During his semiannual report to Congress, Consumer Financial
Protection Bureau (CFPB) Director Rohit Chopra addressed challenges facing the
residential mortgage marketplace and what measures the bureau is taking to help
consumers, whose greatest obstacle to entering that marketplace is debt.
Testifying before both the Senate Banking Committee and
House Financial Services Committee on consecutive days, Chopra described
several initiatives the bureau has undertaken to help consumers alleviate
financial issues stemming from multiple types of debt, as well as certain
harmful practices by those charged with collecting it.
He cited statistics utilized by the CFPB which indicate
Americans owe more than $17 trillion in household debt, with auto loans ($1.6
trillion) and credit cards ($1 trillion) accounting for two of the fastest-growing
sources.
“The CFPB’s analyses have found that rates and fees are
contributing to persistent credit card debt for a growing number of consumers,”
Chopra said in his opening statement to both committees. “Americans paid $130
billion in interest and fees on credit cards last year, while annual percentage
rates rose far above the cost of offering credit. The CFPB is taking a number
of steps to increase competition in this highly concentrated market.”
Significant increases in auto loan debt can be attributed to
higher vehicle costs and higher interest rates, Chopra said. He explained how
the rise in the amount of household income allocated to auto loan payments are
consuming a growing share of income for many consumers, causing the bureau to
actively monitor for potential corresponding credit performance and
repossession activity.
As household debt, interest rates, fees, discount points and
other costs continue to rise, residential mortgage activity continues to fall,
Chopra noted.
“The result is that homebuyers are paying much more: average
monthly payments on 30-year fixed rate loans increased by more than 46 percent
from 2021 to 2022. We believe these trends persisted during 2023 given the rate
environment,” Chopra continued.
With standard home purchase mortgages on the decline, the
CFPB is examining ways to facilitate increased refinancing activity, Chopra
explained. By doing so, the bureau hopes borrowers experiencing financial
distress will have alternatives to foreclosure. Catalyzing refinancing activity
may involve streamlining rules and procedures for servicers to offer loan
modifications, he added.
Given the well-documented rise of independent nonbank
mortgage providers in the marketplace, Chopra touted how the CFPB has ramped up
its supervisory and enforcement activity aimed at ensuring consumers are
treated fairly and not subject to harmful practices.
Sec. 1071 rule
Multiple Republicans in the House and Senate pressed Chopra
about the CFPB’s final rule requiring small businesses to collect and report
demographic data pertaining to their credit application approvals. Specifically,
representatives questioned the bureau’s authority to expand the number of reporting
data fields required beyond what is mandated by Sec. 1071 of the Dodd-Frank Act
and if it will harm smaller financial institutions and hinder access to
affordable credit because of the compliance costs associated with the rule.
Responding to concerns expressed by Rep. Monica De La Cruz
(R-Texas) about the Sec. 1071 rule’s impact on credit access, Chopra pointed to
how small businesses responded to the Paycheck Protection Program (PPP) as reason
to believe smaller entities are equipped to handle the new rule.
“We saw during PPP that, actually, the small community
institutions you mentioned really punched above their weight class when it
comes to serving small businesses,” Chopra said, adding that many small
institutions have solid relationships with small businesses in the areas they
serve.
He also noted the CFPB is under a court order to create a
rule implementing Sec. 1071 of Dodd-Frank and shares the view of concerned
representatives that businesses are able to be competitive and provide
sufficient access to credit to the communities they serve. He noted the data
collected as part of Sec. 1071 would be available to be used in Community
Reinvestment Act assessments.
Chopra addressed concerns about the impact of the CFPB’s
rules on credit access on multiple occasions during both hearings.
“We try to look at and have fidelity to the competitive
market,” Chopra said, responding to a question from Sen. Bill Posey (R-Fla.).
“We really want people to be able to compete, and compete for business.”
Chopra also touched on the importance of ensuring consumers
have clarity regarding the products being provided to them and the price they
are being asked to pay.
Over the past two years, the CFPB has secured $8 billion in
penalties and victim compensation from financial firms for violations of
consumer protection laws, including the Home Mortgage Disclosure Act (HMDA),
Fair Debt Collection Practices Act (FDCPA), Fair Credit Reporting Act (FCRA),
Equal Credit Opportunity Act (ECOA) and others. Chopra explained how going
after major companies for illegal activity, especially repeat violators,
benefits both families and honest financial firms who obey the law.
“As director, I have made it a priority to ensure that the
CFPB continues to modernize its approach to keep pace with a fast-changing
financial services industry,” Chopra said. “The CFPB has shifted supervisory
resources toward nonbanks to account for the significant role they play in
financial services today. For example, in payments, Big Tech
companies and nonbank payment apps have become ubiquitous in the United States.
The CFPB has taken steps this year, including a proposed rule, to ensure that
these companies adhere to the same rules as large banks, credit unions, and
other financial institutions.”
Chopra briefly addressed the CFPB’s increased crackdown on
“junk fees,” efforts to ensure accuracy in credit report, as well as the
agency’s heightened interest in “open banking” over the last year.
“Since our last Semiannual Report, the CFPB has proposed a
rule to accelerate the shift to ‘open banking’ in the United States, giving
consumers the ability to more easily switch to new providers, while taking care
to safeguard their personal financial data,” Chopra said. “We have also
initiated a process to improve accuracy and accountability in credit reporting,
especially for data brokers. We are also taking steps to address widespread
inaccuracies on Americans’ credit reports when it comes to medical bills.”
During the hearing before the House committee, Chopra was
asked by Rep. Byron Donalds (R-Fla.) why the CFPB believes it has authority to
create rules expanding upon the Small Business Regulatory Enforcement Fairness
Act’s (SBREFA) definition of what constitutes a data broker. Chopra explained
the bureau’s view that there are types of entities maintaining consumer data
records which are not accounted for by statute. Chopra and Donalds verbally
agreed this fact could be viewed as pointing to the need for statutory changes
by Congress.