June 09, 2022

Half a Year and Counting: A Reaction to the First Months of Director Chopra's Fair Lending Regulatory Agenda

Emily Honsa Hicks, Jason M. Cover

In September 2021, Rohit Chopra was confirmed as the third Director of the Consumer Financial Protection Bureau (CFPB). After receiving his bachelor’s degree from Harvard as well an MBA from Wharton, Director Chopra worked in management consulting with McKinsey & Company, previously served as a Federal Trade Commission (FTC) Commissioner, and was the CFPB’s first Student Loan Ombudsman. Senate Banking Committee Chair Sherrod Brown (D-OH) praised Director Chopra as a “bold and experienced” nominee who would return the agency to its “central mission.” Senator Elizabeth Warren (D-MA) offered similar comments, hailing Director Chopra as a “terrific” pick to lead the CFPB. Accordingly, Director Chopra is widely viewed as an assertive regulator who will seek to leverage the full authority of the CFPB, and he has assembled a leadership team that includes several CFPB alumni and veterans.

The early days of the Chopra CFPB have been especially active, with the agency issuing marketing monitoring orders to several Big Tech players about their payments businesses and inquiries directed to leaders in the rapidly growing “Buy Now Pay Later” space. The agency has also issued research reports on overdraft fees and a Request for Information on so-called “junk fees” charged by financial institutions. However, fair lending issues are widely perceived to be on the forefront of Director Chopra’s policy priorities.

In that vein, and consistent with his focus on Big Tech, data privacy, and algorithmic bias at the FTC, Director Chopra has made crystal clear that fair lending—and in particular, algorithmic discrimination—and other practices that adversely impact communities of color will be a top agency priority. For example, in remarks announcing the settlement of a traditional redlining case, Director Chopra focused largely on “digital redlining.” He specifically called out companies that gather “massive amounts of data and use it to make more and more decisions about our lives, including loan underwriting and advertising” and encouraged data scientists, engineers, and others with “detailed knowledge of the algorithms and technologies used by those companies and who know of potential discrimination or other misconduct” to report potential fair lending violations to the CFPB. These comments have led many to believe that Director Chopra may potentially pursue new or novel fair lending theories related to artificial intelligence, machine learning, and related underwriting with algorithms.

Similarly, the Biden Administration’s focus on racial equity and the racial wealth gap could lead Director Chopra to focus his efforts on a variety of fair lending concerns, including collections and services issues, foreclosures, evictions, and credit reporting, or issues specifically stemming from the pandemic, such as potential discrimination in the issuance of PPP loans. And many industry observers believe the CFPB will pursue somewhat controversial “disparate impact” theories to pursue fair lending violations.

Indeed, Director Chopra has also made clear that the agency will focus on large companies and market players, seek to pursue a broad range of remedial measures—including individual liability where appropriate—to redress consumer harms, and partner closely with state authorities in enforcing consumer financial protection laws. The latter likely includes exploring ways to expand the CFPB’s authority to enforce federal consumer protection laws and access remedies such as the civil monetary penalty funds authorized under the Consumer Financial Protection Act.

Additionally, comments by the CFPB at an industry fair lending conference in November of 2021 restated its goals of using its authority to narrow the racial wealth gap and ensure markets are clear, transparent, and competitive. In addition to the areas noted above, the comments indicated an intent to specifically focus on:

  • Appraisal bias in home valuation;
  • Special purpose credit programs or “SPCPs”;
  • Small business lending and the implementation of Section 1071 of Dodd-Frank;
  • Limited English Proficiency consumers; and
  • Unfair and discriminatory practices, including illegal practices outside of the ECOA and the HMDA.

If his initial actions and related commentary from the CFPB are any indication, Director Chopra will pursue a bold new approach to CFPB rulemaking, supervision, and enforcement in the areas of fair lending and beyond.

At the ABA Business Law Section’s 2022 Hybrid Spring Meeting, the CLE program “There’s a New Sheriff in the Beltway: Potential Areas of Focus of Director Chopra’s Fair Lending Regulatory Agenda” (now available for viewing as on-demand CLE) identified and discussed Director Chopra’s fair lending and anti-discrimination priorities and how they may impact financial services providers of all stripes, from traditional financial institutions to fintechs and Big Tech players. A panel of experts offered their views on Director Chopra’s priorities in this space, including their predictions for supervisory, enforcement, and rulemaking activity on AI-based underwriting, digital marketing, fair lending compliance in the PPP program, and small business lending; opportunities for collaboration with state and federal authorities; and potential legal headwinds and opportunities.

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    Emily Honsa Hicks

    Old Republic Title Insurance Company

    Emily Honsa Hicks serves as Underwriting Counsel for Old Republic Title Insurance Company, and is a Young Lawyer Liaison to the Fair Access to Justice Subcommittee. Her practice areas include real property, consumer financial services law, and mediation. Emily holds a B.A. from Hiram College, an Executive Certificate in Negotiation from the University of Notre Dame, and a J.D. from Cleveland-Marshall College of Law. She is an American Bankers Association Certified Regulatory Compliance Manager, a William K. Thomas Inn of Court Barrister, and serves on boards including The Refugee Response, Chagrin Valley Little Theater, and Les Delices.

    Jason M. Cover

    Troutman Pepper Hamilton Sanders LLP

    Jason’s practice focuses on federal and state consumer lending and payments laws, including those that apply to installment loans, vehicle-secured loans, lines of credit, unsecured loans, credit cards, point-of-sale finance, and timeshare/vacation finance.