Consumer Financial Protection Bureau (CFPB) Director Rohit
Chopra explained to a room full of retail banking professionals how the
bureau’s latest rules align with the agency’s statutory mandate to promote
fairness, transparency and competition in the financial market during the
Consumer Bankers Association’s (CBA) 2024 conference in Washington, D.C. The
banking industry has been vocal about its views on the agency’s rules on data
privacy and “junk fees,” with the latter being a significant source of controversy.
Chopra referred to the bureau’s data privacy rule as a means
to “accelerate competition and decentralization in consumer finance by making
it easier for consumers to switch to a new provider.” He compared the proposed
rule, which invokes Sec. 1033 of the Dodd-Frank Act, to the Federal
Communications Commission (FCC) regulations which gave consumers more freedom
to switch between wireless service providers.
“The CFPB’s proposed rule would require that financial firms
offering transaction accounts – like checking accounts, prepaid cards, credit
cards, and digital wallets – give the consumer access to their own personal
financial data, so they can share or transfer the data to another provider,”
Chopra said. “The proposed rule would also allow consumers to more easily walk
away from companies that offer bad terms and service, which itself creates a
fresh incentive for companies to treat consumers well. And, importantly, the
rule guards against exploitation of personal data. Companies receiving data can
only use it to provide the product people asked for, and for nothing else.”
CBA, the Bank Policy Institute, The Clearing House and other
trade organizations have pressed the bureau to go further with its data privacy
rulemaking. As for its rules on fees, the industry’s comments indicate a sense
that the bureau is acting in a politicallydriven fashion and relying on faulty
data.
The CFPB’s recent rules on credit card late fees, overdraft
services and non-sufficient funds (NSF) fees have been the subject of lawsuits
and criticism from CBA and other organizations and institutions within the
retail banking space.
Chopra reiterated the bureau’s contention that the country’s
largest financial institutions charge the highest late fees and interest rates,
which is why the bureau chose to target these entities with these rules. Data
submitted to the CFPB by 150 banks and credit unions indicates there is a 2-4
percent spread in annual percentage rates (APR) between large and small
institutions.
“[T]he smaller institutions tend to offer lower interest
rates compared to the largest 25 card issuers,” Chopra said. “The difference is
striking, with an average APR spread of between 8 to 10 percentage points. That
translates to $400 to $500 in interest savings for a consumer with an average
balance of $5,000.”
Chopra cited a 2020 CFPB report explaining how credit card
issuers began “obscuring” data about actual consumer payments on credit
reports. The reason for doing so was based on their desire to maintain a
competitive advantage.
“And the reason that many people believe this took place is
because those issuers did not want to reveal which of their customers were
carrying a balance from month to month, and which of them were paying off their
balance every month,” Chopra said. “We asked those credit card issuers whether
they were going to revert back to the full and complete way of reporting. We
got some responses that suggested they didn’t want to be at a competitive
disadvantage, that revealing this information would allow upstart companies and
other challenges to offer consumers lower rates. I don’t know if that’s
necessarily a sign of a competitive market.”
He reiterated the bureau’s contention that growing consumer
debt is a persistent problem, with credit card debt over $1 trillion and
consumers paying more than $320 billion in interest and fees in 2022.
“The fact that prices have risen, or that consumers are
struggling, merits a closer look by the CFPB,” Chopra said. “And recent data
and research has raised serious questions about how competition is working, or
not working, in the credit card market. Given the size of the market and its
importance in consumers’ lives, the stakes are high.”
CBA President and CEO Lindsey Johnson, who has consistently
challenged data cited in the bureau’s final rules targeting fees charged by
large institutions, came on stage after Chopra and pointed out that CBA has a
“difference of opinion” about these rules’ impact on marketplace competition,
speaking to Punchbowl News’ Brendan Pedersen. She argued that the bureau’s
rhetoric around its fee rules is politically driven and harmful to a
potentially productive dialogue between banks and regulators.
“This industry wants to do right by the consumer. We are
nothing without trust. We are contending with fierce competitors in this room,”
Johnson told Pedersen in front of thousands of CBA members. “But we’re not
going to be able to begin to have the right engagement [with regulators] and
the right approach to these issues if we don’t have at least a conversation and
a process that’s followed.”
Pedersen then asked Johnson what CBA considers “politicized”
with respect to the bureau’s recent proposals.
“The terms and the rhetoric that’s used is really harming
the conversation from the get-go,” she said. “So that’s part of it. The second
part of it is when you stand up with the president and make an announcement
about a product that's being offered in the market today that’s perfectly legal
and say that it’s illegal, it makes it very difficult for this industry to
respond.”
CBA has been vocal in challenging the bureau’s statistical
findings in this respect in “Facts Matter” blog posts on the association’s
website. One such post asserts that the agency’s numbers on credit card fees
are skewed by the inclusion of a significant amount of credit unions, which can
offer lower rates because of their tax-exempt status and lower regulatory
costs.
“In terms of credit cards and the consumer campaign, one
thing that we’ve been very focused on is telling the story of all of these
banks,” Johnson said. “Actually going out and telling folks what they do, what
it means for consumers and pushing back when there’s inaccurate facts out
there. When you pull back something like overdraft, when you have a government
set price, you ignore all of the innovations the largest institutions and
leading have made in that space.”
If there was one thing Chopra and Johnson seemed to agree
on, based on their remarks, it was that a strong economy is dependent on a
strong banking system.