Joe Biden has been struggling in recent weeks to push his ambitious legislative agenda through Congress. But as work has stalled on his spending proposals, the US president has quietly scored a significant victory for progressive supporters who want to change the financial services industry through more aggressive regulation.
The win came in the form of a narrow Senate vote a few days ago confirming Biden’s choice to head the Consumer Financial Protection Bureau — Rohit Chopra. A 39-year-old product of Harvard and the University of Pennsylvania’s Wharton school of business, Chopra is a fervent consumer advocate who favours stiff penalties for corporate bad actors.
His ascension marks a critical moment in the short, tumultuous history of the CFPB. The agency was created during the Obama administration to crack down on the predatory consumer lending that many on the left blamed for the financial crisis. Republicans rued its far-reaching powers from the start and Donald Trump’s White House tried to put the agency to sleep. Now, with Chopra in charge, the tables have turned again.
Chopra is poised to rattle financial cages from Wall Street to Silicon Valley. More aggressive enforcement of fair lending laws is a virtual certainty. Action on cryptocurrency lending products or “buy now, pay later” offerings is a tantalising possibility. The CFPB has broad authority to protect financial consumers — and its new boss is likely to test its limits.
“It’s about as big a change as you can imagine for an agency — it is in transition from an administration that essentially wanted to kill the agency and completely neuter its mission,” said Nowell Bamberger, a partner at the Cleary Gottlieb law firm. “Our expectation is that the CFPB is going to be incredibly aggressive in an enforcement context and incredibly ambitious in the context of rulemaking.”
Chopra is no stranger to the agency, having served as its student loan ombudsman during the Obama years. After Trump’s election, he was named to fill a seat reserved for a Democrat on the five-member Federal Trade Commission, where he emerged as a fierce critic of Big Tech.
Chopra’s taste for battle was on display in 2019 when Facebook agreed to pay $5bn to settle FTC claims it misused customer data. The commission voted 3-2 along party lines to approve the settlement — with Chopra issuing an impassioned dissent. He described the civil penalty, the largest in FTC history, as insufficient and called the granting of immunity for the company’s officers and directors “a giveaway”.
“Breaking the law has to be riskier than following it,” he wrote. “In my view, it is appropriate to charge officers and directors personally when there is reason to believe that they have meaningfully participated in unlawful conduct, or negligently turned a blind eye toward their subordinates doing the same.”
A key difference between the FTC and the CFPB is that, in his new job, Chopra is the sole boss. No commissioners stand in his way. Putting together his own team could take some time, but Washington insiders expect that, once he does, the CFPB will be back in the headlines.
One of the more dramatic changes from the previous administration will involve the enforcement of fair lending laws that bar discrimination on the basis of race, religion or sex. Under Trump, this was not a priority. His CFPB was reorganised so that its fair lending unit was no longer part of its enforcement division. Several attorneys who had specialised in fair lending investigations were moved into “generalist positions”, according to the US Government Accountability Office.
Chopra is expected to expand the scope of fair lending enforcement. During his days at the FTC, he argued that regulators should no longer simply look for evidence of discriminatory intent in pursuing such cases.
He said they should consider whether business practices — such as the use of artificial intelligence to make decisions — were having a disparate impact on different groups. “It is rare to uncover direct evidence of racist intent,” he said last year. “That’s why disparate impact analysis is a critical tool to uncover hidden forms of discrimination.”
The Chopra wild card will be his impact on the rapidly changing balance of power in financial services. When the CFPB was created by the Dodd-Frank Act of 2010, the big banks were the bêtes noires of progressives. Now, the leading lenders and the left can be found fretting about the encroachments of fintechs and software developers.
That puts Chopra in an unlikely position. There is no question that he is going to make life more difficult for traditional players in financial services. The funny thing is, he might also save some of them, too.