Rohit Chopra heads the Consumer Financial Protection Bureau (CFPB), the federal agency tasked with protecting consumers and their money. The CFPB in recent years has sued student loan servicers, investigated redlining — or discriminatory lending — in mortgages and other loans, and is now focusing on "buy-now-pay-later" firms, payment apps, and data harvesting by Big Tech.
Chopra, a Voorhees, New Jersey, native and Wharton grad, spoke last week at the Federal Reserve Bank of Philadelphia's sixth annual fintech conference.
"I loved living near my family during graduate school," he said. "I was at Wharton when the financial system was collapsing. I wondered, where the hell were the regulators? How many of them were auditioning for jobs at the companies they were regulating?"
Chopra sat down with The Inquirer to talk about the potential for fraud with instant payments, bias in lending algorithms, and why he's keeping an eye on car-loan debt. Questions and answers have been edited for length and clarity.
Personal data protection
Q: Under your leadership, the CFPB has a new focus on payment systems, including real-time payment apps created by tech giants such as Apple, Facebook, and PayPal. Why now?
A: When Facebook proposed Libra [as a virtual currency in 2019], that was a wake-up call to regulators about how a virtual currency could rapidly scale in a way that would introduce questions about money-laundering, consumer fraud, and identity theft.
What we've done is order Amazon, Apple, Alphabet's Google, Facebook, PayPal, and Square, and other firms to provide us with data about plans for payments systems.
Virtual currencies will scale into consumer payments if they're riding the rails of one of these big tech company payment systems. We are payments regulators. We are seeing more instant payments are leading to more fraud. It's impacting older adults and members of the military.
Q: What about buy-now-pay-later finance companies? Are you concerned about data mining?
A: Yes. Two big Chinese technology companies, Alipay and WeChat Pay, now have detailed payment data on hundreds of millions of people, and they can combine that with your web browsing history and geo-location.
We're lurching in that direction here. A few firms are collecting so much payment data about us. What happens when they use that for personalized pricing, or to advantage their own businesses, what data are they taking from consumers?
Banks usually just collect date and time, amount, and merchant data from your purchase. But when you tap your phone, what is being collected? It could be what you last searched for, what you purchased.
In the future, when people shop in the metaverse, they could know everything about you when you walk in — you may see a different store, with different prices based on behavior or your emotional state. This is why protecting and safeguarding our financial data limits a lot of abuse.
Q: Are buy-now-pay-later apps — such as Affirm, Afterpay, Klarna and Upstart — and others harvesting our data?
A: That's what we're trying to find out in the orders we've issued to them. How are they harvesting, how they monetize, what are they planning? What we're seeing in the U.S. is a race for control over the digital wallet.
Right now big tech companies have integrated a digital wallet into mobile operating systems, such as Android and Apple. But it's beyond tapping. You put in your bank card information to pay. So that may give them very deep insights into your whole financial life. They can see that with other data they're collecting, such as your location, your social map.
In China, the tech companies create social scores to be able to make determinations about what kind of person you are. We have to be very careful about Big Tech knowing all of our personal transaction information. We want there to be lots of new, frictionless payments, but not at the expense of ... abuse and misuse of our personal data.
Redlining and predatory lending
Q: The CFPB was part of the redlining lawsuit against Philadelphia's Trident Mortgage, a subsidiary of Berkshire Hathaway HomeServices Fox & Roach Realtors. It settled for $24 million for allegedly denying home mortgages based on race. Are you looking at other discriminatory practices?
A: We have been investigating a number of mortgage lenders for illegal redlining. Our action against Trident was our first settlement involving a nonbank mortgage company. It used to be banks were the primary source of mortgages. Latest data show about three-quarters of mortgages come from nonbank lenders.
In the Trident action, there was a host of evidence ... we uncovered of exclusion of certain neighborhoods in Philadelphia, in Camden, and in Wilmington. They were penalized and have to redress the Philly area for their wrongdoing.
Q: Are there other investigations like Trident?
A: Yes. Earlier in my term, we ordered Trustmark National Bank to pay a penalty and correct its actions around redlining. Sometimes we're doing an examination, or we've issued subpoenas. We have a broad set of tools. Right now, we want to make sure every qualified applicant can get a mortgage, especially with the housing market the way it is.
We're looking at digital redlining, too — or algorithm discrimination.
Q: What is digital redlining?
A: Lending algorithms can reinforce bias. There's discrimination baked into the computer code. We're bringing on technologists and other experts to look at that. We've issued new policies saying that if you deny someone credit, they must get a clear statement of reason as to why, and not just a fancy algorithm as an excuse. If you can't make sense of your AI or machine learning algorithm, why it's giving an adverse decision, you can't use it.
That really is the future of lending, and a challenge for law enforcement when it comes to redlining. It may not be geographic boundaries, it may be using personal data to make inferences about you, potentially to not show you offers at all.
Q: Are fines enough of a deterrent?
A: In general, we've seen many large financial institutions repeatedly violate the law in a rinse-repeat cycle. Because they simply write a check, that's not necessarily deterring them. So we're looking at a whole host of remedies going beyond a fine. We'll still order redress for victims. But I've asked CFPB staff to look at other ways to rein in repeat offenders.
Existing law allows for the Federal Deposit Insurance Corp. to suspend FDIC insurance for repeat offender banks; we look at how we could put limits on opening new accounts or requiring them to fundamentally reform certain business practices.
The Federal Reserve imposed an asset cap on Wells Fargo, which constrained their ability to grow. Their individual execs were charged by regulators as well. Individual accountability and growth restrictions tend to get the attention in corporate boardrooms.
Student loans
Q: How do you foresee the student loan crisis resolving?
A: Depending on what President [Joe] Biden decides, we need to [determine how the] 40 million [people with student loans can] successfully repay. And make sure it doesn't stymie their ability to buy a car or a house. We need to look at the entire system. There were very severe abuses, especially by the for-profit schools. A lot of people were cheated. In some cases, we've gotten victims of fraud [their] loan discharged. But I don't think we're close to getting this fixed.
Inflation
Q: Will the nation's higher inflation and higher interest rates change what the Consumer Financial Protection Bureau investigates?
A: The changing interest rate environment has a big effect on consumers. They're paying higher rates on their credit cards. We want to make sure people can switch and refinance credit card debt more easily.
I'm very concerned about the run-up in auto-loan debt. The price of new and used cars increased substantially. People are borrowing more. We are looking at illegal repossessions and how people can refinance their auto-loan debt to lock in lower rates.
Most people haven't experienced this type of inflation for 40 years. We get a lot of complaints from consumers. (Consumers can submit at the website: consumerfinance.gov/complaint.) Mortgage rates have gone up; people have trouble buying a home. Rental markets are tighter. Many people miss out on a refinancing cycle. If you can't take advantage of it, that could mean hundreds of dollars a month. I want to prepare now to make sure refinance volumes are very high and more equitable.
