The CFPB Stands its Ground

Jun 15, 2023

The Consumer Financial Protection Bureau is standing its ground on key issues, defending its work to cut into junk fees that could save consumers billions and its efforts to collect data from small business lenders to prevent illegal discrimination. All while its fate hangs in the balance. In the fall, SCOTUS will hear CFPB v. CFSA, a case that threatens the funding of the bureau. Since its inception in 2011, it has secured $16bn in consumer relief through its enforcement actions. By its 10th anniversary, it delivered redress to more than 183 million consumers.

CFPB Director Rohit Chopra took to the Hill on Tuesday to deliver his agency’s semi-annual report before Senate Banking and respond to Republican attacks. He also appeared before House Financial on Wednesday. A live-tweet thread from Bloomberg’s Evan Weinberger covers the basics of the Senate hearing. Some highlights:

Chopra disagreed with Scott’s assessment that the Bureau’s proposed credit card late fee cap would “reflect a significant cost in the fee that doesn’t reflect the costs of collection” were banks to try and recoup the cost elsewhere. Later, Warren defended the proposal, citing information from banks saying late fees only made up 1% of card revenue.
Sen. Vance noted the dominance of “too big to fail” banks and asked whether the OCC is a better regulator. In response, director Chopra said that if the system was made from scratch now, “we probably would not create this balkanized system of who’s accountable for oversight.”

Banks aren’t moving fast enough to address the rampant fraud and scams on peer-to-peer payment apps like Zelle, said Chopra after Sen. Menendez asked whether banks were creating frameworks to combat it. Related: Sens. Brown, Warren and their allies have called on other P2P apps to protect their users from fraud.
House Financial’s Rep. Meuser called banks CFPB’s “clients” and asked Chopra why banks are dissatisfied with him. Chopra knocked that easy pitch outta the park: “The clientele of the CFPB is not banks; the clientele is the public.”
According to Politico, the Consumer Bankers Association and U.S. Chamber of Commerce lobbied Republicans to pressure Chopra on CFPB’s proposed $8 credit card late fee cap ahead of his appearance in the Senate. One of the chief arguments is that the rule would strangle consumer choice, but, in the words of AFR communications director Carter Dougherty: “None of that scary stuff – reduced access to credit – panned out” in the past when regulators capped fees.

CONSUMER

Big Tech Payments.

The CFPB proposed a rule outlining the “Supervision of Larger Participants in Consumer Payment Markets,” invoking a Dodd-Frank provision allowing the agency to supervise certain nonbanks. The rule would open the door for Bureau examiners to review the records of big players in the consumer payments space, potentially including Apple and Google Pay, reports Bloomberg.

Data Rights.

As part of the push toward “open banking,” the CFPB is on track to propose rules on consumer data rights and privacy by October, and a Monday blog from Director Chopra expects finalization in 2024. In October 2022, the Bureau laid out potential options for the proposal. The 71-page document offers insight into various areas of concern, including: handling third-party recipients of people’s information, the types of information data providers would be required to make available, and how and under what circumstances information would have to be produced, among others. Said Chopra:

“To thrive, standard-setting organizations must not skew to the interests of the largest players in the market… In consumer finance, powerful firms have sometimes looked to manage emerging technologies through utilities, networks, or standard setting organizations skewed to their interests – or even owned by them.
Control of the open banking system by such players threatens competition and the consumer’s control of their own financial affairs.”

Who’s Afraid of Rohit Chopra?

Members of the U.S. Chamber of Commerce and their ties to predatory corporations are who, says the Revolving Door Project in a new white paper. Four of the group’s board members, including CEO Suzanne Clark, have worked for institutions that CFPB director Chopra has specifically targeted for anti-consumer behavior. Says RDP researcher Vishal Shankar:

America’s biggest corporate lobbying group is furious that its lawbreaking members are no longer getting a free pass for predatory and illegal behavior… The Chamber is spending six figures to lie to consumers about Chopra’s record, without being upfront about their own executives’ ties to corporate criminals. They think the American people love surprise fees and hate seeing white-collar crooks held accountable. They are dead wrong on both counts.”

CFPB and SCOTUS.

Only two credit unions filed briefs in support of the CFPB ahead of the SCOTUS case to defend its independence, according to the Credit Union Times. Real estate trade groups generally warn against ruling the Bureau’s funding structure is unconstitutional without preserving existing rules.

FINANCIAL STABILITY

Rates and Recession.

FOMC met on Wednesday to declare a pause on interest rate hikes, for now. WSJ’s Nick Timiraos reports the Fed “signals this could be a very short lived pause.” Another hike could be incoming if officials give in to persistent inflation anxieties, per WSJ. The May 2023 Consumer Price Index dropped on Tuesday, signaling inflation slowed somewhat last month.

NYT has a one-stop info shop that covers all the factors – food prices, the bull market, rents, car prices, etc. – factoring into the Fed’s decision. That’s here.

After 15 months of Fed rate-hikes to wrangle inflation, a new paper from the Brookings Institution dissects the cause of the increase during and after the COVID-19 pandemic. While inflation didn’t come from the labor market, evident in how much of the rise in 2021 and ‘22 directly raised prices and not wages, the researchers suggest that controlling the supply and demand of labor may be necessary to hit the Fed’s 2% target.

Meanwhile, many Americans, according to recent Gallup polling, lack confidence in the economy. In the range of -100 to +100, overall confidence rates at -43 as of May 1. For reference: it went as low as -58 in June 2022, and hit its historical low of -72 in October 2008. 47% of Americans perceive current economic conditions as “poor” and 76% believe it’s getting worse.

Commercial Real Estate.

The OCC’s Acting Comptroller Hsu calls for banks to stress-test their exposure to commercial real estate in order to protect against vulnerabilities when $1.5tn in mortgages comes due in the next two years.

Nonbanks.

House Financial’s McHenry sent a letter to Secretary Yellen criticizing plans to roll back a Trump-era regulation on how nonbanks are designated as systemically important.

The Bank Job.

The Lever explores the disparity between what account-holders earn from interest on their deposits and what their banks earn from interest on loans. An April report from the Fed notes this gap is “at a modern high.” Especially in a high-rate environment, banks make much more on interest than their depositors, who have effectively missed out on about $290bn since 2019, per a WSJ estimate. While institutions average 7% on 30-year mortgages and 5% on their reserve balances, depositors across the board are only making 0.4% interest.

The Lever lays out three interrelated causes: consolidation under a period of permissive antitrust enforcement, limited competition for depositors and the tendency for customers to simply keep their money where it already sits. As Public Citizen’s Bartlett Naylor wryly notes: “Deposits have gotten zero interest for so long I think we’ve forgotten that we’re supposed to get any at all.”

Deposit Insurance.

A CNBC survey finds 63% of millionaires want Congress to raise the FDIC deposit insurance limit. The number bumps up to 67% among those with $5mn or more in assets. Though the agency has yet to make a concrete determination, it did release a report in May outlining a few possible avenues for reform. In the meantime, investors have figured out ways around the limit. Adding more beneficiaries to an account, for example, boosting the limit by another $250,000 per person.

Bank Shutdowns.

Almost 10,000 branches have closed across the country in the last four years, according to Daily Mail. The National Community Reinvestment Coalition notes that a third of the closures between 2017 and 2021 occurred largely in lower-income and predominantly POC communities, creating “banking deserts” and delivering a blow to banking accessibility. And it isn’t just banks in rural communities; “large legacy banks in highly populated areas” are catching the closure bug too. Meanwhile, digital transactions are on the rise – a Fed study showed a 12.4 increase in Q1 2020.

Bank Existentialism.

“Do you even want us to exist?” asked Western Alliance chief exec Ken Vecchione in an NYT piece. Now, after depositors have flown to their too-big-to-fail counterparts, many banks like Vecchione’s await guidance from regulators. The Biden administration has generally frowned on over-consolidating mergers as slumbering antitrust enforcement has picked up, but Yellen has veered away from that policy.

No EU Capital Reforms Yet.

Hopes for a consensus on bank capital reform in the EU have been dashed after talks deteriorated over the issue of how to apply the output floor to various parts of a banking group, reports Politico. Governments wish to apply the floor to entire groups, but the European Parliament wants a compromise.

A Maryland Law.

A new Community Reinvestment Act on the table in Maryland would target banks ~$46bn in assets and mortgage issuers that have made more than 68,000 loans in three years, mandating “significant increases in loans, investments and services in communities of color.” Applying CRA to these financial institutions, writes the National Community Reinvestment Coalition, would funnel considerable resources toward underserved communities.

Further to SVB.

The Fed and SEC are probing Goldman Sachs’ role as both the buyer of SVB’s securities portfolio and one of the bank’s advisers, reports WSJ, atop a subpoena from a Justice Department investigation into the investment bank. According to the Journal’s sources, the two regulators are examining whether its investment banking arm and trading division improperly communicated about the sale.

CAPITAL MARKETS

No Tax Breaks for Rich Investors.

AFR sent a letter to House Ways & Means urging the lawmakers to oppose a bill that would expand tax breaks for rich investors. A section of the proposed legislation would create rural Opportunity Zones, tax breaks which eliminate capital gains taxes on investments in designated regions for 10 years. The practice incentivizes gentrification, driving up housing costs for people of color and low- to moderate-income homeowners, while giving up an estimated $26bn to wealthy investors.

PRIVATE MARKETS

Fewer Acquisitions.

Private equity firms are struggling to make acquisitions despite wielding $1.5tn in unspent capital to make them happen, reports Bloomberg. $30bn of potential buyouts have been tied up in recent weeks as the industry finds itself in an uncertain environment.

Goldman’s GreenSky.

Two years ago, Goldman Sachs bought a specialty lender called GreenSky for nearly $2bn. Now, as it lossfully draws away from what Semafor calls its “ambitions on Main Street,” private equity firms swoop in to bid on the leftovers. Some want just the loan-writing part; others, the legacy loans themselves. The purchases mark a continued effort on the part of PE to enter the private credit space. Apollo, which bid against Goldman those years ago, has three-quarters of its $600bn in assets in credit.

PE Crockpots.

Instant Brands filed for bankruptcy on Monday. The company, maker of the Instant Pot cooker, was bought out by private equity Cornell Capital, which promptly combined it with and transferred its valuable assets to another kitchenware company. Since then, it suffered from falling sales.

PE in Cancer Care.

In April, a group headed by private equity firm TPG bought out the nation’s largest independent community oncology provider OneOncology for $2.1bn. FOCUS Investment Banking issued a report on PE’s consolidation of the oncology market, though it strikes a largely positive tone.

PE Pigskin.

The Washington Commanders may soon replace its private equity financing arranged by new owner (and private equity billionaire) Josh Harris, pending a vote by its NFL owners. The League has a debt limit of $1.1bn and has rules barring “private equity funds owning interests in teams.”

CRYPTO

“Toothless and Feeble”.

That’s what Rep. Pressley called the Republican crypto draft bill that seeks to kneecap the SEC’s regulatory authority in the digital-assets sphere, reports Politico. Rep. Waters, at Tuesday’s House Financial hearing, flagged that the bill offers a “get out [of] jail free” card to crypto companies, as it appears to halt SEC enforcement action against bad actors. Read Waters’ opening statement here, and Rep. McHenry’s here. Said Waters:

While Republicans have heeded a few of our concerns, there are still major red flags, including the bill’s lack of diversity and inclusion protections, weak consumer protections, and wholly insufficient oversight by the Fed of state-chartered stablecoin issuers.

SEC and Altcoins.

The SEC has labeled 19 major altcoins – anything that isn’t Bitcoin or Ethereum – as unregistered securities, causing their combined valuation to tumble $23bn in the period since just before its Binance lawsuit. Bloomberg reports the crackdown has threatened the course for many of these “alts,” which would have to file a tremendous amount of information before being allowed to sell again. Some investment platforms, such as Robinhood, have already begun dropping some of the endangered tokens.

Crypto Tax Regulations.

For a year and a half, many have awaited regulations which would enable the IRS to better determine how much money people make trading digital currencies. Ever since Congress approved the rules, writes Politico, there’s been nothing and many aren’t sure why. The agency won’t let on why, even as the SEC works to rein in sprawling exchanges like Coinbase and Binance.

More on Binance.

The federal judge presiding over SEC’s suit against Binance wants the regulator to reach a compromise with the crypto exchange so it might continue operating in the U.S., after the Commission requested an asset-freeze.

HOUSING

Rental Prices.

WSJ writes renters are “about to get the upper hand,” as the average of six rental-price measures recently indicated that new-lease asking rents climbed only a little under 2% in the 12 months ending May. Some of the metrics are already showing changes in rents turning negative. A decline like this has only happened once since the 2008 financial crisis – that was in 2020 after the outbreak of COVID-19, following a decade of rent increases. But official inflation-tracking still has them rising at higher-than-normal rates, likely due to high renewal increases; new-lease rents are the ones to watch out for, “more of a leading indicator.”

Landlord Legislators.

In what amounts to be an interesting case study of lawmaker likelihood to back tenant protections, an analysis conducted by New York Focus found that Democratic lawmakers who are either homeowners or landlords are less likely to sponsor a proposed “good cause eviction” law for the state than their renter counterparts. 72% of NY Democratic legislators own property, where only 54% of their constituents do (the remainder being renters). Nonhomeowning Dem lawmakers are nearly twice as likely to back the pro-tenant law. NY Sen. John Liu’s hypothesis: “If you’re a tenant and you become a legislator, it’s natural that you will understand the difficulty of being a tenant and be more appreciative of some of those challenges.”

CLIMATE and FINANCE

EU Climate Rule.

Yellen seems to believe the EU’s Corporate Sustainability Due Diligence Directive – which effectively mandates corporate supply chain accountability – would step on the toes of U.S. firms “where there is no clear nexus to the EU.” In her eyes, the proposed rule, requiring disclosures on environmental and human-rights impacts, might have “unintended negative consequences” on American companies.

POLITICS and MONEY

McHenry’s Money.

In light of the CFPB’s work to kill exploitative junk fees charged to consumers by their banks, Accountable.US issued a critical review of Rep. McHenry and his allies. The top Republican on House Financial, McHenry has worked to justify junk fees and undermine the Bureau’s authority. He has defended overdraft fees with bank lobby talking points after receiving $792,000 from the three largest banks that made $3.76bn in overdraft fees in 2021. Over the course of his career, he’s received at least $92,500 from the American Financial Services Association, a group that previously supported an anti-CFPB bill.

Financial Justice

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