumers dispute
    BNPL charges, get a refund, and receive periodic billing
    statements.
        I remain concerned about protecting data privacy. What will
    the CFPB do to make sure BNPL lenders do not harvest and sell
    consumers' data without permission and make sure that the data
    is secure?
        Mr. Chopra. It is a huge concern. I think this is something
    that is critical that this Committee has to be working on. We
    are seeing so many companies announce new initiatives about how
    they are going to monetize their surveillance of us. Right now,
    Senator Warnock, you basically get a notice telling you here is
    all the ways we are going to use your data, good luck to you.
    No one really opts out of that, and people don't even
    understand how much that data is going to be used. And I am
    worried we are lurching and lurching more toward a
    surveillance-oriented system. It is really important that we
    work together to limit some of the excessive and intrusive
    surveillance.
        Senator Warnock. People just check the box and they are
    moving on. They are focused on----
        Mr. Chopra. Yes. Sometimes, they may not even be checking
    the box. They might be just told through the notice that we are
    planning to use it for all sorts of purposes. And I think, when
    it comes to this, we are looking at these data brokers, as
    well, these new companies that are buying and selling our
    personal data. It is also a real national security concern.
    President Biden has issued an Executive order that also urges
    the CFPB to crack down on some of these data brokers who may
    not be complying with the Fair Credit Reporting Act.
        Senator Warnock. I think it is so important that people
    have control over their own data and how companies are using
    it. I am also concerned that BNPL loans can lead to a debt
    trap. What can the CFPB do to keep consumers from sinking under
    the weight of having too many BNPL loans at once?
        Mr. Chopra. Well, it is a really hard question. Both credit
    cards and buy now, pay later, people can suffer from or can
    really get in over their head and suffer some real financial
    challenges. So there is now lots of BNPL companies. In many
    cases, people might have loans with all of them, and it is not
    just for one type of big purchase. It used to be maybe it was
    for a substantial purchase that people needed to pay over time.
    Now you can use buy now, pay later loans for really almost
    anything, including everyday purchases. So that could lead into
    an over-indebtedness, and I think we need to make sure we have
    accurate information about that and that you all are looking
    about whether there needs to be enhanced protections on credit
    cards and buy now, pay later loans.
        Senator Warnock. Absolutely. And the public can provide
    comments on the interpretative rule of buy now, pay later,
    generally, until August 1st; is that correct?
        Mr. Chopra. That is right. And we do think that this buy
    now, pay later interpretive rule addresses a key pain point
    that many consumers express, which is, when they return a
    product, are they going to get the appropriate credit? What if
    there is an erroneous charge? Under Federal law, there are
    certain protections that are long and well understood. There is
    no exemption for buy now, pay later; and, in many cases, they
    meet the definition for open-end credit or credit cards or
    whatever it may be that triggers important obligations. We want
    there to be innovation based on reality, not regulatory
    arbitrage.
        Senator Warnock. An important issue and one that I will
    continue to monitor under my subcommittee on financial
    institutions and consumer protection. As chair of that
    subcommittee, I held a hearing on junk fees in July of last
    year, and I am pleased that, in January, the CFPB issued
    proposals to restrict fees for overdrafts and nonsufficient
    funds. Many banks have reduced their fees voluntarily. The CFPB
    looked at data from 2019 through 2023 and found that consumers
    have saved more than $6 billion annually in overdraft and NSF
    fees. Six billion dollars. However, voluntary fee reductions
    seem to have hit a plateau. Director Chopra, when do you expect
    to finalize rules restricting overdraft and NSF fees?
        Mr. Chopra. Well, we are hoping any rules would take effect
    in 2025. We think it would create a more competitive market.
    And I just want to appreciate all the work being done when it
    comes to tackling just the whole creep of junk fees in the
    economy. It has been one of the worst innovations in our
    marketplaces. People need to see the price clearly. They don't
    need to be charged for mysterious services that they don't even
    want, and I really want to encourage you, Senator Warnock and
    others, to think about codifying some of our rules into statute
    so that, you know, if there is strange legal theories or
    dragged-out litigation from the junk fee lobby, that it won't
    stop the important benefits of this work.
        Senator Warnock. I think that is something we certainly
    should take a look at, and I look forward to seeing us finalize
    these rules and, as you suggest, think about which of the rules
    or portions of the rule we may need to codify into law.
        I am pleased that the CFPB finalized a rule to require
    banks to show their work when they set credit card late fees.
    Families need to use their hard-earned money for put food on
    the table and keep a roof over their heads rather than paying
    junk fees. It adds insult to injury to be charged a late fee
    when you mail a payment on time but it arrives late. We won't
    get into the issues around the post office that many of us are
    addressing. Consumers can't get a break in that regard. I have
    heard from Georgians who are concerned that bill payments they
    sent by mail may arrive late due to postal service delays. They
    may get charged a late fee on their mortgage or credit card
    account through no fault of their own. Also, those who are in
    the market for credit may find that payments marked as late
    then affect their credit score or cause them to have more to
    pay, have to pay more for credit.
        Is there anything that CFPB can do to protect consumers
    from being charged a late fee due to mail delays?
        Mr. Chopra. We got to figure this one out because I am also
    hearing that there are other clerical errors where people
    initiate the bill payment and they have a confirmation, but it
    doesn't actually get received or it is claimed to not be
    received. I don't know how we solve this, but the Federal law
    for credit cards does offer some protections on this. I think
    our work to rein in the abuse of this late-fee loophole will
    help, but, you are right, I think there is more we can do and
    we should figure that out.
        Senator Warnock. Well, thank you so much for your
    attention. And I will continue, even as I raise these issues,
    to press the postmaster general and other top leaders of the
    postal service to immediately implement solutions to fix this
    unacceptable situation. Certainly, the postal service shouldn't
    be a drag on the credit scores of ordinary people who are just
    trying to pay their bills.
        And with that, I will turn to Senator Cortez Masto.
        Senator Cortez Masto. Thank you. Thank you to the Chairman.
    Director Chopra, it is good to see you again. First off, I want
    to thank you and your staff. Incredible work you are doing on
    behalf of so many people across the country, including in
    Nevada. When it comes to fighting for them really to be treated
    fairly by banks, lenders, and other financial institutions.
    Thank you.
        I do want to talk a little bit about a couple of things.
    One, I want to put on your radar and maybe have you elaborate a
    little bit more for purposes of just the general public is the
    corporate repeat offenders registry. Most often, when law
    enforcement catches people who violate the law, they are
    subject to the criminal justice system, right, full force in
    effect. But when large corporations violate the law, they can
    often settle without admitting wrongdoing, pay a nominal fee,
    and sometimes go back to doing business as usual, right, or it
    is the cost of doing business. We have seen this time and time
    again that certain companies seem to have a culture that really
    disregards obeying the law when it comes to their customers.
        So how is the Consumer Bureau deterring repeat corporate
    offenders through this new registry? Will you talk a little bit
    about that?
        Mr. Chopra. I think this issue of repeat offenders by large
    or politically connected companies is a pretty sick part of how
    the system works. You cannot have one set of rules for some
    people or a small business gets obliterated, but a large
    company doing the same thing, you know, essentially just pays a
    nominal amount.
        So what we have done is we have finalized a rule to create
    a new registry to deter repeat offenses. Recall when you were
    attorney general, there were places where people would startup
    and harm consumers and then move across State lines even after
    they were caught. So this is going to be a way in which all of
    us, State and Federal, can coordinate where these rings,
    scammers, corporate repeat offenders are moving and also to put
    into place some real accountability.
        As part of our rule, we will be requiring for certain
    entities that an individual attest that they are actually
    complying with the terms of any law enforcement order. So we
    think this is an important part of getting a little bit more
    rule of law and making sure that it is not just paying a little
    bit of penalties but they are stopped cold before they even
    try.
        Senator Cortez Masto. Is the registry available to the
    public, to the consumer, so that they can be aware of the
    activities of some of these corporations?
        Mr. Chopra. Our rule contemplates making some of this
    public. Many of those orders are already public, but they are
    scattered in different places. We do think it is important for
    law enforcement and the public to really have one place they
    can go.
        Senator Cortez Masto. That is great. And let me just say,
    because I want to connect this also with our servicemembers,
    you and I have talked about this, the Bureau does incredible
    work protecting our active military where there's about 1.3
    million active duty servicemembers and 19.5 million veterans
    and their families. And you and I both know they are always
    targeted, always targeted for their Federal benefits. That is
    why, one, I thank you for the work you are doing. Two, I have
    actually introduced two bills to create new criminal offense
    for fraud that targets veterans benefits and to strengthen
    penalties for fraudsters who target veterans.
        Given the high level of scams that we see, do you agree
    that toughening the penalties would help deter these criminals?
    That's my first question. And then, two, predatory lenders that
    target members of the military, is there a way that the public
    can be aware of them, as well, as a deterrent so that we are
    bringing public attention to more of these challenges? And then
    how do we get this information to the general consumer so they
    know?
        Mr. Chopra. I think that we need to see much more when it
    comes to criminal liability for this type of fraud. It is
    pretty disgusting what you see out there, and the fact that
    they can start something else new is just totally
    inappropriate. Senator Cortez Masto, we also are working with
    the States to figure out how they can pull the licenses for
    some of these outfits rather than just letting them keep going.
    There has to be a point where it is just too far. And you are
    right, I think our data base registry will aid in the efforts
    of making sure that there is greater information for the public
    so that they can know who to best do business with.
        Senator Cortez Masto. Thank you. I have got about 20
    seconds left, but you are also on the forefront of using
    artificial intelligence or you have expressed some actually
    concerns about artificial intelligence, specifically its
    ability to aggregate mass amounts of consumer data. But you
    noted there are, and I quote, ``longstanding laws on the books
    to address potential abuse of AI.'' What existing laws are
    applicable, I guess----
        Mr. Chopra. Yes. Our view, I think the law is clear that
    there is not an exemption for fancy technology in the Fair
    Credit Reporting Act, Equal Credit Opportunity Act, Truth in
    Lending. So we have found places where sometimes people say,
    well, it is AI, we don't really know how the decision was made
    or why someone was denied credit, and our response is then you
    can't use that fancy AI because Federal law requires you to
    give a notice about why someone was denied credit under
    multiple laws.
        I think this is a place where we have made a lot of
    progress because now some of these AI tools used by financial
    institutions are making sure that they follow Federal law
    because we will hold them accountable if they don't.
        Generative AI is another place. That is not a license to
    lie. When it comes to people's Federal rights and if they
    assert them, if a generative AI chatbot tells them wrong
    information or denies them, the company is liable for that, and
    we need to make sure we don't create a scenario where there's
    an alternative world where robots don't have to follow the laws
    made by us, as people.
        Senator Cortez Masto. Yes. Thank you. Thank you for the
    good work again. I appreciate you being here.
        Senator Warnock. Thank you so very much, Director Chopra,
    for your work. Thank you for your testimony. And for Senators
    who wish to submit questions for the hearing record, those
    questions are due on Tuesday, June 18th. And to the witness,
    please submit your responses to questions for the record 45
    days from the day you receive them. With that, this hearing is
    adjourned.
        [Whereupon, at 11:29 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
        Last month, we defeated the latest in a long, long line of attacks
    on the Consumer Financial Protection Bureau by the corporate interests
    that want the agency off their backs. In the end, the American people
    won--and Wall Street lost.
        Now that the CFPB is finally done fighting a ridiculous lawsuit, it
    can focus on what it does best--getting people their money back.
        The Supreme Court's ruling upholding the CFPB is a victory for
    hard-working families in Ohio, for military families managing their
    finances, for students trying to pay back their loans, and for older
    Americans trying to guard against financial predators.
        Most people don't have fancy lawyers and high-priced lobbyists to
    fight for them. The CFPB works on behalf of everyone else, fighting for
    their rights and their hard-earned money.
        That includes their latest action this week, eliminating medical
    debt from credit reports.
        This is something many of us have pushed for that will protect the
    credit scores of millions of Americans.
        Medical debt is particularly damaging to consumers.
        Fifteen million Americans still have medical bills on their credit
    reports. But people don't choose to get sick or injured.
        Medical debt can happen to anyone. It doesn't matter if you do
    everything right.
        Anyone can get sick. Anyone can get in a car accident. It has
    nothing to do with your ability to pay your bills--or it shouldn't.
        Medical debt does not correlate with credit risk--it correlates
    with illness. And it has no place on credit reports.
        When this rule is finalized, all Americans will have medical debt
    removed from their credit reports, for good.
        No one should be rejected for a car loan because of a sick family
    member, or forced to pay higher mortgage rates because of a medical
    emergency. Our credit scores should reflect our financial health--not
    our physical health.
        And the medical debt rule isn't the only thing the CFPB is working
    on to save people money. The CFPB is also doing important work reducing
    costs for consumers by targeting junk fees.
        Junk fees are the surprise, often last-minute charges that drive up
    the cost of products. They have no justification or connection to
    anything other than corporations' thirst for profits.
        Junk fees obscure the true cost, preventing consumers from shopping
    around to find the lowest price.
        Earlier this year, the CFPB took a major step in reducing junk fees
    and costs for consumers with its Credit Card Late Fee rule.
        According to one report, 1 in 5 adult Americans paid a credit card
    late fee last year.
        In 2022, that meant credit card companies charged consumers $14.5
    billion in late fees.
        When the CFPB ran the numbers, they found that credit card
    companies were charging consumers more than five times the costs
    associated with late payments, including collections.
        These are massive, trillion dollar Wall Street companies. The idea
    that you missing your payment due date by a day or two is imposing some
    huge cost on the credit card company is ridiculous.
        The CFPB is putting an end to this, and lowering fees.
        Another major source of out-of-control, unfair costs in financial
    services is payday lenders.
        We've pushed for years to crack down on these shady lenders that
    target Ohio's working families, including military servicemembers and
    veterans, with high-interest, predatory loans designed to trap them in
    a cycle of debt.
        Many Americans have to renew their payday loans so many times, they
    end up paying much more in fees than the amount they borrowed.
        In 2021, we took on the payday lending lobbyists, fighting to
    protect State laws that limit the interest these financial predators
    can charge. And we won.
        The CFPB is also doing important work to protect consumers from
    payday lenders. The agency's payday lender rule will curb some of the
    worst practices and help consumers avoid abusive debt traps.
        Finally, I want to talk about one of the most important things the
    CFPB does--stand up for servicemembers and veterans.
        When we created the CFPB, we made sure it included the Office of
    Servicemember Affairs.
        Every year, tens of thousands of servicemembers seek the CFPB's
    assistance or report a complaint. The number of servicemembers getting
    help has increased for each of the last three years.
        The CFPB goes to bat for them, working to get their money back or
    fix the problems threatening not only their finances, but also their
    jobs.
        The CFPB has returned more than $183 million to servicemembers and
    veterans.
        That's money that companies took straight from servicemembers' and
    veterans' pockets.
        And overall, since 2011, the CFPB has returned nearly $21 billion
    to more than 205 million consumers.
        These numbers are not hypothetical. These are real checks that land
    in people's mailboxes. Dollars that might mean a little extra breathing
    room to buy groceries or fill up a tank of gas.
        This is why it's so critical that we have the Consumer Financial
    Protection Bureau.
        Wall Street has lawyers and lobbyists. Working people have the
    CFPB.
        I will always fight for its work that gets money back into people's
    bank accounts, that stops bad actors from cheating honest families, and
    that stands up for consumers when they may have nowhere else to turn.
                                     ______

                    PREPARED STATEMENT OF SENATOR TIM SCOTT
        Thank you, Mr. Chairman Brown. Director Chopra, thank you for being
    with us here today. I will say that listening to Chairman Brown's
    comments it sounds like we're talking about two completely different
    agencies. Frankly, I'm sure our view is completely different.
        The CFPB has not been idle in its pursuits.
        Based on the pace and scope of announcements I see coming out of
    your agency, it looks like full steam ahead.
        I think the celebratory cheers from 17th Street echoed all the way
    over here after the Supreme Court ruling.
        However, I want to be clear that their decision on the CFPB's
    funding structure only increases my concerns about the agency's lack of
    accountability.
        Time after time, your agency brushes aside congressional concerns,
    forges ahead with political agendas, and pushes well past the
    boundaries of its authority.
        This ruling is not a green light for your progressive wish list.
        And when we look at the reaction to your regulations, it's a litany
    of lawsuits.
        All of which take time, attention, and resources away from the laws
    you should be implementing and enforcing as well as the American
    consumers you should be protecting.
        So frankly, it makes me wonder--what ``consumers'' are you
    protecting?
        The CFPB is supposed to be an independent agency, but under your
    leadership, it seems the Bureau works hand in hand with the White House
    and appears more interested in scoring headlines for the Biden
    administration than doing its job.
        Whether it's standing with President Biden as he unveiled the junk
    fees campaign or as we saw yesterday with the Vice President announcing
    your new proposal to ban medical debt from credit reports.
        The political coordination is crystal clear.
        You're not protecting consumers or saving people money, instead
    you're peddling a false narrative that the Biden administration is
    doing something to reduce the actual costs.
        But then, reality hits, and we realize this Administration's
    actions simply shift who saves and who pays.
        It is well past time we end this ``junk fees'' narrative and focus
    on the junk philosophy behind them.
        With every action taken, there are trade-offs, and those trade-offs
    have consequences.
        In this case, the Administration is trading a punchy headline
    proclaiming they are saving families money today, while actually
    building higher costs down the road.
        Take, for example, your credit card late fees rule.
        While the rule may save some folks around $20 dollars each time
    they make a late payment, how much will it cost these same consumers
    when they no longer qualify for a credit card because they haven't paid
    their balances on time?
        How much will it cost them when their credit score drops as a
    result of these late payments?
        How much will it cost them when the rate for their car loans and
    their mortgages go up, not down?
        You can't just keep erasing the bad facts to fit your political
    narrative. The bill always, and unfortunately, always, comes due. You
    have made a choice to try to curry political favor, with little regard
    to the harm it will cause Americans down the road. You've done this to
    America's small businesses as well. Small businesses tell me the same
    story over and over again. And that story is simply a Washington shake-
    down, designed to be little more than a ``gotcha'' exercise. Just like
    the CFPB's civil investigative demands--or CID--process.
        Under your CID process, the bureau may issue, without any court
    order, a subpoena to a business when you are ``looking into potential
    violations of the law.''
        And once that subpoena has been issued, the CFPB can demand nearly
    anything they want, from reems of documents to executive testimony.
        So, what does that mean for a company that draws the ire of the
    agency?
        It means years of costly investigation, with little hope of relief,
    or in other words--a bureaucratic witch hunt.
        One small business recently described their process to me--and I
    thought I was really incredible to see what the Government can do to
    you, as opposed to for you.
        For 3 years the CFPB audited this company. But this audit resulted
    in no fines, no reprimands, and no additional CFPB action.
        Then, in 2022, four years later, the CFPB issued the first CID,
    which resulted in 12,000 pages of document production, and testimony
    under oath for the CEO. But again, the CFPB took no action.
        Then, in 2023, the CFPB issued another CID, broadening their scope
    further and requesting millions of pages of documents.
        This time, the firm attempted to fight back and appeal, but
    unfortunately for this small business, the only option to appeal is
    through the CFPB itself--but not surprisingly, the agency rejected the
    appeal. To date, after countless hours of employee time and hundreds of
    thousands of dollars in outside legal fees, the CFPB has still taken no
    action. And this is just one example of a story which is playing out
    across the country every day, for far too many small businesses.
        American consumers and businesses deserve better. They deserve
    protection by their Government from bad actors, and to be left alone
    when they are simply trying to make a living.
                                     ______

                       PREPARED STATEMENT OF ROHIT CHOPRA
                 Director, Consumer Financial Protection Bureau
                                 June 12, 2024
        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.
    ---------------------------------------------------------------------------
         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.
    ---------------------------------------------------------------------------
        Since the creation of the CFPB, the agency has returned $20.7
    billion to consumers through law enforcement activity and created
    unquantifiable returns for the over 205 million Americans harmed by the
    illegal practices that we have stopped. We are currently on track to
    save customers $20 billion in junk fees every year. The CFPB created a
    consumer complaint function that is on track to process over 2 million
    consumer complaints about banks or financial companies this year. And
    since I last reported to you, our victims relief fund returned our
    billionth dollar to consumers harmed by frauds and scams.
        But our work is far from over. Since my last report to Congress 6
    months ago, we have advanced several key initiatives on financial data,
    medical debt, and credit cards.
        First, we are making major progress when it comes to financial
    privacy in an increasingly digital marketplace. I hope we can all agree
    that the United States must lead when it comes to a competitive and
    innovative market for consumer financial services. At the same time,
    this cannot be at the expense of unchecked surveillance and intrusion
    of privacy, as we have seen in China and other markets.
        The CFPB has continued to make progress towards finalizing open
    banking rules to develop data sharing standards and privacy protections
    when customers transfer their financial transaction data to third
    parties. We finalized the first part of the open banking framework last
    week--governing standard setting bodies--which will set the stage for
    finalizing the rest of the rule this fall.
        We are also moving forward to propose a rule under the Fair Credit
    Reporting Act to restrict uses of certain sensitive data by data
    brokers. Around the world, digital data brokers have proliferated.
    Right now, data brokers compile dossiers on Americans that can be
    easily purchased by scammers and stalkers, as well as by State and non-
    State actors in countries of concern. This proposal is part of the
    broader Government effort to protect our national security and
    servicemembers from countries of concern that might seek to purchase
    and exploit sensitive data on Americans.
        While the CFPB is taking important steps on protecting financial
    data, it is critical that Congress must act too. Since my last
    appearance, there have been reports that large financial firms like
    PayPal and JPMorgan Chase are planning to use sensitive data about
    people's income and spending to fuel surveillance-based targeting.
    These plans to monetize sensitive financial transaction data are a
    reminder that the United States is slowly lurching toward more
    financial surveillance and even financial censorship.
        For decades this Committee has played a critical role when it comes
    to protecting financial data, while also promoting competition and new
    offerings. The CFPB is actively monitoring developments in the market,
    and we are eager to work with all of you to put into place stronger
    protections against abuse and misuse of data. We also believe there are
    opportunities to advance legislation to accelerate open and
    decentralized banking in our country.
        Second, we recently announced a proposal to prohibit the inclusion
    of medical bills in credit scores and credit reports. This rule will
    prevent debt collectors from using the credit reporting system to
    coerce patients to pay inflated or erroneous bills. In addition, our
    research showed medical bills on credit reports make loan underwriting
    less accurate. The probative value of medical bills is so low that it
    is causing lenders to deny safe and profitable loan applications with
    low credit risk, including as many as 22,000 mortgage applications
    every year.
        We are also looking more broadly at emerging medical financial
    products, including ones offered in health care facilities. We welcome
    further discussions with all of you on how to address potential harms
    before they become widespread.
        Lastly, I would like to highlight our work in the credit card
    market. In March we narrowed an exemption from Congress' prohibition on
    unreasonable and disproportionate credit card penalties. We revisited a
    regulatory exemption for fees up to $41. Since the exemption was
    originally created, we have obtained access to better cost and fee
    volume data. We looked at that data and found the exemption was about
    five times too high, so we lowered it to $8 for the largest card
    issuers. Credit card companies will still be able to penalize
    customers, and they will be able to charge a fee exceeding $8 if they
    can show that it's reasonable. We estimate that American families will
    save more than $10 billion in late fees annually once that rule goes
    into effect.
        More broadly, we all need to pay close attention to this market.
    For the first time ever, last year credit card balances exceeded $1
    trillion. And in the last 2 years we have seen delinquencies rising to
    levels we have not seen in years--over 10 percent of credit card
    balances are now more than 90 days delinquent.
        The CFPB recently looked at credit card pricing over time and
    discovered that the banks are charging 400 basis points more in
    interest spread than they did 10 years ago. The difference is $25
    billion to American families every year.
        We have also found that most of this excess is coming from large
    banks. For all credit tiers, large banks are charging 800 basis points
    more than smaller banks and credit unions. Late fees are also higher
    now than they have been since passage of the CARD Act. Late fees
    reached $4 billion per quarter at the end of 2022, nearly doubling
    since 2015.
        And we've seen major issues in credit card rewards programs as
    well, which often drive credit card spending. Our complaint database is
    full of stories of disappearing points, points that can't be redeemed,
    or rewards that are retroactively devalued. Last month we held a joint
    hearing with the Department of Transportation, where we heard first-
    hand from people who have experienced bait-and-switch tactics, or who
    simply can't navigate the labyrinthine obstacles card companies create
    to make it hard to redeem points.
        Since credit cards are the most common lending product in our
    country with over 750 million cards in circulation, it's critical that
    we have a market where small financial institutions can compete to
    offer consumers the best possible rates and fees.
        These are just some of the many initiatives the CFPB is pursuing to
    ensure that our financial system is helping American families and
    businesses get ahead. Thank you for the opportunity to appear before
    you. I look forward to taking your questions.

             RESPONSES TO WRITTEN QUESTIONS OF CHAIR BROWN
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                  Additional Material Supplied for the Record

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