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Transcript: The Path Forward: Consumer Protection with Rohit Chopra

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MS. LONG: Welcome to Washington Post Live. I’m Heather Long, an economist columnist here at the Post.

Today we have a really exciting conversation with the Director of the Consumer Financial Protection Bureau. That's Director Rohit Chopra. He was just confirmed by the Senate at the end of September, but he has already been busy in just four months, turning his attention to everything from overdraft fees to credit reporting to how Big Tech is using our financial data. We look forward to talking about all this and more.

Welcome, Director Chopra.

MR. CHOPRA: Heather, thanks so much for having me.

MS. LONG: Let me just say briefly, we'd love to have some audience questions. You're welcome to tweet us at @PostLive with your insights and questions for the Director.

Okay. Let's start with the big news of the morning. Obviously, inflation is at a 40‑year high, about the highest since people like you and I were born. So tell me a little bit about how does this era of high inflation impact the advice that you give to consumers to protect their finances. Do people need extra protection in an environment like this?

MR. CHOPRA: Well, Heather, we obviously pore over this data to figure out what is it going to do to change the markets that we police. You know, top on the list in the components of inflation we see is related to automobiles. Auto loans outstanding in the U.S. are already well over a trillion dollars, and I expect that we might see that get even higher as more and more Americans are looking to buy cars, but they're finding them to be very expensive.

The Chinese chip shortage and the resulting impacts on the prices of automobiles are very real. So, looking at auto lending, making sure that people can shop around, refinance, and, you know, navigate a competitive market is very key when thinking about the total cost of ownership over a car.

Obviously, there's other components of inflation that may drive increases in credit card debt. I'm very concerned that consumers don't always face a competitive market when it comes to interest rates on their credit card. So this is something we're looking at across the board, and we know that the economy is in a state of transition. There is a lot the Federal Reserve System and the government are going to do to tackle some of these issues, and we will be there too to make sure that consumers and families can navigate this.

MS. LONG: Yeah. That's good to hear. That's a good point about those auto loans, certainly, one of the top drivers of inflation right now with those car prices.

So, if anyone has paid attention at all so far to your tweets and what you've been doing since you've taken the directorship, they've obviously seen your concerns about what you're calling "junk fees," these fees that people get assessed if they're late or that are added on to various bills. Can you just help people understand? Because it's not usually in your economics or accounting textbook. What is a junk fee?

MR. CHOPRA: You know, people are getting sick and tired of this fee creep that is all over the economy. There is more and more line items that are being added to bills that essentially obscure the up‑front price of a product. We see this in so many sectors, whether it's resort fees when in lodging and hospitality, whether it's these surcharges on tickets that people buy, and banking is a bastion of many of these fees. And consumers want to know what is going on with this.

In many cases, these are fees where there's not even a service provided or where the bank or financial institution doesn't even do any work. This is not exactly the sign of a fair and competitive market. We have asked the public to tell us about these fees, their experiences with it, and we also want to understand how do we create marketplaces that truly compete on price and quality.

We recently published some research on deposit account fees like overdraft and insufficient fund fees, and one of the things we found is that this is now a core part of many financial institutions' business. This is not actually how the origins of deposit accounts worked, and so that's why we're looking hard into it.

We've already seen since we've published research on overdraft and insufficient funds fees that many banks are dropping them altogether or curtailing them severely. You know, this is a small step in the right direction, but what we really need to understand is are financial institutions competing on an up‑front price and can consumers shop for it, or are all these junk fees essentially being packed in later in the process?

I don't know. Heather, all of us, I think, have dealt with this in some form or another in part of our lives. In some bill, we have seen these mysterious fees pop up, and people want answers about it.

MS. LONG: Yeah. I want to ask you specifically on those overdraft fees. I read your report. You got a lot of attention, the one in early December specifically on those overdraft fees. As you mentioned, a number of financial institutions have changed their policies in recent weeks. But do you expect to issue some sort of rule, some sort of very clear rule or guidelines that banks and credit institutions would need to follow around overdraft fees?

MR. CHOPRA: Well, we're still looking at all of our options on this. We do expect that we are going to sharpen our supervisory scrutiny of institutions that are addicted to these fees. We obviously are going to look to see if rulemaking will increase competition in the market and create more up‑front pricing. I think all options are on the table.

But let me just share with you that I think a lot of institutions realize that for the long term, they need to transition away from being dependent on these fees. When you look at just their deposit account business, you see that the proportion of fees they're collecting from overdraft and insufficient funds fees has increased over time, and I think they realize that that needs to transition away over the long term.

So some of it‑‑

MS. LONG: Yeah.

MR. CHOPRA: ‑‑we're already seeing some honest, you know, actors out there already staying ahead of the game, and I expect that others will follow.

MS. LONG: Yeah. And I wanted to push you a little bit about do you think that transition is already happening. I certainly talk to a lot of banks. I know you do too, and their pushback on this is, look, in the past 10 years, there's been a 40 percent decline in customers using these fees, that it makes up about 2 percent of the revenue of the banking industry overall. So, you know, it's really come down in the last 10 years, specifically in the last several years.

But you keep calling this a small step. What more do you really want to see here? Do you think overdraft fees‑‑

MR. CHOPRA: What's so funny about‑‑

MS. LONG: ‑‑or overdraft should still exist?

MR. CHOPRA: What's so funny about this is, you know, of course, it's a small portion for a gigantic bank that runs multiple lines of business and across the entire financial sector, but when it comes to the deposit account business, it's big money. What you hope is that many will make the transition. It's also just a key place where so many consumers feel kicked when they're down, and often people ask me, with an insufficient fund fee, what service am I getting? It doesn't feel like a service at all. It just feels like a punishment. So I think that's part of what we have to think about.

Consumer banking is one of many parts of banking, but it has a huge impact on families and the economy, which is why we have to focus on it.

MS. LONG: Yeah. Let me just ask one more along those lines. Do you think overdraft fees should exist at all? Are they providing some needed service, particularly for some lower‑income families who, you know, may be waiting for a check or a paycheck or something to come in and, you know, if they might turn to a payday lender instead of using this insufficient fee fund? Do you think there is a role for overdraft fees going forward?

MR. CHOPRA: Well, it's interesting. I don't think of it as does the agency like or not like something. What we want is fair, transparent, and competitive markets. So what you're seeing some financial institutions move toward is that they are able to actually use technology to determine here's actually the short fall we're going to allow to occur, and people can make it up in a few days, because really so much of‑‑so many of these fees are determined by simple timing mismatches between when your paycheck gets deposited and when certain debits are processed.

This is not necessarily some form of long‑term debt. So what we would like to see is really a market where people can compete.

You know, I think there are institutions out there, and we're hearing more of it, that they're saying, you know, we want to offer a product that is much lower cost that when people can navigate these blips and timing mismatches. So part of it, it's wrong to think that this substitute, you know, for overdraft is just a high fee thing. When competitive forces work, costs go down, consumers are served better, and I'm not really sure that we totally have that in many sectors of banking.

MS. LONG: Got it. So it probably won't surprise you to hear this, but when we told people you were coming to the Washington Post Live, the number one questions we heard from the audience were about cryptocurrency. So I wanted to ask you a little bit. Obviously, there's been a lot of headlines so far this year with the big decline in a lot of the cryptocurrencies wiping out about $1 trillion of wealth. You know these statistics probably as well as I do. A growing number of middle‑ and lower‑income families have been investing in these cryptocurrencies. What role does the CFPB need to play in regulating crypto?

MR. CHOPRA: You know, right now, we have to, I think, advance the conversation on crypto to be a little bit more specific about what we're talking about. There's a big difference in many ways between what the regulators have been talking around stable coins versus, you know, a cryptocurrency that is not tied to the dollar.

I really think that, generally speaking, most of the market today in terms of crypto use is related to speculative trading, but I do think it could scale quite quickly if one of the Big Tech payment platforms starts integrating it and expanding its use. That's one of the reasons I issued a set of orders to Apple, Google, Facebook, and others to understand what is going on with the payment systems that they are building. We have ordered them to produce information about how they will use data from these payment systems, what their plans are in terms of how money will be transacted, and I think there is a big question that a lot of individuals ask me, you know, when they're talking or thinking about crypto. And one of the things that they wonder, who do they go to when something goes wrong?

There's been a lot of issues with theft. There's been recently more news about hacks related to digital wallets. You know, when you swipe your debit card and there's fraud or when there's another‑‑something is stolen, you often as a consumer know you can go to the bank, and in fact, we have laws on the books that create certain fraud protection. So I do tell many consumers, you got to be leery when you don't know who you can turn to.

But, again, right now, most of its use is really in speculative trading. But that's why we're monitoring when will it shift to more consumer use, and right now, we're simply studying the market and the context of overall payment systems. But it's obviously a place that is evolving very quickly.

MS. LONG: Yeah. Do you have a view on which federal agencies should take the lead in regulating crypto?

MR. CHOPRA: Well, the issue is this. People sometimes think, oh, which agency owns something, and that's kind of, in some ways, not the way I think about it.

In many ways, if you take mortgages, mortgages are touched by many different agencies. Whether it's a mortgage‑backed security, it may involve issues related to offering of securities. If it's a mortgage loan, it's obviously covered by many of the laws that the CFPB administers and enforces. So part of it is going to depend on its use case and depend on existing laws that Congress has already passed when it comes to financial oversight, and in some ways, that will determine that.

You know, the panel of regulators and others have obviously been engaged on this. There has been a Treasury report on stablecoin. So I think we will continue to develop that across the government because, ultimately, we want to make sure that our financial system is stable, that consumers are protected, that investors are protected, because that's what the law tells us to do.

MS. LONG: Let me ask one more big picture one because I know you think deeply about a lot of these issues. Obviously, you mentioned that you think a good bit of this crypto is speculation trading right now, and there's obviously a lot of concerns around that. But I'm sure you've also heard the arguments that crypto could potentially really help perhaps lower‑income Americans by providing some sort of payment platform that could be faster or could be lower than, say, using a bank or another traditional financial platform. Do you see some role going forward where crypto could be really helpful to lower‑income Americans?

MR. CHOPRA: You know, I want to separate blockchain‑based technologies versus technology more general in enabling faster and more frictionless payments.

I have long been a proponent that we need to do whatever we can to create faster payments in our country. I worry that we are falling behind China, falling behind many other jurisdictions when it comes to creating that payment infrastructure, and here is why. You know, we have so many people who really could benefit from getting paid, for example, on a daily basis.

It used to be a very cumbersome process to run payroll and hand out paper checks, but technology can make that faster. There are many people, we send billions of dollars in remittances to people's families that many live overseas. All of this can be ways to make things cheaper, but there are many, many different digital payment technologies that can help facilitate that. It's something that I'm watching, but I'm not necessarily certain that we need to think solely about blockchain‑based technologies versus others.

MS. LONG: Okay. And what about a digital dollar? There's been this push for the United States to create its own digital currency. Obviously, China is moving forward in this area, as you know. Do you have any concerns about‑‑from like a consumer perspective about the issuance of a potential digital dollar?

MR. CHOPRA: So, obviously, the CFPB is part of the Federal Reserve System. The Federal Reserve Board has recently issued a report and has solicited a set of questions about digital currencies and central bank digital currencies. So I think we want to let that process play out.

I will say this. I always want to make sure from the consumer protection and competition perspective that individuals can enjoy and have similar levels of protections, you know, regardless of the medium of exchange that they use.

So one of the things the CFPB did many years ago, it enhanced some of the protections between prepaid cards, which varied somewhat, from other‑‑a debit card and other transactions. So that's what I think about a lot in making sure that consumers have the same level of protection, especially when there's errors or fraud.

MS. LONG: Yeah. I want to switch gears and ask you a little bit about what you're doing with Big Tech. As you noted, your agency has been requesting more information from a lot of tech companies. I wanted to specifically ask you. You reached out to a lot of the big companies that have some sort of payment system, like an Apple or a Google or a PayPal, and to try to better understand how these companies are using the data they're getting from their customers and how they're sharing that data perhaps with other partners. What's your biggest concern here with how this data, payment data, may be used?

MR. CHOPRA: Well, you know, we've outlined some of that in the orders that we issued to the Big Tech companies on this.

But, you know, I talked earlier with you, Heather, about fee creep in the economy, but there's also a surveillance creep across the economy too, that more and more firms are tracking us, harvesting our data, monetizing it. And I think there's really a question there of what are some of these giant tech companies doing with it.

I really wonder whether it makes sense for this data to not have a clear set of transparency about how it's being used, I think, when these data are combined into black box algorithms, used for financial purposes, and sometimes people can't even explain the decisions that come out of them. So we want to make sure that we fully understand what is happening with these payment systems.

We all know that part of the business model of companies like Google and Facebook is to harvest as much data as possible from us to feed its behavioral advertising model. They already know every website we go to. They already know our friends who we're connected to, and increasingly, they have our health data. They have intimate data about even where we live and what we say in our homes, and I think if they know details about all of our financial transactions, we need to understand the implications of that.

And we also need to make sure that these firms are not monopolizing more and more and more markets because we cannot have a robust and innovative American economy that produces inventions and better things for families and businesses unless we have fierce competition, and, you know, that is a worry when it comes to how Big Tech is swallowing up more and more power in this country.

MS. LONG: And do you anticipate doing rulemaking in this area? I mean, obviously, you're gathering a lot of information. You're putting a spotlight on it, but do you anticipate getting to a rulemaking stage at some point?

MR. CHOPRA: You know, it's too early to tell right now. One of the things I have asked our staff to do is we need to make sure that we are collecting information, studying and reporting to the public, because sometimes it doesn't just involve our authority. Sometimes it involves others.

We do plan to report on what we're learning in it, and, you know, it may later on involve some policy changes. But regulators cannot be in the dark and cannot be just simply assuming that everything is fine and dandy.

So we have been quite transparent rather than secretly asking for information. We have published the specific questions and interrogatories that we have ordered from the companies, and we have launched public comment periods for small businesses and individuals‑‑

MS. LONG: Yeah.

MR. CHOPRA: ‑‑and experts to weigh in as we inform that inquiry, but it's just‑‑it's too early to tell, Heather.

MS. LONG: I want to ask you‑‑I know you've been very outspoken about wanting to help Americans through this pandemic and this crisis. Obviously, there's been a lot of mortgage forbearance and other types of programs this time around, but as you know, there's been this explosion in online purchases. And with that has come this rise in these "buy now, pay later", sort of the modern iteration of the layaway that many of us grew up with.

You know, your agency has asked for more information in this area of what's going on and how it's being used. Do you see this "buy now, pay later", where people put down a first payment, they get the item, and they're supposed to pay a few more payments‑‑do you see it like a lender what these people are‑‑what this sort of system is doing?

MR. CHOPRA: Well, in some ways, there is some consideration given, and it's paid back over time. So, you know, it is a financial product in that way. People are borrowing.

I'll tell you, Heather, we actually saw very, very rapid adoption in a number of jurisdictions, particularly the United Kingdom, but that's not the only one, of "buy now, pay later", and it seems that we're now seeing that here in the U.S.

I think this past holiday season, not all the numbers are in, but it's going to shatter records in terms of "buy now, pay later" adoption.

There are questions that we have asked about, again, how is this data that is being collected being used, how is credit reporting going to work with all of this. We want to understand this market. We understand that many individuals will find this far more appealing than some of the alternatives.

You especially note that younger consumers, you know, many of them just don't trust the credit card companies. They don't necessarily always want to use a debit card because some of the fees that they're surprised with later. So we recognize that, and that's part of the reason we've asked these questions, just so we can understand some of the business models in more detail.

I expect that more entities are going to get into this business, whether it be from banks and others to perhaps we're going to see more from the Big Tech companies. So we're monitoring the market closely.

But I will say, Heather, part of what we need to do is make sure that we are monitoring these markets because we saw time and time again‑‑and the American public has seen this over and over again‑‑of law enforcement agencies and regulators simply just asleep at the switch, not understanding how markets work, and then being too late when things go badly wrong. And that's just not how we're going to operate.

MS. LONG: Yeah. We're running out of time, so let me try to get in two more questions, one serious and hopefully one a little more fun.

So, on the serious side, you've long been an expert on student loans. You've been one of the foremost knowledgeable people in D.C. on this issue, and you worked on it heavily in your prior stint at the agency. Obviously, since you've come back, there's been some focus already on for‑profit institutions and how they're lending, directly lending to some students, and the conflicts of interest there.

But I'm curious on the bigger picture level. This impacts so many people in America. What more do you want to see around student loans? What more protections need to be in place going forward?

MR. CHOPRA: Oh, we could talk for a whole hour on this, just on this, but look, here's what I think people, many people are dealing with right now is that their student loans did not necessarily get them ahead in life. Many of them have had to deal with a maze of bureaucratic red tape through financial companies to get in a repayment plan they can afford.

We saw millions and millions of defaults over the last 10 years, and that has been devastating to people when it comes to trying to pass an employment verification check, trying to even rent an apartment, let alone buying a home.

So, look, we're going to wait and see on what will be decided when it comes to any loan cancellation. There's already been a lot of work over the past several years to cancel targeted sets of loans, whether it's for public service, whether it's for those who were defrauded, and there's been some other groups.

I am concerned about the start of repayment again. I am worried about that. It is something that we are thinking hard about and preparing for if it does‑‑if it does come in May, but really, we need to rethink this system completely because we really‑‑we created a mess many years ago. We all saw how the abuses from Sallie Mae, from others really set people back rather than got people ahead. I think while there was so much attention on the subprime mortgage crisis in the mid‑2000s, less discussed was the massive kickback scandal between banks and student loan companies and schools.

MS. LONG: Yeah.

MR. CHOPRA: So there's just so much to be done there, Heather, and I think we want to make sure that the 40 million‑plus who are dealing with it, you know, are not left further behind.

MS. LONG: Yeah.

MR. CHOPRA: So, from loan servicing to debt collection to credit reporting, there's just so‑‑there's a long list to fix when it comes to this, this debt.

MS. LONG: Well, we hope to have you back to discuss more of those issues in the spring, but let me just throw one more out. We all know you as this expert in technology and financial regulation, but earlier in your career, I believe you were a Fulbright Scholar to South Korea, if I got that right.

MR. CHOPRA: Right.

MS. LONG: How did that shape you? How did that shape your career?

MR. CHOPRA: You know, it's interesting. There's so many ways in which living abroad does change you, but just to be real specific when it comes to what I do now, which is a lot on financial services, a lot on technology, one of the things that was really clear to me in Korea was that the impact of a debt crisis there was real on people. And a lot of times, people felt like the way in which the economy was rescued made people at the top even richer while everyone else was kind of left in the cold, and I think that raises some real questions that we always have to ask ourselves about how do we keep our financial systems stable, because the risks of mass financial instability disproportionately fall on those who least can afford it. And they get‑‑all of us get really angry that in some cases, the individuals and the politicians who helped cause the financial crisis, there seems to be no consequences for them.

So that was very much something I thought a lot about, and obviously, I have studied quite a bit, not just technology in Korea, but also technology in China and other jurisdictions. And I think that has been a place where, you know, we want to make sure technology is meaningfully making our lives better, not necessarily turning into a surveillance state, not necessarily to reinforce bias and discrimination.

So those were all certainly lessons, but I also, you know, did learn how to cook a lot of Korean dishes as well, so I keep that with me.

MS. LONG: That's great, definitely a huge bonus.

Well, thank you for joining us, the Director of the Consumer Financial Protection Bureau, Rohit Chopra. Always a pleasure to have you.

MR. CHOPRA: Thanks so much, Heather.

MS. LONG: And we invite our audience to stay informed on all of the great programming at Washington Post Live. You can sign up and check out what’s coming next at WashingtonPostLive.com or on the Twitter at @PostLive. Thank you for joining us.

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