President Biden’s nominee to lead the Consumer Financial Protection Bureau vowed the bureau would come to the aid of student loan borrowers, consumers trying to correct inaccurate credit reports and homeowners hit hard by the coronavirus pandemic.
The comments by Rohit Chopra before the Senate Banking Committee on Tuesday were among the highlights of a wide-ranging confirmation for him and Gary Gensler, a veteran regulator nominated to lead the Securities and Exchange Commission.
Democrats raised concerns about the lack of student loan monitoring by the CFPB during the Trump era. And lawmakers raised questions about mortgage lending rules and issues with consumer credit reports.
The hearing also highlighted partisan divisions over the direction of the federal financial regulatory agencies and the scope of their responsibilities. Republican lawmakers questioned whether it is appropriate for the SEC to regulate activities such as environmental impact that are outside of shareholders’ economic interests, while Democrats pushed Gensler to incorporate political-giving and climate-related disclosures in SEC rules.
Here are five key areas where Chopra and Gensler were pressed by lawmakers about the actions they would take or the way they would conduct themselves.
Enforcement philosophy
A few senators raised specific issues about the rule of law and whether Chopra planned to break from a previous Democratic nominee, former CFPB Director Richard Cordray, who was often excoriated by Republican lawmakers and businesses for what they termed “regulation by enforcement.”
Sen. Pat Toomey, R-Pa., wanted to know whether Chopra would rescind a rule finalized in January by then-CFPB Director Kraninger that clarified the difference between regulations and supervisory guidance.
“Are you committing to complying with this law, with this rule or do you intend to revisit and attempt to change this rule that was passed this year?” Toomey asked.
Chopra replied, “Supervisory guidance is really supposed to be there to help institutions be able to understand how to best comply."
At another point, when questioned about his views on unfair, deceptive or abusive acts or practices, Chopra said, “We have to enforce the law as written.”
Mortgages, credit reporting
The 2008 financial crisis and regulators’ responses to it loomed large in questions to both Chopra and Gensler.
Sen. Jon Tester, D-Mont., asked how the CFPB will help service members that suffered harm and how the bureau plans to decide which companies merit enforcement actions. The CFPB typically looks at consumer complaints, referrals from other agencies and issues raised in supervisory exams to identify and investigate wrongdoing.
Chopra several times drew on crisis-era lessons to explain how the bureau should respond to consumers' financial stress in the current economy.
“We learned from the last crisis that regulators missed some of the linkages between the mortgage market and our economy,” Chopra said. “We saw not too long ago the illegal foreclosures of active-duty service members. It’s going to be critical for the CFPB to monitor those markets ... so we do not see a deja vu of that crisis again.”
Sen. John Kennedy, R-La., asked whether mortgage executives were held accountable for the rash of foreclosures and ensuing economic crisis. Gensler was chairman of the Commodity Futures Trading Commission from 2009 to 2014.
“You were there in ‘08 and ‘09.” Kennedy said. “Why didn’t anybody go to jail? Who made the call? Somebody in Justice had to have said, 'We are not going to put these thieves in jail.' "
Gensler replied that the CFTC was a civil enforcement agency. In an immediate follow-up question, Sen. Catherina Cortez Masto, D-Nev., noted that during the foreclosure crisis, Gensler was not working at the Department of Justice at the time, and the CFTC did not have criminal enforcement authority.
Kennedy also raised questions to Chopra about the difficulty that consumers have making changes to inaccurate credit reports and what the CFPB plans to do about it.
“The credit bureaus make their money from the businesses, they don’t make their money from the consumer,” Kennedy said. “If as a consumer, a business reports a debt to the credit bureau that I didn’t pay, the credit bureau is going to be less concerned about the accuracy of that information than they would be if the credit bureau was depending upon me as the consumer to pay their bills. Is that a fair assessment?”
Chopra replied by noting that consumers have difficulty getting inaccurate information changed despite requirements of the Fair Credit Reporting Act.
"Accuracy is critical for the credit reporting system to work," he said. "I think the idea of making sure consumers can dispute and get answers is part of the FCRA."
Yet Chopra said large technology companies must be queried about the accuracy of the information they collect, too.
“That’s some of the big issues we are facing not only when it comes to credit bureaus, but also the mass databases collected by big tech companies that are increasingly a part of financial services,” he said.
Democratic lawmakers were critical of Kraninger for failing to assess stiff penalties against wrongdoers. Chopra, currently a member of the Federal Trade Commission, assured them he would be more strict.
“When victims of fraud and misconduct are not made whole, it not only hurts them but hurts other businesses," he said. "I have pushed hard against the FTC’s no-fault, no-settlement approach. When you rip someone off and don't have to pay them back, how is that much of a sanction?"
Student loans
Lawmakers also repeatedly raised concerns about rising student loan debt now at $1.7 trillion, with the majority of losses coming from defaults on loans backed by the federal government. The CFPB under former Republican leadership stopped supervising student lenders and servicers.
Sen. Tina Smith, D-Minn., said her constituents are struggling to stay enrolled in income-driven repayment plans and the Public Service Loan Forgiveness Program that allows federal employees to have loans forgiven after 120 qualifying payments.
The Biden administration has put federal student loan payments on pause until September. But Smith raised questions about the CFPB’s oversight of student loan servicers.
Chopra, who previously served as the CFPB's student loan ombudsman, said he plans to work closely with the Department of Education to hold student loan servicers accountable.
”Some of the same issues that we saw in the mortgage servicing market I think are creeping into the student loan servicing market,” Chopra said.
Chopra vowed to crack down on servicers that do not allow borrowers to restructure loan payments or keep them from enrolling in forbearance or forgiveness programs.
"If servicers or debt collectors are misrepresenting those options, that is a big problem,” he said. “It’s critical that loan servicers live up to their obligations.”
FDIC board
Chopra, who as CFPB director also would sit on the board of the Federal Deposit Insurance Corp., was asked how much he would try to exert his influence on that agency's agenda.
While the Trump-nominated FDIC Chairman Jelena McWilliams will lead the agency through 2023, experts have speculated that Biden-appointed members could wield significant power as members of the FDIC board. The FDIC’s bylaws allow for any two members, including the CFPB director and the comptroller of the currency, to submit written requests to the agency's executive secretary for the FDIC's board to convene.
Sen. Cynthia Lummis, R-Wyo., urged Chopra not to force votes on new policies that are not approved by McWilliams.
“Chairman McWilliams was confirmed by the Senate to set the direction of the FDIC,” Lummis said. “Since you will not be the chairperson of the FDIC board, will you commit not to force votes on matters the FDIC chairwoman has not included on the board’s agenda.”
Chopra said he was not aware of the specific FDIC governing rules.
“I’m actually not familiar with these rules of procedure, but I’m happy to take questions for the record on it,” Chopra said.
Political contributions
In light of ongoing discussions about corporate political spending after the Jan. 6 Capitol Hill riots, Democrats on the committee encouraged Gensler to expand disclosure requirements.
Sen. Bob Menendez, D-N.J., who has introduced legislation requiring companies to disclose their political contributions and ask for shareholder approval of donations, urged Gensler to require companies to disclose their political contributions.
“The fact that so many companies have reevaluated their political contribution plans after the Jan. 6 attack on the Capitol shows just how quickly they have realized the potential contributions have on a material impact on their reputations and the viability of their businesses,” Menendez said. “Do you agree that political contributions by publicly listed corporations represent material information?”
Gensler suggested that investors would benefit from knowing corporations’ political contributions without endorsing a specific rule.
“Disclosures are critical to investors in promoting capital formation,” Gensler said. “Without prejudging a specific issue, I can assure you that I will be grounded if confirmed in the materiality standard that drives all those decisions on disclosure. … It is something that I think that the commission should consider in light of the strong investor interest.”
Republicans on the committee signaled opposition to SEC requirements related to political considerations or social policy.
“The securities laws are not the appropriate vehicle to regulate climate change nor to correct racial injustice or intimidate companies regarding political spending,” Toomey said.
