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Chopra testifies at congressional hearings
On April 26, CFPB Director Rohit Chopra testified at a hearing held by the Senate Banking Committee on the CFPB’s most recent semi-annual report to Congress (covered by InfoBytes here). Chopra’s opening remarks focused on key efforts the agency is taking to meet objectives established by Congress, including (i) shifting enforcement resources away from investigating small firms and focusing instead on repeat offenders and large players engaged in large-scale harm; (ii) increasing transparency through the issuance of guidance documents, such as advisory opinions, compliance bulletins, policy statements, and other publications to help entities comply with federal consumer financial laws; (iii) rethinking its approach to regulations, including its work to develop several rules authorized in the CFPA, and placing “a higher premium on simplicity and ‘bright lines’ whenever possible”; (iv) engaging with the business community and meeting with state-based associations to speak directly with community banks and credit unions and engaging with a broad range of other businesses and associations that may be affected by the laws the Bureau administers; (v) promoting greater competition by “lowering barriers to entry and increasing the pool of firms competing for customers based on quality, price, and service”; and (vi) researching issues related to big tech’s influence on consumer payments.
In his opening statement, Senate Banking Committee Chair Sherrod Brown (D-OH) praised Chopra’s recent efforts related to “junk fees” such as overdraft fees and non-sufficient fund fees, discrimination and bias in the appraisal process, reporting of medical collection debt by the credit reporting agencies, examination authority over non-banks and fintech companies, and crack-down on repeat offenders. However, Ranking Member Patrick Toomey (R-PA) criticized Chopra’s actions and alleged “overreach.” Among other things, Toomey characterized the Bureau’s attempts “to supervise for disparate impact not only in lending, but in all consumer financial services and products” as “unauthorized stealth rulemaking” that “will create tremendous uncertainty among regulated entities.” Toomey also took issue with recent changes to the Bureau’s rules of adjudication, claiming it will “make it easier to engage in regulation by enforcement.”
During the hearing, committee members discussed topics related to collecting small business lending data, rural banking access, student loan servicing, and whether the Bureau should be subject to the congressional appropriations process. Republican committee members raised concerns over several issues, including significant revisions recently made to the Bureau’s unfair, deceptive, or abusive acts or practices (UDAAP) examination manual that state that any type of discrimination in connection with a consumer financial product or service could be an “unfair” practice (i.e., the CFPB can now bring “unfair” discrimination claims related to non-credit financial products). (Covered by a Buckley Special Alert.) Senator Thom Tillis (R-NC) characterized the new policy as a “wholesale rewrite” of the examination manual that will improperly expand the reach of disparate impact liability and challenged the lack of notice-and-comment for the changes to the UDAAP manual.
Conversely, Democratic committee members praised Chopra’s actions and encouraged him to continue pressuring banks to cut excessive overdraft fees and other “junk fees,” as well as strengthen enforcement against repeat offenders. Senator Elizabeth Warren (D-MA) stressed that imposing fines that are less than the profits made from the misconduct will not be enough to persuade large banks to follow the law and asked Chopra to think about other steps regulators might consider to hold large repeat offenders accountable. She referenced her bill, the Corporate Executive Accountability Act, which is designed to hold big bank executives personally liable for the bank’s repeat violations of the law.
Chopra reiterated the Bureau’s priorities in his April 27 testimony before the House Financial Services Committee. At the hearing, House committee members questioned Chopra on the Bureau’s plans to collect data on small business loans pursuant to Section 1071 of the Dodd-Frank Act, crack down on “junk fees,” and address fair lending concerns with automated valuation models and fraud in payment networks. During the hearing, Chopra told committee members that the Bureau plans to revisit and update older regulations such as the CARD Act to lower credit card fees. “We want to make sure that credit cards are a competitive market . . . [so] I am asking the staff to look at whether we should reopen the Card Act rules that were promulgated by the Federal Reserve Board over 10 years ago . . . to be able to look at some of these older rules we inherited, to determine whether there needs to be any changes,” Chopra said, adding that “late fees are an area that I expect to be one of the questions we solicit input on.”
Senate Banking Committee members ask CFPB to address medical debt
On March 29, several Democratic U.S. senators sent a letter to CFPB Director Rohit Chopra asking the Bureau to use its authority to take measures to address the growing medical debt burden facing consumers. The letter, led by Senator Sherrod Brown (D-OH), follows a report issued by the Bureau earlier in the month that outlined the negative consequences of medical debt and announced the agency’s intention to review whether data on unpaid medical bills should be included in consumer credit reports (covered by InfoBytes here). The Bureau also stated it would hold consumer reporting agencies accountable for inaccurate reports. Shortly after the Bureau released the report, the three major credit bureaus announced they were eliminating nearly 70 percent of medical collection debt tradelines from consumer credit reports. As previously covered by InfoBytes, Brown issued a statement supporting the credit bureaus’ announcement, but also stressed his intention to collaborate with the Bureau on “address[ing] the growing burden of medical debt, protect[ing] working families, and hold[ing] bad actors accountable.”
In their letter, the senators highlighted the disproportionate impact of medical debt on low-income individuals, minorities, veterans, younger and older Americans, and other vulnerable populations. The senators also expressed concerns regarding the recent trend of private equity firms investing in the healthcare market, especially as private equity-owned health providers are reportedly charging higher rates but delivering lower quality care. According to the senators, these concerns heighten the need for the Bureau to take further action. The senators asked the Bureau to create an ombudsman position to handle medical debt issues (similar to the ombudsman position that oversees student loan servicers’ compliance with federal and state law), and pressed the need for additional research focusing on, among other things, medical debt collection practices and the debt selling market for medical bills.
Senate holds hearing on the role of digital assets in illicit finance
On March 17, the Senate Banking, Housing, and Urban Affairs Committee held a hearing titled “Understanding the Role of Digital Assets in Illicit Finance” to consider the risks crypto technology and digital assets pose for consumers and the financial system. The Committee heard from several witnesses, including FinCEN’s Former Acting Director, Deputy Director/Digital Innovation Officer Michael Mosier, who stressed that policymakers should focus on finding a balance that does not only “chase bad actors but also prevents exploitation of the vulnerable from the start.” Chairman Sherrod Brown (D-OH) opened the hearing by explaining that the “dollar has safeguards to protect against crime and illicit activity” because companies dealing in real money “are required to know their customers, and report suspicious transactions.” In contrast, digital assets “make it easier for money launderers to use webs of transactions across the globe to cover their tracks” and hinders law enforcement agencies’ ability to trace illicit funds. Brown cautioned that “lax rules and little oversight” are providing bad actors more opportunities to “hide and move money in the dark” using cryptocurrency. He stressed, however, that President Biden’s recent executive order, which outlined a coordinated approach to digital asset innovation (covered by InfoBytes here), will “drive progress on this issue” and “jumpstart a coordinated strategy from law enforcement and regulators to fight bad actors who want to use crypto.” Ranking Member Pat Toomey (R-PA) took a different view, noting that the “traceable nature of many cryptocurrencies” can also support the detection and prevention of illicit crime, which is “a factor making [cryptocurrency] terribly risky to utilize for criminal purposes.” He also expressed concerns that the lack of regulatory clarity surrounding digital assets has driven innovation abroad.
Witnesses provided various recommendations designed to, among other things, reduce the risk of sanctions evasion through digital assets, as well as improve detection, disruption, and deterrence of the illicit use of digital assets. While one witness stated that “transparency of blockchains enhances the ability of policymakers and law enforcement to detect, disrupt, and ultimately, deter illicit activity,” another witness cautioned that “[e]ven with the latest blockchain analytics, investigations can take years to complete,” particularly because “prosecutors must demonstrate that an identifiable person is behind the criminal activity.”
Powell presents Monetary Policy Report to Senate Banking Committee
On March 3, Federal Reserve Chairman Jerome Powell spoke before the Senate Banking, Housing, and Urban Affairs Committee to discuss current monetary policy and to share the Federal Reserve’s semiannual Monetary Policy Report. In his testimony, Powell started by sharing that he will “review the current economic situation” in Ukraine before adjusting monetary policy. Turning to the current economic situation and outlook, he noted that economic activity has increased at a robust five and a half percent pace over the last year, which “reflect[s] progress on vaccinations and the reopening of the economy, fiscal and monetary policy support, and the healthy financial positions of households and businesses.” He called the labor market “extremely tight,” noting that payroll employment increased by 6.7 million in 2021, and observed that “job gains were robust in January.” He also pointed to the unemployment rate decreasing substantially over the past year and standing at four percent in January, “reaching the median of Federal Open Market Committee (FOMC) participants’ estimates of its longer-run normal level.” With respect to monetary policy, Powell expressed that the Fed expects “inflation to decline over the course of the year as supply constraints ease and demand moderates because of the waning effects of fiscal support and the removal of monetary policy accommodation,” and that the agency will use “policy tools as appropriate to prevent higher inflation from becoming entrenched while promoting a sustainable expansion and a strong labor market.”
Chopra testifies on CFPB direction
On October 27, newly sworn in CFPB Director Rohit Chopra appeared for the first time before the House Financial Services Committee to offer some of the first insights into his priorities at the Bureau. Chopra’s opening remarks focused on concerns regarding “Big Tech” and its control over the flow of money in the economy (these comments followed the issuance of information requests to six technology companies, covered by InfoBytes here). Chopra also focused on a need to ensure robust competition in financial markets and listen to local financial institutions and nascent players about obstacles they face when seeking to challenge dominant incumbents. Chopra also stressed the importance of holding “repeat offenders” accountable, highlighted an intent to coordinate efforts with federal and state regulators, and indicated a preference for scrutinizing larger market participants over smaller entities. He noted, however, potential leniency for companies that self-identify their own issues and violations. Additional highlights of the hearing include the following:
Enforcement. Chopra noted that “markets work well when rules are easy to follow and easy to enforce.” He also expressed his view that the CFPB should focus its resources on larger industry participants and “repeat offenders” rather than “strong-arming” small businesses into settlements to create law. Chopra also expressed a preference for setting regulatory guidelines through enforcement, indicating that “markets work well when rules are easy to follow, and easy to enforce.”
Section 1033 of Dodd-Frank. With respect to implementing this set of requirements, which deals with consumers’ rights to access information about their financial accounts, Chopra indicated a desire to “unlock more competition,” but warned that there also needs to be assurance that “banks and nonbanks are operating under the same set of rules” and that there is “not regulatory arbitrage.” While Chopra did not specify a timeline for promulgating the final rule implementing this section, he noted that the process is underway and that the Bureau is consulting with various experts. (Issuance of the ANPR was covered by InfoBytes here.)
Abusive acts and practices. Chopra said that he agreed with former acting Director Dave Uejio’s decision to rescind a policy statement on “abusive” conduct issued by former Director Kathy Kraninger. Chopra stated he has “huge aspirations to create durable jurisprudence” regarding the definition of “abusive” in Dodd-Frank. He noted that “it could be a mix” of judicial decisions and “how the CFPB may use rules and guidance to help articulate those standards.”
Cryptocurrency and stablecoins. Chopra expressed concerns about the potential for big payment platforms to process stablecoins—cryptocurrencies pegged to stable commodities or currencies like the dollar. However, Chopra clarified that it is not his intention to use his regulatory authority to ban or limit the use of cryptocurrency or blockchain technology. Regarding the CFPB’s role in cryptocurrency, Chopra claimed that depending on the laws implicated, there is a “fact-based determination as to any sort of law that cryptocurrencies or digital currencies have to comply with.” He further described that this is “something that the CFPB is working with the other regulators on,” and emphasized that “where digital payments [are] involved, the Electronic Fund Transfer Act is a key law with key consumer protections.”
QM Rule. When asked about the postponement of the mandatory compliance date of the General Qualified Mortgage final rule to October 2022 (covered by InfoBytes here), Chopra said he is eager “to hear of places where it needs to be changed” but emphasized that the postponement was before his time and that the rule has gone into effect. He also stated that “QM is a key part of the mortgage market and the mortgage regulatory guidelines.” Therefore, he wants to ensure that the CFPB is always looking at it to make sure the objectives that Congress laid forward in Dodd-Frank are being carried out. When asked about his support of the proposed change in the QM rule, Chopra said he did not know but wants “to make sure he understands the full basis of it.”
Chopra echoed such sentiments in his October 28 testimony before the Senate Banking Committee.
Senate holds hearing on central bank digital currency
On June 9, the Senate Committee on Banking, Housing, and Urban Affairs Subcommittee on Economic Policy held a hearing titled “Building A Stronger Financial System: Opportunities of a Central Bank Digital Currency” to discuss the potential opportunities of a central bank digital currency (CBDC). Among the issues discussed at the hearing were protecting consumer privacy and security, financial inclusion, and the Federal Reserve’s authority.
The Honorable J. Christopher Giancarlo, Senior Counsel at Willkie Farr & Gallagher, was a witness on behalf of the Digital Dollar Project (DDP). The digital dollar, proposed by the Fed, would be distributed through the two-tiered banking system and operated alongside physical currency and commercial bank money. Senator Catherine Cortez Masto (D-NV) asked how a CBDC should be designed, implemented, and regulated to reduce the risk of fraud and ensure privacy. Giancarlo, who stated he is not convinced of the need for CBDC, but believed in the need to examine this issue, said the DDP convened a privacy subcommittee which addressed four principles: (i) economic privacy; (ii) security; (iii) inclusion; and (iv) sufficient transparency to provide settlement and payment certainty. When Senator Mark Warner (D-VA) questioned witness Dr. Neha Narula, Director of the Digital Currency Initiative at MIT, on security risks associated with cryptocurrencies, she responded that, with respect to ransomware attacks, the issue is that valuable data has not been properly secured, and suggested that a CBDC could have built-in safeguards. She also believed that open source software is critical for security.
Subcommittee Chairwoman Senator Elizabeth Warren (D-MA) suggested that banks use “abusive” practices and that the crypto industry has promised a better and more inclusive financial system, which reduces cost and improves quality. When Warren asked if a well-designed CBDC could help people who are poorly served by the current financial system, Narula emphasized the importance of designing a CBDC with a focus on accessibility and reducing barriers to access.
Senator Sherrod Brown (D-OH) argued that Americans should not be subject to excessive fees to access their own money. He also noted that a CBDC may work with a solution he has proposed, called No-Fee Accounts, which would be available to every American and backed by the Fed. As previously covered by InfoBytes, Federal Reserve Governor Lael Brainard noted in a speech that a CBDC may address concerns regarding the lack of federal deposit insurance and banking supervision for nonbank issuers of digital assets, and that “new forms of private money may introduce counterparty risk into the payments system in new ways that could lead to consumer protection threats or, at large scale, broader financial stability risks.” Ranking Member Pat Toomey (R-PA) expressed his concerns around the Fed’s position in retail banking services and was doubtful that the Fed would provide high quality customer service, while Ranking Member John Kennedy (R-LA) questioned if it is appropriate for the federal government to get entangled in the credit markets by way of a CBDC.
Chopra testifies before Senate Banking Committee
On March 2, FTC Commissioner Rohit Chopra testified before the Senate Committee on Banking, Housing, and Urban Affairs where he was asked about his plans should he be confirmed as the permanent CFPB director. Chopra released prepared remarks in which he discussed challenges stemming from the Covid-19 pandemic, specifically those related to loan defaults, auto repossessions, credit reporting, debt collection, and foreclosures. Highlighting the need for “fair and effective oversight” in the mortgage market, Chopra also emphasized the importance of addressing systemic inequities faced by families of color. In opening remarks, Senator Sherrod Brown (D-OH), in support of Chopra’s nomination, highlighted several of Chopra’s previous achievements at the Bureau as its first student loan ombudsman and emphasized his “strong record of protecting consumers and small businesses, promoting competitive markets, and holding bad actors accountable.”
Chopra fielded questions from Committee members on a range of topics, including credit reporting, student lending, servicemember protections, and mortgage lending. Chopra stressed his commitment to improving the “transparency, efficiency, and effectiveness” of the Bureau’s supervision and enforcement programs. He further emphasized the need to combat lending discrimination and that fair lending enforcement will be a priority for the Bureau, noting that the Bureau’s Fair Lending and Equal Opportunity office “is established by Congress and  should play a critical role in making sure the law is being followed.” With respect to credit reporting and debt collection, Chopra stated, “[I]f there are unlawful, egregious practices, it is important for enforcement to make sure that they stop. . . .[T]hat’s what’s best for consumers, that’s what’s best for the honest market participants and that’s the role Congress has asked the CFPB to play.”
With respect to fintech, Chopra said the Bureau needs to “take a hard look” at large technology companies’ expansion into financial services and their potential impact on consumer privacy and data security. He also raised concerns about the potential for bias in algorithm decision-making and underwriting. “[L]ooking at how big data, particularly by large platforms who have detailed behavioral data on all of us is something we must carefully look at. Because, it will change financial services fundamentally,” Chopra stressed. He also discussed the importance of providing restitution for consumers, reaffirming his commitment to ensuring that companies found to have committed violations of law are required to repay consumers for what was taken. “[W]hen victims of fraud and misconduct are not made whole, that doesn’t just hurt them. It also hurts every other business who is trying to follow the law and treat them  the right way,” Chopra stated.
If confirmed by the Senate Banking Committee, Chopra’s nomination will head to the full Senate for a vote.
Regulators update Senate on Covid-19
On November 10, the Senate Committee on Banking, Housing, and Urban Affairs held a hearing entitled “Oversight of Financial Regulators,” which primarily focused on Covid-19-related actions taken by the Federal Reserve Board (Fed), OCC, FDIC, and NCUA since the federal financial regulators last testified in May (covered by InfoBytes here). Committee Chairman Mike Crapo (R-ID) opened the hearing by applauding the actions taken by the regulators after the passage of the CARES Act to help mitigate the economic impact of the pandemic. Crapo cautioned, however, that the regulators should continue to review and adjust their regulatory and supervisory frameworks to support economic recovery, including by “alleviat[ing] the regulatory burdens associated with a variety of asset-based regulatory thresholds on  banks and credit unions temporarily experiencing growth from participation in recovery-orientated programs” such as the Paycheck Protection Program (PPP).
In his written statement, Fed Vice Chair for Supervision Randal K. Quarles discussed actions taken by the Fed, such as (i) issuing a set of key principles concerning Covid-related credit accommodations; (ii) updating guidance on bank examinations to “consider the unique, evolving, and potentially long-term issues that institutions face”; (iii) clarifying the Fed’s approach to Covid-related activity under the Community Reinvestment Act; and (iv) supporting the ability of banks to meet customer needs by issuing PPP loans, underwriting loans in the Main Street Lending Program, and acting as counterparties in several other facilities.
OCC Acting Comptroller Brian Brooks also discussed activities undertaken by the agency, and noted that the regulators are working on an interagency basis “on a set of rule[s] that would relieve for a period of time certain asset thresholds being tripped that trigger heightened scrutiny and heightened compliance requirements at different levels.” According to Brooks, this relief would “cap out at $10 billion, most likely, based on current conversations.” Brooks agreed with Quarles that while larger banks are “fully capable of managing those risks,” smaller banks will face difficulties.
FDIC Chairman Jelena McWilliams also provided an update on actions undertaken to provide banks flexibility while maintaining safety and soundness. McWilliams discussed five key areas: (i) responding to Covid-19 economic risks; (ii) “enhancing  resolution readiness”; (iii) supporting communities; (iv) “fostering technology solutions and encouraging innovation”; and (v) “finalizing outstanding rulemakings,” including approving an interim final rule to provide regulatory relief to insured depository institutions that have experienced significant, but temporary, asset growth due to government stimulus efforts (covered by InfoBytes here).
NCUA Chairman Rodney E. Hood also discussed updated agency measures in response to the pandemic, such as adjusting supervision priorities to ensure that credit unions’ good-faith efforts to comply with the CARES Act are reviewed. Hood further emphasized in his written statement that “NCUA’s examiners will not criticize a credit union’s efforts to provide prudent relief for members when such efforts are conducted in a reasonable manner with proper controls and management oversight.” Hood also discussed, among other things, NCUA’s cybersecurity efforts in response to the pandemic and significant rulemaking actions, including an interim final rule that provides relief to credit unions that temporarily fall below the well-capitalized level.
The House Financial Services Committee also held a hearing later in the week to discuss the regulators' responses to the pandemic.
CSBS discusses CARES Act response in congressional letter
On October 9, the Conference of State Bank Supervisors (CSBS) wrote to the ranking members of the Senate Banking Committee and the House Financial Services Committee with an update on the organization’s efforts regarding the CARES Act and oversight of nonbank mortgage servicers. CSBS notes that state regulators are the primary authority over nonbank mortgage servicers, and during the early stages of the Covid-19 pandemic, the state regulators “identified liquidity as a supervisory priority.” Thus, according to CSBS, state regulators have been actively monitoring liquidity and other business operations by seeking real time data and other updates from nonbank mortgage servicers. Moreover, CSBS discusses the efforts made in response to the CARES Act, including consumer and servicer guidance issued in conjunction with the CFPB (covered by InfoBytes here and here), as well as examination procedure guidance. Lastly, the letter highlights the organization’s recent release of proposed regulatory prudential standards for nonbank mortgage servicers. As previously covered by InfoBytes, the proposal includes baseline standards that would apply to all covered servicers and enhanced standards—covering capital, liquidity, stress testing, and living will/recovery and resolution planning—that would apply to certain larger servicers. CSBS concludes the letter with a commitment for “continued coordination and information exchange with federal agencies.”
Kraninger discusses semi-annual report and pandemic response at congressional hearings
On July 29, CFPB Director Kathy Kraninger testified at a hearing held by the Senate Banking Committee on the CFPB’s Semi-Annual Report to Congress, which covers the Bureau’s work from October 1, 2019, through March 31, 2020. (Covered by InfoBytes here.) Kraninger’s testimony identified four key areas of focus for the Bureau: (i) providing financial education resources to prevent consumer harm; (ii) implementing “clear rules of the road” to encourage “competition, increase transparency, and preserve fair markets for financial products and services”; (iii) ensuring a “culture of compliance” through supervision; and (iv) following a consistent, purposeful enforcement regime. Kraninger also highlighted Bureau efforts to address discrimination, consumer confusion regarding forbearance options under the CARES Act, and a legislative proposal that would authorize the Bureau to award whistleblowers who report federal consumer financial law violations.
During the hearing, committee members focused on, among other things, the Bureau’s response to the Covid-19 pandemic and the agency’s recent repeal of certain underwriting provisions of its 2017 final rule covering “Payday, Vehicle Title, and Certain High-Cost Installment Loans” (covered by InfoBytes here). In response to Democratic criticism regarding the repeal of the underwriting provisions, Kraninger reiterated that a Bureau analysis of the provisions in the 2017 final rule revealed it would reduce the availability of small-dollar credit “by at least 70 percent,” and denied claims that the rulemaking process had been impacted by political appointees at the agency. Additionally, Kraninger said she intends to move ahead with putting the payment provisions of the payday rule into effect and is currently “working through” a pending legal challenge to the provisions.
Democratic committee members also questioned Kraninger regarding temporary regulatory relief to mortgage servicers and other financial services companies (covered by InfoBytes here) and the Bureau’s policy statement providing Fair Credit Reporting Act and Regulation V compliance flexibility for consumer reporting agencies and furnishers during the pandemic (covered by InfoBytes here). With regard to the U.S. Supreme Court’s June ruling in Seila Law v. CFPB (covered by a Buckley Special Alert), Committee Chairman Mike Crapo (R-ID) noted he is still advocating for “a bipartisan board of directors to oversee the CFPB” and for subjecting the Bureau to the annual appropriations process.
The next day, Kraninger appeared before the House Financial Services Committee’s hearing to discuss the semi-annual report. Similar to the Senate hearing, committee members questioned Kraninger on the payday rule, the revision to the HMDA rule, the Bureau’s pandemic-related initiatives for consumers, and on ways the Bureau is protecting struggling consumers during the pandemic, particularly with respect to the agency’s supervisory and enforcement work.