CHOPRA’S PLANS

Posted on by jholzknecht

In April 26 testimony to Congress, CFPB Director Rohit Chopra outlined his plans for the Agency.

  • Focusing Enforcement on Repeat Offenders and Other Major Market Actors
    • When small businesses violate the law, federal enforcers are often quick to levy crippling sanctions. But when larger players repeatedly violate the law, agencies are far more lenient.
    • During his tenure, the CFPB will not only focus on large actors engaged in widespread harm, but also enforce the law as written. He expects that this may lead to more litigation, but also lend greater legitimacy to agency actions.
  • Enhancing Transparency Through Guidance
    • The CFPB will dramatically increase its issuance of guidance documents, such as advisory opinions, compliance bulletins, policy statements, and other publications.
  • Rethinking Its Approach to Regulations
    • When Congress and the President enact laws that direct or authorize the promulgation of regulations, agencies should not ignore them.
    • Director Chopra is concerned that the approach to regulations pursued by federal banking agencies is excessively complicated. He has asked CFPB staff to put a higher premium on simplicity and “bright lines” whenever possible. The agency is also reviewing rules that the agency inherited from the Federal Reserve Board of Governors to identify opportunities for improvement.
  • Listening and Learning from the Business Community
    • During his confirmation process, the Director received feedback that the CFPB was extremely responsive to large financial institutions, but not sufficiently committed to listening and learning from local financial institutions and the broader business community. He takes this criticism seriously and has directed a number of changes to the agency’s status quo approach.
    • A key priority has been to engage with institutions without direct access to the CFPB, including small banks and credit unions. He has met with many state-based associations to speak directly with community banks and credit unions, and hopes to meet with all of these associations during his term in office.
  • Promoting Competition
    • In the U.S. market system, one of the best ways that consumers can protect themselves is to switch from providers that treat them poorly. This is why Congress established as a primary objective that the CFPB seek to ensure that markets for consumer financial products and services are fair, transparent, and competitive.
    • Competition leads to innovation, attractive rates, quality service, and benefits that may be difficult to quantify. But when consumers do not get to select their provider or when switching is complex or difficult, it can lead to stagnation, junk fees, and poor treatment. Indeed, in many markets for consumer financial products and services, like loan servicing and credit reporting, consumers have no choice of provider.
    • In addition to implementation of rules under Section 1033, the CFPB will be launching other initiatives to identify ways to lower barriers to entry and increase the pool of firms competing for customers based on quality, price, and service. The agency is especially interested in ways that small financial institutions can leverage technology and systems, like the planned FedNow program, to capture market share while still preserving their relationship banking model.
  • Preparing for the Era of Big Tech and Big Data in Banking
    • America’s consumer finance infrastructure is the plumbing for an enormous amount of economic activity. New technologies and systems can bring us faster payments and new opportunities to connect customers and financial providers. During Chopra’s tenure, the CFPB will be very focused on what the future holds and how the CFPB can shape it in ways that align with American values.
    • Currently, the United States is lurching toward a consolidated market structure where finance and commerce co-mingle fueled by uncontrolled flows of consumer data. This is the market structure that has emerged in China, where Alipay (operated by Ant Group, formerly known as Alibaba) and WeChatPay (operated by Tencent) predominate. Alipay is part of the same conglomerate that dominates e-commerce, and WeChatPay is connected to the dominant messaging app.
    • These super-apps have access to an extraordinary set of data about consumers and businesses, including financial businesses that they may compete with. Over the last several years, Chinese tech and finance giants have developed so-called “social scoring” that goes beyond credit performance and relies on analyzing user habits unrelated to credit and banking.
    • The outsized influence of such dominant tech conglomerates over the financial services ecosystem comes with risks and raises a host of questions about privacy, fraud, discrimination, and more. The CFPB is currently studying these issues first as part of its inquiry into Big Tech’s entry into consumer payments in the United States. The agency has issued a set of orders to Google, Facebook, Amazon, Apple, PayPal and Block (formerly Square) to further understand key issues on their plans for consumer payments. The CFPB expects to issue reports on its research to contribute to the critical policy discussions about the future of consumer finance and relationship banking in our country.