CFPB’s Chopra Proposes Structural Remedies for Repeat Offenders

In a speech at the University of Pennsylvania Monday (March 28), Consumer Financial Protection Bureau (CFPB) Director Rohit Chopra urged regulators and enforcers, including the CFPB, to step up their game against repeat offenders — and in particular, against large financial institutions.

The tone of the speech was hard, and it didn’t spare anybody involved in the financial markets. From the beginning, it accused companies of not doing enough to comply with the rules, but it also had a message to regulators for years of “lax enforcement.”

Chopra also referred to his own days at the university, saying, “Today, my classmates, students and other alumni are now financiers, convicted felons and everything in between. While here, I viewed financial regulators as clueless and often corrupt lawyers and economists.” 

He explained at length how big financial companies managed to escape unscathed from wrongdoings, and how regulators were happy to settle most of these cases with big fines that hit the headlines, but ultimately did little to change the company’s behavior.

In addition to naming some financial companies, Chopra used the example of Facebook and its violation of some privacy provisions. Chopra was a commissioner of the Federal Trade Commission (FTC) at that time, and he criticized how the company walked away with a $5 billion fine that did little to change Facebook’s data harvesting practices.

As a result, Chopra now wants to lead new efforts to increase enforcement and deterrence for big firms and small firms alike. While the CFPB is still planning to rely on penalties, some of the new proposals resemble the remedies antitrust authorities have adopted against Big Tech firms.  

The CFPB has plans to establish dedicated units in the supervision and enforcement divisions to enhance the detection of repeat offenders. For serial offenders of federal law, the CFPB will be looking at structural remedies as these carry-on lower enforcement and monitoring costs. According to the CFPB, the current legal framework enables the agency to seek “limits on the activities or functions” of a firm for violations of laws, regulations and orders.  

The remedies that Chopra would like regulators to use against repeat offenders include: 

1. Caps on size or growth, and limitations on transferring or acquiring assets.  
2. Bans on certain types of business. 
3. Divestitures of certain product lines. 
4. Limitations on leverage or requirements to raise equity capital. 
5. Revocation of government-granted privileges. 
6. Revoke or limit access to Federal Deposit Insurance Corporation (FDIC) deposit insurance. 
7. For nonbank institutions, collaboration with state licensing officials to suspend licenses or even to liquidate corporate assets. 
8. Disqualification orders and lifetime bans to individuals.  

However, the CFPB cannot carry out this plan on its own. The consumer agency has the power to enforce federal consumer financial laws, but it doesn’t have comprehensive authority over the structure of the financial system.

As such, Chopra has called on other regulators, like the Federal Reserve, the FDIC and the Office of the Comptroller of the Currency (OCC), to cooperate and use their authorities to revoke licenses or impose other remedies if needed.  

Structural remedies may be clear-cut fixes to some problems, but regulators around the world have resisted using them as they may create unintended consequences — and might not even fix the underlying problem. Nonetheless, Chopra seems to be poised to use all the tools in his enforcement toolbox. 

Read more: CFPB’s New Procedural Rules May Be a Game-Changer  

This speech came a few weeks after the CFPB introduced new procedural changes that may facilitate the agency to pursue enforcement actions. It will also give Chopra more powers to rule on the merits on the cases and not only on procedural issues.