InfoBytes Blog
Chopra testifies at House, Senate committee hearings
On June 12, the Senate Committee on Banking, Housing, and Urban Affairs held a hearing to address the CFPB’s Semi-Annual Report to Congress. The CFPB Director, Rohit Chopra, in his opening statement addressed the Committee to report on the agency's recent activities and initiatives including its efforts in financial data privacy, open banking rules, and the protection of financial data from surveillance and misuse. Additionally, Chopra highlighted the CFPB’s work in the credit card market, having issued rules seeking to reduce certain credit card fees, foster competition, and protect consumers’ points and rewards. Chopra expressed a willingness to collaborate with the Committee to further address the country’s financial challenges.
Ranking Member Tim Scott (R-SC) warned that the Supreme Court’s recent ruling on the constitutionality of the CFPB’s funding structure was “not a green light for your progressive wish list.” Ranking Member Scott also questioned the CFPB’s issuance of civil investigative demands (CIDs), providing an example of a lengthy multi-year audit that resulted in no CFPB action. Additionally, Senator Reed (D-RI) raised concerns about the Buy Now, Pay Later (BNPL) market, noting that unlike credit card companies, BNPL firms do not consistently report consumer repayments to credit bureaus. He noted that the situation could lead to issues where consumers do not receive credit score benefits for responsible credit usage and where the industry lacks visibility into a consumer's total debt burden. Director Chopra acknowledged Reed’s concerns, citing that auto and mortgage lenders are worried about the lack of BNPL data in credit reports, which could affect their ability to assess borrowers' creditworthiness. Chopra suggested that while reporting is not currently mandated by federal law, it was an area of concern for the CFPB. Additionally, Senator Lummis (R-WY) highlighted “junk fees” and how the concept is being applied in the mortgage industry. Lummis mentioned a working paper by CFPB staff that credited consumer education provided by banks for a particular finding regarding rural borrowers’ understanding of the mortgage process. She followed by asking Chopra if the Bureau considered consumer education a valuable service provided by community banks because, according to Lummis, the cost to educate consumers was being labeled as a “junk fee” by the administration. Chopra’s response noted that there was no attempt to label all mortgage closing costs as “junk fees.” Senator Kennedy (R-LA) expressed confusion regarding the funding of the CFPB, referencing a distinction between revenue and earnings. He cited the statute that governs the CFPB's funding, which stated the agency received its funds from the combined earnings of the Fed. Kennedy pointed out that since September 2022, the Fed had been losing money and therefore had no earnings to transfer, questioning how the CFPB was entitled to any funds under these circumstances. Director Chopra acknowledged the concern and suggested that it was a theory the CFPB has previously explored.
The following day, the House Financial Services Committee also held a hearing to address the CFPB’s Semi-Annual Report. Representative McHenry (R-NC) reflected on the Supreme Court's decision to uphold the funding structure of the CFPB as established by the Dodd-Frank Act. He interpreted the court's opinion as affirming Congress's authority over funding mechanisms and suggested that Democrats join Republicans in creating legislative plans to make the CFPB more accountable. McHenry criticized Director Chopra's leadership, claiming the CFPB under Chopra had become politicized and was neglecting consumer protection in favor of political objectives. He also accused the CFPB of unfairly characterizing financial institutions and questioned Chopra's involvement in the FDIC's internal issues, referencing a toxic workplace culture and leadership problems. On the other hand, Representative Waters (D-CA) highlighted that the CFPB was “combating excessive and illegal junk fees, fighting against housing discrimination and redlining, and holding mega-banks accountable for breaking the law and harming consumers.”
Addressing the Bureau’s proposed rule under Section 1033 of the Dodd-Frank Act, which governed consumer access to financial records, McHenry expressed concerns that the CFPB's proposed regulations might “entrench” those in the financial industry by valuing their hold on financial data. Director Chopra responded by emphasizing the need to prevent practices like bait-and-switch, where financial products such as auto loans are offered with the ulterior motive of “harvesting” and selling data. When McHenry asked for a timeline, Chopra indicated the aim to finalize the rule by October.
Among questions from other representatives, Representative Wagner (R-MO) questioned Director Chopra about the principles of risk-based pricing in the financial industry. Chopra stated that while it was not mandated, risk-based pricing was commonly used by institutions to appropriately measure risk. Wagner expressed concerns that the CFPB's new rules on credit card late fees and overdrafts could undermine this principle. Chopra disagreed, arguing that the rules would encourage better risk-based pricing, and he did not see a connection between aligning late fees with Congressional guidelines and undermining risk-based pricing. Wagner then suggested the new rules could increase persistent debt among consumers. Throughout the discussion, Chopra insisted that the CFPB's actions were in line with common sense and Congressional prohibitions against unreasonable fees.