CFPB chief sets regulatory agenda on junk fees, medical debt and AI

CFPB chief sets regulatory agenda on junk fees, medical debt and AI


Rohit Chopra, director of the Consumer Financial Protection Bureau, testifies during a Senate Committee on Banking, Housing and Cities Affairs hearing on April 26, 2022.

Tom Williams | Cq-roll Call, Inc. | Getty Images

Rohit Chopra has ambitious plans for the Consumer Financial Protection Bureau to combat artificial intelligence threats, medical debt reporting, exorbitant credit card fees and other so-called junk surcharges.

But that agenda is being jeopardized by a legal argument aimed at the agency’s funding structure, which a federal appeals court ruled unconstitutional last year. When the CFPB was formed 12 years ago in response to the global financial crisis, Congress chose to fund it through Federal Reserve Board of Governors transfers rather than budget appropriations.

Republican lawmakers have been planning the agency’s concept for years. Among his harshest critics is Kentucky Rep. Andy Barr, who has called the CFPB “the most unregulated and irresponsible agency in the entire federal government.” He accused Chopra of acting “unilaterally and arbitrarily” without proper oversight.

The Supreme Court is expected to rule on the appeal of the lower court’s ruling in early October.

The potential “avalanche of litigation” and the associated uncertainty in the marketplace are top concerns for Chopra, who was named CFPB director in October 2021.

“This is not the first time the CFPB has come under these attacks,” Chopra said in an interview with CNBC this week. “And it turns out it’s continuing to do its important work for the public.”

With this in mind, Chopra laid out some of the CFPB’s key policy goals for the coming months:

consumer debt

According to Chopra, consumer debt will reach or exceed the trillion-dollar mark this year, with credit card debt and auto loans making up most of that amount.

“During the pandemic, new and used car prices have skyrocketed, and many people have taken out large car loans to do so,” Chopra said. The agency will target unnecessary foreclosures in the auto loan market, he said.

Chopra also expects the resumption of student loan payments in October to impact consumer credit markets.

“We’ve already done an initial analysis that suggests there are a number of student borrowers who are already having problems with their credit card or car loans,” he said. “So we’re assuming that it could potentially get worse.”

The CFPB, in partnership with the Department of Education, will reach out to student loan servicers responsible for payment schedules and collections to promote alternatives to the standard repayment schedule, such as an income-based model that allows borrowers to pay on time and avoid delinquency.

“We also speak frequently with the attorney generals and state regulators to make sure these student loan service providers are living up to their end of the bargain,” Chopra said.

medical debt

Chopra said tens of millions of Americans are struggling with medical debt. According to CFPB reports, one in five people is affected by a total of $88 billion in unpaid medical bills currently being collected.

According to a 2022 report by the Kaiser Family Foundation, total US medical debt was over $195 billion in 2019, with approximately 100 million adults owing anywhere from about $500 to over $10,000.

“Medical debt has become a problem for Americans,” Chopra said. “They’re often stuck in all sorts of bureaucratic hoops between their insurance company (and) the hospital.”

The crisis is compounded by collection agencies adding medical debt to credit reports as a coercive tool. Chopra said the CFPB “researches carefully whether it is appropriate for medical debt to be included on your credit report.”

The agency has already ordered these companies, as well as credit bureaus, to refrain from collecting, paying, or reporting invalid medical debt. Equifax, TransUnion And experiential have complied with applicable policy changes.

junk fees

The CFPB recently imposed a fine Bank of America approximately $150 million for unlawfully double charging some of its customers for insufficient account balances. The measure is the agency’s latest move to meet the Biden administration’s goals of reducing junk fees, or unnecessary surcharges, on goods and services.

“We want to make sure these illegal junk fee practices are eradicated from the market,” Chopra said. “A junk fee is often something that’s imposed when you don’t get service at all, you didn’t want it, or the price isn’t set in a way that is fair competitive.”

The agency’s crackdown on junk fees has prompted some policy changes at big banks, he added.

“Many of them are no longer dependent on junk fees and are making their fees much more reasonable,” Chopra said. “I think we’ve seen changes over the last year and a half that are causing fees to go down by billions of dollars every year.”

GOP members of the House of Representatives have criticized Chopra’s credit card fee policy. Rep. Blaine Luetkemeyer, R-Mo., said the CFPB has “no authority” on the matter because junk charges are not a legal term.

“Because there is no such word out there. There is no authority. So I think we have to fight back as a group,” said Lütkemeyer, who sits on the House Financial Services Committee.

Artificial intelligence

Chopra also worries that artificial intelligence could adversely affect banking for consumers.

For example, when companies use AI to screen loans, they run the risk of non-compliance if the system doesn’t provide an “adverse action” alert that clearly explains why the loan was declined, Chopra said.

“If the algorithm or AI can’t clearly explain how it makes decisions when it’s just a black box, lenders really can’t use it or they won’t be able to comply with the basic protections that are already in place in the law.” , he said .

Banks that have switched from call centers to automated customer service models also risk violating federal safeguards, he said. Chopra said the CFPB is reviewing training methods for chatbots related to sensitive personal information.

“It’s very clear that a lot of this is going to change banking, and we want to make sure we’re taking steps today to ensure the technology is evolving in a way that complies with the law,” he said.


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2023-07-20 18:21:43