CFPB Director Chopra appears before House Fin. Serv. Committee
On October 28, the new director of CFPB, Rohit Chopra, made his first appearance before the House Financial Services Committee since its close approval by the Senate. Director Chopra focused on the subjects with bipartite appeal: the Bureau’s enforcement efforts targeting large businesses, ways it can try to help small businesses (including small financial firms), and the importance of strong relationships between banks and customers.
One of the topics highlighted by Chopra, which was well received by Democrats and Republicans, was the need for increased scrutiny of financial products and services offered by tech giants. His appearance before the Committee came less than a week after the CFPB demanded that several large tech companies provide them with details of their payment activities (we already discussed this in a previous post on the Consumer Finance & FinTech blog here. ).
Chopra said the CFPB intends to focus its enforcement actions primarily on large companies and repeat offenders, and that companies that self-identify violations will have some leeway. “I think we should focus most of our resources on the larger companies engaged in large-scale damage that is clearly totally out of reach,” Chopra said. “One of the things that bothers me the most is that when the small players break the law they are closed and when the big players break the law nothing happens. . . [t]the fat one pays a fine.
He added: “I share the view that when there is an honest desire to play by the rules, it is not appropriate to severely penalize it.”
Chopra said he also intends to encourage a return to relationship banking and stronger customer service. “I am very concerned that there are many situations where consumers do not have to turn to when they need help,” he said. “As a country, we are at a disadvantage as relationship banking moves away, and I want to know what I can do to revitalize that so that the customer has more leverage and institutions respond to it. “
Some lawmakers have expressed concern over how the CFPB plans to deal with big tech giants and the use of algorithms in lending.
He also said that companies cannot dodge fair loan laws by using secret algorithms. “I am very concerned about the black box algorithms and the fact that we have no responsibility for how decisions are made,” Chopra said. “It’s the opposite of relationship banking.”
Put it into practice. There are a few takeaways from Director Chopra’s appearance before the House committee.
His comments were in many ways conciliatory, but may not reflect recent actions taken by the Bureau. We have seen indications in recent months that the CFPB will revert to the aggressive regulatory-by-application approach that was a hallmark of Richard Cordray’s tenure as director, and which has left the financial services industry often confused as to how to comply with applicable law, or what led the CFPB to adopt positions which appeared incompatible with established law. Time will tell if the CFPB’s approach going forward reflects Chopra’s most recent comments to Congress.
We can see a first test as to whether Chopra’s stated intention to modulate the CFPB approach for entities that have “an honest desire to play by the rules”. One industry that could have a number of businesses that seem to fit this description will be mortgage services that may well be inundated with pandemic defaults and foreclosures in the not too distant future.
The big tech giants seem to be in the crosshairs of the CFPB as part of the introduction of financial services on various platforms. All signs point to the Bureau scrutinizing these tech companies, including their respective uses of algorithms and artificial intelligence that could have discriminatory effects.
Copyright © 2021, Sheppard Mullin Richter & Hampton LLP.Revue nationale de droit, volume XI, number 305