The CFPB has already come out with rulings that consumer advocates see as taking it back to its mandate toward consumer protection, but some legacy issues cast a shadow.
With a new administration comes new policies. How will the Biden presidency’s vision impact the Consumer Financial Protection Bureau, an agency that has faced quite a bit of controversy in the last few years?
Created under the Dodd-Frank legislation in 2010 to address gaps in consumer protection, the CFPB has been seen as veering away from its avowed agenda and becoming more pro-business during the Trump years.
Biden’s vision for inclusion will influence CFPB’s mission
One cornerstone of President Joe Biden’s policies is an emphasis on diversity and inclusion. It seems the CFPB will also pursue this goal. In a statement to CreditCards.com, CFPB Acting Director Dave Uejio noted, “Since starting as acting director, I’ve focused the CFPB on providing relief for consumers affected by the COVID-19 pandemic, and taking action on racial equity.
“We are taking a close look at previous policies that hampered the bureau’s effectiveness, and simultaneously working nonstop through supervision and enforcement to ensure financial institutions are treating consumers fairly and playing by the rules.”
Rohit Chopra, a commissioner with the Federal Trade Commission, is Biden’s nominee for CFPB director. He is awaiting congressional confirmation and, according to news reports, this has been put on hold until the vacancy created by the departure of FTC Chairman Joseph Simons is filled.
In Chopra’s congressional testimony related to his confirmation hearing, he said, “It is critical that our financial system works for all Americans. In the short term, particularly during the pandemic, it is critical that consumers can access credit and be free from unlawful discrimination. Over the long term, it is critical that the CFPB and other regulators monitor markets carefully to get ahead of emerging threats, particularly those that harm the most vulnerable consumers.”
Consumer advocates see Chopra as a good choice to further Biden’s vision for the CFPB. Ed Mierzwinski, senior director at U.S. Public Interest Research Group, recounted that Rohit Chopra was hired by Elizabeth Warren in the CFPB’s early days, to help “stand up” the new agency. He was then appointed its first student loan ombudsman by the Treasury secretary.
“His nomination by President Biden clearly shows that the president has a vision to build and expand on the work Director [Richard] Cordray began to make the CFPB an agency that protects all consumers from financial tricks and traps and the horrific effects of the financial impact of the pandemic,” Mierzwinski said.
See related: How the U.S. president affects credit cards
Impact on diversity and inclusion
It seems the CFPB has started acting on its goals, clarifying earlier this year that the Equal Credit Opportunity Act’s prohibition of discrimination based on sex extends to discrimination based on sexual orientation and sexual identity. The agency will not countenance such discrimination by lenders and will act to protect consumers if discrimination does occur, it said.
According to Jack Gillis, Executive Director of the Consumer Federation of America, the CFPB must do more in this area. He said, “Under the Trump administration, the CFPB brought just one case enforcing the Equal Credit Opportunity Act. We hope that extending the definition of discrimination is just one step towards refocusing on holding financial institutions accountable for discriminating consumers.”
However, there remains a “long way to go” in terms of financial inclusion of minorities, according to Ira Rheingold, an Executive Director for the National Association of Consumer Advocates. Minority communities still need to be treated better in terms of pricing of financial products, he noted.
See related: Overcoming the pay gap as a woman of color
Furthering consumer protection
The CFPB is also charged with protecting consumers from unfair, deceptive and abusive practices that the financial industry might engage in.
Under the Trump Administration, the agency had put forth a less stringent policy on such practices, including not seeking civil money penalties for certain abusive acts and practices. In early 2021, the CFPB also did away with that approach and stated that the earlier policy went against the agency’s congressional mandate toward consumer protection.
The CFPB is also looking into empowering consumers by giving them more access to their records that financial institutions have on file. The CFA’s Gillis noted that while consumers could benefit from such access, it also poses risks to them. He said, “The CFPB should issue a strong rule giving consumers true control over their data, ensuring security and limits on how companies use consumer data.”
In his congressional testimony, Chopra said, in a balancing act, “I do not believe we have to choose between consumer choice and security and privacy. I believe a functioning market enables competitors to provide products to consumers safely and transparently.”
However, NACA’s Rheingold doesn’t see much impact from providing this access, given that an “asymmetry of information” means that consumers are “never going to have as much information as financial services players do.”
Regulation of financial technology companies
In the matter of regulating the burgeoning financial technology sector, Chopra noted that consumers benefit from competitive marketplaces. Toward that end, he would endeavor to engage with innovators, regulators and other interested parties and “would seek to identify ways to promote competition and innovation, while also ensuring that laws passed by Congress are followed.”
A spokesperson for the Consumer Bankers Association said that the banking industry trade association is looking forward to a level playing field for all financial services providers. Thus, “The CFPB has an obligation to apply consumer regulations across the board so Americans using a fintech or non-bank lender are assured the same protections as those using a well-regulated bank.”
It seems consumer advocates, too, are veering toward less lenient treatment of fintechs. According to P.I.R.G’s Mierzwinski, “We will be urging the CFPB not to hand out ‘No Action Letters’ or endorse regulatory sandboxes in the way that the Trump CFPB did. Fintechs must not slip through cracks in regulation.”
NACA’s Rheingold also noted that “If they are operating like a bank, they should be regulated like one.”
See related: Fintechs trying to make debit cards trendy
A new public credit reporting agency
Another industry that Biden seeks to change is credit reporting – he has proposed setting up a public credit reporting agency. Consumer complaints about credit reporting made up about 60% of the complaint volume in 2020, the CFPB reports.
U.S. P.I.R.G. looks forward to seeing Biden’s proposal take shape. According to Mierzwinski, “It’s a tremendous out-of-the-box idea, but will take time to enact in a narrowly divided Congress. Also, we are encouraged that the CFPB appears quite upset with the national credit bureaus and the way they’ve treated consumers, especially during the pandemic. Kraninger (CFPB director in the Trump Administration) gave them a get-out-of-jail-free card to ignore consumer complaints. So they did.”
There was some skepticism at Chopra’s hearing about whether a government-run bureau using alternative data input would do better than the existing private credit bureaus. Chopra noted that this is a matter for Congress and, if required, the CFPB would provide technical assistance in the matter.
Francis Creighton, President and CEO of the Consumer Data Industry Association, a trade group for the credit reporting industry, said he doesn’t expect a government-run credit reporting agency is actually going to be set up.
However, he believes it will be good to bring in consumers with thin or non-existent credit files who have historically been excluded into the financial system (as Biden’s proposal calls for the new government agency to do, with the use of alternative data input).
According to Creighton, the complaints against the credit reporting industry are driven more by credit repair firms that are “clogging up the system with bogus complaints” and not by problems with credit reporting.
Debt collection industry reform
The debt collection industry has also received a lot of consumer complaints, even during the pandemic. The CFPB had come out with two rules weighing in on the Fair Debt Collection Practices Act under Kraninger.
According to the CFA’s Gillis, these two rules don’t adequately address consumer protection matters. Thus, “The CFPB can and should revisit these rules, as well as work closely with other federal and state regulators to police predatory debt collectors,” he said.
At Chopra’s congressional hearing, there was some speculation about whether the CFPB would use its rulemaking authority to subject lenders (whose collection activities do not fall under the FDCPA purview since they are considered first parties) to its debt collection rules, thereby circumventing the FDCPA.
Leah Dempsey, senior counsel of federal advocacy at Association of Credit and Collection Professionals (ACA), told CreditCards.com “In the past the bureau has extended FDCPA obligations through its UDAAP [unfair, deceptive and abusive practices] authority in enforcement actions, prompting first parties to take a close look at the new requirements.”
More coordination with state and prudential regulators?
Lenders that come under the CFPB’s purview are also typically subject to various state laws that tend to go back longer than federal banking laws. At the congressional hearing, Chopra noted, “States play a vital role in protecting consumers in financial markets, and federal regulators must consider how their efforts align with those of states. Examining existing state models can be useful. If confirmed, I would coordinate closely with my state counterparts, who are on the front lines of detecting and combatting risks to our financial system.”
He also stated that he would work closely with other federal banking regulators and consider their input. Rheingold expects that there will be more coordination between the FTC and the CFPB, considering that Chopra is from the former agency. He also anticipates that the CFPB will work more closely with state authorities in those states that have a history of strong regulators and enforcement, such as Maryland, Massachusetts and New York.
See related: State statutes of limitation for credit card debt
Legacy effects cast a shadow
As the CFPB takes shape under the new administration, it also has to deal with the legacy from the former regime. For one, the Kraninger CFPB had set up a task force to look into existing financial laws and come up with recommendations on how to improve them.
Among other recommendations, the task force said there should be caution in restricting the use of nonfinancial alternative data, “which can be useful indicators of creditworthiness.”
The task force also is in favor of limits to class action damages under the Fair Credit Reporting Act. And it says that the CFPB should revisit the CARD Act with an eye to seeing whether the benefits outweigh the negative effects of excluding consumers from the credit system. It is also in favor of removing restrictions on marketing credit cards to consumers under the age of 21.
These sorts of recommendations do not sit well with consumer advocates, who have referred to the task force as a “task farce.” Advocates, including the NACA and the U.S. P.I.R.G., even filed a lawsuit challenging the creation of the task force. The CFPB unsuccessfully sought to have this lawsuit, which asked for an injunction against using the task force’s findings, dismissed. However, the lawsuit is still pending, and the industry trade groups CBA and CDIA commend the task force’s input.
And the Supreme Court ruling that the CFPB’s director can be dismissed, with or without cause, by the president also clouds the outlook considering that the CFPB director could now be subject to political influences. There’s also the issue of whether the enforcement actions the CFPB filed during the period the agency’s structure was deemed unconstitutional hold weight.
In his testimony, Chopra stated about the potential instability, “I agree that consistency and predictability are important both to consumers and regulated entities. As to the structure of the CFPB, that is a matter for Congress to decide.”