CFPB Director Rohit Chopra Testifies in Front of the House and Senate
Consumer Financial Protection Bureau (CFPB) Director, Rohit Chopra, recently testified in front of the House and Senate on the agency’s semiannual report to Congress. The hearings addressed the CFPB’s proposed rule on credit card penalty fees, as well as a variety of other rules, data privacy concerns and recent bank failures.
Credit Card Late Fee Rule
In February, the CFPB proposed a rule to “curb excessive credit card late fees” as part of a broader crusade against so-called “junk fees.” The rule—proposed under the current director’s unique regulatory interpretation of rulemaking by blog post—would essentially cap credit card late fees at eight dollars. The fee could be higher only if the issuer could prove that the cost of collecting a late payment exceeded this eight-dollar threshold. The rule would also end issuers’ automatic inflation adjustment on the fee and cap late fees at 25 percent of the required minimum payment.
Both hearings focused on the rule’s potential unintended consequences, with Rep. Andy Barr (R-Ky.), chairman of the House Financial Services Committee’s Subcommittee on Financial Institutions and Monetary Policy, and Sen. Tim Scott (R-S.C.), ranking member of the Senate Banking, Housing, and Urban Affairs Committee, leaning into this line of questioning.
Sen. Scott told Chopra, “There’s this [misconception] that somehow the government can just snap its fingers and say ‘the fee is no longer there,’ but it’s embedded in the costs of everything else.”
Chairman Barr took a more aggressive approach. “Corporate greed [is the excuse] to explain away the need for fees. But you know who else relies on fees? The government. The IRS charges late fees on taxpayers. If you want to enter most national parks, you pay a fee. Even the CFPB charges fees on Freedom of Information Act requests.”
When given the opportunity to respond, Chopra said little to directly address these issues and instead pointed to what he considers a positive track record of protecting consumers. Several Republican members of Congress pointed out that limiting revenue streams can reduce access to credit or increase the cost of credit, ultimately harming consumers—especially those with the lowest incomes.
“We don’t understand how it’s protecting consumers to say to a subprime credit card borrower who’s always on time […] to force them to pay a higher interest rate by lowering the late fees on borrowers who [do] pay late?” Rep. Barr said.
CFPB Data Breach and Data Privacy Concerns
In April, the CFPB experienced a widescale data breach to the tune of 250,000 individuals. The breach was said to have been conducted by a now-former employee.
Several members questioned Chopra on the agency’s authority to hold massive amounts of consumer data when they have a clear issue with data privacy. When Chopra pointed out that this was an individual with malintent rather than a system failure, Sen. John Kennedy (R-La.) asserted that as head of the CFPB, Chopra is responsible for all his employees.
Section 1033 and “Open Banking”
Chopra was questioned on the intent and rollout of Section 1033 of the Dodd-Frank Wall Street Reform and Protection Act, referred to as the Open Banking Rule. This rule would require banks, credit unions and other “covered data providers” to give consumers access to the entirety of their financial data within a given financial institution. The consumer could then transfer that data to a competing financial institution. The rule attempts to increase competition by giving institutions access to the same base of information on a consumer, thereby allowing them to offer more tailored products and services.
Many issues have been raised about the rule, including further data privacy concerns when aggregating and transferring large amounts of consumer data. This brings up obvious security issues, and despite the rule’s intent, smaller financial institutions may not be able to afford the security protocols necessary to implement it. Further, liability issues around data breaches continue to be questioned—including at Chopra’s hearings.
Silicon Valley Bank Collapse
Several witnesses on both sides of the aisle questioned Chopra on the Silicon Valley Bank collapse and his role as a Federal Deposit Insurance Corporation (FDIC) board member. By law, the director of the CFPB sits on the FDIC board. As such, Chopra oversaw the bid process for a Silicon Valley Bank acquisition, which notably received no bids. The bank was ultimately bailed out by the federal government.
Chopra’s dual role in overseeing the bank’s practices prior to its failure was discussed. Several members of Congress used it as an example that major regulation is far from the most beneficial solution to ensure good banking practices.