Biden administration sets the tone to return the CFPB to it’s more aggressive positions of its early days
According to four sources familiar with the decision, President-elect Joe Biden will nominate Rohit Chopra to be the next director of the Consumer Financial Protection Bureau. Chopra is considered a strong consumer advocate aligned with Sen. Elizabeth Warren (D-Mass.).
Chopra, now a member of the Federal Trade Commission, if confirmed, would be returning to helm an agency he helped Warren set up after its establishment by the Dodd-Frank financial reform law of 2010.
One of the most pressing questions of a Chopra led CFPB, is will he follow the April 2020 advice of former CFPB Director Richard Cordray’s white paper? Amongst other measures that Cordray outlined, was that the CFPB should lead an effort to work with Congress on putting in place a moratorium on auto repossessions for the duration of the crisis and its economic aftermath.
Chopra’s selection signals that the Biden administration plans to return the CFPB to the more-muscular posture of its early days following three years of Trump administration appointees curbing the agency’s reach. Also chosen as chairman of the Securities and Exchange Commission, Biden plans to nominate Gary Gensler, a former financial regulator known for aggressive bank oversight.
The Biden transition team has declined to comment on these selections, but they have been verified by numerous sources.
As the result of a Supreme Court ruling last year, Biden can fire current CFPB Director Kathy Kraninger on Day One. But erasing President Donald Trump’s industry-friendly imprint on the bureau, may take years.
Chopra’s confirmation process will very likely be a difficult one with the Democrats only narrowly controlling the Senate. Warren’s brainchild, the CFPB, has long been a favorite target of GOP lawmakers, who have slammed it’s tough regulations as executive overreach. They also objected to the way it was set up, with a single-director system that gave the leader a great deal of power and funding coming from the Federal Reserve, which means the agency isn’t subject to the pressures of the congressional appropriations process.
Chopra, a Wharton-trained MBA, worked as a consultant at McKinsey before joining government. Over the course of his term at the FTC, he has pushed the agency to be more skeptical of private equity buyers and more aggressive in using its rulemaking powers to rein in businesses.
He previously served as a CFPB assistant director and as student loan ombudsperson after the agency opened its doors in 2011. He has been a Federal Trade Commissioner since 2018.
One of Chopra’s first likely priorities, restoring the agency’s focus on enforcing fair lending laws, will be relatively easy to achieve. The other two big-ticket items former officials expect to see on the new director’s agenda — cracking down on payday lenders and building up robust case law on what counts as an “abusive act or practice” under the Dodd-Frank law — couldn’t be accomplished until well into Biden’s term as president.
Chopra can move quickly to restore the Office of Fair Lending, sidelined by former Acting Director Mick Mulvaney in 2017, to its original position, allowing fair lending staff to draw on both supervision and enforcement tools to combat discrimination.
Rolling back the Trump administration’s revised payday rule would take longer. The new rule released in July rescinded a key requirement of the agency’s controversial earlier regulation cracking down on the industry, which offers small emergency loans to customers at sky-high interest rates, frequently trapping low-income borrowers in costly debt cycles.
The previous rule, released in October 2017 just before then-Director Richard Cordray stepped down, would have required lenders to verify borrowers’ income and debts to gauge whether they could afford the loans. The CFPB voided that requirement with the new rule this year, prompting an outcry among congressional Democrats, who requested an inspector general investigation into allegations of improper political influence on the drafting process for the rule.
Consumer groups have sued to overturn the new rule — alleging that the agency violated the Administrative Procedure Act and Dodd-Frank — so it’s possible the courts will strike it down.
Without the intervention of the courts, revising and re-releasing the rule would mean going back to square one — drawing on past research, explaining in a proposal why the newest version of the rule restores various provisions, allowing for a lengthy notice-and-comment period and setting an implementation date that gives the industry enough time to comply. That means payday lenders may not face new consequences until nearly a decade after the bureau kicked off efforts to crack down on the industry under Cordray.
Chopra will also likely move to build out more aggressive enforcement of the “abusive” standard under Dodd-Frank, a pivot away from the more relaxed guidance the agency issued this year.
“Unfair or deceptive acts or practices” have long been banned under federal law, but Dodd-Frank in 2010 added “abusive” to the prohibition, known as UDAAP, and gave the CFPB rulemaking and enforcement authority.
Business groups have pushed for years for clarification on what counts as abusive, and the agency said earlier this year that it would take a restrained approach to charging companies with abusiveness violations, based in part on whether the businesses were acting in good faith. Consumer groups immediately decried the open-ended “good-faith” exemption.
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