The CFPB has already become increasingly active under Acting Director Dave Uejio, who was appointed by President Biden in January 2021. In an email to staff in January, Mr. Uejio broadly described his major priorities for the CFPB as (1) relief for consumers facing hardship due to COVID-19 and the related economic crisis and (2) racial equity. Mr. Chopra is likely to continue the CFPB’s focus on these issues, with a particular emphasis on the housing, auto finance, small dollar lending, small business lending, and student lending markets. Mr. Chopra has also indicated that he will prioritize the CFPB’s oversight of the credit reporting and debt collection industries.
As an FTC Commissioner, Director Chopra issued in response to enforcement actions several dissenting statements that criticized the FTC for failing to obtain redress for consumers and small businesses, seek significant penalties, and cooperate with other federal and state agencies with shared jurisdiction. The CFPB will likely bring more enforcement actions under Director Chopra, and those enforcement actions will likely involve more significant market participants and seek more significant monetary relief than enforcement actions under former Director Kraninger. The CFPB is also likely to more aggressively use its authority to address potentially unfair, deceptive, or abusive acts and practices (UDAAP). The CFPB recently rescinded a policy statement that would have limited how it applied the abusiveness prong of UDAAP, and Director Chopra has stated on several occasions that he views UDAAP as a powerful tool to address consumer protection concerns. The CFPB is likely to use its UDAAP authority to bring enforcement actions, as well as in rulemaking and supervisory matters.
Director Chopra will likely continue and expand upon the CFPB’s focus on the potential consumer impacts of the COVID-19 pandemic. In May 2020, the CFPB began conducting “prioritized assessments,” higher-level inquiries than traditional examinations intended to obtain real-time information concerning consumer harm due to pandemic-related issues. In January 2021, the CFPB published a summary of findings from those prioritized assessments that identified potential issues involving credit card account management, consumer reporting and furnishing, debt collection, deposit and prepaid accounts, small business lending, and mortgage, auto loan, and student loan servicing. Those findings have influenced, and will continue to influence, the CFPB’s supervisory priorities.
Director Chopra has also indicated he will build upon the renewed focus the CFPB has placed on fair lending compliance under Acting Director Uejio. In particular, the CFPB is likely to more aggressively deploy the disparate impact theory of fair lending liability, through which facially neutral policies or practices may nevertheless lead to fair lending liability if the policies or practices result in disproportionate outcomes for protected classes. Mr. Chopra signaled his support for this approach in a May 2020 enforcement action the FTC brought against an auto dealer when he was an FTC Commissioner. In a statement supporting the enforcement action, Mr. Chopra described disparate impact analysis as “a critical tool to uncover hidden forms of discrimination.”
It is also noteworthy that the FTC alleged in the enforcement action, among other things, that the auto dealer violated the Equal Credit Opportunity Act (ECOA) and Regulation B by imposing higher interest rate “markups” on protected class borrowers than similarly situated non-protected class borrowers, an allegation that was the basis of a series of CFPB enforcement actions under Director Cordray against banks and non-bank finance companies involved in indirect auto lending. Although a 2013 CFPB bulletin that described disparities in “markups” as potential fair lending violations was rescinded through the Congressional Review Act in 2018, institutions involved in indirect auto financing should be aware that Director Chopra continues to be skeptical of this practice. Moreover, in his statement in support of the enforcement action, Director Chopra suggested that conduct that violates the ECOA and Regulation B might also constitute an unfair practice, which could serve as an additional basis for the CFPB to bring enforcement actions involving this and other practices.
In addition, Mr. Chopra suggested in his statement in support of the enforcement action that new technology, including machine learning and other predictive technology, could produce proxies for protected class status and that regulators should proactively work to identify such circumstances. Institutions using artificial intelligence or machine learning should be prepared for the CFPB to review the manner in which they implement this technology.
The CFPB under Director Chopra will also be significantly expanding fair lending oversight of small business lending through rulemaking implementing Section 1071 of the Dodd-Frank Act (Section 1071), which amended the ECOA to mandate data collection and reporting for financial institutions making small business loans and directed the CFPB to promulgate rules to implement its requirements. Those requirements have not become effective in the intervening years since Dodd-Frank was enacted because the CFPB has yet to promulgate a rule. However, on September 1, the CFPB issued a notice of proposed rulemaking to implement Section 1071. When the final rule becomes effective, the CFPB will have access to HMDA-style demographic data for the small business lending market that will drive supervisory priorities and enforcement. Director Chopra indicated in multiple statements as an FTC Commissioner that he favors increased regulatory scrutiny of the small business lending market and will likely bring this focus to the CFPB, through implementation of Section 1071 and otherwise.
Given Mr. Chopra’s prior experience as the CFPB’s student loan ombudsman, the student lending market will also likely be a top priority under his leadership. Providers of income-share agreements (ISAs) should take particular note of a recent CFPB enforcement action that found that a company’s ISAs were loans and therefore subject to the requirements for private education loans in the Truth in Lending Act and Regulation Z. Some providers of ISAs have taken the position that their products are not loans and therefore not subject to requirements of federal and state laws governing loan terms and disclosures; it is now apparent that the CFPB disagrees with this position, and participants in this market should analyze their products and compliance systems in light of the CFPB’s recent enforcement action.
Mr. Chopra is also likely to increase the CFPB’s collaboration with other federal and state agencies that share oversight of the student lending industry. Former CFPB Director Cordray is now the Chief Operating Officer of the U.S. Department of Education’s Office of Federal Student Aid, which has broad authority to manage federal student loan programs. The CFPB and Office of Federal Student Aid will be closely collaborating on oversight of servicers of federal student loans and are likely to focus on issues such as whether servicers properly process and allocate payments and whether servicers place borrowers in the correct repayment plan. In addition, the CFPB will likely continue to increase its collaboration with the growing number of state financial services regulators that license and supervise student loan servicers, as well as with state attorneys general in enforcement actions.
Other areas of focus will likely include:
- Credit reporting: In his prepared testimony at his Senate confirmation hearing, Director Chopra expressed his concern that inaccuracies in credit reports could make it harder for consumers to recover from the financial impact of COVID-19. The CFPB under Acting Director Uejio has already published several reports and guidance documents relating to credit reporting. Furnishers and consumer reporting agencies should be prepared for heightened CFPB scrutiny.
- Debt collection: Director Chopra also highlighted debt collection as an area of focus in his Senate testimony. The CFPB’s new debt collection rules will become effective on November 30, and debt collection will likely remain a CFPB focus, whether through additional rulemaking, guidance, or enforcement.
- Small dollar lending: In March, Acting Director Uejio published a blog post stating that, despite the prior CFPB administration’s partial repeal of the 2017 small dollar lending rulemaking involving consumers’ ability to repay, the CFPB now believes that ability to repay is an important underwriting standard and that the CFPB may take action to address practices that it perceives harm borrowers who are unable to repay small dollar loans.
The CFPB under Director Chopra will more actively employ its rulemaking, supervisory, and enforcement authority. Institutions should take action to prepare for the CFPB’s increased activity, including by reviewing compliance management systems to ensure they are robust and tailored to their individual business model’s risk and updating compliance management systems as appropriate; strengthening fair lending compliance programs; verifying that consumer complaint systems function properly and that those systems are monitored to identify potential UDAAP and other risk; and reviewing disclosures, advertisements, and other public-facing materials for potential UDAAP and other risk.
