Rohit Chopra will be nominated as the next Director of the Consumer Financial Protection Bureau (CFPB or Bureau). We break down below some of the more immediate impacts of a Chopra-helmed CFPB.
What Happened
Be careful what you wish for. When Congress passed and President Obama signed the Dodd-Frank Act into law, one of the very first things opponents sought to attack was the extremely strong hand dealt to the Director of the CFPB, which included the inability of the President to fire him or her without cause. Private plaintiffs led multiple efforts to challenge the Bureau’s constitutionality, as we reported here, here and here.
Under Dodd-Frank, the CFPB Director is granted a five-year term, the plain intention of which was to shield the Bureau Director from being terminated and replaced during changes in administrations. The current Director, Kathy Kraninger, was approved in December 2018 and, in theory, would serve until December 2023.
All that changed in June 2020. As we posted, in Seila Law v. CFPB, the Supreme Court agreed that the “for cause” provision was indeed unconstitutional, but that the limited remedy was to strike that provision from Dodd-Frank, leaving the CFPB’s constitutionality otherwise intact. In short, opponents received a Pyrrhic victory in that Director Kraninger’s days would now be numbered if Biden were elected in November 2020.
Fast-forward to January 2021, and President-elect Biden has selected Mr. Chopra as his nominee for the next Director of the CFPB, confirming that he intends to fire Ms. Kraninger upon taking office. Because Mr. Chopra was confirmed by the Senate for his current role at the Federal Trade Commission, we expect the administration to take the position that he can become Acting Director immediately, without Senate confirmation, under the Federal Vacancies Reform Act.
Why It Matters
While relatively junior to hold the Director slot, at age 38, Mr. Chopra would bring to the Bureau substantial experience in consumer protection and a familiarity with consumer credit laws. He spent five years at the CFPB in its early days, serving as an assistant director and student loan ombudsman. In his tenure at the Federal Trade Commission, he was a highly outspoken consumer advocate, often criticizing penalty amounts and other remedies as insufficient. Senator Elizabeth Warren tweeted her strong support for the nomination, characterizing Mr. Chopra as a “fearless champion for consumers.” Consumer groups and progressives also have cheered the nomination.
If Mr. Chopra is confirmed, the CFPB would likely return to the regulatory approach of its first Director, Richard Cordray. Generally speaking, that approach entails using every tool at the agency’s disposal to protect consumers, including when its authority or legal theory “pushes the envelope.”
Some specific actions we would expect under Mr. Chopra’s leadership include the following:
First, we expect Mr. Chopra immediately to make fair lending a major enforcement, supervision and rulemaking priority, including by restoring the original structure of the CFPB’s Office of Fair Lending. Enforcement of other consumer financial laws is also likely to ramp up substantially, particularly for high-cost products, student loans and debt collection practices. Expect to see a return to judging the success of the agency based on aggregate penalties and restitution recovered, with a concurrent push for harsher treatment of companies found to have violated the law, as well as greater use of UDAAP authority to challenge practices that are not expressly prohibited by law.
We also expect to see substantial efforts to revisit rules and guidance that were overturned during the Mulvaney and Kraninger years. Some of these matters will be challenging to revive because they were nullified by the Congressional Review Act (CRA). Under the CRA, nullified rules cannot be reissued in substantially the same form unless Congress passes a law specifically allowing it. Rules and guidance the Bureau may attempt to restore include the CFPB’s arbitration rule and 2013 informal guidance addressing fair lending issues arising from dealer markups in the indirect auto market.
The Bureau also is likely to revisit rulemakings commenced under Director Cordray but finalized later in a manner unsatisfactory to consumer advocates, such as the payday and debt collection rules. The original payday rule would have declared it an “unfair and abusive practice” for any lender to make certain small-dollar loans without first making an “ability to repay” determination. This aspect of the rule was rejected based largely on the cost of its underwriting requirements, which would have made the loans unprofitable and eliminated the availability of small-dollar loans for many consumers. Similarly, the final debt collection rules (parts one and two) left out many provisions favored by consumer advocates, such as required disclosures for attempts to collect on time-barred debt.
Manatt’s Consumer Financial Services team is advising clients on CFPB matters, and with respect to anticipated changes resulting from a Chopra-led Bureau. Please reach out to your contacts at Manatt or any other member of the team if you wish to discuss.