Protecting the Consumer: A Conference at the University of Utah with CFPB Director Rohit Chopra

On October 11, 2024, the Utah Project, supported by a grant from the Institute for New Economic Thinking, hosted an array of experts from academia, consumer groups, and the Consumer Financial Protection Bureau (CFPB), with a keynote from CFPB Director Rohit Chopra, to discuss the future of consumer financial services law.

The thinking behind the conference was to highlight the ways in which consumer finance touches so many critical segments of the economy—from artificial intelligence to junk fees to public health—and to explore how market forces, when left unfettered, often lead to suboptimal outcomes for the consumer of financial services.

• The public health panel explored how our financial system, including processes like foreclosure eviction and incarceration, might exacerbate poverty and lead to health impacts, as well as how consumer finance interacts with modern medicine;
• The junk fees and predatory lending panel showcased leading thinkers on the question of whether banks were exploiting their most vulnerable customers through hidden charges, including whether technology has changed the business models of predatory lending, and if so, what should be done about it;
• The embedded finance panel explored how firms are coupling whatever it is that they are selling with some financial services product, whether a payment mechanism, a loan, insurance product, or even an investment vehicle, and the associated consumer protection challenges.
• The artificial intelligence panel delved into the questions of how algorithms and machine learning are used in finance, including in our trading systems and the use of chatbots to advise investors, and how to design regulations to deal with AI-related issues such as blackbox, transparency, and shadow banking.

The range of issues discussed underscored the broader need for regulation in financial services, and the conference framed these challenges as deeply interconnected.

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Director Chopra has been in the news of late, as his agency promulgated a host of consumer protections around banking—from monitoring Big Tech’s payment services to capping credit card late fees, from requiring banks to share customer data with other technology firms to reining in the sale of consumers’ personal data by data brokers.

Some of the CFPB’s rulemakings have proven controversial in the banking industry and among libertarian thinkers. For example, two of President-elect Trump’s closest advisors, Elon Musk and Vivek Ramaswamy, have called for the elimination of the CFPB. Marc Andreessen, another prominent Silicon Valley entrepreneur with interests in financial services, accused Mr. Chopra of facilitating debanking. By subjecting data brokers to the Fair Credit Report Act, however, the CFPB’s proposed rule on December 3 would make identity verification more accurate, which would prevent bank customers from being debanked. This proposal follows on the heels on another CFPB rule covering popular digital payment apps on November 21 that also would prevent debanking, by ensuring the customers would not lose access to their payment app without notice.

During his fireside chat, Director Chopra spelled out his vision for the future of the agency. He began his address by looking backward, to see how far the regulatory landscape has shifted:

I’m glad that people get to study law right now in a time of just extraordinary change where we have really I think closed the chapter of the 40 years from where law has really been weaponized to make the powerful people in our society more powerful, where our courts are weaponized against those who thought they would get equal justice under the law and now we have a center here at Utah that is actually putting together all of the different ways in which our laws and regulations can make sure that people are treated fairly not just as consumers but as people in the workplace as people who start businesses and across all of their lives we use different words for them patients employees consumers these are all human beings that we want the law to serve rather than to make their lives worse so I think we’re combining antitrust and consumer protection, and even exploring things like healthcare and technology to create I think a more coherent vision of what is it that we want the laws in America to do.

Chris Peterson asked Director Chopra, when the agency elects to intervene in the financial marketplace to address unfair or deceptive conduct, how does the Director decide which tool in the regulator’s toolkit—from enforcement to supervision to rulemaking—he would use. Director Chopra said:

One of the things that I think has been very important about the origins of the CFPB, which actually trace back about 100 years ago, when we find that when very large companies had too much control in our country, we created a set of agencies to also identify what the hell is going on inside of firms and report out what is going on and identify where the harms are. So if you look at really what we have done in terms of, say, junk fees, we have really made sure we’re documenting it, showing who is affected by it, use existing law to make sure we’re articulating clear guidance, updating rules, bringing lots of enforcement actions, and also examining other firms at the same time. It’s also about enlisting all of our states and all of our other regulatory agencies to work in the same direction as us. As you think about what do you want to do to regulate and to hold firms accountable, you will always need to be litigation-ready. You will always need advanced investigative techniques. But most importantly, you have to know what is going on in the marketplace.

In responding to industry opposition to new rulemaking, Director Chopra explained how regulations and future guidance can reduce the legal expenses of financial firms:

I hope all of you who are law students also think about how lawyers can actually be great stewards of the rule of law they can be officers of the court. They can also be leeches on the economy. And one of the things that we know is that lawyers often want to optimize on how many hours they can bill. So what I when I talk to you know people in boardrooms people in C-suites when we tell them the answers of how we will apply the law, how we plan to supervise and enforce for it, that’s fewer lawyers that they need to pay for and that they can focus on their real business. I see that as a big win where there are issues we are always talking to firms to figure out how do you answer the questions the best you can with the laws you have. Some of our laws are very old; they didn’t necessarily think about every different permutation but they thought about values and principles about what we should espouse … We take a lot of pride that we have been able to answer and form a view on many major questions involving the digital economy and the future that has given firms the ability to at least have some answers on how we might interpret a law rather than having lawyers shake them down for their own hypotheses.

On the justification of capping credit card late fees, Director Chopra explained a common market failure leading to high prices:

If you look at modern pricing theory and practice in boardrooms across the country, it’s a lot easier to try and make more money by disguising your pricing or making it more difficult to figure out in some other ways rather than actually creating a better product or service. So we see this in all parts, especially of the digital world, where it’s like more tricky to cancel anything, everything is now a subscription, and I actually think this way in which many firms have approached pricing has actually really undermined how we want the competitive market to work. We found [late] penalties were a massive profit engine, which is exactly what Congress didn’t want. Congress wanted people to look at the interest rate, look at the material terms, and then be able to decide about … You know, behind closed doors, a lot of banks will admit “Yeah this this gets out of hand.” And the way it often works is they set certain targets for business unit heads they try and find ways to pump up profits in slower times and our goal is really to make that price clear upfront and that people can really have a fair market.

The conversation then turned to how banks can profit off the backs of consumers in financial distress during a high-interest-rate environment. Director Chopra discussed the issue of pass-through:

The credit card market has serious problems. Many people when they are revolving on credit card loans, meaning carrying a balance from month to month, something is happening in their life. They don’t necessarily switch to a low rate card. Many people feel that they’re primarily choosing based on rewards. Those rewards cards have huge APRs relative to other ones. But when they start getting in debt, the treadmill gets faster and faster. And we saw as the Fed was increasing interest rates this last cycle, boy did the credit card issuers raise rates by way more than that even when adjusting for other factors. So it’s important that we figure out with people are paying $120 billion in interest in fees, what can we do to kind of ring out those anti-competitive profits? And that’s just one of the things we’ve tried to approach the fee issues on so many other different financial products, and I think it is already delivering tens of billions of dollars to the country.

On December 5, the CFPB announced that it returned $1.8 billion to consumers subjected to allegedly deceptive bait-and-switch advertising by a group of credit repair companies. President-elect Trump has yet to name a replacement for Director Chopra; whoever it is will have large shoes to fill.