Regulation by Enforcement Discussion Resurfaces in Chopra Nomination Hearing


CFPB Director nominee Rohit Chopra fields questions from the Senate Banking Committee on his plans to lead the bureau and other topics. Editor’s note: This article is available for members only.

3/2/2021 11:00

Consumer Financial Protection Bureau director nominee Rohit Chopra provided a glimpse into his leadership style when it comes to enforcement practices, consumer protection and rulemaking in a nomination hearing before the Senate Committee on Banking, Housing and Urban Affairs Wednesday.

Chopra is currently on the Federal Trade Commission and served with the CFPB during the Obama administration and under former director Richard Cordray’s leadership.

“Congress has entrusted the Consumer Financial Protection Bureau with carefully monitoring markets to spot risks, ensuring compliance with existing law, educating consumers and promoting competition,” Chopra said in his testimony. “This not only helps to protect Americans from fraud and other unlawful conduct, it also ensures that law-abiding businesses, regardless of size, can compete.”

ACA International submitted a letter to the committee before the hearing. Discussion during the hearing included the bureau’s past “regulation by enforcement” approach and how Chopra would work with regulated entities. Senators focused their questions on Chopra’s priorities for oversight of the mortgage lending and housing finance industries, service member protections, student loan servicing and general enforcement of regulated entities.

Chopra testified at the hearing along with Gary Gensler, President Joe Biden’s nominee for the Securities and Exchange Commission (SEC).

“If federal agencies like the CFPB and the SEC were to impose burdensome and restrictive regulations including, for instance, backdoor regulations by enforcement, that could limit consumers’ access to credit, hamper job growth by limiting access to capital markets and restrict the ability of publicly traded companies to act in the best interest of their owners, the shareholders,” said Ranking Member U.S. Sen. Pat Toomey, R-Pa., in his opening statement.

“As Congress considers the nomination of Mr. Chopra, we ask that it keep in mind the important role the debt collection industry plays in ensuring a functioning economy and consumer access to credit,” ACA CEO Mark Neeb said in the letter to the committee. “Operating under outdated laws and regulations that have not kept up with new technologies and consumer preferences does not benefit consumers. Going forward, we look forward to continuing to work with the Bureau in pursuit of clarity surrounding outdated laws for our industry, most pertinently the Fair Debt Collection Practices Act.”

Here are a few takeaways from the committee’s discussion with Chopra:

Student Loan Servicing

Several senators asked about Chopra’s approach to student loan servicing, especially when the moratorium on student loan payments and interest ends Sept. 30, 2021. Chopra previously worked as student loan ombudsman when the CFPB was established.

Chopra said, if confirmed, he is committed to monitoring student loan markets and reporting on trends and risks to borrowers to Congress. In discussion with U.S. Sen. Tina Smith, D-Minn., Chopra equated some risks to student borrowers to those for consumers with mortgage loans before the 2008 housing crisis.

“It is critical for regulators not to make the same mistakes leading up to the housing crisis,” Chopra said. “It is critical that servicers live up to their obligations. I understand there has been some improvement when it comes to how servicers are performing. We are at a critical moment when so many borrowers are going to have to restart their payments.”

He added that the CFPB needs to work with the U.S. Department of Education, state attorneys general and state licensers to ensure there is not an increase in defaults when borrowers assisted by the moratorium resume their payments.

“The CFPB has to make sure it is doing its job to make sure the law is being followed when it comes to lending, when it comes to servicing [and] when it comes to debt collection,” Chopra said. “I want to reengage with the states, with the Department of Education, if confirmed, to make sure that those borrowers are not set more behind.”

CFPB Leadership Structure and Enforcement

U.S. Sen. Tim Scott, R-S.C, and Toomey focused on the CFPB’s accountability and leadership structure, in part, in their questions.

“The CFPB’s frequent use of supervision and enforcement authority as an extension of rulemaking had a chilling effect on the marketplace as firms began to exit certain business lines rather than risk running afoul of the bureau’s vaguely defined and constantly shifting standards,” Scott said.

He asked if Chopra is confirmed to improving the “transparency and effectiveness” of the CFPB’s enforcement programs.

“The CFPB and every federal agency should be focused on fixing harms and making it clear to market participants what’s expected of them. Ultimately that is what creates a vibrant market. I am absolutely committed to that,” Chopra said.

While the CFPB’s director may now be removed for cause following the U.S. Supreme Court’s decision in Seila Law v. Consumer Financial Protection Bureau, its funding is not subject to congressional appropriations.

Chopra said there needs to be accountability at the bureau regardless of its leadership structure, which he noted in discussion with U.S. Sen. Steve Daines, R-Mont., would need to be changed through legislation from Congress.

“In my view, regardless if it’s a single director or a multi-member commission, there needs to be accountability [and] there needs to be responsiveness,” Chopra said. “Some commissions work well and some single directors work well and the opposite can be true too. Where I sit at the FTC, this agency has missed some of the worst abuses when it comes to invasions of privacy by big tech [and] has failed to enforce some of its core orders.”

In closing the hearing, Chairman U.S. Sen. Sherrod Brown, D-Ohio, said additional questions for Chopra and Gensler are due March 5 and responses are due March 8. He said the committee wants to move quickly on the nomination process.

ACA, in its letter to the committee, also focused on the importance of the bureau’s engagement with all stakeholders, the importance of Regulation F when it comes to putting consumers on a level playing field, and the need for transparency and due process in the CFPB’s enforcement actions.

Read ACA’s complete letter here.