[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
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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.
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Statement Required by 12 U.S.C. 5492; The views expressed herein
are those of the Director and do not necessarily reflect the views of
the Board of Governors of the Federal Reserve System or the President.
---------------------------------------------------------------------------
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
FROM ROHIT CHOPRA
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RESPONSES TO WRITTEN QUESTIONS OF SENATOR SCOTT
FROM ROHIT CHOPRA
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RESPONSES TO WRITTEN QUESTIONS OF SENATOR WARNER
FROM ROHIT CHOPRA
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RESPONSES TO WRITTEN QUESTIONS OF SENATOR ROUNDS
FROM ROHIT CHOPRA
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RESPONSES TO WRITTEN QUESTIONS OF SENATOR HAGERTY
FROM ROHIT CHOPRA
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RESPONSES TO WRITTEN QUESTIONS OF SENATOR BRITT
FROM ROHIT CHOPRA
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Additional Material Supplied for the Record
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