Sherrod Brown Leads Senate Banking Committee Hearing On CFPB's Semi-Annual Report to Congress

6 months ago

Sen. Sherrod Brown (D-OH) leads a Senate Banking Committee hearing on the Consumer Financial Protection Bureau’s semi-annual report to Congress.

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Transcript

00:00:00We defeated the latest in a long, long, never-ending, it seems, line of attacks in the CFPB by corporate

00:00:07interests that want the agency off their backs.

00:00:10In the end, the American people won and Wall Street lost.

00:00:13Now the CFPB is finally done fighting a ridiculous, ridiculous lawsuit.

00:00:19It can focus on what it does best, getting people their money back.

00:00:23Not that during the lawsuit they didn't keep fighting to get their money back, of course.

00:00:26Supreme Court's ruling upholding the CFPB is a victory for hardworking families in Ohio,

00:00:31for military families managing their finances, for students trying to pay back their loans,

00:00:37for older Americans trying to guard against financial predators.

00:00:40Most people don't have fancy lawyers, don't have high-priced lobbyists to fight for them.

00:00:45CFPB works on behalf of everyone else fighting for their rights and their hard-earned money.

00:00:51That includes their latest action this week, eliminating medical debt from credit reports.

00:00:55Thank you for that, Director.

00:00:57This is something many of us have pushed for that will protect the credit scores of millions

00:01:01of Americans.

00:01:03Medical debt is particularly damaging to consumers, as many on this committee, including Senator

00:01:08Smith, have pointed out.

00:01:1015 million Americans still have medical bills in their credit reports, but people don't

00:01:15choose to get sick or injured, obviously.

00:01:17Medical debt can happen to anyone.

00:01:19It doesn't matter if you do, if you're doing things right in your life.

00:01:22Anyone can get sick, anyone can get in a car accident.

00:01:25It has nothing to do with your ability to pay your bills, which shouldn't have anything

00:01:29to do with your ability to pay your bills.

00:01:32Medical debt doesn't correlate with credit risks.

00:01:34It correlates with illness and injury.

00:01:36It has no place, no place in credit reports.

00:01:40When this rule is finalized, all Americans will have medical debt removed, wiped off

00:01:45their credit reports for good.

00:01:48No one should be rejected for a car loan because of a sick family member or forced to pay higher

00:01:52mortgage rates because of a medical emergency.

00:01:55Our credit scores should reflect our financial health, not our physical health.

00:02:00Medical debt rule isn't the only thing CFPB is working on to save people money.

00:02:05It's doing important work reducing costs for consumers by targeting junk fees.

00:02:10Junk fees are the surprise, often last-minute charges, just one more add-on that drive up

00:02:16the cost of products.

00:02:17They have no justification or connection to anything other than corporations' thirst

00:02:22for profits.

00:02:24Junk fees obscure the true cost, preventing consumers from shopping around to find the

00:02:28lowest price.

00:02:29Earlier this year, CFPB took a major step in reducing junk fees and costs for consumers

00:02:34with its credit card late fee rule.

00:02:38According to one report, one in five adult Americans paid a credit card late fee last

00:02:42year.

00:02:43In 1992, that meant credit card companies charged consumers more than $14 billion in

00:02:48late fees.

00:02:49When the CFPB ran the numbers, they found that credit card companies were charging consumers

00:02:55more than five times the costs associated with late payments, including collections.

00:03:01These are massive trillion-dollar Wall Street companies.

00:03:04The idea that you are missing your payment due date by a day or two is imposing some

00:03:09huge costs, and the credit card company is just patently ridiculous.

00:03:13CFPB is putting an end to this and lowering fees.

00:03:17Another major source of out-of-control unfair costs in financial services is payday lenders.

00:03:22We have pushed for years to crack down on these shady lenders that target my state's

00:03:26working families, including military service members and veterans with high-interest predatory

00:03:32loans designed to trap them in a cycle of debt.

00:03:36Many Americans have to renew their payday loans so many times they end up paying much

00:03:40more in fees than the amount they borrowed.

00:03:42We have seen that time and time again.

00:03:442021, we took on the payday lending lobbyists fighting to protect state laws that limit

00:03:49the interest these financial predators can charge, and we won.

00:03:54CFPB is doing important work to protect consumers from payday lenders.

00:03:58The agency's payday lender rule will curb some of the worst practices that will help

00:04:03consumers avoid abusive debt traps.

00:04:06Finally, I want to talk about one of the most important things CFPB does, stand up for service

00:04:11members and veterans.

00:04:12When we created CFPB, we made sure it included the Office of Service Member Affairs.

00:04:18Every year, tens of thousands of service members seek the CFPB's assistance or report a complaint.

00:04:24I particularly hear about those in Miami Valley around Wright-Patterson Air Force Base.

00:04:30The number of service members getting help has increased for each of the last three years.

00:04:34That has a whole lot to do with your work.

00:04:37CFPB goes to bat for them, works to get their money back or fix the problems threatening

00:04:41their finances, but also threatening their jobs.

00:04:44CFPB has returned more than $183 million to service members and veterans, money that companies

00:04:50took straight from service members and veterans' pockets.

00:04:54Overall, in the last dozen years, CFPB has returned $21 billion to more than 205 million

00:05:02consumers.

00:05:03These numbers are not hypothetical.

00:05:06They're real checks that land in real people's mailboxes.

00:05:09Dollars might mean a little extra breathing room to buy groceries or fill up a tank of

00:05:14gas.

00:05:15It's why it's so critical we have the Consumer Financial Protection Bureau.

00:05:19Wall Street has lawyers and lobbyists.

00:05:21Making people have the CFPB, something we all should remember.

00:05:25A lawyer's fight for its work that gets money back into people's bank accounts, it stops

00:05:29bad actors from cheating on his families that stand up for consumers when they may have

00:05:34nowhere else to turn.

00:05:36Senator Scott.

00:05:37Thank you, Mr. Chairman, Director Chopra.

00:05:39Thank you for being here with us today.

00:05:41I will say that listening to Chairman Brown's comments, it sounds like we're talking about

00:05:46two completely different agencies, and frankly, I'm sure our view is completely different.

00:05:51The CFPB has not been idle in its pursuits.

00:05:54Based on the pace and scope of announcements I see coming out of your agency, it looks

00:05:59like full steam ahead.

00:06:02I think the celebratory cheers from 17th Street echoed all the way over here after the Supreme

00:06:08Court ruling.

00:06:09However, I want to be clear that their decision on CFPB's funding structure only increases

00:06:15my concerns about the agency's lack of accountability.

00:06:20Time after time, your agency brushes aside congressional concerns, forges ahead with

00:06:25political agendas, and pushes well past the boundaries of its authority.

00:06:30This ruling is not a green light for your progressive wish list, and when we look at

00:06:34the reaction to your regulations, it's a litany of lawsuits, all of which take time, attention,

00:06:42and resources away from the laws you should be implementing and enforcing as well as the

00:06:47American consumers you should be protecting.

00:06:50So frankly, it makes me wonder, what consumers are you protecting?

00:06:55The CFPB is supposed to be an independent agency, but under your leadership, it seems

00:07:01the Bureau works hand-in-hand with the White House and appears more interested in scoring

00:07:05headlines for the Biden administration than doing its job.

00:07:10Whether it's standing with President Biden as he unveiled the junk fees campaign, or

00:07:15as we saw yesterday with the Vice President announcing your new proposal to ban medical

00:07:20debt from credit reports.

00:07:22The political coordination is crystal clear.

00:07:27You're not protecting consumers or saving people money, instead, you're peddling a false

00:07:32narrative that the Biden administration is doing something to reduce the actual costs.

00:07:38But then, reality hits, and we realize this administration's actions simply shift who

00:07:46saves and who pays.

00:07:49It is well past time we end this junk fees narrative and focus on the junk philosophy

00:07:56behind them.

00:07:57With every action taken, there are trade-offs, and those trade-offs have consequences.

00:08:04In this case, the administration is trading a punchy headline proclaiming they are saving

00:08:09families money today, while actually building higher costs down the road.

00:08:16Take for example, your credit card late fees rule.

00:08:20While the rule may save some folks around $20 each time they make a late payment, how

00:08:26much will it cost these same consumers when they no longer qualify for a credit card because

00:08:32they haven't paid their balances on time?

00:08:35How much will it cost them when their credit score drops as a result of these late payments?

00:08:42How much will it cost them when the rate for their car loans and mortgages go up, not down?

00:08:49You can't just keep erasing the bad facts to fit your political narrative.

00:08:54The bill always, and unfortunately, always comes due.

00:09:01You have made a choice to try to curry political favor with little regard to the harm it will

00:09:06cause Americans down the road.

00:09:10You have done this to America's small businesses as well.

00:09:14Small businesses tell me the same story over and over again, and that story is simply a

00:09:20Washington shakedown designed to be little more than a gotcha exercise.

00:09:26Just like the CFPB's civil investigative demands or CID process, under your CID process,

00:09:34the Bureau may issue without any court order a subpoena to a business when you are looking

00:09:43into potential violations of the law.

00:09:46Once that subpoena has been issued, the CFPB can demand nearly anything they want from

00:09:51reams of documents to executive testimony.

00:09:56So what does that mean for a company that draws the ire of your agency?

00:10:00It means years of costly investigation with little hope of relief, or in other words,

00:10:07a bureaucratic witch hunt.

00:10:09One small business recently described the process to me.

00:10:13I thought this was really incredible to see what the government can do to you as opposed

00:10:19to for you.

00:10:21For three years, the CFPB audited this company, but this audit resulted in no fines, no reprimands,

00:10:29and no additional CFPB action.

00:10:32Then in 2022, four years later, the CFPB issued the first CID, which resulted in 12,000 pages

00:10:40of document production and testimony under oath for the CEO.

00:10:45But again, you took no action.

00:10:48Then in 2023, the CFPB issued another CID, broadening the scope further and requesting

00:10:56millions of pages of documents.

00:11:00This time, the firm attempted to fight back and appeal, but unfortunately for this small

00:11:06business, the only option for appeal is through the CFPB itself.

00:11:13Not surprisingly, the agency rejected the appeal.

00:11:17To date, after countless hours of employee time and hundreds of thousands of dollars

00:11:24of outside legal fees, the CFPB has taken no action.

00:11:30This is just one example of a story which is playing out across the country every day

00:11:36for far too many small businesses.

00:11:39American consumers and businesses deserve better.

00:11:42They deserve protection by their government from bad actors and to be left alone when

00:11:48they are simply trying to make a living.

00:11:55Thank you, Senator Scott.

00:11:57The Honorable Roy Chopra served as the Director of the Consumer Financial Protection Bureau

00:12:01since October 12, 2021, when he was confirmed.

00:12:05He's worked at CFPB in his early days, serving as Assistant Director and Student Loan Ombudsman

00:12:11shortly after the agency opened its doors.

00:12:14He's also been an FTC Commissioner.

00:12:17Director Chopra, you're recognized.

00:12:19Chairman Brown, Ranking Member Scott, thank you for holding this hearing today.

00:12:23Since its creation, the CFPB has returned $20.7 billion to consumers through law enforcement

00:12:29activity and created unquantifiable returns for the over 205 million Americans and honest

00:12:36businesses harmed by the legal practices we have stopped.

00:12:41We're currently on track to save customers $20 billion in junk fees every year, and we

00:12:46also expect to process over 2 million complaints this year.

00:12:51Since my last report, we have advanced a number of key initiatives on financial data, medical

00:12:57debt, and credit cards.

00:12:58First, we're making major progress when it comes to financial privacy in an increasingly

00:13:04digital marketplace.

00:13:06The U.S. has to lead when it comes to a competitive and innovative market.

00:13:11At the same time, this can't be at the expense of unchecked surveillance like we see in China

00:13:16and other markets.

00:13:18We're progressing toward finalizing open banking rules to develop data sharing standards and

00:13:23privacy protections when people transfer their financial data to competing companies.

00:13:29We finalized a key part of this framework last week, which will set the stage for finalizing

00:13:35the rest of the rule required by Congress this fall.

00:13:38We're also moving forward to propose a rule under the Fair Credit Reporting Act to restrict

00:13:43uses of certain sensitive data by data brokers as part of a broad government effort to protect

00:13:50our national security and service members from countries of concern that might seek

00:13:55to purchase and exploit sensitive data on Americans.

00:13:59While the CFPB is taking important steps on protecting financial data, it's critical that

00:14:04Congress acts too.

00:14:06Since my last appearance, there have been reports that large financial firms like PayPal

00:14:11and JPMorgan Chase are planning to use sensitive data about people's income and spending to

00:14:18fuel surveillance-based targeting and advertising.

00:14:22These plans to monetize sensitive financial transaction data are a reminder that the U.S.

00:14:27is slowly lurching toward more surveillance and even financial censorship.

00:14:33We're eager to work with you to do more to protect against abuse and misuse of data,

00:14:38including by enshrining stronger protections into law.

00:14:42We also believe there's opportunities to advance legislation to accelerate open and decentralized

00:14:47banking in our country.

00:14:49Second, we proposed a rule to prohibit the inclusion of medical bills in credit reports

00:14:54and credit scores.

00:14:56This will prevent debt collectors from using the credit reporting system to coerce patients

00:15:02into paying erroneous bills.

00:15:05Lastly, we're continuing to focus on the trillion-dollar credit card market.

00:15:10We've closed a loophole exploited by large credit card companies, lowering most of those

00:15:15fees to $8.

00:15:17Credit card companies will still be able to penalize their customers, and they'll still

00:15:22be able to charge a fee exceeding $8 if they can show their math.

00:15:27But we know there's much more to watch here.

00:15:30The CFPB is looking at how to protect people's points and rewards from devaluation and bait

00:15:36and switch tactics.

00:15:38We're taking steps to jumpstart more competition so that small banks and credit unions offering

00:15:43credit cards with lower rates can gain share.

00:15:47All of these efforts will lead to billions of dollars in savings every year.

00:15:52These are just some of the many initiatives the CFPB is pursuing, many of them specifically

00:15:59required by Congress.

00:16:01And there's also so many areas we're watching to ensure that the financial system is helping

00:16:07American families and businesses get ahead.

00:16:10I've appeared before this committee, Mr. Chairman, many, many times, and I've had the chance

00:16:15to meet with so many of you on both sides of the aisle.

00:16:18I do think there is so much more we can do together to tackle the problems that our country

00:16:22faces.

00:16:24Thank you, and I look forward to your questions.

00:16:27Thank you, Director, for your concise testimony.

00:16:30Medical debt, as we know, as you've said, as many of us in this committee have said,

00:16:33does not reflect spending habits or help lenders predict risk.

00:16:37Medical debt places patients at risk of downgraded credit, costs them money, and they can fall

00:16:44victim to predatory debt collection practices.

00:16:46We've seen cases, perhaps unbelievably, of companies repossessing people's wheelchairs

00:16:52and, in some cases, even repossessing their prosthetic legs.

00:16:58So I was happy to see CFPB just announce its proposed rule to prohibit medical debt from

00:17:02being included on credit reports, removing medical debt from more than 15 million Americans'

00:17:08credit reports.

00:17:09Talk about, if you would, how this rule will affect consumers, and will eliminating medical

00:17:16debt also help those kinds of abusive debt collection practices?

00:17:21Well, you said it earlier, there's a big difference between taking out a mortgage or a credit

00:17:26card or an auto loan versus a medical bill appearing on your credit report.

00:17:32There's been over a decade of empirical evidence to show the much higher rates of inaccuracy

00:17:39and also the lack of predictive power of medical bills to determine repayment on other loans.

00:17:46We have seen the credit reporting system turn into a weapon, often to coerce people

00:17:52into paying things they already paid or never owed in the first place.

00:17:56We think this is going to go a long way, this proposal, to alleviate some of those abuses.

00:18:01And of course, there will still be many ways to collect on those debts, but using the credit

00:18:07reporting system to coerce people, I think it goes beyond what Congress intended.

00:18:13Thank you.

00:18:14The credit card late fee rule lowered the typical credit card late payment from $32

00:18:19to $8 for larger card issuers.

00:18:23Those who it applied to, they claimed this rule wouldn't cover the costs associated with

00:18:27late payments, as you know.

00:18:29Americans can't afford these high fees, fees far in excess of the cost of service provided.

00:18:34These include credit card late fees during the CFPB's comment period.

00:18:38Companies had time to justify, to attempt to justify their high fees.

00:18:42Did any large credit card issuer show their math justifying a $32 late fee?

00:18:48No.

00:18:49They just simply didn't.

00:18:51They can't prove that such a high fee was necessary.

00:18:55Are large card issuers making huge profits from late fees, I assume?

00:18:58Yeah, we estimate that this loophole in the rules has led to $10 billion in extra revenues

00:19:07for those issuers.

00:19:09There's prohibited, disproportionate, and unreasonable penalties, but this loophole

00:19:15has been seized upon and abused, and I think it's overdue that we close it.

00:19:20It's pretty obvious to all of us that are fair-minded on this podium that credit card

00:19:26issuers shouldn't be extracting profits from consumers through late fees, first of all,

00:19:31because it's just simply on the face of it and beyond unfair, second, because these fees

00:19:36are required to be reasonable and proportional to cost, and I think you've illustrated that

00:19:41both with your actions and with your answer to these questions.

00:19:45A last question.

00:19:46For the millions of Americans who use apps like Cash App and Zelle and Venmo, fraud's

00:19:50a growing problem.

00:19:52For service members and their families, fraud on payment apps is particularly concerning.

00:19:57Their steady income, their frequent moves make them targets for scammers.

00:20:01I've seen that especially around Wright-Patterson Air Force Base, but also Yars and Youngstown

00:20:06and Toledo and Mansfield, where I grew up, and Springfield.

00:20:09Their steady income, as I said, and frequent moves makes them more of a target, something

00:20:15Senator Reed's worked on pretty much his whole career.

00:20:17The CFPB identified several risks to military families, including serious financial harm

00:20:23from fraud and from unauthorized access on apps.

00:20:27You've proposed a rule that would establish the Bureau's authority over some payment companies

00:20:31by defining them as larger participants.

00:20:35Explain this.

00:20:36How will this rule help prevent fraud?

00:20:37How will it protect service members and their money on payment apps?

00:20:41Well, sadly, military-connected families report identity theft at way higher rates than the

00:20:47general population.

00:20:48They are often targeted for their data, for their money, and more.

00:20:53We do think we have very large payment apps operating outside of the banking system.

00:20:59The law really asks us to make sure that there's even-handed oversight.

00:21:05Those entities are already subject to enforcement.

00:21:07We think some level of supervision, given the enormous number of people in our country

00:21:13using them, is modest and appropriate and will prevent some of the fraud that you discussed.

00:21:19Thank you.

00:21:20I have 12 seconds of yes or no question.

00:21:22Does CFPB's research suggest that credit card companies could lower their interest rates

00:21:26and still be profitable?

00:21:28Yes.

00:21:29Thank you.

00:21:30Senator Scott.

00:21:31Thank you, Mr. Chairman.

00:21:32Director Chobro.

00:21:34Director Chobro, as I'm sure you heard during my opening comments, the CFPB's civil investigative

00:21:40demand for a CID process is a prime example of your agency's vast attempts at regulatory

00:21:45overreach in an effort to chase obscure objectives and pet interests.

00:21:50A company, a small business, subject to one of your CIDs, can spend years and hundreds

00:21:56of thousands, if not millions of dollars, attempting to comply with never-ending CFPB

00:22:05demands.

00:22:06At an insult to injury, a company subject to CID compliance can be left hopeless for

00:22:12change since any appeal is ultimately described and determined by you, the judge and the jury.

00:22:23In fact, under your leadership, all CID appeal requests have been denied.

00:22:31Just a few months ago, you eliminated the role of the Associate Director of the Division

00:22:36of Supervision, giving yourself even greater control over all appeal decisions.

00:22:42How many CIDs has the CFPB issued under your leadership?

00:22:47Let me say up top that enforcing the law doesn't just protect consumers, it protects

00:22:54honest businesses.

00:22:55How many CIDs have you issued?

00:22:56And let me just also correct that it's not true that I don't have the exact number.

00:23:0210?

00:23:0350?

00:23:04500?

00:23:05Well, during my time as director, we've, I think, recovered around $8 billion, so that's

00:23:11been a lot of enforcement actions.

00:23:14There's no doubt that you've been here.

00:23:16Senator, I have, I would be eager to meet with you.

00:23:19I would like to really discuss this with you.

00:23:22Our enforcement program has shifted away from small actors to large repeat offenders.

00:23:28There's certainly the need to use civil investigative demands.

00:23:30I would love to see your process work, but it's like having a bully in a school that

00:23:36keeps beating on the student.

00:23:37This is how every other agency works as well.

00:23:40Your one agency is the one agency that does not flow through Congress.

00:23:45That's also not true.

00:23:46Most other financial regulatory agencies do that.

00:23:50The bottom line is that you have consistently abused your power.

00:23:54Frankly, I ask you a specific question as it relates to the CIDs and I get no answer.

00:23:58So let me go on to a different question, because I like the marketing strategy from the Biden

00:24:02administration as it relates to junk fees, because frankly, if you say the word junk

00:24:06fees, you assume that those junk fees are just unnecessary.

00:24:10I'm not sure that the average business person and or the consumer would see the late fees,

00:24:17the overdraft fees and non-sufficient fund fees as junk fees.

00:24:23There's no question that the Biden administration has done a fabulous job of trying to highlight

00:24:27and market to the American people that these fees are unnecessary.

00:24:31Well, you said it's $10 billion.

00:24:33I'll take your word on that.

00:24:35Bottom line is simply this, that as a business functions, if you do not collect those fees

00:24:40from people who are delinquent on their payments, then you find those fees someplace else.

00:24:44So the fee structure may go away, but the revenues must be replaced by something else.

00:24:51And they're consistently replaced by either higher interest rates on credit cards or higher

00:24:57fees on accounts or the elimination of those accounts, because if you can't find the revenues

00:25:03to maintain profitability from that sector of your business, what you essentially do

00:25:08is you eliminate them.

00:25:09Having been in business for 20 plus years, I can tell you that the bottom line is a simple

00:25:14one, that if your lowest performing consumers aren't incentivized to continue to perform

00:25:21better, you typically stop offering those products and services to those consumers.

00:25:27And when that happens, they don't just stop asking for the resources.

00:25:31They go to a different market where the interest rates are higher and or where there is no

00:25:35regulation whatsoever.

00:25:39Why are late fees okay for government agencies like the IRS, but not okay for businesses?

00:25:47Well, so there's a congressional ban on unreasonable credit card penalties.

00:25:53And when the rules were implemented over a decade ago, there was a loophole which the

00:26:00credit card industry's lawyers have just driven a truck through to the tune of $10 billion a year.

00:26:07I think junk fees are a huge problem in our economy.

00:26:10I think it's one that is bipartisan in nature in terms of reform.

00:26:15People are really sick and tired of not seeing the full cost up front, but rather being nickled

00:26:20and dimed on the back end.

00:26:22The thing about capitalism that's great, when you can compare the prices clearly, the best

00:26:28offerer will win out.

00:26:30But when you make the pricing so complex and convoluted, that's not good for the honest

00:26:35businesses.

00:26:36And frankly, our smaller banks and credit unions don't build a business model off of

00:26:41this loophole.

00:26:43And we should be doing more to support them, I think.

00:26:45I would simply say that speaking with forked tongue is common in the Biden administration,

00:26:51number one.

00:26:52Number two, I would simply say this is my time is running out, according to the chairman's

00:26:55red button.

00:26:57I wish we had congressional bans on the IRS charging late fees and interest on balances

00:27:04due.

00:27:05I wish we had a consistent standard applied to the public sector as we do the private

00:27:09sector.

00:27:10We'd probably have better outcomes.

00:27:13We should work on that together.

00:27:15Thank you.

00:27:16Is that an offer, Scott?

00:27:19Is it an offer for us to have a conversation about the inability for folks on the left

00:27:23to make common sense with the high, oppressive nature of government?

00:27:28I'm happy to have a dialogue with that.

00:27:30Senator Reid from Rhode Island is recognized.

00:27:32Thank you very much, Mr. Chairman, and welcome, Director.

00:27:35We're seeing a rise of a new fintech product that provides consumers with cash advances.

00:27:42And these loans are marketers having no mandatory fees and charging no interest, but soliciting

00:27:52tips and donations, which is an interesting model.

00:27:56And while these fees are proposedly voluntary, in fact, you will not get the loan unless

00:28:01you ante up.

00:28:04And these are typically short-term loans, and when you do the math in terms of their

00:28:10voluntary tips or donations, the percentage interest rate is astounding, like 511%.

00:28:20Do you believe that these tips and donations should be treated as interest charges, which

00:28:26would trigger consumer protections, particularly military, who have been protected by the 36%

00:28:33limit?

00:28:34Well, we recently, Senator Reid, charged a company with violating the law on specifically

00:28:39those grounds.

00:28:40In fact, when the consumer sought to get the loan, it was impossible to not leave a tip.

00:28:49It was just a fake tip.

00:28:52So I think we're looking for all the ways in which companies are trying to sidestep

00:28:56these longstanding protections that have been around for 50 years.

00:29:01Some of these companies brand themselves with different types of terms.

00:29:05We're looking at the facts, and if they are pushing people into a finance charge, federal

00:29:11law is pretty clear that they need to disclose it clearly with an interest rate so that people

00:29:15can compare.

00:29:16And as Senator Scott was mentioning, we need to be able to look and compare so the best

00:29:21player wins.

00:29:23Thank you.

00:29:24I was very pleased to see the CFPB issue an interpretive rule last month clarifying that

00:29:30many of the rules for credit cards also apply to buy now, pay later loans.

00:29:36And now that the CFPB has clarified which rules to apply, the CFPB should bring the

00:29:44biggest BNPL lenders under federal supervision in order to spot violations.

00:29:50That's my view.

00:29:51Do you have an update on the progress towards examining these buy now, pay later firms on

00:29:56a compulsory basis?

00:29:58We do have certain authorities to supervise those types of lenders.

00:30:04Some of them we can work with states who license them.

00:30:08In other cases, we can issue them a notice for which they can reply, and we can determine

00:30:13whether supervision is warranted.

00:30:15But I want to be clear.

00:30:16I take your point very seriously that the CFPB cannot be behind the eight ball when

00:30:21it comes to buy now, pay later.

00:30:23We have tried to stay ahead of it.

00:30:25It is fast growing, and it's an important part of our consumer credit market, and we

00:30:29need to make sure it's growing on the merits, not based on regulatory loopholes.

00:30:36In that sense, do you need any additional authorities to keep ahead of it?

00:30:40Certainly, if you would like to make sure that they are subject to federal supervision,

00:30:45we can work with you.

00:30:46We do have some authorities, but if you'd like to see more dedicated to that, we are

00:30:51happy to work with you on it.

00:30:54With respect to another aspect of the BNPL market, unlike credit card companies, they

00:31:00do not uniformly report consumer repayments to the major credit reporting bureaus.

00:31:07This could raise a host of problems.

00:31:10Consumers may not get the benefits of responsibly using credit in terms of improved credit stores,

00:31:15and the industry cannot see a consumer's full debt load.

00:31:20What are your tools to incentivize the credit reporting bureaus to include BNPL?

00:31:25One of the things that's worth noting is the auto lenders and mortgage lenders, they're

00:31:30very concerned that buy now, pay later is not on the credit report, because they're

00:31:35saying to me, how are we supposed to know if the person is able to afford this if we

00:31:41don't know what all these buy now, pay later loans are?

00:31:45For buy now, pay later companies themselves, we've asked them, how do you know what other

00:31:50loans people have?

00:31:52I think we'd want to talk to all of you to figure out.

00:31:56Right now, it's not a requirement of federal law to report, but it is something we have

00:32:01some worries about.

00:32:07Credit card use is going up dramatically, and people are reaching their limits quickly,

00:32:15and particularly Gen X, Gen Z rather.

00:32:21Given the situation with credit cards, do you believe there are similar dynamics in

00:32:26the market for buy now, pay later loans, i.e. that they will be overused by the customer?

00:32:37I think just like credit cards, there are some serious concerns about over indebtedness

00:32:42and people getting in over their head.

00:32:44It is something that we all need to pay close attention to.

00:32:47Thank you very much, Mr. Director.

00:32:49Great.

00:32:50Senator Browns from South Dakota is recognized.

00:32:53Thank you, Mr. Chairman.

00:32:55Good morning, Director Chopra.

00:32:56In questions for the record following an April of 2022 Senate bank hearing, Senator Menendez

00:33:05asked you whether Regulation E of the Electronic Fund Transfer Act required refunds for consumers

00:33:14who are scammed as opposed to victims of fraud.

00:33:18Our response I viewed as rather vague, and I want to clarify it, because it suggested

00:33:24that certain regulation E provisions apply to peer-to-peer services but not directly

00:33:30addressing the question.

00:33:32So to clarify it, does the CFPB believe that consumer authorized but fraudulently induced

00:33:41transfers are considered unauthorized electronic fund transfers under the EFTA?

00:33:51It's a pretty technical question.

00:33:55We're also happy to take that question again for the record, but the general sense is that

00:33:59with respect to fraud and scams, the line is a little bit blurry.

00:34:03And it is true that there has been an increase in what has been called push payment fraud.

00:34:10And so one of the places, there is the regulation E framework, but there's also the network

00:34:15rules that govern, for example, ACH, other things.

00:34:20Typically, those network rules have set some of the parameters for the responsible party

00:34:25with it.

00:34:26So I think this has been a place where the nature of electronic funds fraud has evolved,

00:34:33but it's hard for me to give you, and I'd like to give you a more black and white answer.

00:34:36And I'm going to ask for it for the record, but I just want to make, under regulation

00:34:40E, it sounds like, and you can clarify this right now, it doesn't sound like it's regulation

00:34:46E that you would look at this, perhaps under other areas, specifically with regard to ACH

00:34:51activity.

00:34:52Well, there are some places where regulation E would certainly apply.

00:34:57Give me an example.

00:34:59It is something that I don't want to misstate, but I'm happy to really answer that for you

00:35:04and meet with you.

00:35:05This is a pretty big deal.

00:35:07I agree.

00:35:08Because it's one thing, the way that it was originally intended was that if it is the

00:35:12fault of the organization, the system set up, where somebody actually gets in and is

00:35:20defrauded out of a loss, that's different than if somebody makes a decision and then

00:35:26uses the system to transfer, even though the fraudster on the other side of it is responsible

00:35:33and the individual has decided that they want to transfer it.

00:35:37I don't see how an organization in the middle of this could be accountable for that.

00:35:41So here's the issue.

00:35:42I think sometimes the way in which the money moves, just like when a financial institution's

00:35:49information might be taken, a consumer's credential information may be taken from the financial

00:35:56institution.

00:35:57There are places where you are able to simulate an outbound transfer that may actually be

00:36:03fraudulent.

00:36:04I am going to ask you to put that to the record.

00:36:07This is a really important point.

00:36:09No, I appreciate this so much.

00:36:12Electronic frauds are getting more complicated with use of generative AI.

00:36:17So we do have to think about what do we want to make sure we're offering guidance so that

00:36:22it is clear how we deal with these things.

00:36:24But I completely appreciate the sensitivity on this.

00:36:26I'm going to ask you a little bit about AI in a minute, but I want to get to one more

00:36:29item first.

00:36:30I have to admit that I was very disappointed yesterday to see the CFPB's proposed rule

00:36:35to eliminate medical debt from credit reports.

00:36:38Just six months ago, when you were last before the committee, I expressed my concerns with

00:36:43simply excluding medical debt from credit reports as medical professionals may simply

00:36:48switch to cash-only transactions.

00:36:50I asked you if you were looking at how the healthcare industry would respond, and you

00:36:55assured me that you were.

00:36:57However, after reviewing the rules analysis, I did not see any stakeholder outreach to

00:37:03the healthcare provider community.

00:37:05That said, there is a section in the analysis on the costs to healthcare providers.

00:37:11My questions, how many physicians did the organization actually consult before issuing

00:37:17the proposal, and how many members of the healthcare industry or providers in general

00:37:22did you consult with?

00:37:24Was any of their input actually integrated into the rulemaking?

00:37:28Just to be clear, this is a proposed rule, so it's not final, but I think we did do a

00:37:32lot of outreach in terms of understanding the different dynamics between hospitals,

00:37:38between independent providers, between other types of facilities, the integration with

00:37:43the health insurance system.

00:37:46I remember your question last time.

00:37:48It is something I, too, have been really wanting to make sure we get right, because we don't

00:37:54want to see this be something that is abused, but we also want to understand all the potential

00:37:59effects.

00:38:00I think it is critical that you follow and take into account what will happen to these

00:38:06folks that send out a bill, and then they have to pay their bills as well.

00:38:12I think that has to be taken into account in this situation.

00:38:16Absolutely.

00:38:17As a general matter, we see that not all financial medical providers do this.

00:38:23There's a lot of differences, and there's some important differences when there's insurance

00:38:27companies involved.

00:38:28Okay.

00:38:29I know I'm out of time, but I have just one very quick, and I think you can answer this

00:38:31with a yes or a no, Mr. Chairman.

00:38:34Director Chopra, does a company have to abide by the Fair Credit Reporting Act, the Fair

00:38:40Housing Act, and the Equal Credit Opportunity Act, regardless of what technology they use,

00:38:47AI or otherwise?

00:38:50There is no AI exemption in any of those statutes.

00:38:53They all are subject to existing regulation.

00:38:56Thank you.

00:38:57Thanks, Senator Brown.

00:38:58Senator Smith of Minnesota is recognized.

00:38:59Thank you, Chair Brown, and welcome.

00:39:01It's great to have you here, Director Chopra.

00:39:04I want to ask a question first about issues around tenant screening.

00:39:08This is something that I've been really concerned about, how landlords can use algorithms and

00:39:13other kinds of black box technology that could be built on bad information.

00:39:18I've heard from my constituents in Minnesota stories of prospective tenants who have had

00:39:23their rental applications rejected because the application review was based on outdated

00:39:32or erroneous or just incomplete data.

00:39:35For example, one of my constituents was denied an apartment because a tenant screening flagged

00:39:41an incorrect criminal record.

00:39:44My question is, I know that the CFPB has been actively engaged on this issue.

00:39:48Could you just briefly talk a little bit about what actions that you've taken so far to improve

00:39:52the accuracy of these reports and increase transparency for consumers?

00:39:57Yes.

00:39:58We've taken enforcement actions, including against TransUnion for violating the Fair

00:40:02Credit Reporting Act and its tenant screening.

00:40:04We've issued a number of guidance documents to really make sure that this business is

00:40:10adhering.

00:40:12Senator Smith, you, Senator Kennedy, others, people who might have common surnames are

00:40:18particularly victimized by this.

00:40:20They're matched with someone who is not them, and then it is almost impossible sometimes

00:40:25to figure out how to get it fixed.

00:40:26We're also making clear to landlords and others that if they're using one of these credit

00:40:32reports, they really need to make sure that they're complying with the Fair Credit Reporting

00:40:37Act too.

00:40:39Even though it might be a black box to even the landlord, that doesn't matter because

00:40:43they're still held accountable, as I understand it, for whether they're making fair decisions

00:40:48or not.

00:40:49Yes.

00:40:50Depending on the circumstance, the AI company, the tenant screener, the landlord, we really

00:40:55worry about how the data and the algorithms are being deployed, especially when it's just

00:41:02matching the wrong person or using outdated information.

00:41:06Right.

00:41:07That has a huge impact when people are already struggling to figure out how to find an affordable

00:41:11place to live and what happens next with that.

00:41:13I want to move to another topic quickly.

00:41:17The CFPB's most recent report on mortgage activity found that in 2022, mortgage applications

00:41:23of black and Hispanic borrowers were denied at higher rates than white and Asian borrowers.

00:41:28I understand that even if they were approved, they typically were receiving smaller loans

00:41:33at higher rates with more upfront fees.

00:41:36Now, of course, the report acknowledges that black and Latino borrowers may typically have

00:41:41lower credit scores, which could have contributed to this disparity.

00:41:45A recent study done by the Minneapolis Fed found that even if you correct for those disparities,

00:41:54even after adjusting for those factors, such as credit scores and incomes and wealth, we're

00:41:58still seeing disparities in what's happening with mortgages.

00:42:04Mr. Chopra, how can we better identify and capture what factors are driving these disparities

00:42:09and what is the CFPB doing, maybe with the Justice Department, to enforce fair lending

00:42:14laws in this context?

00:42:16Well, certainly, both the Justice Department and the CFPB have taken a number of actions

00:42:21when it comes to redlining.

00:42:23We took the first action in Delaware, New Jersey, and Pennsylvania related to a non-bank

00:42:29redlining company.

00:42:30But, you know, these are hard to do case by case.

00:42:34So part of the way I think we're trying to work with the industry is figure out where

00:42:38are there barriers when it comes to offering loans fairly to everybody.

00:42:44I think the Community Reinvestment Act plays a certain role.

00:42:47I think some companies and lenders are using other programs, but it's clear we have work

00:42:52to do here.

00:42:53Well, thank you.

00:42:54I think that this is, again, as issues of housing are so crucially important across

00:42:59the country and as people are struggling to find an affordable place to live, to find

00:43:04that you are just not, you know, somehow the door to getting a mortgage for your first

00:43:09home, possibly, is just closed to you is such a huge limit on the opportunity that people

00:43:15have to build wealth and to have a great place to live.

00:43:19And if you're paying so much more than what you should for your credit risk, that has

00:43:23a big impact on your monthly budget.

00:43:25Exactly.

00:43:26Well, thank you.

00:43:27Thank you very much, Mr. Chair.

00:43:28Senator Smith.

00:43:29Senator Kennedy from Louisiana is recognized.

00:43:32Thank you, Mr. Chairman, Mr. Director.

00:43:34Good to see you.

00:43:35Thanks for coming.

00:43:40I always enjoy your testimony.

00:43:43When I look for a common thread running throughout your testimony and I look at your agency's

00:43:50behavior, one of the common threads I see is that, and I'm not going to ask you to comment

00:43:57on this, is that in your judgment, some companies in America are making too much money.

00:44:08Now when you, and you analyze their financial statements, do you not?

00:44:14Sure.

00:44:16Do you distinguish between revenue and earnings when you analyze a financial statement?

00:44:22Well, sure.

00:44:23We look at all things.

00:44:24And I would say that we don't think it's too much money.

00:44:25What's the difference between revenue and earnings?

00:44:29Well, these are all used colloquially.

00:44:31Sometimes those are similar.

00:44:33In GAAP accounting, which is what most U.S. companies use, they use net-

00:44:37Don't tell me about GAAP.

00:44:38Just tell me your understanding of the difference between revenue and earnings.

00:44:42Well, I can share with you revenue and net income.

00:44:46So those are the two factors that when you say are on financial statements-

00:44:50Earnings is another word for net income.

00:44:52Well, earnings can be used for many different things, but in generally accepted accounting

00:44:58principles, net income is what all of our banks are really using.

00:45:03Okay.

00:45:04Well, revenue is before expenses and earnings, net income, is after expenses.

00:45:10Is that-

00:45:11I think like when people go to work, they say, my earnings were this.

00:45:15I mean, that's their salary.

00:45:16So I think we tend to look at accounting definitions.

00:45:19They may say that, but when you analyze a financial statement, you look at expenses,

00:45:25don't you?

00:45:26You don't just equate revenue with earnings, do you?

00:45:30Oh, totally.

00:45:31And I think your suggestion that we think companies are too profitable, we think about

00:45:35competition.

00:45:36I understand.

00:45:37What are the options people have in order to-

00:45:40Congress, what is confusing me?

00:45:43We all know, unless you were playing Frisbee on the quad during Econ 101 or Accounting

00:45:49101, there's a difference between revenue and earnings.

00:45:55I want to ask about the way you're funded.

00:46:01I looked at Congress's statute.

00:46:04I'm looking for it here.

00:46:06It says, here's how you're funded, and you just won your lawsuit in the Supreme Court.

00:46:16Each year, beginning on the designated transfer date, in each quarter thereafter, the Board

00:46:22of Governors of the Federal Reserve, where you get your money, shall transfer to your

00:46:27agency from the combined earnings of the Federal Reserve System, the amount determined by the

00:46:35director to be reasonably necessary to carry out the authorities of the Bureau.

00:46:42It says the combined earnings, not the revenue.

00:46:47Now, for the longest time, the Federal Reserve was earning money, but that stopped in, what,

00:46:57September of 2022?

00:47:02Now they are losing money.

00:47:05They don't have any earnings.

00:47:06They're no longer transferring earnings to the general fund.

00:47:12The Supreme Court based its decision on saying that this funding scheme is constitutional

00:47:19under the appropriations clause by saying that these earnings would go to the general

00:47:26fund from the Federal Reserve, so getting them directly from the general fund is no

00:47:33big deal.

00:47:38How are you entitled to any money right now?

00:47:40The Federal Reserve doesn't have any earnings.

00:47:42Well, we've heard of this theory.

00:47:44I think it's one of the latest.

00:47:45It's not a theory.

00:47:46It's a congressional statute.

00:47:47Well, I think there's a, you raised the difference between revenue and net income.

00:47:52There are other places throughout our laws.

00:47:55I can tell you we've looked at this issue.

00:47:57We do believe wholeheartedly everyone is complying with the statute.

00:48:02I know you believe that, but if you look at what, if you, I'm aware with what you said,

00:48:07revenue and net income.

00:48:08If you read, if you read the, if I could just finish my question.

00:48:10Sure.

00:48:11If you read the opinion, and I did, and you read the statute, it says here, bigger than

00:48:16Dallas, the Federal, you can only get your money from the Federal Reserve out of earnings.

00:48:24Now, the Federal Reserve has not had any earnings since September of 2022.

00:48:31Isn't that correct?

00:48:32No, that's not correct.

00:48:33Sure, it's correct.

00:48:34From a net income perspective, you're right.

00:48:35All you have to do is go, is go, is go ask OMB.

00:48:36But they've generated lots of fees in common.

00:48:40I appreciate what you're saying.

00:48:41I'm happy to discuss this with you, but I think we've looked at this.

00:48:45But my point is everything, every penny you've gotten under this congressional statute.

00:48:48I don't think Congress wanted the CFPB to be suddenly defunded.

00:48:52If I could finish my thoughts.

00:48:53Sure.

00:48:54I know you don't like to hear this, but the law is the law.

00:48:57You've been operating illegally.

00:48:59No, that's not true, sir.

00:49:01Yes, you have.

00:49:02There have been no earnings.

00:49:04Doesn't this put in jeopardy every one of your rules?

00:49:07We've heard this thing before, and I'm happy to discuss it with you.

00:49:09And every one of, and every, well, you're going to hear it again, because it's the law.

00:49:14We didn't say revenue in the statute, we said earnings.

00:49:21How can you possibly argue that the Federal Reserve has had earnings?

00:49:25They're losing money.

00:49:26I'm happy to discuss this with you, but we have looked at this theory before.

00:49:30I know you have, but I'm over.

00:49:32I'm sorry.

00:49:33Tell me why you're mad at Chase Bank.

00:49:35You're not that sorry, Senator Kennedy, but go ahead.

00:49:38You're mad at PayPal and Chase Bank.

00:49:40Can you tell me real quickly before Sharon cuts me off, why you're mad now at PayPal

00:49:44and Chase Bank?

00:49:45I think the concern is that we have seen an incident at PayPal where there was an attempt

00:49:49to censor people based on their speech.

00:49:52We've also seen that those companies are now going to be offering, reportedly, advertising

00:49:58based on your individual transaction data.

00:50:02I feel some of this is something we all need to figure out together.

00:50:05Are you going to punish every company that has censored people's speech?

00:50:08No, I do think...

00:50:11I applaud that part.

00:50:12I think censorship is a big problem.

00:50:13Do you have to approve Senator Kennedy's speech first?

00:50:16No.

00:50:18I think we're on the same page.

00:50:19I'm over.

00:50:20I'm sorry.

00:50:21Thanks for your indulgence, Mr. Chairman.

00:50:24You're not sorry and I wasn't indulging you, but thank you, Senator Kennedy.

00:50:29I'm sorry as I could be.

00:50:31I will send you later a fruit basket to make up for it.

00:50:35Thank you, Mr. Chairman.

00:50:36I was about to say all kinds of nice things about Senator Kennedy.

00:50:40I still am in a moment.

00:50:42Our work together on a...

00:50:44I knew somebody who actually, I think I've not crossed over yet, where I can still claim

00:50:49I spent more time making earnings as a business guy than I have as a politician.

00:50:56That time frame may have switched over.

00:50:59I was with you on the whole direction you were going on revenue earnings until you brought

00:51:08up the Fed.

00:51:10I know you know the difference between earnings and revenue.

00:51:12I do know the difference, but on this one, Senator Kennedy...

00:51:14Because I've seen your house.

00:51:15It's bigger than a Costco.

00:51:17You know, it was a poor humble abode.

00:51:19Have you seen Warner's house?

00:51:20It's bigger than a Costco.

00:51:22Poor humble abode, earned from the sweat of spectrum and cellulophones and VC activity,

00:51:30but I do think the case that the director was making, it would be a fulsome debate to

00:51:37talk about whether the Fed has generated earnings or not.

00:51:44Because I think, as we all know, the Fed operates on its own set of rules, distinct from everyone

00:51:49else.

00:51:50Maybe we ought to...

00:51:51I think we've got Chair Powell coming in.

00:51:54We ought to have that conversation.

00:51:57And I do think...

00:51:58I'm glad, frankly, that the Supreme Court ruled that the funding process was appropriate.

00:52:09I would remind you, I was here when Dodd-Frank was taking place, and the whole way the CFPB

00:52:16came about was because, candidly, some of my Republican friends didn't want to set up

00:52:20a traditional new agency.

00:52:22So it was kind of put into this unusual framework and unusual funding mechanism.

00:52:30But I think, again, I count on the validity of what the court upheld.

00:52:34I do want to, though, compliment the fact that Senator Kennedy and I both have been,

00:52:40I think, trying to figure out how we grapple with AI.

00:52:44Something Director Chopra, you and I have talked about as well.

00:52:46We introduced the Financial Artificial Intelligence Risk Reduction Fair Act.

00:52:53And the notion was, if there was ever a case, again, out of Dodd-Frank, we came up with

00:52:57FSOC.

00:52:58If there was ever a case of an area that was tailor-made for FSOC to look at holistically,

00:53:04it's AI.

00:53:06And I guess good news is, maybe just the threat of this legislation has actually pushed them

00:53:11a little bit.

00:53:12Because I know FSOC recently released a request, an RFI, for opportunities and risk at financial

00:53:19services.

00:53:20FSOC stood up a staff-level working group.

00:53:24FSOC had a major conference.

00:53:26I know you've thought about this as well, Director Chopra.

00:53:29How do we make sure that, as we think through AI, when we think about all the benefits,

00:53:36we also try to build in those consumer protections, which are integral to your entity?

00:53:42I continue to grapple, and let me be the first to acknowledge, I spent a lot, a lot of time

00:53:46on this subject.

00:53:47And there is, I mentioned this before in committee, no linear relationship, at least with me,

00:53:51in terms of more time spent on AI and actually getting smarter.

00:53:55Maybe the only guy that's getting smarter on this is Senator Rounds, because he's probably

00:53:58spending more time even than me.

00:54:01But can you talk about how we make sure consumer protection is built in and those systemic

00:54:07risk issues get addressed?

00:54:08Well, I'm really worried about the use of generative AI when it comes to voice cloning,

00:54:13other ways in which humans can be simulated to create enormous amount of fraud in the

00:54:19financial system and the weaponization of people's personal data.

00:54:23I would say this on the systemic issues, Senator Warner, I am really worried about these foundational

00:54:30AI models.

00:54:31I think there will probably be just a handful of them for which most of the industry is

00:54:36built on top of that.

00:54:38And when there are problems with one of those foundational models, we could really see issues

00:54:43that occur throughout sectors of the economy, including the financial system.

00:54:47There's a big integration, I think, of the big cloud providers.

00:54:51There are really just three of them, Google, Amazon, and Microsoft.

00:54:55We got to think about their role in all of this and whether they're adequately overseen.

00:55:00Otherwise, one little tremor could cause a huge shock to the financial system.

00:55:04I'm frankly surprised that we've not seen AI tools already lead to market manipulation.

00:55:13I think if there was ever a set of tools that could, I mean, we spent a lot of time, I'm

00:55:18chair of the Intel Committee, looking at outside foreign use of interference in our elections.

00:55:24But AI tools, not just deep fakes, but the ability to manipulate images, file fake consumer

00:55:32concerns, I would be amazed if we don't subsequently find out that, maybe not Fortune 100 companies,

00:55:40but Fortune 100 to 500 companies, that there's a lot of manipulation going on here.

00:55:44I was going to get, I've gone through my time and I will not, the extra four minutes, I

00:55:53do want to, I will come back and submit for the record, Director Chopra.

00:55:57One of the things I'm concerned about are some of the rise of the large firms that are

00:56:04non-bank, we talked about this in the past, and how we, you know, same activity ought

00:56:10to maybe have some same level of regulatory structure.

00:56:12And when we think about the non-bank wallets that are going to be in this sector, I don't

00:56:18think we've got near enough notional framework.

00:56:22And I'm all for financial innovation.

00:56:23I think great, great things will come, but I do think we've got to put some ground rules

00:56:27in place.

00:56:28And I will not further impugn upon the chair, because I know my colleague, Senator Warren,

00:56:35who may have similar type questions.

00:56:37Thanks, Senator Warren.

00:56:38Senator Warren of Massachusetts, when she's re-seated, politely not sitting down when

00:56:43her colleague was talking.

00:56:45Senator Warren.

00:56:46Thank you.

00:56:47Thank you.

00:56:48Thank you, Mr. Chairman.

00:56:55So Director Chopra, the last time you were here, the Supreme Court was considering a

00:56:58lawsuit championed by predatory lenders and their Republican allies, challenging the constitutionality

00:57:05of the CFPB funding.

00:57:08Now fortunately, the Supreme Court followed the law, and the CFPB is here to stay.

00:57:14Now the Bureau can keep doing its work to deliver on President Biden's agenda, slashing

00:57:20junk fees, policing Wall Street, and so far, returning over $20 billion to consumers.

00:57:27But Republicans just can't seem to quit you, Director Chopra.

00:57:32It's another day that ends in why.

00:57:33So Republicans are concocting even more absurd legal arguments and taking even more extreme

00:57:40steps to try to stop the CFPB from doing its work on behalf of American families.

00:57:46Let's start with junk fees.

00:57:48For some reason, Republicans just love them.

00:57:51A few months ago, Republican congressmen said, and I quote, junk fees don't exist, okay?

00:57:59That's a figment of Rohit Chopra's imagination.

00:58:02So Director Chopra, we have you here.

00:58:05I figured I'd go straight to the source.

00:58:08Are junk fees a figment of your imagination, you know, like Bigfoot?

00:58:12I don't know who said that, but I think for everyone who has experienced a junk fee, it's

00:58:18incredibly insulting because they are paying up for things that are providing sometimes

00:58:23no service whatsoever, and I'm really proud of the work we've done to wipe out billions

00:58:28of dollars of junk fees.

00:58:29Do you have an estimate on how much Americans are paying in junk fees?

00:58:33I don't have the latest update, but it is tens of billions of dollars.

00:58:37Our work, I think, is already delivering, taking out a huge chunk of that.

00:58:42It's making the economy more competitive and making pricing clear upfront rather than scattered

00:58:47on the seventh screen.

00:58:48You know, it's a lot of money that American families are losing to junk fees, but since

00:58:53Republicans are falling all over themselves to defend these junk fees, I wonder if Republicans

00:58:59are hearing something different from the American people that I'm just not hearing.

00:59:05Mr. Chopra, the CFPB has a hotline for consumer complaints.

00:59:09People actually call you directly.

00:59:11So has anyone ever called the hotline to complain that they are not getting charged enough in

00:59:16junk fees on their credit cards or their bank accounts or their car loans?

00:59:21I've never heard of that, ever.

00:59:24Fair enough.

00:59:25You know, my sense is Americans are not clamoring for more junk fees, but Senate Republicans

00:59:30are ready to do the dirty work for their corporate pals.

00:59:34After the CFPB finalized its rule to limit exorbitant credit card late fees, Senate Republicans

00:59:41introduced a resolution to reverse the CFPB's rule and take $10 billion away from Americans.

00:59:50Now fortunately, it doesn't seem to be stopping the CFPB from working on behalf of American

00:59:56families.

00:59:57Just last month, the Bureau launched an investigation into mortgage junk fees, including the closing

01:00:04costs that families pay when they buy a house.

01:00:07Director Chopra, can you say a little more about why the CFPB is focusing on junk fees

01:00:14in housing right now?

01:00:16Well, those fees can really drain someone's down payment and really bump up a monthly

01:00:22payment if they're able to get the mortgage or could foreclose them from even getting

01:00:27a home.

01:00:28This is something where the mortgage lenders are also upset about because they're being

01:00:32price gouged and having to pass on some of those costs to consumers.

01:00:36Right.

01:00:37And do you have any sense of whether those junk fees are holding level, going down, or

01:00:42going up?

01:00:43They've been going up.

01:00:44We've been seeing, at least I can say about closing costs, a marked increase in closing

01:00:48costs in the past several years.

01:00:49So I saw one source citing that from 2021 to 2023, that closing costs rose by 36%.

01:01:01Do you have any explanation of that other than junk fees?

01:01:07Well, there's certainly some aspects.

01:01:09It's possible there are more individuals doing points rate buy downs, but certainly there

01:01:15are other places where fees have been inflated that mortgage lenders and consumers are both

01:01:21pretty mad about.

01:01:22So I understand that in 2022, a typical borrower paid nearly $6,000 in extra fees to close

01:01:30on a home, and that right now the CFPB is working on trying to put at least a chunk

01:01:35of that money back in the buyer's pocket.

01:01:38Is that right?

01:01:39That's right.

01:01:40I think that will help the entire economy.

01:01:41All right.

01:01:42So if you're wondering why Republicans are introducing legislation to protect junk fees

01:01:49and working overtime to come up with fantastical legal theories to kill the CFPB, I think the

01:01:55answer is pretty clear.

01:01:58Republicans are in bed with big business to rip off families and to protect corporate

01:02:03bottom lines.

01:02:05Director Chopra and President Biden are cracking down on junk fees so that they can help lower

01:02:10costs for American families.

01:02:12And I thank you for your work.

01:02:13Thank you, Mr. Chairman.

01:02:14Thank you, Senator Warren.

01:02:15Senator Brett from Alabama is recognized.

01:02:17Thank you so much, Mr. Chairman.

01:02:18And thank you so much for being here, Mr. Director.

01:02:21I wanted to touch on several issues that you and I have discussed and wanted to see if

01:02:26you could provide some updates.

01:02:27So first, I have noted with you both publicly and privately my serious concerns about 1071.

01:02:35Concerns on both the privacy front and then the actual cost burden on the smallest community

01:02:40banks.

01:02:41So I wanted to kind of sort of let's just start on privacy first.

01:02:44You mentioned that the CFPB plans to publish the information it collects on this rule.

01:02:50Last time I kind of sort of asked what your plans were for that, you said you had not

01:02:54gotten there yet.

01:02:55Do you have any update on that?

01:02:57So the data collection that would be reported has been significantly delayed.

01:03:05Some of it will be as late as I think maybe late 2026.

01:03:09We're not going to make any determinations until after we really are able to conduct

01:03:15a first world class privacy assessment.

01:03:19So the key is we don't want anyone, we don't re-identification risk, we don't want there

01:03:25to be any concerns about that because that will really undermine enormously.

01:03:30So you are essentially, will you commit to me that the CFPB will not publish any identifying

01:03:37information?

01:03:38Correct.

01:03:39Wonderful.

01:03:40Thank you so much.

01:03:41Okay.

01:03:42Now with regards to the cost.

01:03:43CFPB estimated that banks will face an upfront cost of around $45,000 to $78,000.

01:03:49Do you believe that's still an accurate depiction of the upfront compliance cost that banks

01:03:55should expect?

01:03:56So we are working with, many of those banks are going to be using third party vendors

01:04:02in order to be able to implement this, those core service providers.

01:04:06So we are working with them.

01:04:08There is going to be a bit more time.

01:04:09But do you think that cost is correct?

01:04:12To the best of my knowledge, we use the best data as possible.

01:04:16Yeah, so that data, so if you look to it, it says that these things have to cover things

01:04:20like nukes, computer software, to collect and store data, to hire and train new compliance

01:04:25and legal staff, the expenses of possibly third party audits and legal teams.

01:04:31And so that just seems like there's no way that you could do all of that with just that

01:04:36amount of money.

01:04:37And then I looked back at to when that estimate was done, and the estimate was done in 2020.

01:04:42And obviously since 2020, we've had a change in economic conditions, change in a number

01:04:49of things, whether it's inflation or hiring cost or any of those things.

01:04:53And so when you kind of take a step back and then additionally, and you and I have talked

01:04:57about this, you know, Dodd-Frank required 13 data points.

01:05:01It is my opinion that you have now expanded that to 81.

01:05:04I know that you and I can quibble about some of those things, but no doubt it is certainly

01:05:08more than 13.

01:05:10And so there's also an additional compliance mechanism that people and that in 2020, we

01:05:15weren't accounting for.

01:05:16So economy, additional data, et cetera.

01:05:19So when you look at that, I think when you take a step back, there's no way that they're

01:05:23going to be able to do all of that for just $45,000 to $78,000.

01:05:28And so my question to you is, is will you commit to taking a look and making sure that

01:05:33that is an accurate cost analysis of what it's going to cost these banks?

01:05:38Well, I think we are trying to follow all appropriate provisions of the law when it

01:05:43comes to this.

01:05:44This was not a discretionary rule.

01:05:46We were under a court order to complete it.

01:05:49We followed all the necessary steps to do it.

01:05:52But you did expand it, though.

01:05:53I mean, there is- Well, actually, I wouldn't characterize

01:05:56it as expanding it.

01:05:57The statute is pretty clear about what sort of data points had to be in there and where

01:06:02might it better contextualize the information.

01:06:05In fact, we got input from some industry members to include some data points to make sure that

01:06:10it's appropriately contextualized.

01:06:11Well, but if you even think about things that people are going to have to put in there,

01:06:15denial reasons, obviously, a more extensive explanation there, pricing information, including

01:06:20interest rates applied, prepayment, penalties, financial cost, et cetera, there's no doubt

01:06:26that in 2020, prior to you even being obviously at the CFPB, that that analysis of how much

01:06:31that was going to cost doesn't take all of these things into consideration.

01:06:34And I would just ask you, you have said that obviously it is not your goal to put small

01:06:38community banks out of business, and you have said that you understand that they provide

01:06:43an essential service in our main street, that they allow people to achieve the American

01:06:47dream.

01:06:48What I am asking you is don't put them out of business.

01:06:51Make sure that you are taking a step back, really looking at how much this is going to

01:06:55cost them in 2024, in 2025, in 2026, that you're giving them that assessment on the

01:07:01front end so that they can plan so that it actually doesn't hinder them in the long run.

01:07:05So I would greatly appreciate it if you would do that.

01:07:09Make sure that that's accurate, because I think that that's what's ultimately best for

01:07:14everyday Americans, everyday Alabamians, as people work to comply with this.

01:07:18So thank you very much.

01:07:19I appreciate that.

01:07:20Thank you.

01:07:21Thanks, Senator Britz.

01:07:22Senator Van Hollen is recognized.

01:07:25Thank you, Mr. Chairman, Director Chopra.

01:07:27It's great to see you.

01:07:28And like the chairman, I was pleased to see the Supreme Court's decision, 7-2, supporting

01:07:34the CFPB structure.

01:07:37And most of us on this committee support its mission as well.

01:07:41I was listening a little bit into the hearing.

01:07:43I know people are now looking for other ways to try to dismantle the CFPB, but I am absolutely

01:07:50confident that it will remain intact in its mission for years to come to protect consumers.

01:07:56And I do want to start with some thank yous, especially the newly announced proposed medical

01:08:01debt rule.

01:08:02This is something many of us, including myself, have been working on for a very long time.

01:08:07There's no reason any American should be punished on their credit rating because they got into

01:08:12a car accident or got sick and incurred medical expenses.

01:08:17So your proposed rule to make sure that they're not penalized for unexpected events in their

01:08:25life I think is very important.

01:08:28Look forward to monitoring that closely.

01:08:31Thanks also for your efforts on the overdraft fees.

01:08:35It is a form of predatory lending.

01:08:37I've often made the point that a $35 late fee on a $25 purchase that's repaid in two

01:08:44days is equivalent to an annual percentage interest rate greater than 25,000%.

01:08:50So appreciate your moving forward on that.

01:08:52I want to dig a little bit into your proposed rules on non-bank supervision because as you

01:09:02know right now, the non-bank financial institutions have roughly $20.5 trillion in assets.

01:09:14The banking industry, by comparison, $23.7 trillion.

01:09:18So comparable in terms of the impact on the economy and assets anyway.

01:09:24A number of years ago, I had a constituent who had a checking account with Chime, a non-bank

01:09:31entity.

01:09:33When she tried to get her money out, she could not.

01:09:38Our office worked with her to file a complaint with the CFPB.

01:09:42Thank you for working to get her money back.

01:09:44And that, of course, happened to lots of other Marylanders and other people around

01:09:48the country.

01:09:49And so I was glad to see the enforcement action that you took against Chime.

01:09:54But if you could just use that as a kicking off point to describe your proposals to make

01:10:02clear that the CFPB has jurisdiction in these non-bank areas, in fintech areas, and that

01:10:12you intend to assert that jurisdiction to protect consumers, and that you intend to

01:10:18do this carefully and smartly and wisely and are not trying to use a hammer, but you are

01:10:23trying to protect consumers in accordance with your mission.

01:10:26Could you just talk about that?

01:10:27Yeah, that's exactly right.

01:10:28I think one of the things we learned from the 2008 financial crisis was that it was

01:10:32those non-bank companies that were not subject to the same type of oversight that really

01:10:38led to the economy crashing.

01:10:40So one of the things that Congress is very clear with us is that we have to look at the

01:10:44whole financial system, not just banks and credit unions.

01:10:48I think that makes sure that consumer protection is even.

01:10:51And a consumer doesn't need to know the corporate organization form when they're doing business.

01:10:57We want consumers to be able to trust all these entities.

01:11:00I think that's good not just for consumers, but for honest businesses as well.

01:11:05I appreciate that.

01:11:06And as you say, consumers sometimes don't know the ins and outs.

01:11:10They don't know what's an insured depository institution.

01:11:13And the whole purpose of the CFPB was to fill this very big gap.

01:11:18And again, when you look at the asset holdings of the non-bank sector in the finance space,

01:11:24it's virtually equivalent to the banking sector, which we spent a lot of time, understandably,

01:11:29on this committee, focused on depository institutions and the like.

01:11:33But we need to be spending more time, I think, on the others as well.

01:11:37Briefly, in the remaining time, I know that CFPB recently filed a lawsuit against student

01:11:42loan servicer, FEA, for illegally pursuing borrowers whose loans have been discharged.

01:11:48A number of us on this committee have been very focused on the issue of really predatory

01:11:54practices by some of these student loan servicers.

01:11:58Could you talk about other measures you're taking to help students in this space?

01:12:02Well, one, we've been monitoring very carefully the return to repayment.

01:12:07We've taken other actions to Ed Financial Services, also other types of student loan

01:12:12collections, debt relief.

01:12:14I hate to see that the servicing industry, when it spawns other scams, it just adds insult

01:12:21to injury to so many people who are just, were just trying to get an education to better

01:12:26their own life.

01:12:27Yeah.

01:12:28Well, thank you for looking out for exactly those people through your efforts.

01:12:32Thank you, Mr. Chairman.

01:12:37Thank you very much to the Senator from Maryland, Senator Van Hollen.

01:12:41Senator from Wyoming, Senator Lummis.

01:12:44Thank you, Mr. Chairman, and Director Chopra, welcome.

01:12:49I've got some questions about some of your policies that you're pushing forward.

01:12:54It looks to me like just about everything that you're proposing is to label closing

01:13:02costs junk fees, almost every closing cost.

01:13:07And banks need to understand a borrower's ability to repay.

01:13:12So let me give you one example.

01:13:14Are you aware of a CFPB staff working paper that found that rural borrowers report less

01:13:21understanding of the mortgage process at the outset, but the gap is completely closed

01:13:26by the time the purchase is complete.

01:13:28Now this paper credits this to the extra education that banks in rural areas provide their customers

01:13:35and describes the importance of strong relationships in rural banking.

01:13:39And I can assure you in these small communities, they want to know.

01:13:44They want to sit across the table from the president of the bank.

01:13:47They want to know who they're borrowing money from.

01:13:51So is the consumer education a valuable service provided by community banks?

01:13:57Yeah, hugely.

01:13:58One of our goals has been to preserve relationship banking in this increasingly digital age.

01:14:04And I worry, Senator Lummis, that has been drifting away.

01:14:07But on this issue, I don't think there's been any attempt to label all closing costs as

01:14:12junk fees.

01:14:13Is this one being labeled a junk fee, the cost to educate consumers, the cost to educate

01:14:20borrowers?

01:14:21No, not at all.

01:14:22And in fact, that's actually typically not as a closing cost.

01:14:24I think when we talk to mortgage lenders, mortgage lenders are not able to hike the

01:14:30price on those closing costs.

01:14:33They actually have to put forth bona fide costs and educate, offer disclosures.

01:14:38What we do see mortgage lenders complaining to us about is they've often been getting

01:14:42ripped off on certain types of things that they have to pass on to consumers.

01:14:48And we're really worried that this may lead them to reduce the number of applications

01:14:53or even the number of individuals they can talk to about it.

01:14:57And we're worried about that, too.

01:14:58So it sounds like a disconnect between some of the Wyoming bankers I'm hearing from

01:15:03and your agency.

01:15:04So we need to bridge that.

01:15:05And we've met with them.

01:15:06And I'm out to meet with them again if there's concerns about it.

01:15:09Because I think one of the-

01:15:10You know, there is concern about it.

01:15:11I've got a couple more questions.

01:15:13Please.

01:15:14Okay.

01:15:16The cost of providing financial services has to be borne somewhere.

01:15:22So overdraft fees, like the cost of maintaining safe and secure and convenient consumer banking

01:15:29systems, you know, overdraft fees can help pay that.

01:15:32So consumers now have access to free checking, free online banking, free debit cards.

01:15:37And that's because of overdraft fees and interchange fees bearing that cost so they

01:15:43can make these free offerings.

01:15:45What percentage of low-income consumers would no longer be able to afford a bank account

01:15:49if they had to pay for each service, not just overdraft fees at cost?

01:15:55Well, the main way banks make money is obviously off of lending out deposits.

01:16:01But certainly I would say this with respect to-

01:16:04And that's an area where they can lend out deposits based on what the market will bear.

01:16:12Oh, totally.

01:16:13And that's what we're saying with respect to overdraft is, one, we have exempted small

01:16:18banks from any proposal we've made.

01:16:22But what we've said is that if you're going to be offering an overdraft loan, it's impossible

01:16:26to compare that with another type of loan.

01:16:29So we looked at a 1969 regulation implemented by the Fed, which was really designed for

01:16:35a paper check in the mail world.

01:16:38And we're trying to create a framework that really promotes a competitive structure on

01:16:43lending while also limiting some of the abuses.

01:16:46We've seen cases where sometimes the consumer should have gotten one overdraft fee but got

01:16:51four instead.

01:16:52And that's what we're trying to fix.

01:16:54OK.

01:16:55I got one more question that I want to get in.

01:16:59The recent rule proposal on digital consumer payment applications is of concern to me.

01:17:07Why did the staff not gather the data and information necessary to complete a more thorough

01:17:12analysis?

01:17:13The CFPB estimates the cost of being examined by the CFPB at $25,000.

01:17:24So let's compare that to what it costs the bank to be examined.

01:17:31And when you make the comparison, the CFPB is charging 50 times more to conduct an exam

01:17:41than it costs for a company to be examined.

01:17:44That sounds like a huge- To be clear, unlike the OCC, we don't charge

01:17:50fees for our examinations.

01:17:54We have proposed that rule.

01:17:55We want to get a lot of feedback on all of our estimates.

01:17:58And Senator Lummis, I'm very happy to talk it all through with you because I do want

01:18:02to make sure when it comes to the future of consumer payments, we want to make sure that

01:18:07whether it's bank or non-bank, that those core federal laws that consumers have, that

01:18:14it's all on the up and up.

01:18:15I'll look forward to that conversation.

01:18:17Thank you.

01:18:18Thanks, Mr. Chairman.

01:18:19Thank you very much, Senator Lummis.

01:18:22I'll ask my question, but let me start by sharing how glad I am, Director Chopra, that

01:18:28the CFPB's funding structure is still intact.

01:18:33I joined my colleagues, was happy to join my colleagues in an amicus brief to the Supreme

01:18:38Court protecting the Bureau, and I'm glad that they got that right and that the Supreme

01:18:48Court upheld the structure of the CFPB so that we can continue this very, very vital

01:18:53and important work.

01:18:55Director Chopra, yesterday, the Consumer Financial Protection Bureau announced a proposed rule

01:19:02that would block medical debt from appearing on most Americans' credit reports.

01:19:09The last time you appeared before this committee, we discussed this bipartisan report that I

01:19:15released not long ago on insulin desert counties with both high rates of Americans who are

01:19:22uninsured and high rates of Americans who have diabetes.

01:19:26We see these counties all across the United States, concentrated largely in the South,

01:19:33but by no means exclusively in the South, high rates of uninsured people, high rates

01:19:37of diabetes.

01:19:38Director Chopra, do you know how many of these insulin deserts also have high rates of medical

01:19:44debt?

01:19:47We do believe that this is disproportionately harming some of those communities, especially

01:19:54in the South.

01:19:56I think it's pretty tragic that we have a system where people can be really punished

01:20:02over and over again for health issues and in a way that can destroy their financial

01:20:08life.

01:20:09Medical debts can contribute to bankruptcy, it can contribute to so much loss of income.

01:20:15I do think what we've proposed is an important step to just a little bit put a stop to some

01:20:21of this.

01:20:24My data shows that nearly half of these insulin deserts also have high levels of medical debt.

01:20:34You've got places like the state of Georgia that's still digging in its heels, refusing

01:20:39to expand Medicaid, you've got the working poor who are burdened by all of this medical

01:20:44debt, uninsured, all of these issues converging upon families at the same time.

01:20:53In Georgia, 27% of rural residents had medical collections on their credit report, 27%.

01:21:02That's six percentage points higher than the rate among all Georgians and 10 percentage

01:21:09points higher than the national average, so 27% of rural residents with medical collection

01:21:15debt.

01:21:16Director Chopra, how would folks in the South especially benefit from a CFPB proposed rule

01:21:24banning medical debt from credit reports?

01:21:27We expect that it will materially help their lives.

01:21:31In many cases, if medical debt is their only thing on their credit report, it will also

01:21:35materially increase their credit score.

01:21:38That means really the cost of so many other loans, auto loans, credit cards would go down

01:21:44for them.

01:21:45More importantly, I think they wouldn't be dealing with adding insult to injury when

01:21:50it comes to their own health conditions.

01:21:53This would have a material impact obviously on the lives of families.

01:21:58I often say that it's expensive to be poor.

01:22:02This is an example of that.

01:22:04People burdened by medical debt, dragging down their credit scores, and so then the

01:22:09cost of money-

01:22:11Goes up.

01:22:12Goes up.

01:22:13This is a cycle that we have to stop.

01:22:15Right.

01:22:16Thank you so very much.

01:22:17This is something that we've been pushing on this.

01:22:20I applaud you for proposing this rule, which would be life-changing for so many people

01:22:26across the country, but certainly throughout the South who are drowning, drowning in medical

01:22:32debt and bad credit, often while dealing with health challenges on top of all of this.

01:22:37This is enough to make anybody sick and sicker.

01:22:41So I'll continue to push my bipartisan bill to cap the cost of insulin for everyone.

01:22:46That would prevent people with diabetes from going into medical debt in the first place.

01:22:52And I look forward to continuing to work with you on medical debt issues and addressing

01:22:56challenges and solutions in my subcommittee.

01:23:01So-

01:23:02And let me thank you for working with me on this.

01:23:04I know we had a number of discussions.

01:23:07I know how much it uniquely affects some of the people you serve, so I appreciate all

01:23:11your engagement on it.

01:23:12Thank you so much.

01:23:13And since it's just the two of us here, you're stuck with me, I've got some more questions

01:23:16I'm going to ask.

01:23:18There's a saying that if it looks like a duck, walks like a duck and quacks like a duck,

01:23:23probably a duck.

01:23:24The CFPB studied the buy now, pay later market and saw that it had the features of a credit

01:23:32card that consumers should get key credit card protections when they use this option.

01:23:39Director Schoepfer, thank you for issuing a common sense interpretive rule that lets

01:23:44consumers dispute BNPL charges, get a refund and receive periodic billing statements.

01:23:53I remain concerned about protecting data privacy.

01:23:58What will the CFPB do to make sure BNPL lenders do not harvest and sell consumers data without

01:24:06permission and make sure that the data is secure?

01:24:09It's a huge concern.

01:24:10I think this is something that is critical that this committee has to be working on.

01:24:16We are seeing so many companies announce new initiatives about how they're going to monetize

01:24:21their surveillance of us.

01:24:24Right now, Senator Warnock, you basically get a notice telling you, here's all the ways

01:24:30we're going to use your data.

01:24:33Good luck to you.

01:24:34No one really opts out of that.

01:24:38People don't even understand how much that data is going to be used.

01:24:43I'm worried we're lurching and lurching more toward a surveillance oriented system.

01:24:48It's really important that we work together to limit some of the excessive and intrusive

01:24:54surveillance.

01:24:55Sure, absolutely.

01:24:56People just check the box and they're moving on and focused on their data.

01:25:01Sometimes they may not even be checking the box.

01:25:03They might be just told through the notice that we're planning to use it for all sorts

01:25:08of purposes.

01:25:09I think when it comes to this, we're looking at these data brokers as well.

01:25:14These new companies that are buying and selling our personal data, it's also a real national

01:25:21security concern.

01:25:24President Biden has issued an executive order that also urges the CFPB to crack down on

01:25:29some of these data brokers who may not be complying with the Fair Credit Reporting Act.

01:25:34I think it's so important that people have control over their own data and how companies

01:25:39are using it.

01:25:40I'm also concerned that BNPL loans can lead to a debt trap.

01:25:45What can the CFPB do to keep consumers from sinking under the weight of having too many

01:25:51BNPL loans at once?

01:25:53Well, it's a really hard question.

01:25:56With credit cards and Buy Now, Pay Later, people can really get in over their head and

01:26:04suffer some real financial challenges.

01:26:08There's now lots of BNPL companies.

01:26:11In many cases, people might have loans with all of them.

01:26:15It's not just for one type of big purchase.

01:26:18It used to be maybe it was for a substantial purchase that people needed to pay over time.

01:26:24Now you can use Buy Now, Pay Later loans for really almost anything, including everyday purchases.

01:26:31That could lead to an over-indebtedness.

01:26:35I think we need to make sure we have accurate information about that and that you're all

01:26:40looking about whether there needs to be enhanced protections on credit cards and Buy Now, Pay

01:26:45Later loans.

01:26:46Absolutely.

01:26:48The public can provide comments on the interpretive rule in Buy Now, Pay Later generally until

01:26:55August 1st.

01:26:56Is that correct?

01:26:57That's right.

01:26:58We do think that this Buy Now, Pay Later interpretive rule addresses a key pain point that many

01:27:02consumers express, which is when they return a product, are they going to get the appropriate

01:27:08credit?

01:27:09What if there is an erroneous charge?

01:27:11Under federal law, there are certain protections that are long and well understood.

01:27:17There is no exemption for Buy Now, Pay Later.

01:27:20In many cases, they meet the definition for open-end credit or credit cards or whatever

01:27:26it may be that triggers important obligations.

01:27:29We want there to be innovation based on reality, not regulatory arbitrage.

01:27:37An important issue and one that I'll continue to monitor under my subcommittee on financial

01:27:42institutions and consumer protection.

01:27:46As chair of that subcommittee, I held a hearing on junk fees in July of last year.

01:27:53I'm pleased that in January, the CFPB issued proposals to restrict fees for overdrafts

01:28:01and non-sufficient funds.

01:28:04Many banks have reduced their fees voluntarily.

01:28:07The CFPB looked at data from 2019 through 2023 and found that consumers have saved more

01:28:15than $6 billion annually in overdraft and NSF fees, $6 billion.

01:28:23However, voluntary fee reductions seem to have hit a plateau.

01:28:28Director Chopra, when do you expect to finalize rules restricting overdraft and NSF fees?

01:28:35We're hoping any rules would take effect in 2025.

01:28:39We think it would create a more competitive market.

01:28:42I just want to appreciate all the work being done when it comes to tackling the whole creep

01:28:51of junk fees in the economy.

01:28:53It has been one of the worst innovations in our marketplaces.

01:28:58People need to see the price clearly.

01:29:00They don't need to be charged for mysterious services that they don't even want.

01:29:06I really want to encourage you, Senator Warnock and others, to think about codifying some

01:29:11of our rules into statute so that, you know, if there's strange legal theories or dragged

01:29:18out litigation from the junk fee lobby, that it won't stop the important benefits of this work.

01:29:25I think that's something we certainly should take a look at.

01:29:28And I look forward to seeing us finalize these rules.

01:29:32And as you suggest, think about which of the rules or portions of the rule we may need

01:29:39to codify into law.

01:29:42I'm pleased that the CFPB finalized a rule to require banks to show their work

01:29:48when they set credit card late fees.

01:29:52Families need to use their hard-earned money to put food on the table and keep a roof

01:29:56over their heads rather than paying junk fees.

01:30:00It adds insult to injury to be charged a late fee when you mail a payment on time, but it arrives late.

01:30:08We won't get into the issues around the post office that many of us are addressing.

01:30:13Consumers can't get a break in that regard.

01:30:16I've heard from Georgians who are concerned that bill payments they sent

01:30:19by mail may arrive late due to postal service delays.

01:30:23They may get charged then a late fee on their mortgage or credit card account

01:30:29through no fault of their own.

01:30:30Also, those who are in the market for credit may find that payments marked

01:30:34as late then affect their credit score or cause them to have to pay more for credit.

01:30:43Is there anything that CFPB can do to protect consumers from being charged a late fee due

01:30:49to mail delays?

01:30:52We got to figure this one out because I'm also hearing that there are other clerical

01:30:58errors where people initiate the bill payment and they have a confirmation,

01:31:04but it doesn't actually get received or it's claimed to not be received.

01:31:09I don't know how we solve this, but the federal law for credit cards does offer some protections

01:31:15on this.

01:31:16I think our work to rein in the abuse of this late fee loophole will help, but you're right.

01:31:24I think there's more we can do and we should figure that out.

01:31:26Well, thank you so much for your attention, and I'll continue even as I raise these issues

01:31:31to press the Postmaster General and other top leaders of the Postal Service to immediately

01:31:37implement solutions to fix this unacceptable situation.

01:31:41Certainly, the Postal Service shouldn't be a drag on the credit scores of ordinary people

01:31:46who are just trying to pay bills.

01:31:50With that, I'll turn to Senator Cortez Masto.

01:31:55Thank you.

01:31:56Thank you to the Chairman.

01:31:58Director Chobro, it's good to see you again.

01:31:59First off, I want to thank you and your staff.

01:32:02Incredible work you're doing on behalf of so many people across the country, including

01:32:06in Nevada, when it comes to fighting for them really to be treated fairly by banks, lenders

01:32:12and other financial institutions.

01:32:14Thank you.

01:32:15I do want to talk a little bit about a couple of things.

01:32:17One I want to put on your radar and maybe have you elaborate a little bit more for purposes

01:32:23of just the general public is the Corporate Repeat Offenders Registry.

01:32:28Most often, when law enforcement catches people who violate the law, they are subject

01:32:31to the criminal justice system, both force and effect.

01:32:35When large corporations violate the law, they can often settle without admitting wrongdoing,

01:32:42pay a nominal fee and sometimes go back to doing business as usual or it's the cost of

01:32:48doing business.

01:32:50We have seen this time and time again, that certain companies seem to have a culture that

01:32:54really disregards obeying the law when it comes to their customers.

01:32:59How is the Consumer Bureau deterring repeat corporate offenders through this new registry?

01:33:04Yes.

01:33:05Can you talk a little bit about that?

01:33:06I think this issue of repeat offenders by large or politically connected companies is

01:33:12a pretty sick part of how the system works.

01:33:17You cannot have one set of rules for some people where a small business gets obliterated,

01:33:23but a large company doing the same thing essentially just pays a nominal amount.

01:33:30What we've done is we've finalized a rule to create a new registry to deter repeat offenses.

01:33:38Recall when you were Attorney General, there were places where people would start up and

01:33:44harm consumers and then move across state lines even after they were caught.

01:33:50This is going to be a way in which all of us, state and federal, can coordinate where

01:33:56these rings, scammers, corporate repeat offenders are moving and also to put into place some

01:34:03real accountability as part of our rule we'll be requiring for certain entities that an

01:34:10individual attest that they are actually complying with the terms of any law enforcement order.

01:34:16We think this is an important part of getting a little bit more rule of law and making sure

01:34:22that it's not just paying a little bit of penalties, but they're stopped cold before

01:34:26they even try.

01:34:27Is the registry available to the public, to the consumer, so they can be aware of the

01:34:32activities of some of these corporations?

01:34:34Our rule contemplates making some of this public.

01:34:37Many of those orders are already public, but they're scattered in different places.

01:34:42We do think it's important for law enforcement and the public to really have one place they

01:34:47can go.

01:34:48That's great.

01:34:49Let me just say, because I want to connect this also with our service members.

01:34:52You and I have talked about this.

01:34:54The Bureau does incredible work protecting our active military, where there's about 1.3

01:35:00million active duty service members and 19.5 million veterans and their families.

01:35:06You and I both know they're always targeted, always targeted for their federal benefits.

01:35:13That's why, one, I thank you for the work you're doing.

01:35:15Two, I have actually introduced two bills to create new criminal offense for fraud that

01:35:20targets veterans' benefits and to strengthen penalties for fraudsters who target veterans.

01:35:28Given the high level of scams that we see, do you agree that toughening the penalties

01:35:33would help deter these criminals?

01:35:34That's my first question.

01:35:36Then two, predatory lenders that target members of the military, is there a way that the public

01:35:45can be aware of them as well, as a deterrent, so that we're bringing public attention to

01:35:52more of these challenges?

01:35:53Then how do we get this information to the general consumer so they know?

01:35:56I think that we need to see much more when it comes to criminal liability for this type

01:36:02of fraud.

01:36:03It's pretty disgusting what you see out there and the fact that they can start something

01:36:07else new is just totally inappropriate.

01:36:10Senator Cortez Masto, we also are working with the states to figure out how they can

01:36:14pull the licenses for some of these outfits, rather than just letting them keep going.

01:36:19There has to be a point where it's just too far.

01:36:23You're right.

01:36:24I think our database registry will aid in the efforts of making sure that there's greater

01:36:29information for the public so that they can know who to best do business with.

01:36:35Thank you.

01:36:36I've got about 20 seconds left, but you're also on the forefront of using artificial

01:36:41intelligence or you've expressed some actually concerns about artificial intelligence, specifically

01:36:47its ability to aggregate mass amounts of consumer data.

01:36:51But you noted there are, and I quote, longstanding laws on the books to address potential abuse

01:36:58of AI.

01:36:59What existing laws are applicable, I guess?

01:37:02Our view, I think the law is clear that there's not an exemption for fancy technology in the

01:37:07Fair Credit Reporting Act, Equal Credit Opportunity Act, truth in lending.

01:37:12So we have found places where sometimes people say, well, it's AI.

01:37:16We don't really know how the decision was made or why someone was denied credit.

01:37:21And our response is then you can't use that fancy AI because federal law requires you

01:37:27to give a notice about why someone was denied credit under multiple laws.

01:37:32I think this is a place where we've made a lot of progress because now some of these

01:37:37AI tools used by financial institutions are making sure that they follow federal law because

01:37:43we will hold them accountable if they don't.

01:37:46Generative AI is another place.

01:37:48That's not a license to lie.

01:37:52When it comes to people's federal rights and if they assert them, if a generative AI

01:37:57chat bot tells them wrong information or denies them, the company is liable for that.

01:38:03And we need to make sure we don't create a scenario where there's an alternative world

01:38:09where robots don't have to follow the laws made by us as people.

01:38:13Yeah.

01:38:14Thank you.

01:38:15Thank you for the good work again.

01:38:16Appreciate you being here.

01:38:18Thank you so very much, Director Schopra, for your work.

01:38:22Thank you for your testimony and for senators who wish to submit questions for the hearing

01:38:26record.

01:38:27Those questions are due on Tuesday, June 18th.

01:38:33And to the witness, please submit your responses to questions for the record 45 days from the

01:38:37day you receive them.

01:38:38With that, this hearing is adjourned.

Sherrod Brown Leads Senate Banking Committee Hearing On CFPB's Semi-Annual Report to Congress

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