Director Chopra gave interviews this week to several news reporting outlets including American Banker, Law 360, Politico, and Bloomberg. Below are some of highlights of the interviews as reported by those outlets, several of which also provided interview transcripts. We also share our reactions to Director Chopra’s comments.
CFPB priorities and status of rulemaking activity. A persistent theme in all of Director Chopra’s interviews is his concern about the entry of big tech companies into financial services, particularly in connection with payments and the companies’ ability to collect and monetize data about consumers. He labeled this “the highest-stakes issue for us to deal with.” In October 2021, using its authority under Section 1022 of the Consumer Financial Protection Act (CFPA) to send market monitoring orders, the CFPB requested information from six large technology platforms offering payment services. Director Chopra indicated that the CFPB “will have more to say this Fall about some of what we’re learning [from the 1022 orders.]” He also indicated that the CFPB will likely issue a report based on the 1022 orders.
Director Chopra linked the CFPB’s concerns about big tech with its rulemaking to implement Section 1033 of the CFPA. Section 1033 requires consumer financial services providers to give consumers access to certain financial information. In October 2020, the CFPB issued an Advance Notice of Proposed Rulemaking in connection with its 1033 rulemaking. Director Chopra stated that he expected “the linkage between the big tech payments piece and how transaction data is used…to impact how we’re looking at the  rulemaking quite a bit.” He indicated that the CFPB hoped to take the next step in the 1033 rulemaking process by convening a SBREFA panel by the end of 2022.
Director Chopra also linked the CFPB’s concerns with big tech to its concerns about technologies that allow for real-time consumer payments and the increased potential for fraud. He identified “preparing for real-time payments” as the CFPB’s “primary focus” in the payments arena. In response to a question asking if he could provide more insight on Regulation E and what the CFPB plans to do about payment apps, Director Chopra indicated that the CFPB “is trying to look [at fraud risk] holistically, beyond any one single app, [to see] what really can be done both by consumers, the industry and policymakers to really rein in some of this. We have made no final decisions on any specific regulatory approach.”
We assume the interviewer’s question to Director Chopra was prompted by the recent WSJ report that the CFPB is preparing to release new guidance that would require banks to make refunds to victims of scammers who defraud consumers into sending money to a third party using an online money-transfer platform. As we commented, such guidance would conflict with the text of the Electronic Fund Transfer Act by requiring banks to treat fraudulently induced transactions as unauthorized EFTs even when they are initiated by the consumer, with the result that banks would be required to repay the amount of such transactions to consumers. Because the issuance of such an interpretation would represent a significant change in the application of EFTA/Regulation E liability protections, we believe such a change should be the subject of notice-and-comment rulemaking procedures, either as an amendment to Regulation E or to the Official Staff Commentary, or both.
In December 2021, also using its Section 1022 authority, the CFPB sent orders to five companies that offer buy-now-pay-later (BNPL) products directing them to provide information to the Bureau. Director Chopra indicated that the CFPB would likely release its initial findings on BNPL before taking next steps in its big tech inquiry. His estimated timing for those next steps (end of 2022) suggests the CFPB’s initial BNPL findings could be released this Fall.
Director Chopra also made the following comments on other CFPB rulemaking activity:
- Qualified mortgages. The CFPB is not likely to revisit the recent change to its QM rule, and no decision has been made whether to revisit seasoned QMs, but the CFPB is exploring changes that would help streamlined modifications and refinancings.
- Payday lending. While leaving the door open for rulemaking (stating “it’s too early to tell”), Director Chopra indicated that the CFPB’s current focus is on supervision and enforcement. He observed that because state rate caps have changed many of the state-based marketplaces, the CFPB will “continue to look at the data and see where it takes us.”
- Overdraft/NSF fees. The CFPB is directing its examiners “to focus more attention on the institutions that have an aberrant level of their deposit account fee revenue coming from [overdraft and NSF fees].” He did not mention rulemaking.
Enforcement. Director Chopra identified the Military Lending Act as a CFPB enforcement focus, including in connection with loans made through bank/nonbank partnerships. In response to a question asking why the Bureau has brought so few enforcement actions in his first year as Director, Director Chopra stated that instead of focusing on the number of actions, the Bureau would be focusing on the impact of those actions and remedying harm and stopping it from occurring again. As a result, the Bureau’s focus is more on larger actors and repeat offenders.
Director Chopra indicated that in his view, the Bureau gains credibility by “litigat[ing] cases against well-sourced firms that will not easily just back down and, in fact, will be willing to spend the money to litigate.” However, he acknowledged that most matters would be resolved through settlements. He also expressed the belief that the Bureau “will be litigating perhaps more than others have been willing to.” If the CFPB does in fact ramp up its enforcement activity, we hope that it uses its enforcement authority to target those who have violated established and clear “rules of the road” rather than to engage in rulemaking by enforcement as it did in its recent action challenging a national bank’s procedures for handling garnishment orders.
Approach to rulemaking. Director Chopra fielded several questions about the CFPB’s recent updates to the UDAAP section of its Supervision and Examination Manual that instruct examiners to consider discrimination in connection with non-credit products and services as an unfair act or practice. We have expressed the view that this change represents an expansion of the Bureau’s UDAAP authority that requires notice-and-comment rulemaking. It seems that Director Chopra may agree that our view is well-founded. In response to a question asking about the process that led up to the manual update, he stated that “in a hearing I was asked why we didn’t put it on this other kind of procedural notice, and I actually acknowledged maybe we should have.” We assume the “other kind of procedural notice” Director Chopra was referring to was a notice of proposed rulemaking. And if Director Chopra indeed agrees that the manual update was a subject for rulemaking, there is nothing preventing him from withdrawing the action and initiating a rulemaking.
Also with regard to the manual update, in response to a question asking about industry concerns as to whether the update means the CFPB will start using a disparate impact theory when alleging UDAAP violations based on non-credit discrimination, Director Chopra distinguished disparate impact from unfairness as a “different doctrine that is aligned with the Equal Credit Opportunity Act, Fair Housing Act and others.” To the extent Director Chopra is suggesting that the CFPB does not intend to use a disparate impact theory when using UDAAP to challenge discrimination, this would appear to be inconsistent with the new directives to examiners in the manual update as well as the CFPB’s blog post about the manual update.
Director Chopra commented that he has “not heard of a robust rebuttal that discrimination may not meet the criteria under the unfairness standard.” His comment misses the mark. The validity of the CFPB’s interpretation does not turn on whether discrimination meets those criteria. The critical question is whether those criteria are properly applied to discrimination and the clear answer to that question is that they are not. As discussed in the White Paper on the manual update sent to Director Chopra by several trade groups, the primary legal flaws with the CFPB’s interpretation include that by conflating the concepts of “unfairness” and “discrimination,” the CFPB ignores the CFPA’s text, structure, and legislative history and that its treatment of “unfairness” is inconsistent with decades of understanding and usage of that term in the Federal Trade Commission Act (recent statements by FTC Chair Lisa Kahn and Commissioner Rebecca Kelly Slaughter notwithstanding ) and with the enactment of ECOA.
Director Chopra was also asked about industry criticism regarding the CFPB’s issuance of guidance and other communications in lieu of using notice-and-comment rulemaking. He commented that, other than the exam manual change, “no one will give me specifics.” We are glad to provide the following specific examples to Director Chopra: the CFPB’s advisory opinion interpreting the FDCPA’s application to “convenience fees” charged by debt collectors; its advisory opinion interpreting the FCRA’s permissible purpose requirement in connection with name-only matching procedures; and its interpretive rule regarding the authority of state attorneys general and state regulators to enforce the CFPA.
We recently called on Director Chopra to restart use of the official staff commentaries to interpret federal consumer financial laws rather than continue its current practice of using a potpourri of methods that lack transparency and predictability as well as certainty that they will be binding.