A Senate banking committee hearing on the Consumer Financial Protection Bureau tackled few major issues with one senator throwing a monkey wrench into the proceedings by questioning why the Federal Reserve Board's policies have led to JPMorgan Chase becoming bigger and more powerful.
The two-hour hearing on Tuesday yielded no new insights into the CFPB's work. Eight of 23 committee members were absent, and several lawmakers seemed unprepared or unable to read from their notes. One lawmaker asked questions that indicated he was either confused about how laws are made or how agencies enact rules. CFPB Director Rohit Chopra is expected to get more rigorous questioning on Wednesday at a House Financial Services Committee hearing.
The most pertinent line of questioning came from Sen. JD Vance, R-Ohio, who hammered home the idea that regulatory policies over the past few years have increased the dominance of "too big to fail" banks. Vance asked Chopra whether the Office of the Comptroller of the Currency is a better regulator than the Federal Reserve, and went on to lambast the Fed for failing to prevent systemic risk.
"The Fed is both an overburdensome, but also a very ineffective regulator," Vance said. "They take up a lot of time and don't actually do a whole lot to make the banking system safe. I'm wondering if you have a view on that. Is the OCC a better regulator than the Federal Reserve?"
Chopra, who serves on the board of the Federal Deposit Insurance Corp. and the Federal Financial Institutions Examination Council, sought a nuanced response.
"I think it depends, it's hard to say overall," Chopra said. "But I will tell you, I think if we were starting from scratch, we probably would not create this balkanized system of who's accountable for oversight. I think the inconsistency in supervisory approach does have costs."
Vance criticized the Fed's oversight of Silicon Valley Bank, which collapsed in March. But he was far more focused on JPMorgan Chase's
"That strikes me as a really, really bad deal for the rest of our financial system, but a really big deal for JP Morgan," Vance said. "I would love for us to pursue policies that actually preserve and strengthen the three-tiered banking system rather than make JPMorgan more and more powerful, which is what it seems that we're doing right now."
Ohio is home to three large regional banks: Huntington Bank, headquartered in Columbus; Fifth Third Bank, based in Cincinnati; and KeyCorp., in Cleveland. Vance said the Fed's response to support all depositors at Silicon Valley Bank and at
"One of the things I consistently hear from folks back in Ohio is this fear that federal regulators treat the regional banks the same way they treat the big banks — even though the big banks have an implied lower cost of capital — because everybody knows that JPMorgan is going to get bailed out," Vance said. "But is it true that Huntington is gonna get that bailout? Maybe, but maybe not. I won't rehash the ways in which the Huntingtons of the world will make loans to businesses and consumers that JPMorgan will not touch."
JPMorgan declined to comment, but in an earlier press release, CEO Jamie Dimon said that the acquisition of First Republic "modestly benefits our company overall, it is accretive to shareholders, it helps further advance our wealth strategy, and it is complementary to our existing franchise."
The hearing began with Sen. Sherrod Brown, the banking committee's chairman, pledging support for the CFPB in a case before the Supreme Court challenging the bureau's funding as unconstitutional. Sen. Mark Warner, D-Virginia, asked whether the Supreme Court case had the potential to throw the mortgage market into chaos if the ruling goes against the CFPB and its past regulations are invalidated. Warner, who chairs the Senate Intelligence Committee, also sounded a warning about artificial intelligence.
"There's the ability to have these algorithms literally discriminate against consumers in the financial services sector," Warner said. "I do believe we cannot repeat in AI what we did with social media ... and try to fix it after the fact. Our record of getting things done with these large platforms is pretty poor."
Meanwhile, Republicans at the hearing focused on a CFPB proposal to cut credit card late fees from $30 a month to just $8 a month, and on a rule mandated by Congress for banks and lenders to collect and report data on small-business loans as part of the government's effort to combat discrimination. A few Republicans also asked Chopra about
Sen. Tim Scott, the ranking member of the banking committee, and Sen. Thom Tillis, R-North Carolina, both asked Chopra about the bureau's plan to cut late fees to $8. Yet neither of them questioned whether the CFPB had conducted a small-business review panel, an issue that banks and trade groups say they are
The regulation — mandated more than a decade ago to combat discrimination — will make lenders provide data on approvals and denials of small-business loan applications, the cost of credit and demographics of borrowers.
Meanwhile, Sen. John Kennedy, R-Louisiana, asked Chopra whether the CFPB's small business data collection rule, mandated by Section 1071 of the Dodd Frank Act, would require banks to ask small businesses to collect data on the race, ethnicity and other details about borrowers. The rule, similar to Home Mortgage Disclosure Act data, seeks to determine whether lenders are meeting the needs of small businesses and communities.
"Your rule would require a bank to ask the question of a small-business person: What's your race? What's your ethnicity? What's your sexual preference? Are you gay? Are you a woman?" Kennedy said. "You can bubble-wrap this all you want, but that's what your rule does."
To be clear, the CFPB dragged its feet for more than a decade before issuing a rule in March under a court-ordered settlement after the bureau was
"Why do you want to know what a small businesswoman's sexual preference is?" asked Kennedy. "What business is that of yours what a small businesswoman does in her bedroom? Who appointed you Pope?"
At that point in the hearing, Sen. Brown had to step in and cut Kennedy off because he had gone over his allotted time.
