After four years of hibernation under the administration of Donald Trump, the American financial regulator responsible for protecting consumers would always find a new life under the president. Joe biden.
But this week’s appointment of Rohit Chopra as its head was a signal that the new administration wanted her to get back into action quickly – and Wall Street lobbyists have taken note.
Mr. Chopra, a member of the Federal Trade Commission, is a longtime ally of the fierce critic of the financial industry, Senator Elizabeth Warren, who was instrumental in creating the Consumer Financial Protection Bureau in the first place.
“Chopra is the salvation of the progressive left,” said a banking legal partner at a major New York firm. “They want to have more say in financial regulation and they want it at CFPB in particular – and now they have it.”
The CFPB’s first priority this year, Washington insiders predict, will be to ensure that lenders comply with both the letter and the spirit of the Cares Act, last year’s Covid relief law that obliges institutions to offer borrowers long periods of forbearance, among other things. rights.
“You can’t talk about any political subject [at the CFPB] not to mention Covid, ”said Linda Jun, senior policy advisor at Americans for Financial Reform, a consumer advocacy group.
“Do the institutions respect the spirit and the letter of the Cares Act? Do they give the [required] six months of abstention? Are they getting the message across? “
During his first stint at CFPB under Barack Obama’s administration, Mr. Chopra was the student loans ombudsman and had a reputation for challenging the industry that went beyond even the activist style of the agency’s boss, Richard Cordray, another ally of Warren.
Student loan managers, companies that collect payments from borrowers and manage loans that have fallen into default, could be in the crosshairs, often failing to educate borrowers about their rights and attempting to collect debts that borrowers are not legally required to pay, Mr. Chopra has argued. Agents should “face the real consequences of their violations, just like borrowers,” he said.
“Education finance companies such as Navient, Sallie Mae and Discover Financial will almost certainly face increased oversight and higher enforcement risk,” Compass Point Research’s Isaac Boltansky said in a note to clients .
Payday loan and bank charges
Unscrupulous lending practices and high fees charged to clients, especially the poorest, will also be back on the agenda for the relaunched agency.
Under the Obama administration, the CFPB imposed a rule that payday lenders – typically used by poorer borrowers for small advances – must determine whether borrowers can actually repay a loan before granting it. The Trump-era CFPB withdrew it.
Stocks in payday and installment lenders like World Acceptance and Enova have joined forces when Mr Cordray announced he would be leaving the CFPB in 2017. Mr Chopra will aim to “finish Cordray’s work on the small dollar rule,” Mr Boltansky said.
Meanwhile, for many living Americans paying a check to pay a check, bank overdraft fees represent an expensive form of credit. If the CFPB imposed limits on them, it could have a significant impact on the profits of some banks.
Overdraft fees contributed some $ 12 billion to U.S. bank revenues in 2019, according to data from S&P Market Intelligence. In some small banks, this represents up to 10 percent of total income.
Mr. Chopra’s CFPB could prove to be a new force in financial technology where, according to Ed Mills, political analyst at Raymond James, “there is a battle brewing” as various agencies engage in “war. of territory ”for who will oversee emerging non-bank financing companies, many of which specialize in payments.
Another regulator, the Office of the Comptroller of the Currency, recently proposed a specialized and less burdensome banking license specifically for payment companies. Critics of the idea said it would invite tech giants from Apple to Google to exert their dominance in finance. At the FTC, Chopra spoke out against the competitive dominance of tech companies.
New rules, more enforcement, higher fines
Even before Mr. Chopra’s appointment, some financial companies were warning their shareholders to prepare for a more aggressive CFPB. “The Biden administration could broaden enforcement priorities and increase the level of law enforcement activity in some federal agencies, such as the CFPB,” AmeriHome, a mortgage service provider, said in a regulatory filing on January 4.
Affirm, a San Francisco-based digital commerce company, has warned investors in a regulatory case that Mr Biden’s CFPB director could impose rules and enforcement measures “that have a significant impact on our business.”
Lobbyists and lawyers believe that the biggest companies should be the most affected. The Cordray-era CFPB imposed heavy penalties on Bank of America and Citibank of $ 727 million and $ 700 million, respectively, for illegal credit card practices.
“The former CFPB had a huge preference for bigger targets and bigger amounts because they wanted a colloquial name attached to consent orders,” said Chris Willis, head of the consumer financial services litigation group at Ballard Spahr. “We’ll see a return to that.”
But not all financial companies are so worried. Mat Ishbia, managing director of United Wholesale Mortgage, said the Cordray regime has been good for the mortgage industry and he expects the new leadership of CFPB to be beneficial as well.
“If you make it better for consumers, you help brokers,” he said. “The rules were focused on the consumer and making the industry as transparent as possible. . . in the long run, it’s a winning combination. “