1. Take-aways From Director Chopra’s Semi-Annual Report to Congress

On April 6, 2022, the Consumer Financial Protection Bureau (CFPB) issued its semi-annual report to Congress required under Dodd-Frank. The report covers the CFPB’s work from April 1, 2021 through September 30, 2021 and detailed the difficulties faced by consumers in shopping for or obtaining financial products and services, highlighting (i) CFPB concerns over inaccurate tenant screening reports in the wake of COVID-19, (ii) the dramatic increase in consumer use of “Buy Now, Pay Later” products, and (iii) the multitude of consumer complaints the CFPB received January 2020 to September 2021 related to failed attempts to correct consumer credit report information.

Significant CFPB initiatives during the period mentioned in the report included:

• A roundtable examining racial bias in home appraisals
• A cross-federal campaign aimed at connecting homeowners and renters with resources available to help them stay in their homes when confronted by COVID-related housing insecurity
• An initiative to reduce the fees that banks and financial companies charge consumers
• Efforts to increase workforce and contracting diversity
• Outreach intended to engage financial institutions in the CFPB’s diversity and inclusion self-assessment process, including submission of assessments to the CFPB’s inclusivity online portal

In April, Director Rohit Chopra testified before the Senate Banking Committee and the House Committee on Financial Services on the CFBP semi-annual report. Chopra’s prepared statements outlined the highlights of his first six months as CFPB Director as the agency “refocused its efforts to align with the objectives that Congress set out for the agency” and emphasized the following initiatives:

• The CFPB will shift resources away from investigating small firms to instead focus on “large players engaged in large-scale harm”
• The CFPB plans to pursue a regulatory approach that would “put a higher premium on simplicity and ‘bright lines’ whenever possible”
• The CFPB will emphasize engagement with the public that will allow the agency “to hear directly from the public about potential regulations that should be developed or amended” and obtain input from local financial institutions and the broader business community, including those engaged in business practices that fall outside of the CFPB’s authority who are nonetheless affected by the laws the agency administers
• Future CFPB initiatives will aim to promote competition “by lowering barriers to entry and increasing the pool of firms competing for customers based on quality, price, and service”
• The CFPB will continue to monitor closely the risk posed to the financial services ecosystem by Big Tech’s entry into consumer payments

2. CFPB Moves Away From Fintech Sandbox Program

On May 24, 2022, the CFPB issued a press release announcing its plans to replace the Office of Innovation with the new Office of Competition and Innovation, signaling the end of a Trump-era policy that offered select new fintech products a regulatory safe harbor. Opened in 2018 as a successor to the Obama-era CFPB’s Project Catalyst, the Office of Innovation’s primary purpose was to process applications for No Action Letters (NAL) and Sandboxes that applied to an individual company’s specific product offerings.

In its press release, the CFPB stated its conclusion that the NAL and sandbox “initiatives proved to be ineffective and that some firms participating in these programs made public statements indicating that the Bureau had conferred benefits upon them that the Bureau expressly did not.” The press release encourages companies to file rulemaking petitions to ask for greater clarity on particular issues that “will apply to all companies in the market.” This preference for rulemaking over NALs and sandboxes aligns with the CFPB’s focus on increased guidance and “bright line” rules.   

3. CFBP Office of Competition and Innovation Looks to Chart Path to Open Banking and Continue Scrutiny of Big Tech

As the CFPB bids farewell to the Office of Innovation, the Office of Competition and Innovation replacing it will focus on open banking, according to the May 24, 2022 CFPB press release. The CFPB also plans to use the new office to continue the Bureau’s scrutiny of Big Tech companies based on the CFPB’s stated concern that they “stifle competition by exploiting their network effects or market power.” The CFPB says the new office will support efforts to increase consumer choice and create market conditions where “the best products win.” Housed in the CFPB’s Research, Markets, and Regulation division, the CFPB says the new office will:

• Explore ways to reduce the barriers to switching accounts and providers and give consumers their “walking rights”;
• Seek to understand the ways bigger players stymie smaller players offering more consumer-friendly products;
• Identify ways for innovators to overcome practical problems like access to capital, talent, or digital data currently cordoned off by big banks; and
• Host events that will allow innovators to collaborate and interact with government regulators in formats that allow results to be shared publicly.

In explaining how the new office would “research structural problems blocking successes,” the CFPB potentially sent a shot across the bow of big banks by stating that research “could include greater explorations of the payment networks market or the credit reporting system, both of which are essential to our financial system but have only a few dominant players.” The CFPB also stated that “[a] future rulemaking by the CFPB under Section 1033 of the Consumer Financial Protection Act will give consumers access to their own data,” indicating the agency is prepared to act on the information gleaned from its late-2021 probe into big tech’s plans for payment solutions.

4. Chopra Moves to Simplify Regulations and Provide More Guidance:

On June 17, 2022, CFPB Director Rohit Chopra issued a press release entitled “Rethinking the approach to Regulations,” signaling the CFPB’s intent to move towards simpler and clearer rules and significantly increase the amount of guidance to industry. Citing the historical regulatory tendency to issue “overly complicated and tailored rules for the existing regulatory landscape,” Chopra says the CFPB now aspires to communicate the Bureau’s expectations in simple and straight forward terms and plans to communicate its expectations in a flexible manner that can “withstand evolution of the marketplace over time.” The CFPB views this approach as a way of furthering its objective to promote consistency amongst regulators enforcing federal consumer financial law, a topic we cover here.

Regarding rulemaking, Chopra expressed the following CFPB priorities: implementing longstanding Congressional directives that have gone ignored—including those related to consumer access to their financial records, transparency in small business lending, and quality control standards for automated valuation models under Dodd-Frank—and reviewing authorities authorized by Congress that have gone unused, such as authority to register certain nonbank financial companies to identify potential scammers and other repeat violators. Chopra says the CFPB will also review rules the agency inherited from other agencies along with rulemakings the CFPB pursued in its first decade of existence that are in need of a fresh look. These include rules developed by the Federal Reserve under the Credit CARD Act of 2009, rules developed by the Federal Trade Commission to implement the Fair Credit Reporting Act, and the CFPB’s Qualified Mortgage Rules. Finally, Chopra highlighted the CFPB’s Advisory Opinion program and circulation of Consumer Financial Protection Circulars as tools through which the agency would provide increased guidance and promote consistency among enforcers.

5. CFPB Takes a Hard Look at Credit Card Fees

On June 22, 2022, the CFPB took a step towards addressing credit card company penalty policies by publishing an Advance Notice of Proposed Rulemaking. The CFPB is evaluating whether credit card late fees and payments are “reasonable and proportional” as it seeks data about card issuer revenue and expenses, the deterrent effect of late fees, and the role late fees play in card issuer profitability.

After Congress enacted the Credit Card Accountability Responsibility and Disclosure Act of 2009 (CARD Act) that curtailed a range of junk fees, coercive contract clauses, and other problematic practices, the Federal Reserve Board voted in 2010 to implement provisions of the CARD Act that required penalties to be “reasonable or proportional to the omission or violation.” However, the Fed also included a safe harbor for issuers whose fees fall within specified limits, regardless of whether such fees were necessary to deter late payments.

A March report issued by the CFPB, Credit Card Late Fees, found that many major issuers charged the maximum late fee allowed and that the market continues to generate sizeable profits from late fees, with the $12 billion companies charged in penalties in 2020 comprising ten percent of the total cost of customer credit cards. The report concluded that credit card companies generate a disproportionate amount of that revenue from customers living in low-income neighborhoods.

The Advanced Notice of Proposed Rulemaking asks card issuers, consumer groups, and the public for comment. The CFPB seeks to understand: 1) how credit card issuers set late fees, how they determine the reasonableness of those fees in relation to the actual cost to the card issuer, and how are the fees related to the statement balance; 2) whether revenue goals factor into fee-setting decisions and how fees figure into card issuer profitability; 3) the card issuers’ true costs associated with late payments; 4) the extent to which late fees and fee amounts have a deterrent effect, net of other consequences issuers may impose; 5) the methods card issuers use to encourage timely payments; 6) the typical timing of consumer late payments (e.g., “what percentage of accounts is less than 24 hours late versus 30 days late?”); and 7) the annual income generated from interest and fees versus annual expenses. The deadline for submitting comments is July 22, 2022.

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