Rohit Chopra sought common ground with House lawmakers in his first congressional hearing as Consumer Financial Protection Bureau director, and the strategy generally seemed to work.
Chopra, a Democrat who was sworn in on Oct. 12, focused on topics with bipartisan appeal: the bureau's enforcement efforts aimed at large companies, ways it may try to help small businesses (including small financial companies) and the importance of strong relationships between banks and customers.
His peace offering appeared to be well received by Republicans and Democrats. During the four-hour hearing Wednesday, lawmakers avoided using the kind of fiery rhetoric that they've aimed at his predecessors in the past.
One of the consensus topics harped on by Chopra was the need for more oversight of the financial products and services being offered by technology giants. His appearance before the House Financial Services Committee came less than a week after the agency ordered Amazon, Apple, Alphabet’s Google, Facebook, PayPal and Square to
“I am worried that big tech companies are coming for financial services and I am uncomfortable not knowing anything of what they are up to,” Chopra testified. “Most of those tech companies are not subject to supervision the way the banks are. Unless we can understand the technology that is being used, we won’t be able to effectively police it.”
The CFPB will focus its enforcement actions primarily on large companies and repeat offenders, Chopra said. Investigations of small businesses will not be a priority, and companies that self-identify violations will get some leeway, he said.
“I believe we should focus most of our resources on the largest firms engaged in large-scale harm that is clearly totally beyond the pale,” Chopra said. “One of the things that bothers me so much is that when small players break the law, they get shut down and when large players break the law, nothing happens. ... The big one pays a fine."
He added: "I share the view that when there is an honest desire to play by the rules, it’s not appropriate to harshly penalize that.”
Chopra said another of his priorities is to promote a return to relationship banking and stronger customer service. “I am very concerned that there are many situations where consumers have no place to turn when they need to get help,” he said. “We are disadvantaged as a country the more relationship banking goes away, and I want to figure out what I can do to revitalize that so that the customer has more leverage and institutions are responsive to them.”
All that said, there were some tense moments during the hearing. Rep. Tom Emmer, R-Minn., alleged that the Biden administration had “pushed out” and “sought to sideline” six senior civil servants at the CFPB by offering separation incentives and early retirement.
Earlier this month, Emmer and Rep. Patrick McHenry of North Carolina, the committee's top Republican, asked CFPB Inspector General Mark Bialek to investigate whether bureau employees were improperly removed due to their political affiliations. Discrimination based on political affiliation is prohibited by law.
“Were you aware of the Biden administration's plan to push out career officials who were hired during the Trump administration?” Emmer asked.
“I don’t believe there was a plan to do that,” Chopra replied.
“Did anyone at the White House ever discuss CFPB personnel with you, sir?” Emmer said.
Chopra said: “There has never been any discussion with the White House about career civil servants.”
Emmer then asked Chopra to commit to rehiring any CFPB employees if they were found to have been improperly removed.
“If there is a finding of any prohibited personnel practice — of which I have no indication to suggest there will be — I will take all the steps that I am required to under the law including, if required, rehiring,“ Chopra said.
The exchange was de-escalated when Chopra said that all CFPB employees must cooperate with the inspector general, and that the CFPB’s staff has been told to adhere to all ethics rules.
Several lawmakers focused their questions on two upcoming CFPB rulemakings, one expected early next year on consumers’ right to control their own financial data, and the other involving small-business data collection under the Equal Credit Opportunity Act.
In response to several Republicans who asked about the potential impact of the data-collection rule, Chopra said he wanted to aid small businesses. "The government was disadvantaged during the pandemic by not having that small-business data available.”
Other lawmakers raised concerns about how the CFPB plans to deal with large tech giants, the use of algorithms in lending and the spread of cryptocurrencies.
Rep. Tony Caplan, D-N.H., asked if a mortgage lender that advertised on Facebook would be subject to a fair lending violation if the social media giant used algorithms to target the ads to a specific group.
“When [a lender] makes a decision whether or not to advertise on Facebook, Facebook cannot share and refuses to share any information about whether the algorithms they use are in fact intentionally targeting certain racial groups or classes of people,” Caplan said. “Is that lender potentially guilty of an ECOA violation?”
Chopra responded that if the decision to grant credit was made by the technology company’s algorithm then, “Facebook may be liable for that.”
He also reiterated that companies cannot dodge fair lending laws under the guise of secret algorithms. “I am very worried about black box algorithms and that we have no accountability as to how decisions are made,” Chopra said. “This is the opposite of relationship banking.”
Rep. David Kustoff, R-Tenn., asked if the CFPB would play a role in cryptocurrency and digital assets, a market that the CFPB and other prudential regulators are scrutinizing.
“Where digital payments is involved, the Electronic Fund Transfer Act is a key law with key consumer protections,” Chopra said. “This is part of the reason the bureau issued orders to the tech companies about how they are tracking payments, how they are engaged in surveillance — and I think there are intersections there with digital currencies.”
Some lawmakers wanted answers on why Trump-era guidance on combating “abusive” industry practices
Last year, then-CFPB Director Kathy Kraninger
In response to a question by McHenry about the guidance, Chopra said it “did not provide clarity” and that he has aspirations to create a more “durable jurisprudence.”
“Clarity for those that you’re regulating is important,” McHenry said.
Rep. Frank Lucas, R-Okla., asked if Chopra supported the creation of a government-run credit reporting bureau, an issue initially raised by President Biden last year that is supported by some consumer advocates. But Chopra played down the idea.
“I have not given much thought to this,” he said. “It would be an enormous undertaking. It would be a big mountain to move. I’m much more concerned about violations of the Fair Credit Reporting Act."
