CFPB Director Rohit Chopra defended his policy-making through advisory opinions and other agency documents as an exercise in transparency, responding to charges that he makes unilateral decisions without industry input.
The US Chamber of Commerce and industry trade groups representing banks, debt collectors, and other financial companies have raised concerns that the Consumer Financial Protection Bureau is using the documents to lay out significant policy changes without providing companies and others affected by the changes with an opportunity to comment.
Those concerns are misplaced, Chopra said in a July 22 interview. By putting out a series of advisory opinions, changes to examination manuals, and other guidance documents, the CFPB will be able to avoid one of the complaints that most dogged the agency under the leadership of former Director Richard Cordray—that it was regulating through enforcement, he said.
“The way in which an agency addresses that is to try and offer much more transparency about how we would think about exercising our authorities,” Chopra told Bloomberg Law.
Chopra said he’s simply using available tools to define regulatory parameters for companies. Increased transparency should prevent companies from feeling blindsided by supervisory concerns or enforcement actions, he said.
Among the hottest button issues for the industry is the CFPB’s March update to its examination manual to boost discrimination enforcement. The agency said it would challenge discrimination in account openings, international remittances, and other non-lending activities and products not covered by the Equal Credit Opportunity Act (ECOA) or other fair lending laws.
The Chamber of Commerce, American Bankers Association, and other industry trade groups have already laid out their concerns about using the examination manual to make what they consider to be a drastic rereading of the CFPB’s Unfair, Deceptive and Abusive Acts or Practices (UDAAP) powers.
Industry complaints, however, go beyond the examination manual changes to UDAAP.
The CFPB under Chopra, who was sworn into his role in October 2021, has issued four advisory opinions on issues, including how consumer credit reporting companies like
State regulators have been the beneficiaries of a pair of CFPB interpretive rules under Chopra. One of the rules affirms state attorneys general and financial regulators’ power to bring complementary enforcement actions alongside those brought by the CFPB.
The CFPB made those changes without subjecting them to notice and comment. Industry groups say that was the wrong approach.
The CFPB is interpreting existing laws and regulations but in novel ways, in many cases, that warrant giving industry and others a chance to weigh in, said Bill Hulse, the vice president of the US Chamber of Commerce’s Center for Capital Markets Competitiveness.
“If they’re coming up with things that look like rules and aren’t going through notice and comment, that’s where we take issue,” he said.
The Chamber of Commerce and the banking industry trade groups have publicly called on the CFPB to rescind the examination manual changes. Hulse said that his organization and its allies have yet to determine when—or if—they’ll sue.
Even in cases where industry complaints might not lead to litigation, regulation by guidance could lead to increased costs and uncertainty, said Reed Smith LLP partner Lisa Ledbetter.
It’s easy to rescind a guidance document or advisory opinion upon a change in leadership, but companies still must comply, she said.
“As a practical matter, it would require a company to have a change in its conduct moving forward,” Ledbetter said.
Change in Direction
Consumer advocates have largely shrugged off industry complaints over the CFPB’s policy changes through the use of guidance and other documents that don’t require notice and comment.
Other regulators, including the Federal Reserve, the Federal Deposit Insurance Corp., and the Office of the Comptroller of the Currency, all use these types of documents.
The Securities and Exchange Commission and other market regulators also use no-action letters and guidance that shape market expectations without using notice and comment.
And the tools aren’t new. Some used by Chopra were established during the Trump administration.
In 2019, former CFPB Director Kathleen Kraninger created the advisory opinion and no-action letter programs.
Among the CFPB’s first actions after her departure—but before Chopra’s confirmation—was to issue an interpretive rule that allowed the agency to resume supervising companies for compliance with the Military Lending Act. The supervision had stopped under Trump.
The CFPB under Chopra has also rescinded other Trump-era administrative actions, including no-action letters issued to online lender Upstart Network Inc. Also canceled was a CFPB order allowing the earned wage access company Payactiv Inc. to conduct certain operations under the agency’s now-defunct regulatory sandbox program. The regulatory sandbox was part of Kraninger’s innovation program.
The CFPB is also undertaking several formal rulemakings, including one that could potentially lead to changes to credit card late fees.
The CPPB is “effectively using various tools. It doesn’t just need to rely on its rulemaking authorities,” said Rachel Gittleman, the financial services outreach manager at the Consumer Federation of America.
“Under the last director, we saw plenty of guidance, but that guidance was used to provide leniency to companies and extend safe harbors,” she said.
Companies that continue to have issue with the CFPB’s use of its available tools can always take the agency to court, Chopra said.
“They’re totally able to do that,” he said.