NEW YORK (AP) – The head of the nation’s financial watchdog is weighing in on how useful fines are in deterring illegal behavior in the financial industry, saying some companies have gotten so big that the money they make little difference.
In an interview with The Associated Press, Rohit Chopra noted that the Consumer Financial Protection Bureau plans to roll out a series of tools that could limit a bank or financial firm’s ability to do business if they break the law.
In less than a year at the helm of the CFPB, Chopra has moved to turn the agency back into the assertive regulator it was under President Obama. The office took far fewer enforcement actions during the Trump administration.
Some of the staff who had left the CFPB under President Trump have returned. The office has been adding enforcement staff and re-prioritizing issues like fair lending that were sidelined under the previous administration.
Chopra, in a video interview with The Associated Press, said the changes at the office have been necessary because the financial services industry has transformed dramatically. Apple is now one of the largest payment processors and has a credit card, Facebook tried to launch its own digital currency, and Amazon acts as a financial intermediary between merchants and customers in a way that was unthinkable just a few years ago.
There has also been a rapid growth of buy-now, pay-later companies, which offer ways for borrowers to break up a purchase into a small number of equal installments. It’s a product that effectively didn’t exist in the US three or four years ago.
In some of his first moves, Chopra led the office to investigate whether tech companies like Apple, Amazon, PayPal, Square and others may be violating privacy laws when it comes to payments. The bureau is also investigating whether buy-now-pay-later companies are driving consumers into too much debt and how such loans should be reported on consumers’ credit reports.
“We’re trying to make sure we have a real understanding of the markets today, not in light of what happened in the pandemic, but in light of how banking has really changed in the last few years,” he said.
Banks and other businesses have taken notice of the office change. The US Chamber of Commerce this summer launched an advertising campaign deliberately targeting Chopra, who the business lobby has alleged is trying to “radically change” the financial services industry.
Chopra is reevaluating some of the traditional tools available to regulators. Because of the size of some of these companies, he said tools like fines may no longer be enough to punish bad actors.
The CFPB is exploring other ways to curb illegal practices, ranging from limiting a firm’s growth or barring a firm from opening new accounts, as well as imposing fines and liability on individuals rather than just the company.
One option now being considered for repeated serious breaches would be to revoke a bank’s deposit insurance, on the premise that it is operating in an unsafe and inappropriate manner. Revoking bank deposit insurance would be a devastating blow to any financial company.
In April, the CFPB sued TransUnion for allegedly engaging in deceptive marketing of credit products, in violation of a 2017 enforcement order. The bureau also sued one of TransUnion’s executives as a party of its lawsuit, which seeks monetary fines and a court order to stop the practices.
“We’re shifting our enforcement focus to these larger actors who knew something was a violation of the law, but made a calculated decision to violate that law,” Chopra said.
TransUnion has denied violating the 2017 order and is fighting the CFPB’s lawsuit.
Chopra’s comments partly reflect her experience as one of the Democratic seats on the Federal Trade Commission under President Trump. During his tenure, Chopra was outspokenly critical of the regulator’s history of major investigations into anti-competitive behavior that ultimately ended in an insignificant fine against a large company.
In 2019, the FTC fined Facebook $5 billion for the social media company’s serious privacy violations. Although the fine was the largest ever imposed by the agency, it represented less than 10% of the company’s total sales that year and less than a third of the company’s annual profits. In the interview, Chopra reiterated that he believes the FTC’s actions did little to curb Facebook’s bad practices.
“It seemed like there was a double standard at the FTC: hit the little guy when they broke the law, but when a big company engaged in repeat wrongdoing, nothing seemed to happen,” he said.
Chopra made public reference to need for more forms of execution that just one fine Wednesday after a company owned by Warren Buffett’s Berkshire Hathaway was found to have illegally discriminated against potential black and Latino homeowners.
“We will continue to seek new resources to ensure that all lenders meet and comply with their responsibilities and obligations,” Chopra said.
Other financial regulators have also taken a multifaceted approach. Regulators have fined Wells Fargo billions of dollars for a variety of wrongdoings, including pressuring its employees to illegally open millions of fake accounts to meet unrealistic sales goals.
But the Federal Reserve went further. Wells has remained under the constraints set by the Fed since 2018, unable to grow its business until the central bank deems its cultural issues resolved.