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The Consumer Financial Protection Bureau’s Semi-Annual Report to Congress Hearing

Senate Committee on Banking, Housing, and Urban Affairs 

The Consumer Financial Protection Bureau’s Semi-Annual Report to Congress 

Thursday, December 15, 2022 

Topline 

  • Democrats pressed Chopra on the work the CFPB is doing to relieve the burden of medical debt on consumer credit reports, and on the Bureau’s enforcement of the Military Lending Act. 
  • Republicans criticized the CFPB’s funding mechanism and called for Congressional appropriation. 

Witnesses 

Opening Statements 

Chairman Sherrod Brown (D-Ohio) 

In his opening statement, Brown said fighting for consumers is one of the most important duties of the Senate Banking Committee. He lauded the CFPB for delivering $14B back to consumers since its inception. Brown explained Congress created the CFPB and designed its funding structure to make the agency an effective consumer watchdog. He cited the Committee’s report on Dodd-Frank, which read, “the assurance of adequate funding independent of the appropriations process is essential to the independent operations.” Brown added that other financial regulators are not funded by the appropriations process and concluded by noting the CFPB uses its power to fight discrimination by financial institutions. 

Ranking Member Pat Toomey (R-Pa.) 

In his opening statement, Toomey said only Congress has the power to appropriate money. He discussed how the CFPB is double insulated because it takes money from the Fed, which does not get appropriated funds. Toomey explained that this leaves Congress with no leverage over the CFPB, and gives the CFPB no accountability. He said the Fifth Circuit found this to be improper. Toomey noted he is introducing legislation with Sen. Bill Hagerty (R-Tenn.) to place the CFPB within appropriations and replace the Director with a five-member commission. 

Testimony 

The Honorable Rohit Chopra, Director, Consumer Financial Protection Bureau 

In his testimony, Chopra noted the CFPB is carefully monitoring consumer finance markets to protect honest businesses and consumers. He explained that during the last year, the CFPB recovered hundreds of millions of dollars in victim redress and penalties, sharpened its focus on repeat offenders, and prioritized implementing rules directed by Congress. Chopra urged Congress to protect the neutrality of our payment system, noting Facebook’s Libra proposal in 2019 was a wake-up call to regulators around the world and serves as an important reminder of the power and potential that tech giants hold. He said financial regulators should carefully monitor how large tech conglomerates and other platforms enter the payments system and financial services.  

Chopra discussed how payment apps from large tech firms are the conduit for trillions of dollars in transactions, noting the growing concern that a small set of players, including some of the largest tech companies, are gaining a greater foothold in the payments system. He said the rise in dominance of a small group of payment platforms raises questions about how firms can suppress, suspend, or discriminate against certain participants over others. He explained that the CFPB has heard considerable concerns about payment apps kicking off users, or even claiming the ability to reach into their accounts and fine users without a clear reference to any legal infraction. Chopra said Congress must ensure that tech platforms are not picking winners and losers.  

Chopra said he hopes Congress will consider updating the Gramm-Leach-Bliley Act to provide limitations on the collection, use, and sharing of sensitive personal financial data. He noted other opportunities for bipartisan legislative efforts, citing reforming the Appraisal Foundation, expanding awards for whistleblowers, and protecting relationship banking. He concluded by affirming the CFPB’s eagerness to work with this Committee to craft potential solutions on these and many other issues. 

Question & Answer 

Big Tech Payment Platforms 

Senator John Tester (D-Mont.) asked Chopra what CFPB is seeing regarding Big Tech. Chopra said the CFPB was watching Big Tech’s payment systems. He explained Big Tech companies are collecting an extraordinary amount of personal and financial information, adding it is something Congress and the CFPB need to address together. 

CFPB Funding 

Toomey asked if Chopra thought Congress should change the CFPB’s governance structure to a commission. Chopra said that is Congress’s decision, noting here are pros and cons to each approach. He said there is more accountability under a single director. 

Sen. Steve Daines (R-Mont.) said the Constitution prohibits federal agencies from spending federal funds without appropriations. He added that he believes the Supreme Court will review this case and uphold the decision of the 5th Circuit. 

Military Lending Act 

Sen. Jack Reed (D-R.I.) asked Chopra to discuss the CFPB’s enforcement of the Military Lending Act (MLA). Chopra said the CFPB has taken action against repeat offenders. He said when the MLA is not enforced, the effects on the force are real. Chopra explained they can lose their security clearances and face financial distress. 

Reed asked Chopra to provide details on his findings of the service members 6% rate cap. Chopra said the CFPB identified extra interest members are paying when activated.  

Reed asked if buy now pay later (BNPL) loans are being structured to avoid the MLA. Chopra said the application of the MLA becomes trickier when it comes to BNPL. He said the CFPB is trying to determine how to make it equivalent with other disclosures. 

Tester asked Chopra about the risks he has observed with respect to the MLA. Chopra said there are serious issues with economic instability amongst veterans. He explained many have a set of issues with housing, credit, and debt, noting the severity of medical debt. 

Credit Reporting Companies & Credit Reports 

Sen. Catherine Cortez Masto (D-Nev.) asked Chopra to discuss the progress of responsiveness with credit reporting companies. Chopra said these companies do not face the same constraints because consumers are not their market. He said he is worried about the new generation of data brokers and background screeners. 

Cortez Masto asked Chopra to discuss the work he was doing to help service members. Chopra said the impact of a credit report for a service member is more important than for civilians, explaining service members move around a lot and rely on their credit reports. He added service members are more likely to be victims of identity theft.  

Sen. Jon Ossoff (D-Ga.) asked Chopra to discuss the improper billing of and collections from veterans.  Chopra said credit reports should not be a tool to extort money out of someone who does not owe it, but many Americans just pay it. He added the CFPB is also focused on nursing home debt collections. 

Access to Credit  

Brown asked how the CFPB is ensuring equal access to mortgage credit. Chopra noted the Department of Justice has a redlining initiative and added the CFPB is looking at digital redlining. 

Daines asked what steps the CFPB has taken to create an open and competitive market for small dollar loan and financing products. Chopra said credit cards are the largest source for small dollar loans, adding the CFPB wants small banks and credit unions to play a larger role in small dollar loans. He said the CFPB implemented Section 1033, a dormant authority. Chopra explained Section 1033 allows FinTechs to grow their customer base with lower customer acquisition costs by allowing permission data. He said this allows consumers to move their data and use it to be underwritten for lower cost credit elsewhere. He concluded by noting that lending and credit cards are dominated by just a handful of institutions. 

Overdraft Fees 

Brown asked Chopra how consumers are being harmed by overdraft fees. Chopra said some consumers receive three or four overdraft fees when they only expect to get one, because their account shows they have money. Brown asked if the industry requested guidance on this matter, to which Chopra said that they did. 

Sen. Bob Menendez (D-N.J.) asked if overdraft fees appear to be a major source of revenue for banks. Chopra said they have been but noted there is an ongoing shift in the market. He added that banks are getting rid of overdraft fees to stay competitive.   

Medical Debt 

Brown asked Chopra how to ensure medical debt on credit reports is not crippling families. Chopra said accuracy is an issue, noting providers and insurers are going around and around. He said it’s important to need ensure credit reports are not a tool to make someone pay something they do not owe.   

For more information on this hearing, please click here.   

For an archive of past SIFMA hearing coverage, please click here.