A New Day Dawns at the CFPB
With President Joe Biden’s inauguration as the Nation’s 46th President, change is coming to Washington. And that change will be felt quickly and acutely at the Consumer Financial Protection Bureau (CFPB). At President Biden’s request, CFPB Director Kathy Kraninger submitted her resignation on Wednesday, clearing the way for the President to appoint current FTC Commissioner and former CFPB official Rohit Chopra as the next Director of the agency. Given the CFPB’s single Director structure, the new Director will have significant opportunities to shape the direction of the CFPB over the next four years. Below we address what we can expect to see from CFPB under the new administration.
Who is Rohit Chopra? Mr. Chopra is a graduate of Harvard University and the Wharton business school at the University of Pennsylvania. After a stint at McKinsey & Company, he joined Elizabeth Warren at the then-nascent CFPB as its first Student Loan Ombudsman. In that role, Mr. Chopra was an effective advocate for student borrowers and brought attention to the increasing student loan burden in the country. Most recently, Mr. Chopra has served as one of five Commissioners, and one of two Democrats, at the FTC. In that role, Mr. Chopra has been outspoken in dissenting from various agency actions that in his view did not impose sufficiently severe penalties or ensure sufficient consumer redress. As the sole Director of the CFPB, Mr. Chopra will no longer have to dissent; his will be the sole deciding vote on matters of enforcement, regulation, and policy.
What change is coming? The CFPB’s jurisdiction is broad and its authorities many, so Mr. Chopra could choose to go in many different directions. However, his history, the administration’s priorities, and the current economic crisis all offer clues as to what are likely to be the CFPB’s key priorities.
Fair Lending. Congress established the CFPB with a statutorily mandated Office of Fair Lending and Equal Opportunity (OFLEO). Among other things, that office was to have the power to “provid[] oversight and enforcement of Federal laws intended to ensure the fair, equitable, and nondiscriminatory access to credit,” including ECOA and HMDA. When the CFPB was first established, OFLEO was part of the Division of Supervision, Enforcement and Fair Lending (SEFL). As SEFL’s name suggests, OFLEO had an important role in setting and executing the agency’s fair lending priorities in both the supervision and enforcement arenas. All that changed with the arrival of Acting Director Mick Mulvaney, who moved OFLEO out of SEFL to the Director’s office, thereby cutting it off from its integral role in the supervisory and enforcement process. And, indeed, in the 3-plus years since Mulvaney first arrived at the CFPB, the agency has brought only three fair lending enforcement actions (one under ECOA and two under HMDA), and has substantially decreased the number of referrals it makes to the Department of Justice.
Against this background, and the new administration’s focus on racial equity issues, we expect Director Chopra to restore OFLEO to its prior role as a critical voice in the agency’s fair lending supervision and enforcement efforts. That is likely to mean greater focus on fair lending examinations, a greater number of fair lending enforcement investigations and actions, and an increased number of referrals to the Department of Justice. It also is likely to mean a revival of the disparate impact theory of liability, which fell out of favor under the Trump administration. During his tenure at the FTC, Mr. Chopra took an expansive view of disparate impact, and suggested that practices that have a disparate impact on protected classes could also constitute violations of prohibitions against unfair practices in the non-credit context when ECOA does not apply.
Student Lending. As noted above, Mr. Chopra served as the agency’s first Student Loan Ombudsman. As his official FTC biography describes his role, “he led efforts to spur competition in the student loan financing market, develop new tools for students and student loan borrowers to make smarter decisions, and secure hundreds of millions of dollars in refunds for borrowers victimized by unlawful conduct by loan servicers, debt collectors, and for-profit college chains.” Between his stints at the CFPB and the FTC, Mr. Chopra also served as a Special Adviser to the Secretary of Education “to advance the Department’s efforts to improve student loan servicing, reduce unnecessary defaults, and bolster enforcement.”
Given Mr. Chopra’s background, the enormous size of the student loan marketplace, and the policy focus on student loan issues, it is fair to expect that student lending will be an area of priority for the new CFPB. This will likely include attention to private student loan origination (particularly involving for-profit schools), all student loan servicing, and continued focus on student loan debt relief companies (which the CFPB has been aggressively pursuing under Director Kraninger as well). As with fair lending, this will likely entail additional focus on student loan examinations for those institutions under the CFPB’s supervisory jurisdiction and increased enforcement scrutiny on the full life cycle of student debt.
Mortgage servicing. The CFPB was born from the financial crisis and the mortgage market—the largest consumer finance market in the country—has long been a CFPB priority. In the midst of a pandemic, with its attendant impact on the economy, and in light of the various federal government relief efforts (in the CARES Act and otherwise), it is clear that the CFPB will continue to focus on mortgage borrowers, likely with a focus on those borrowers impacted by the current economic downturn and on how banks, mortgage servicers, and others are implementing CARES Act requirements and otherwise treating such borrowers. We expect Mr. Chopra to push for aggressive supervision and enforcement in this area, as well as to serve as an advocate for congressional and executive actions to help consumers.
Aggressive enforcement. Given Mr. Chopra’s dissents at the FTC, it seems likely that he will push for greater monetary remedies in enforcement actions—both in terms of consumer redress and civil money penalties. We expect the CFPB to continue to focus on unfair, deceptive and abusive acts and practices (UDAAP) in its enforcement actions.
Other issues. The list of other possible priorities is long. It includes rulemakings concerning payday lending, debt collection, consumer access to information and small business data collection. It includes rescinding or revising the CFPB’s policy statement on abusiveness and developing a coherent approach to that unique CFPB authority. And it includes developing strategies to protect consumers in areas as disparate as credit reporting and fintech lending.
Continuity? One of Director Kraninger’s achievements in her tenure as CFPB Director was invigorating the agency’s innovation initiatives, including its No Action Letter policy and its Compliance Assistance Sandbox. Both programs allow companies to seek authorization from the CFPB to offer particular consumer financial products or services under specified terms without fear of enforcement action. The CFPB also launched an Advisory Opinion program and has issued several advisory opinions regarding the agency’s interpretation of provisions of federal consumer financial law. These programs are not inherently conservative or liberal, and it will be interesting to see the extent to which Mr. Chopra continues the CFPB’s work in these areas.
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As with all change, only time will tell what the new administration will bring. Currently unforeseen events, resource limitations and personnel will all play a role in determining the CFPB’s actions in the coming years. But it seems fairly certain that the agency will be even more active than it has been as it enters its second decade of existence.
