FORWARD LOOKING

How is the Consumer Financial Protection Bureau’s focus evolving in the first part of the year?

How can Institutions mitigate enforcement and supervisory risk?

When the Washington Post’s economist columnist, Heather Long, published her unusual but enlightening conversation with CFPB Director, Rohit Chopra, it provided an insight as to what is likely coming next for the Bureau, both based on what the Director said - and what was left unsaid.

Not ‘Asleep At The Switch’

If there is one overarching take-away from the Director’s comments, it is that he won’t permit the Bureau to be caught “asleep at the switch.” He is focused on proactively “monitoring these markets” and avoiding “not understanding how markets work, and then being too late when things go badly wrong.” “That's just not how we're going to operate,” he said.

CFPB Market Goals

Chopra believes there is room for improvement in our sector. 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

He also signaled two other big picture perspectives:

  • Despite the delineation of responsibilities under Dodd Frank, Chopra is focused on the CFPB being the eyes and ears for a broader forum: “ 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 also concerned about disparate impacts across financial services, especially in light of inflation and other market trends: “The risks of mass financial instability disproportionately fall on those who least can afford it.”

Data analytics – opportunity to help and risk for abuse?

Chopra, like past Directors, has a clear focus on data analytics, including the CFPB’s Consumer Complaint Database, and 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 may be harmful to consumers, querying: “Whether it makes sense for this data to not have a clear set of transparency about how it's being used.” 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.”

We expect to see more focus and activity in the spaces of fair lending underwriting, pricing and debt servicing. We also may see the Bureau advocating that institutions leverage data analytics to assist consumers.

Rule-making and specific issues under the 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. 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 an 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. In criticizing insufficient funds fees, he noted: “[S]o many of these fees are determined by simple timing mismatches between when your paycheck gets deposited and when certain debits are processed.” The CFPB is also evaluating whether consumers receive sufficient up-front disclosures for comparative shopping and informed decision making 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 repayment status after more than two years of interest-free forbearance because of the COVID-19 pandemic.

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

CONCLUSION

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.

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MEET THE AUTHORS

AISHA SMITH

Counsel, Washington

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DOUGLAS THOMPSON

Partner and Global Practice Co-Leader - Financial Services Disputes and Investigations, Los Angeles

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