FEDERAL GOVERNMENT RELATIONS
CFPB’s Chopra: Credit Unions Should be Subject to CRA Scrutiny
There should be a “level playing field” when it comes to credit unions being subject to Community Reinvestment Act requirements, Consumer Financial Protection Bureau Director Rohit Chopra said Thursday during a hearing of the House Financial Services Committee. The federal government currently does not include credit unions in the CRA, though several states impose CRA-like regulations on those institutions (the CFPB issued a summary of state-level CRA laws last fall).
Chopra, who was testifying as part of the bureau’s semiannual report to Congress, was asked by Rep. Emanuel Cleaver, D-Mo., about the difference in regulatory status, noting that banks have been “demanding” that credit unions be subject to CRA-like requirements for as long as he’s been in Congress – 20 years.
“We have seen many states enact CRA for certain nonbanks…many of those institutions that are not banks are getting a lot of direct or indirect benefits, and we should really see if a more level playing field is appropriate,” Chopra said. “The majority of mortgage lending is now outside of banks and so we should really look hard, whether by Congress or continue by the states.” Chopra added that while banks may not always agree with the CFPB, this is an area where “they would also agree that we should have stronger CRA requirements for other mortgage lenders that enjoy those benefits.”
Biden Nominates FDIC Chair
President Biden Thursday nominated Christy Goldsmith Romero to be chairwoman of the Federal Deposit Insurance Corp. If confirmed by the Senate, Romero will succeed current FDIC Chairman Martin Gruenberg, who recently announced his decision to resign.
Romero has been a commissioner at the Commodity Futures Trading Commission (CFTC) since March 2022. She previously spent 12 years at the Treasury Department, including a decade as the special inspector general for the Troubled Asset Relief Program. Before that, she served for six years at the Securities and Exchange Commission, including as counsel to two SEC chairs, Mary Schapiro and Christopher Cox. She is also a former adjunct professor of law at Georgetown University Law Center and University of Virginia Law School, where she taught courses in securities regulation, cryptocurrency regulation and federal oversight.
Biden also announced three other nominations. CFTC Commissioner Kristin Johnson was nominated as assistant secretary for financial institutions at the Treasury Department. SEC Commissioner Caroline Crenshaw was nominated to a new term on the commission. Hawaii Insurance Commissioner Gordon Ito was nominated to be a member of the Financial Stability Oversight Council.
Senators Introduce Bill to Change CFPB Funding Structure
Republicans on the Senate Banking Committee Thursday introduced legislation that would require the Consumer Financial Protection Bureau to be funded through annual appropriations by Congress. The CFPB is unique among federal agencies in that its funding comes directly from the Federal Reserve based on a request from the bureau’s director. The U.S. Supreme Court earlier this year upheld the bureau’s funding structure.
The bill – S. 4521 – from Sen. Bill Hagerty, R-Tenn., Ranking Member Tim Scott, R-S.C., and seven additional committee Republicans would subject the CFPB to the congressional appropriations process.
The bill follows the April 2023 introduction and markup of legislation in the House Financial Services Committee that would place the CFPB under annual appropriations by Congress and institute additional reforms at the bureau. That legislation – H.R. 2798, the CFPB Transparency and Accountability Reform Act – is led by Rep. Andy Barr, R-Ky.
CFPB's Chopra Sees Need for More Consumer Data Protection
Consumer Financial Protection Bureau Director Rohit Chopra told a Senate committee hearing that further legislation to protect consumer data is needed and urged Congress to take action. Chopra was critical of banks and fintechs seeking to "monetize sensitive financial transaction data" for advertising. JPMorgan Chase, one of the bank's Chopra accused, refuted the claims, saying no transaction or personal information is shared.
Trade Groups Ask CFPB to Consider Small Firms as it Finalizes Section 1033 Rule
The American Bankers Association, American Fintech Council and the Community Development Bankers Association sent a letter Wednesday to the Consumer Financial Protection Bureau urging them to consider the unique position of small banks and fintech firms in complying with the requirements outlined in its proposed rule on personal financial data rights. Last year, the CFPB issued a proposed rule to implement Section 1033 of the Dodd-Frank Act, which requires businesses to make a consumer's financial information available to them or a third party at the consumer's direction.
"The technical complexity of Section 1033 operationalization, the need to understand the context of the ecosystem's historical development, and the tangled spiderweb of overlapping laws and existing entity-specific solutions render the [compliance] challenge especially arduous," the associations wrote, adding that several sections of the proposed rule are "unclear and inconsistent" and would benefit from "practical implementation advice." The groups also asked that the CFPB incorporate stakeholder feedback as it finalizes the rule to "reduce ambiguity" and to ensure "an effective rollout that limits disruptions to consumers."
The trade groups referenced the Small Business Regulatory Enforcement Act, which requires that agencies "explain the actions a small entity is required to take to comply," including a "description of actions needed to meet the requirements of a rule, to enable a small entity to know when such requirements are met." They also provided a list of issues that should be included in a guide specifically catering to the needs of smaller firms.
"It is imperative that the CFPB have consistent expectations for the ecosystem and not establish a bifurcated compliance regime for substantive provisions of the rule that are applicable to both small and large entities," the groups wrote.
FOMC Maintains Federal Funds Rate Range
The Federal Open Markets Committee said Wednesday that it would maintain the target range for the federal funds rate at 5.25-5.5%. Fed officials' interest rate forecast predicts only a quarter-point cut by the end of 2024. Earlier this year, the Fed predicted a total of three quarter-point cuts.
The committee noted that economic activity has continued to expand at "a solid pace," job gains have been strong and unemployment remains low. The committee noted that inflation has eased over the past year but remains "elevated." In recent months, progress toward the committee's 2% inflation objective has been "modest." Fed officials also forecast that inflation will end the year higher than initially predicted.
CFPB Issues Rule Proposing the Removal of Medical Bills from Credit Reports
The Consumer Financial Protection Bureau Tuesday proposed a rule to prohibit lenders from considering medical debt and remove medical bills from most credit reports. The bureau said the goal is to increase privacy protections, credit scores and loan approvals and prevent debt collectors from using credit reporting "to coerce people to pay." The CFPB began the rulemaking in September last year, and it is expected that the bureau may issue additional proposals to implement other credit reporting changes the CFPB discussed at that time.
The CFPB's proposed rule would prohibit credit reporting agencies from sharing information about medical debts with lenders and prohibit lenders from making lending decisions based on medical information. In 2003, Congress restricted lenders from obtaining or using medical information, including information about debts, through the Fair and Accurate Credit Transactions Act. Federal agencies subsequently issued a special regulatory exception to allow creditors to use medical debts in their credit decisions. The CFPB proposes reversing this policy. In support, the CFPB cited its own research claiming that information about medical debt was less predictive of creditworthiness than other types of debt. Notably, that report did not find medical debt had no predictive value.
The proposed rule would define "medical debt information" to exclude debt owed to third-party lenders and instead apply to debt the consumer owes directly to a healthcare provider, including after such debt has been sold on the secondary market. As a result, the rule would not prohibit the use or reporting of information about debts for medical care charged to credit cards, including medical credit cards explicitly offered for the payment of medical services. The CFPB issued an RFI last year seeking input on medical payments products.
Hsu: Banks Should Enact Proper Controls at Each Stage of AI Adoption
For banks interested in adopting artificial intelligence, establishing clear and effective controls between each phase of implementation of the technology could help ensure that innovations are helpful and not dangerous, Acting Comptroller of the Currency Michael Hsu said last week at a conference on AI and financial stability. Hsu pointed to the development of electronic trading technology as a useful mirror for charting banks' growing use of AI. In both cases, the technology is first used to produce inputs to human decision-making, then as a co-pilot to enhance human actions, and finally as an agent executing its own decisions on behalf of humans, he said.
"The risks and negative consequences of weak controls increase steeply as one moves from AI as input to AI as co-pilot to AI as agent…Before opening a gate and pursuing the next phase of development, banks should ensure that proper controls are in place and accountability is clearly established," Hsu said.
Hsu also discussed the need for "shared responsibility" for problems resulting from faulty technology implementation, saying most of the responsibility currently falls on the companies using AI rather than the companies that provide it. He said the shared responsibility model currently used for cloud computing could provide a framework for AI responsibility. In cloud computing, responsibility for operations, maintenance and security is divided among customers and cloud service providers depending on the level of service a customer selects.