CFPB targets large banks with new repeat offender unit

The Consumer Financial Protection Bureau has created a "repeat offender unit" that will review and monitor the activities of large banks that run afoul of consumer protection laws. 

In a recent report highlighting its supervisory activity, the CFPB said that it has created a repeat offender unit focused on identifying the root causes of recurring violations. The unit will recommend and pursue remedies to hold companies accountable for failing to comply with federal law. The unit also will be focused on designing a model way to review and monitor recidivists to reduce repeat violations in the future.  

"The Repeat Offender Unit will focus on ways to enhance the detection of repeat offenses, develop a process for rapid review and response designed to address the root cause of violations, and recommend corrective actions designed to stop recidivist behavior," the CFPB said in its supervisory highlights report. "This will include closer scrutiny of corporate compliance with orders to ensure that requirements are being met and any issues are addressed in a timely manner. "

In December, CFPB Director Rohit Chopra proposed a rule that would require nonbanks to report any state and local court orders or judgments involving consumer financial products. The bureau intends to create a registry or database for nonbanks to submit information about enforcement orders. The CFPB also would designate an executive to attest that the company is in compliance with the orders. 

Chopra first told banks and other financial services firms last March that he planned a crackdown on large corporate recidivists. Chopra also has laid out details of the types of remedies the CFPB will be seeking to deter repeat offenders including potentially banning certain business practices, forcing the divestiture of business lines and working with state agencies to revoke licenses.

The CFPB said in the report that it invites questions or comments about its supervisory work and provided an email address (CFPB_Supervision@cfpb.gov) for industry to provide feedback. 

Chopra laid out a robust enforcement regime against repeat offenders last year and even identified many top banks. Chopra named names in a speech in March, specifically citing American Express, Citigroup, Discover Financial Services, JPMorgan Chase and Wells Fargo. 

Wells is the first among that list to get hit with a major penalty for repeat violations. On Dec. 20, the CFPB ordered the $1.9 trillion-asset Wells to pay $3.7 billion for what the order called "widespread mismanagement" of auto loans, mortgages and deposit accounts. The San Francisco bank claims it has already reimbursed harmed customers roughly $2 billion. It also must pay the CFPB a $1.7 billion penalty. 

Five issues to watch next year at Rohit Chopra's CFPB

Chopra announced last year that the CFPB is looking at whether the largest credit card issuers are engaged in unfair or anti-competitive practices given that eight companies control 70% of the credit card market. In September, Chopra said for the first time that the CFPB plans to issue a rule that could potentially unwind a set of provisions created by the Federal Reserve Board in 2010 that have allowed credit card issuers to raise late fees annually due to inflation. 

"When a business model is heavily dependent on penalty fees, I think that's where you have to question if that's distortionary to the competitive process," Chopra said at a conference in September.

Credit card late fees have already risen by 9% in 2023, to roughly $33 for the first late payment and $45 for subsequent late payments, according to notices issued by major credit card companies. Though a formal rulemaking can take a year or more, many expect Chopra to address credit card late fees with a long-term fix. 

Last year, the CFPB said many top banks and credit card issuers had stopped regularly reporting data on cardholder payments. The CFPB has asked six of the largest credit card issuers to detail their practices. A consumer can get dinged on a credit report and have a lower credit score when a credit card failed to report payment data to the credit bureaus, consumer advocates say. 

Chopra has said in the past that corporate boards often go to great lengths to shield executives from scrutiny even when they are bound by a court or agency orders. He is looking for companies that violate a formal court or regulatory order. And Chopra has been critical of deferred prosecution agreements that allow companies to settle an issue with a regulator even if they are being pursued for other misconduct. 

Regulators should learn lessons from the example of Facebook, Chopra has said, noting that the social media giant was able to use highly unusual immunity clauses to shield its executives from additional scrutiny. A former Democratic member of the Federal Trade Commission, Chopra has also had Big Tech firms in his sights at the CFPB due to their entanglement with consumers' money.