Summary

Last month CFPB Director Rohit Chopra sat down with The
Washington Post’s economist columnist Heather Long in an
unusual but enlightening conversation published by the 
Washington Post Live. In this article, we highlight what in our
view is likely coming next for the Bureau, both based on what the
Director said and what was left unsaid or to the future.

Not Asleep At The Switch.

First, however, if there is one overarching take-away from the
Director’s comments, it is Rohit Chopra will not permit the
CFPB, in his words, to be caught “asleep at the
switch.”  He is focused on proactively “monitoring
these markets” and avoiding what he contends “the
American public has seen this over and over again‑‑[of]
law enforcement agencies and regulators simply just asleep at the
switch, not understanding how markets work, and then being too late
when things go badly wrong. And that’s just not how we’re
going to operate.”

CFPB Market Goals.

We commend to you the entire interview, as it covers a wide
range of issues from the potential emerging risks of Buy Now, Pay
Later product sale financing to the perils of consumer information
sharing; from potential challenges of student loan servicing and
defaults to the prospects of a digital dollar. In our view, a
handful of key themes emerge across the spectrum of topics and
financial services.

• Transparent & Competitive Pricing for
  consumer financial services products.




• “Service & Quality” — Actual
  Value for Service and Products




• Reliable Assistance when challenges
  arise.




• Leveraging Data Analytics to benefit
  consumers, not potentially harm them.
    

Chopra believes there is room for improvement in our sector.
“When competitive forces work, costs go down, consumers are
served better, and I’m not really sure that we totally have
that in many sectors of banking.”

Chopra also signaled two other big picture perspectives. Despite
the specific responsibilities delineated to the CFPB under Dodd
Frank, he is focused on the CFPB being the eyes and ears for a
broader forum. “One of the things I have asked our staff to
do is we need to make sure that we are collecting information,
studying and reporting to the public, because sometimes it
doesn’t just involve our authority. Sometimes it involves
others.”

The Director is concerned about disparate impacts across
financial services, especially in light of inflation and other
market trends:  “how do we keep our financial systems
stable, because the risks of mass financial instability
disproportionately fall on those who least can afford it? And they
get‑‑all of us get really angry that in some cases, the
individuals and the politicians who helped cause the financial
crisis, there seems to be no consequences for them.”
 

Data Analytics – Opportunity to Help & Risk for
Abuse.

We have seen, even under prior Directors, a clear focus on data
analytics, including the CFPB’s Consumer Complaint Database.
Chopra is fully engaged in the CFPB leveraging the power of data to
identify concerns and assess consumer adverse impact. He also is
wary of consumer data being used in ways, which the Director
contends may harmful to consumers.  In discussing the
increasing scope of consumer personal data being collected, Chopra
commented: “I really wonder whether it makes sense for this
data to not have a clear set of transparency about how it’s
being used, I think, when these data are combined into black box
algorithms, used for financial purposes, and sometimes people
can’t even explain the decisions that come out of
them.” He returned to this risk later in the interview,
concluding “we want to make sure technology is meaningfully
making our lives better, not necessarily turning into a
surveillance state, not necessarily to reinforce bias and
discrimination.” Accordingly, we expect to see more focus and
activity in the spaces of fair lending underwriting, pricing and
debt servicing. We also may see in the future the Bureau advocating
that institutions leverage data analytics to assist consumers. In
criticizing insufficient funds fees, Chorpa noted “so many of
these fees are determined by simple timing mismatches between when
your paycheck gets deposited and when certain debits are
processed.”

Rule Making & Specific Issues Under the CFPB
Microscope.

Director Chopra clearly intends to use all the tools he has
available to drive the Bureau’s progress and achieve his
goals.  In several instances, he indicated rule making may be
in the offing but that an additional tool the CFPB will leverage is
supervisory scrutiny. While we can expect the CFPB to continue
exercising its authority over all aspects of consumer finance,
Chopra focused his commentary on the following products and
services:

• Credit Cards and Auto Lending: Chopra
  expressed concern over the lack of competitive interest rates and
  pricing in the credit card and auto lending markets, particularly
  when costs are increasing because of inflation. For auto lending,
  rising demand resulting from parts shortages further increases the
  total cost of ownership for both new and used vehicles. We plan to
  watch for cooperation and data sharing among the CFPB and other
  regulators to promote competitive options for consumers in credit
  card and auto lending markets.




• Digital Currency: Chopra noted the
  importance of distinguishing stable coins from speculative trading
  when considering the risks of digital currency to consumers. He
  also expressed an interest in ensuring that digital asset
  transactions have similar protections to debit or credit cards
  including, but not limited to, issue escalation, adequate privacy
  and security measures, and fraud prevention. Digital currency is an
  area where Chopra suggested we might see CFPB collaborating with
  other agencies, taking a co-regulatory, multijurisdictional
  approach similar to that of the mortgage industry.




• Fees:  For all consumer markets, the CFPB
  is paying close attention to what Chopra referred to as “junk
  fees”, including overdraft, insufficient fund, surcharge,
  ticketing, and resort fees. Chopra comments, for example,
  “[insufficient fund fees are] a key place where so many
  consumers feel kicked when they’re down, and often people ask
  me… ‘what service am I getting?’ It doesn’t
  feel like a service at all. It just feels like a punishment. So I
  think that’s part of what we have to think about.” The
  CFPB is also evaluating whether consumers receive sufficient
  up-front disclosures to do comparative shopping and make informed
  decisions with respect to fees. It is unclear whether we’ll
  see rulemaking or further activity with respect to fees. However,
  companies may mitigate risk by evaluating the basis of their
  current fee arrangements, disclosures regarding such fees, and
  whether their fees drive value for consumers to promote a fair and
  competitive market.




• Student Lending: While other branches of
  government tackle the ongoing discussion of student loan
  forgiveness, we can expect the CFPB to focus its attention on
  remediating harm for students who borrowed to attend for-profit
  institutions but did not derive value from those programs, or
  perhaps were harmed as a result of kickback scandals between
  schools and student loan companies. Director Chopra is also paying
  close attention to the upcoming transition of federal student loans
  to back repayment status after more than two years of interest-free
  forbearance as a result of the COVID-19 pandemic.

Chopra also stressed the importance of expanding access to
financial services for unbanked populations, including the
development of safe and efficient payment systems for international
remittance transfers, as well as facilitating earlier and more
frequent access to wages.

Conclusion & Takeaways.  Director
Chopra is inquisitive, tenacious and principled. Whether or not one
agrees with his expressed views on industry, he is invigorating the
CFPB with a clear vision and mission. Institutions can leverage the
insights he shared to assess consumer services and products through
that lens and to align risk and compliance focus to mitigate
enforcement and supervisory risk. Early engagement on emerging risk
trends will be beneficial. Applying fairness, transparency and
value principles he outlined may mitigate consumer complaints and
ultimately regulatory and litigation risk.

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.

POPULAR ARTICLES ON: Finance and Banking from United States