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Chopra’s First CFPB Actions Send Warning on Unfair Competition

Oct. 25, 2021, 4:10 PM

Rohit Chopra’s showcasing of his competition regulator experience less than a month into his new job at the Consumer Financial Protection Bureau is no accident.

The CFPB’s first enforcement action under Chopra was a $6 million penalty and consent order with prison financial services company JPay LLC to settle allegations of excessive fees charged for its debit card products. That was followed by questions sent to tech giants, including Apple Inc., Amazon.com Inc., and Google about how they use consumers’ data from digital wallets, payments apps and other financial tech products.

The actions highlight the CFPB’s focus on how dominant financial market players impact, and potentially abuse, consumers with limited options for products and services. These competition-driven issues are likely to drive much of the financial watchdog’s agenda under Chopra’s watch, agency watchers said.

“It certainly seems like a very important paradigm through which they’re going to view their work,” Ori Lev, a Mayer Brown LLP partner and former deputy CFPB enforcement director, told Bloomberg Law.

Lessons Learned

Chopra’s early focus on market dominance issues shouldn’t be a major surprise, given his stint as a former Democratic member of the Federal Trade Commission.

“Part of what we’re seeing here is Rohit’s education at the Federal Trade Commission, where he learned not only about consumer protection, but also the kind of related area of antitrust and competition,” said Lucy Morris, a partner at Hudson Cook LLP and former CFPB deputy enforcement director.

During his Senate confirmation hearings in March, Chopra said that his CFPB would always be watchful that “dominant players should not be able to squelch out competition.”

The bureau doesn’t want a “financial services system where new market entrants cannot get in, cannot compete and win the day,” Chopra told senators.

Chopra’ message has since been reinforced by President Biden July 9 executive order on competition. Biden strongly encouraged the CFPB to work on “open banking” rules that could make it easier for third-party financial companies, including fintechs, to access consumers’ banking data to market competing products.

The order also asked the CFPB to use its Unfair, Deceptive, or Abusive Acts or Practices (UDAAP) rulemaking and enforcement authority within the competitive context.

“There is a belief” that Chopra will find a way to comply with the White House’s recommendation on using the agency’s UDAAP authrority in the context of competition, Isaac Boltansky, director of policy research at investment bank BTIG, said in an Oct 22 note to clients.

Early Focus

Chopra’s focus on competition is evident in his early work at the CFPB.

In an October 19 consent order, the CFPB alleged that JPay abused its market power by charging fees on debit cards issued to people upon release from incarceration. The CFPB noted that JPay had exclusive contracts with corrections departments, making it hard for those released from incarceration to avoid fees.

“In effect, JPay abused its market power created by single-source government contracts for prepaid cards, charging a fee even if customers did not want to do business with JPay,” Chopra said in an accompanying statement.

The CFPB’s Oct. 21 letters to the tech giants, which also included Facebook Inc., PayPal Holdings Inc. and Square Inc., demanded information about how they use, harvest and market consumer data on their payments platforms. Among the CFPB’s concerns were how companies used dominant market positions to push consumers to use their payments apps.

“Payments businesses are network businesses and can gain tremendous scale and market power, potentially posing new risks and undermining fair competition,” Chopra said in an accompanying statement.

The CFPB has long had a focus on protecting consumers where they don’t have a choice in service providers, as in the mortgage and student loan servicing and debt collection markets. The CFPB focused on conduct it’s deemed unfair in those markets, but hasn’t challenged their structure.

What Chopra is doing now is slightly different, in that the CFPB is alleging that companies are using the “unreasonable advantage” of being the dominant player in a market to harm consumers, Lev said.

Just how far Chopra and the bureau can take the theory will likely be determined in court, but applying antitrust to consumer protection is not unheard of, Lev said.

“There’s a reason that the FTC has antitrust authority and consumer protection authority. Those two things do meet,” he said.

To contact the reporter on this story: Evan Weinberger in New York at eweinberger@bloomberglaw.com

To contact the editors responsible for this story: Michael Ferullo at mferullo@bloomberglaw.com; Roger Yu at ryu@bloomberglaw.com

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