The Chopra Era at the Consumer Financial Protection Bureau — Four Months In
We have just reached the four-month mark since the U.S. Senate confirmed Rohit Chopra as Director of the Consumer Financial Protection Bureau (CFPB or Bureau). In that short time, Director Chopra has demonstrated that he intends to use his position to effect major change in the world of consumer finance. Through enforcement actions, market monitoring orders, research reports, media initiatives, and congressional hearings, Director Chopra is making clear his initial round of priorities for the CFPB, signaling that 2022 will be an active year for both the Bureau and the thousands of financial services providers under its expansive jurisdiction.
Given the pace of announcements coming out of the CFPB since Director Chopra’s confirmation, we wanted to use this client alert to highlight what appear to be the Bureau’s highest priority initiatives. As the CFPB seems to be rolling out a major initiative on a near-weekly basis, however, we expect this list to expand significantly as the year proceeds.
Director Chopra’s statements and actions to date leave no doubt that he will use each of the CFPB’s expansive enforcement, supervision, regulation, and education tools in pursuing an agenda that he believes is in the best interests of the American consumer. He can also be expected to work with and support the efforts of the states’ attorneys general and consumer protection agencies, giving the CFPB force multiplier partners throughout the nation. Now more than ever, financial services providers need to understand the priorities of this uniquely powerful financial regulator.
To that end, we invite you to reach out to us for a briefing on how your business and market fit within the CFPB’s priorities. Sidley has unrivaled expertise and experience in advising clients on all facets of consumer financial products and services and can help you determine the best way to deal proactively and productively with the CFPB.
Tech Payments Inquiry
Director Chopra launched his first major initiative on October 21, 2021, when the Bureau issued Section 1022(c)(4) orders requesting information from six major American technology companies relating to the payments services that they offer to American consumers (the Payments Orders). The issuance of the Payments Orders signaled the Bureau’s intent to assert itself as a primary regulator of major financial technology companies and may evidence that Director Chopra plans to pursue a fair competition agenda at the Bureau, which was previously the domain of the Federal Trade Commission and the U.S. Department of Justice Antitrust Division. In announcing the Payments Orders, Director Chopra commented that the Bureau’s payments inquiry is “one of many efforts within the Federal Reserve System to plan for the future of real-time payments and to ensure a fair and competitive payments system in our country.”1 While acknowledging that “families and businesses benefit from faster, cheaper, and more secure payment systems,” the CFPB contended that these developments “present new risks to consumers and to a fair, transparent, and competitive marketplace.”2
On October 22, 2021, the day after the Payments Orders were issued, the CFPB held a joint press conference with the U.S. Department of Justice and the Office of the Comptroller of the Currency to announce the settlement of an enforcement action against Trustmark National Bank, signaling the CFPB’s commitment to enforcing the fair lending laws. According to Director Chopra, Trustmark had engaged in “a form of redlining that we have seen for decades, which is unacceptable, where a lender acts to discriminate against and discourage prospective applicants from seeking credit in certain neighborhoods on the basis of race.”3 In the public statements discussing the Trustmark case, Director Chopra emphasized that fair lending will be of primary importance to the Bureau, committing the CFPB to “closely watching for digital redlining, disguised through so-called neutral algorithms, that may reinforce the biases that have long existed.”4
Overdraft and Non-Sufficient Fund Fees
On December 1, 2021, the CFPB released a research report examining the practices of depository institutions with regard to overdraft and non-sufficient fund (NSF) fees. According to the Bureau, “overdraft and NSF fees made up close to two-thirds of reported fee revenue, emphasizing banks’ heavy reliance on such fees.”5 Director Chopra appeared to signal that the CFPB will be looking closely at these types of fees, stating, “[r]ather than competing on quality service and attractive interest rates, many banks have become hooked on overdraft fees to feed their profit model. [...] We will be taking action to restore meaningful competition to this market.”6 To that end, the CFPB announced that it “will be enhancing its supervisory and enforcement scrutiny of banks that are heavily dependent on overdraft fees.”7
State Enforcement of Federal Consumer Financial Protection Laws
At the National Association of Attorneys General meeting on December 7, 2021, Director Chopra delivered remarks “encourag[ing state attorneys general] to bring actions under the Consumer Financial Protection Act, particularly when federal protections are stronger than state statutes.”8 In support of this effort, Director Chopra stated that the Bureau will be “clarifying the wide variety of claims that states can bring under the CFPB’s statute” and “explor[ing] ways that states could be able to get more out of the remedies available under the Consumer Financial Protection Act,” including seeking civil penalties and making use of the CFPB’s civil monetary penalty fund.9 Director Chopra emphasized “stopping repeat offenders, especially those that violate agency or court orders entered at the federal and state level,” as a priority, including the potential use of “remedies directed at the senior management and executive levels and structural reforms to reshape behavior and incentives.”10
Extending “Covered Persons” to Include Securitization Trusts
On December 14, 2021, the CFPB won a favorable ruling in the U.S. District Court for the District of Delaware when the Court held that the “covered persons” over whom the CFPB has jurisdiction includes securitization trusts. In Consumer Financial Protection Bureau v. National Collegiate Master Student Loan Trust et al.,11 the defendant trusts, formed for the purpose of securitizing student loans, argued that they were not “covered persons” under the Consumer Financial Protection Act because they did not “engage in” the provision of covered services but rather contracted with third-party loan servicers to collect on the securitized student loans. The District Court disagreed, holding that the trusts were “engaged” in the provision of financial services even if third-party loan servicers did the actual work. The National Collegiate decision, if ultimately upheld on appeal (a motion for interlocutory appeal was filed on December 23, 2021, with the reply brief submitted on January 13, 2022), has the potential to affect the securitization of consumer loans, making the CFPB — for the first time — one of the industry’s primary regulators.
Buy Now, Pay Later
On December 16, 2021, the Bureau issued orders pursuant to Section 1022(c)(4) to five of the most prominent early offerors of “buy now, pay later” products (BNPL Orders), seeking information similar to what the Bureau requested in the Payments Orders. In announcing this initiative, Director Chopra characterized BNPL as “the new version of the old layaway plan, but with modern, faster twists where the consumer gets the product immediately but gets the debt immediately too.”12 The Bureau said that the information requests were designed to “illuminate the range of these consumer credit products and their underlying business practices,” including the amount of debt consumers are accumulating through BNPL, the scope of consumer protections available and applicable to BNPL products, and the “data harvesting” and monetization practices of these prominent BNPL providers.13
Credit Reporting Agencies
On January 5, 2022, the CFPB released a report detailing what it contended were the “consumer complaint response deficiencies of the big three credit bureaus.”14 In his accompanying comments, Director Chopra stated that “America’s credit reporting oligopoly has little incentive to treat consumers fairly when their credit reports have errors. [...] Today’s report is further evidence of the serious harms stemming from their faulty financial surveillance business model.”15 The CFPB represented that it had discovered numerous concerning practices, including relying on “template complaint responses instead of providing meaningful and thorough responses,” failing to “provid[e] substantive responses to consumers’ complaints if they suspected that a third-party was involved,” and “fail[ing] to provide the outcomes of their investigations to the CFPB.”16 On January 13, 2022, the Bureau issued another warning to the credit reporting market in a “Bulletin to Prevent Unlawful Medical Debt Collection and Credit Reporting,” in which the CFPB reminded “debt collectors and credit bureaus of their legal obligations in light of the No Surprises Act."17 In particular, the bulletin underscored that “the accuracy and dispute obligations imposed by federal consumer financial protection law apply with respect to debts stemming from charges that exceed the amount permitted by the No Surprises Act.”18
“Robust and Fair Competition” in the Credit Card Market
On January 19, 2022, the Bureau published a blog post detailing concerns about the level of competition in the credit card market and its negative ramifications for consumers. Citing the “outsize role that credit card debt plays for many households,” the CFPB said that it will “focus on ensuring a more fair, transparent, and competitive credit card market.” To that end, the Bureau committed to (1) “uncover unfair, anticompetitive practices” (as an example, it stated that “major players in the credit card industry started withholding information that they previously reported to the credit bureaus about borrower repayment patterns ... [that] helped them obscure the repayment behavior of their customers”), (2) “make it simpler to compare, switch, or refinance your credit card” (including by encouraging “more intense competition to refinance balances, [through which] consumers could save billions”), and (3) “scrutinize junk fees” (claiming that the industry is “heavily dependent on fees”).19 Director Chopra followed the issuance of the blog post by commenting that “[t]he market is dominated by a handful of banks and credit card giants.”20
Institutional Student Lending
The next day, on January 20, 2022, the CFPB announced it would “begin examining the operations of post-secondary schools, such as for-profit colleges, that extend private loans directly to students.”21 As a part of this initiative, the Bureau said it would update examination procedures, to include, among other things, the addition of a new section on “institutional student loans” focusing on practices such as “placing enrollment restrictions, withholding transcripts, improperly accelerating payments, failing to issue refunds, and maintaining improper lending relationships.”22 According to the Bureau, many of these practices are “actions only schools can take against their students” and have led to “past abuses” when students were subjected to “high interest rates and strong-arm debt collection practices.”23 This initiative encompasses private education loans made directly to students by their school, whether for-profit or nonprofit.
Less than a week later, on January 26, 2022, Director Chopra further demonstrated his focus on reducing the fees that consumers pay financial institutions by launching what the Bureau characterized as an initiative to “Save Americans Billions in Junk Fees.”24 Again, fair competition appears to be a primary focus of this initiative, with the Bureau alleging that “Companies across the U.S. economy are increasingly charging inflated and back-end fees to households and families. This new ‘fee economy’ distorts our free market system by concealing the true price of products from the competitive process.” The Bureau’s “junk fee” initiative promises to be expansive, covering a huge swath of the financial products and institutions under its jurisdiction. With the stated goal of informing the Bureau’s regulatory, supervisory, and enforcement approach to financial services fees, the CFPB is seeking information/comment from consumers, small businesses, academics, and others about the fees associated with bank and credit union accounts, prepaid cards, credit cards, mortgages and other types of loans, remittances, and payment transfers.
Identifying Consumer Reporting Companies for Potential Consumer Law Violations
On January 27, 2022, the CFPB published an “updated list” of “financial surveillance companies” that “identifies dozens of specialty reporting companies that collect and sell access to people’s data, including individuals’ finances, employment, check writing histories, or rental history records, often without their knowledge.”25 The CFPB reminded consumers of their rights under the Fair Credit Reporting Act, including the right to sue “specialty reporting companies.” According to the Bureau, “using the list, people can exercise their right to see what information these firms have, dispute inaccuracies, and file lawsuits if the firms are violating the Fair Credit Reporting Act.”26 This action appears to be part of the Bureau’s effort to highlight its concerns about the credit furnishing and reporting market, also demonstrated by the January 6 report on the credit reporting agencies and the January 13 bulletin targeting medical debt collection and reporting.
Director Chopra’s first four months at the CFPB strongly indicate that the Bureau will be at the center of decisions and discussions regarding consumer financial products and services for the duration of the Biden administration. Again, Sidley has unrivaled expertise and experience in advising clients on all facets of consumer financial products and services and can help you determine the best way to deal proactively and productively with the CFPB. We invite you to reach out to us.
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