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In just one year since Rohit Chopra was confirmed as director of the Consumer Financial Protection Bureau (CFPB) in September 2021, the CFPB has been very busy.
It levied large fines against major financial institutions and greatly reduced the burden of medical debt on Americans’ credit histories.
A large part of Chopra’s challenge was to make up for the four years when the agency was mostly sidelined under President Trump. Quickly, the CFPB went on a spree of hiring investigators and enforcers. It’s delving into new areas like cryptocurrency, buy now pay later apps and how artificial intelligence might discriminate against certain consumer groups.
Even those used to the chaotic nature of politics have been surprised by the stark pendulum shifts at the CFPB from one administration to the next.
“For most financial industry folks, I think they’d characterize it more as regulatory whiplash,” says Clifford Rossi, a professor of finance at the University of Maryland’s Robert H. Smith School of Business.
“There are so many priorities and so many things they’re doing. Many people are scratching their heads and asking: Are they able to get all of this done?” says Joann Needleman, leader of the financial services regulatory and compliance practice for the law firm Clark Hill, which consults for financial services companies.
Here’s some of what the CFPB has been up to over the past year and where it’s going.
Four Top CFPB Initiatives in the Past Year
1. Removing Medical Debt from Credit Scores
In April, the CFPB issued a report spotlighting medical billing challenges. In July, the major credit reporting bureaus announced this debt would no longer be included in credit score calculations. The CFPB’s announcements on this topic helped bring about this change, says Rossi.
Read more: 70% Of Medical Collection Debt Will Soon Be Removed From Credit Reports
2. Curbing Junk Fees
Whether it’s overdraft fees from banks or seemingly random fees from debt collectors, the CFPB has taken a hard line to try to eliminate these “junk fees.”
In the case of debt collectors, the bureau put out an advisory opinion that these fees break federal laws. It was more of a bully pulpit for bank overdraft fees: The agency announced an initiative to reduce junk fees, and then the banks started to pull back on the charges themselves.
“When you have one person at the head of an agency, it gives you the ability to have tougher rhetoric. It’s unusual to have language that strong coming from an agency,” says Stephen Brincks, a professor of finance at San Diego State University’s Fowler College of Business.
3. Tackling Technology
Technology is increasingly influencing consumers’ wallets and the CFPB has taken a number of actions to increase transparency and fairness. If a creditor declines to lend to a consumer based on a “black box” credit algorithms, it will still be required to disclose the specific reasons it denied credit.
The CFPB also warned digital financial services that they have specific obligations to protect consumer privacy.
4. Enforcement Actions
The CFPB also scored impactful enforcement actions against financial institutions, such as:
- US Bank was found $37.5 million for illegally accessing customer’s credit reports and opening accounts in their names
- Bank of America was fined $225 million for “botching” disbursement of state unemployment funds
- Hyundai was found $19 million for “widespread” credit reporting problems
- Hello Digit was fined $2.7 million for using a faulty algorithm that caused customer overdrafts
What’s Next for the CFPB?
Expect more from the CFPB in the next year on all these core issues, especially on emerging technology issues that have not been addressed.
“There will be a big focus on nonbanks, and I think there should be. You’ll even hear the banks say this,” says Rossi, referring to the fintech companies that offer banking services like deposit accounts and mortgages but are not fully chartered banks by the FDIC. The agency is already looking into entities that make false claims about FDIC insurance.
The agency has also announced it’s looking into buy now pay later (BNPL) apps, which operate more like private loans than credit cards—at least, in terms of regulation—and have fallen into a gray area on disclosures and lending practices.
For cryptocurrency, the agency will stick to the consumer impacts as it plays catch-up on regulations, predicts Rossi. “They’re trying to help consumers have better transparency,” he says.
The government has to sort out what it can do and which agency should take the lead in areas like crypto and artificial intelligence applications to financial services. “Regulators are always behind the eight ball where financial innovation takes place,” adds Rossi.
Are Consumer Protection Lawsuits Going Too Far?
One new tactic the agency is taking under Chopra is more legal actions, rather than just inquiries and enforcements, especially to hold executives accountable.
The agency is currently suing a number of companies, including Ace Cash Express, Moneygram and “repeat offender” TransUnion and its CEO, John T. Danaher.
“If you’re litigating against the CFPB, you’ve probably already lost in some respects, particularly given the potential reputational implications of doing so,” says Catherine Brown, a partner at Klaros Group, a financial services advisory and investment firm.
When critics take on the CFPB, the most common complaint is “overreach.” What they mean by that, says Brincks, is “that they don’t think the CFPB has the statutory authority to do what it’s doing.”
It has become so much of an issue that critics are questioning whether the structure of the CFPB to have one director rather than a commission is right for the agency.
“It creates the opportunity for policy direction to fling, quite wildly,” with just one leader, says Chris Willis, co-leader of consumer financial services regulatory practice at the law firm Troutman Pepper.
The question of how much power the CFPB should have will come up a lot as it presses forward under Chopra because the bureau will investigate areas like cryptocurrency that share jurisdiction with other agencies like the Federal Reserve, the FDIC and the Federal Trade Commission.
But if Chopra can corral those other agencies, “then the CFPB could be very powerful,” says Brincks, at least under the current political dynamic. “It’ll depend on how much pushback there is. The CFPB could be challenged in court, or you could have the structure be changed by legislation in the future.”