CFPB plans to revisit the CARD Act, older regulations: Chopra

Consumer Financial Protection Bureau Director Rohit Chopra told lawmakers Wednesday that the bureau plans to revisit and update older regulations such as the Credit Card Accountability Responsibility and Disclosure Act, known as the CARD Act, to lower credit card fees.

Chopra announced the move at a hearing of the House Financial Services Committee, where he fielded tough questions about the bureau’s plans to collect data on small business loans, crack down on so-called junk fees and address fraud in payment networks.

“We want to make sure that credit cards are a competitive market ... [so] I am asking the [CFPB] staff to look at whether we should reopen the Card Act rules that were promulgated by the Federal Reserve Board over 10 years ago, to be able to look at some of these older rules we inherited, to determine whether there needs to be any changes,” Chopra said.

He was responding to a question from Rep. Carolyn Maloney, D-N.Y., who asked if the CFPB planned to make changes to the 2009 legislation she authored that prohibits certain practices of credit card issuers.  

During a nearly four-hour hearing, lawmakers on both sides of the aisle questioned Chopra on a range of meaty topics including how the CFPB and Congress should deal with fairness in lending algorithms, and if the bureau plans to address scams in peer-to-peer payment networks such as Zelle, which is owned by the seven largest banks.

Several Republican lawmakers pressed Chopra to make changes to the CFPB’s upcoming data collection rule. The CFPB is under a court order to complete a small business data collection rulemaking, which been a decade in the making dating to section 1071 of the Dodd-Frank Act.

Rep. Andy Barr, R-Ky., said community banks in his district have threatened to stop lending to small businesses because of the potential regulatory burdens imposed by the data collection.

Barr and others asked Chopra to exempt small banks from the rule by specifically raising the proposal's loan threshold that would require lenders originating 25 or more small-business loans a year, over a two-year period, to report data on credit applicants, including businesses owned by women and minorities.

“I’m getting feedback from small, rural community banks that are telling me they are going to exit the small-business lending market because of the complexity and the burdensome nature of this rulemaking,” Barr said. "I urge you to review 1071. Don’t force these community banks to exit small-business lending in rural areas, if you care about banking deserts.”

Rep. Roger Williams, R-Texas, asked Chopra if he would abandon a provision in the 1071 proposal, created under the Trump administration, that suggests loan officers in some cases should guess the race of small business borrowers.

“Race should not play a part in credit decisions,” Williams said. “This would provide inconsistent data that would be the basis of enforcement actions from the CFPB.”

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The CFPB has not yet finalized the rule, but Chopra said he has heard “very loud and clear” concerns about the provision. Chopra also said the CFPB is looking at the role software providers would play in implementing a final rule.

Lawmakers also grilled Chopra about a long-anticipated data access proposal that the CFPB is working on to allow consumers the right to control their own financial data. Chopra confirmed that the CFPB’s data-access rule is taking longer than many had expected.

 “Is there a deadline for implementation?” asked Rep. Ritchie Torres, D-N.Y. “How much longer must we wait?”

Chopra said he hopes to get a proposal finished "within a year." 

“I am as frustrated as you,” he said. “When I arrived [at the CFPB], I was surprised to see how little progress has been made” on the rule.

“This rule in particular has the ability to open up consumer and financial institution opportunities. At the same time there are some tough issues in it related to data privacy,” he said. “Are institutions going to be able to go and grab consumers’ data and then sell it or share it or resell it?”

Torres and other lawmakers asked Chopra about the massive increase in fraud in peer-to-peer payment networks such as Zelle, whose parent, Early Warning Services, is owned by seven large banks. Banks are required to reimburse customers for fraud under the Electronic Fund Transfer Act. But Zelle and its parent allege that the network is not required to do abide by Regulation E because it does not hold customers’ funds, as banks do. 

Chopra declined to comment on any specific company. He said the CFPB is monitoring complaints about "frauds, scams and hacks."

“If we want people to have confidence in our payment system, we need to make sure people have a similar level of protection,” he said.

Several lawmakers asked Chopra to explain what constitutes a “junk fee,” after the bureau launched a broad inquiry in February to examine fees charged on widely used financial products such as loans, mortgages and credit cards.

“Do you consider fees that companies pay in exchange for the card networks are junk fees?” asked Rep. Ann Wagner, R-Mo. “How do you define a junk fee?”

Chopra described junk fees as fees that a consumer did not ask for, that are not subject to a competitive process, and that typically exceed the actual cost of a service.

“Many Americans experience this in their daily life; where there is fee creep, it is a common experience,” Chopra said. “In our complaints, we receive a broad range of input about fees.” 

Rep. Blaine Luetkemeyer, R-Missouri, spent a few minutes grilling Chopra about a legal memo obtained late last year by American Banker that laid out how members of the Federal Deposit Insurance Corp. could overrule that agency’s chairman. 

On Tuesday, Chopra was upbraided by Senate Republicans for launching a review of bank merger policy at the FDIC, where he is a board member, without the support of Trump-appointed FDIC Chair Jelena McWilliams. The bank merger policy proposal led to what some Republicans called a “hostile takeover” of the FDIC last year.

Because the hearing was Chopra’s first appearance before the Senate Banking Committee since he took the reins of the bureau in October, it also represented lawmakers' first opportunity to question his actions in December on the FDIC board.

Luetkemeyer asked Chopra if he planned to provide the legal memo and other information to the House Banking Committee.

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“Are you going to offer those papers to us?” Luetkemeyer asked.

“The FDIC legal situation was a severe crisis,” Chopra said. 

“The crisis was created by you, Mr. Chopra,” Luetkemeyer responded. “This memo was improperly leaked to the press.”

“We are happy to work with you or the staff,” Chopra said, though he declined to make the CFPB’s general counsel available to discuss the memo. “We have already provided substantial information to so many people about the FDIC’s legal authority.”

Chopra also said the legal issues on the FDIC's bank merger policy were discussed across several agencies. 

The use of algorithms in lending decisions was a hot topic at the hearing.

Rep. Anthony Gonzalez, R-Ohio, asked Chopra to explain why he thinks there is bias in using algorithms in lending decisions, versus in relationship banking, which he said has resulted in redlining.

"Maybe we should use the term human-only or algorithm-only. The truth is it's probably good when it's both, when there's some human dimension to it," Chopra said. "Data analysis and technology has the ability to do a lot, but we want to make sure we don't have situations like we've seen where those algorithms don't really have any explainability about the decisions that are made."