Republican Senators Rally Against CFPB Chopra’s Name-And-Shame Tactics

September 14, 2022
A dozen top Republican Senators have accused Consumer Financial Protection Bureau (CFPB) director Rohit Chopra of abusing his authority and using tactics to unfairly damage financial institutions’ reputations.

A dozen top Republican Senators have accused Consumer Financial Protection Bureau (CFPB) director Rohit Chopra of abusing his authority and using tactics to unfairly damage financial institutions’ reputations.

In a letter sent to Chopra, ranking members of the Senate Banking Committee and the Committee on Finance Pat Toomey (R-PA), Mike Crapo (R-ID) and other members of Congress, have blasted Chopra for abusing his authority and pursuing a radical and highly-politicised agenda.

“Rather than operating as a tough, but fair and sensible regulator, the CFPB is again pursuing a radical and highly-politicised agenda unbounded by statutory limits. It has adopted an arrogant regulatory ethos: the CFPB can do whatever it wants,” the Senators wrote.

One key element where the Senators see Chopra’s CFPB overstepping its authority is in the matter of overdraft fees.

Chopra first singled out overdrafts in his regulatory focus last December, when the agency found that overdraft and non-sufficient fund “penalties” make up two-thirds of large banks’ reported fee revenue.

Later, in February, the CFPB published a list of overdraft fees applied by specific banks and their gains resulting from those fees.

Following the continuous pressure on banks, many of the largest institutions announced changes to their overdraft pricing, a move repeatedly touted by the CFPB as positive progress.

Members of Congress, however, see this exercise as “a relentless smear campaign against banks” whereby the agency uses “name-and-shame tactics” to pressure companies into eliminating this product.

In particular, Chopra said in a July interview that he was “gratified to see where the market has been shifting” on overdraft fees and warned that the CFPB is increasing its supervisory scrutiny of the institutions that rely most on overdraft fees.

“It is hard to view your statement as anything other than a threat that banks who do not bow to the CFPB’s pressure campaign could expect the agency to unfairly target them for increased supervision,” according to the Senators.

Beware nonbanks

The letter also puts into question the agency’s efforts to target large nonbank firms that offer financial products and could potentially harm consumers.

At the end of April, the CFPB cautioned that it would use its then dormant authority to target nonbanks. At the same time, the agency announced a procedural change to enable it to publish decisions in cases involving nonbanks, which had previously been treated as confidential.

The CFPB reasoned that if released publicly, in part or in whole, the final decisions and orders could serve as a precedent in future proceedings and could provide more transparency for businesses.

The Senators, however, believe that the rule change is one-sided. While the rule gives the CFPB director discretion to publicly disclose his decision to supervise a nonbank, it did not give a nonbank the same discretion in order to defend itself.

“The one-sided nature of the CFPB’s rule change gives the agency the ability to publicly tarnish an institution’s name without affording the firm the power to defend itself.”

“Since the CFPB has never used this authority, the change in rules appears to serve as a threat to nonbanks,” the Senators stress.

Drawing a parallel to Chopra’s remarks about banks that charge overdraft fees, Senators fear that “nonbanks whose practices are legal but are not in line with your liberal policy views will now be at risk of heightened scrutiny and reputational harm from the CFPB.”

Disregard of the separation of powers

The Senators also criticised a CFPB rule change in February, which they argue made it harder for companies to defend themselves against novel enforcement theories and easier for the agency to engage in regulation by enforcement.

“Under these new rules, the CFPB Director can bypass an administrative law judge in enforcement cases and rule directly on substantive legal issues. As a result, you can now authorise CFPB staff to bring an enforcement case based on a novel legal theory and then you can personally rule that it is a valid theory,” the Senators wrote.

Such a move “blurs the constitutional separation of executive and judicial powers” and enables the CFPB director to avoid “even the most modest checks on his power to engage in regulation by enforcement,” according to the lawmakers.

“The rules send a clear signal to entities regulated by the CFPB that they need not bother mounting a defence to an enforcement action based on a novel legal theory, as the same CFPB Director who authorised the action can immediately rule his own theory valid.”

Harm to bank-client relationships

Finally, the members of Congress called out Chopra for harming customer relationships via “highly unusual and improper actions”.

For instance, after filing a lawsuit against Fifth Third Bank two years ago, alleging its employees had opened accounts for customers without their consent, the CFPB sent an unsolicited mass email to the bank’s customers this March with the subject line “Your Feedback Requested for Fifth Third Bank Lawsuit”.

The email that went to 18,500 prospects and former workers of the bank contained a survey that referenced the lawsuit and asked questions about whether the bank was acting against its customers’ best interests.

The Senators stress that “this mass email was not a legitimate investigative or litigation tool, but rather a means to damage the bank’s customer relationships.”

In April, an Ohio judge put a halt on the mass emails, calling it “a poor choice… that looks to the Court to be designed to create a wedge between Fifth Third and its customers”.

“These abuses of power and others by the CFPB are of serious concern,” the Senators say, adding that the CFPB “must stay within the boundaries of law”.

They urge Chopra “to reverse course and stop using inappropriate tactics to harm financial institutions’ reputations and customer relationships in order to advance your liberal policy preferences.”

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