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New CFPB leader may have ‘deleterious’ impact on ABS market

By Jennifer Kang
25 Jan 2021

Rohit Chopra has been named the director of the Consumer Financial Protection Bureau, putting an end to three years of deregulation and kicking off an era of aggressive consumer protection. The ABS market is keeping a close eye on Chopra’s key plans, which include restoring the bureau’s ability to start its own investigations and establishing a new credit reporting agency.

Chopra is a close partner of Elizabeth Warren, who worked closely with the senator when the Consumer Finance Protection Bureau (CFPB) was established in 2011. The current Federal Trade Commission (FTC) Commissioner, Chopra has been particularly vocal about enforcement on student lending and the tech industry.

“Although we are unlikely to see a return to the CFPB’s regulation-by-enforcement approach, Chopra will no doubt lead a bureau likely to be far more aggressive on the enforcement front than it has been for the past four years, policing matters that cause not just consumer harm but also harm to consumer markets and consumer capital,” said Benjamin Saul, a banking partner at Bryan Cave Leighton Paisner.

Kathy Kraninger, who had served as director of the CFPB since 2018, resigned on January 20, though her term was expected to continue until 2023. David Uejio will take over as acting director and serve until Chopra’s appointment is confirmed.

The CFPB took its foot off the pedal under Kraninger, and regulation was almost “nonexistent” under Mick Mulvaney, former acting director, recalled a consumer ABS market participant.

“Mulvaney froze a hundred investigations for a year,” the market participant said. “Literally nothing was happening.”

As Chopra takes the reins, more enforcement could lead to market uncertainty and cause a “deleterious impact” in the market overall, sources said. And as market participants try to adjust to new policies, the compliance reaction will trigger various ripple effects through the industry.

One of the key initiatives that will return to the CFPB will be restoring the fair lending unit and ramping up enforcement of fair lending issues, such as the payday lending rule and policies around mortgage or student loan servicers.

Another plan that market participants are keeping a close eye on is the creation of a reporting agency, which will develop its own algorithms and credit scores that minimise discriminatory judgements.

The goal would be to provide a better credit story for the average person, particularly for racial and ethnic minorities. In practice, that can be something like reducing the amount of time a negative piece of information can remain on a consumer’s credit report.

“Priorities for Chopra align nicely with Biden’s priorities, which I would describe broadly as tying financial regulation with good social policy, such as minimising discrimination,” said Saul. “A good example would be providing a new public credit reporting agency in the CFPB itself.”

By Jennifer Kang
25 Jan 2021