This week, the U.S. Supreme Court heard a case brought by groups representing payday lenders, who argue that the way the Consumer Financial Protection Bureau is funded is unconstitutional. Most of the justices seem skeptical of the claims, but a decision is not expected until next year. CFPB Director Rohit Chopra says the agency will continue to work while the case is being decided and that the U.S. Solicitor General gave a “stellar argument.”
One of the big issues for the CFPB at the moment are big tech and payment systems. Chopra says “the U.S. is really lurching towards a market structure that’s more like we see in China. One that is fueled by a lot of surveillance and even censorship. One that actually mixes up banking payments with commercial activities.” Chopra adds that the U.S. has a history of “trying to separate banks from the real economy, so that they are supporting other businesses, not steering towards those businesses.” Chopra points to big tech businesses trying to create their own currencies as a one way the tradition is being upended. Chopra also stressed the need to make sure that these systems are not “trafficking fraud” and how regulators need to take a close look at stablecoins.
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Video Transcript
JENNIFER SCHONBERGER: This week, the Supreme Court heard oral arguments in a challenge by payday lenders against the constitutionality of the funding structure of the Consumer Financial Protection Bureau. For reaction on this, I want to bring in Rohit Chopra, director of the Consumer Financial Protection Bureau, here in an exclusive interview. Director Chopra, thank you so much for joining me. It’s great to see you.
ROHIT CHOPRA: Good to be with you, Jennifer.
JENNIFER SCHONBERGER: So your reaction to the oral arguments this week? The justices seem to be a bit skeptical.
ROHIT CHOPRA: Well, look, I think the whole financial markets are much better off with the CFPB there. I think if the CFPB had existed in the early 2000s, we wouldn’t have had a subprime mortgage crisis. I think we saw a really stellar argument from the Solicitor General of the United States, and the CFPB is going to continue to do its work on medical debt, on data privacy when it comes to our transactions, to junk fees, and so much more. So the business of the CFPB continues.
JENNIFER SCHONBERGER: If the court were to invalidate your funding structure and cast doubt on a wider set of regulations beyond payday loans, what would that really mean for financial consumer protections and particularly, mortgages?
ROHIT CHOPRA: Well, one of the things that the Solicitor General discussed was the mortgage industry. You know, many mortgage lenders tell us how much they depend on the clarity from the rules that have been put out, in many cases, over a decade ago. I think many in the mortgage industry are already facing so many challenges.
When it comes to the higher interest rate environment, we see refinancing activity and loan origination activity go down. And this would add even further uncertainty and really cause a lot of headaches for consumers too.
JENNIFER SCHONBERGER: And switching gears, you made remarks this morning on the US payment system. You say that big tech is taking advantage of the financial system, threatening the divide between banking as well as the economy. What are you looking at as far as new regulations, potential new rules, for the US payment system and big tech?
ROHIT CHOPRA: Well, one of the things that I think we’re seeing in the market is that the US is really lurching toward a market structure that’s more like what we see in China, one that is fueled by a lot of surveillance and even censorship, one that actually mixes up banking payments with commercial activities. And we’ve had a long tradition in our country of trying to separate banks from the real economy so that they’re supporting other businesses, not steering to those businesses.
And obviously, big tech firms are, in many cases, trying to come up with their own currencies. We saw this with Facebook and its doomed Libra project several years ago, and more are coming up with those ideas. So we need to make sure the payment system is fast and safe for consumers, but really fair for everybody, not just big conglomerates.
JENNIFER SCHONBERGER: So then what are you looking at as far as new rules in that space?
ROHIT CHOPRA: Well, one, we’ve talked about the need to make sure that those consumer payments firms are not really trafficking fraud. Fraud is a big issue when it comes to consumers and new forms of payments. We also talked about how all the regulators need to take a look at these private digital dollars that are sometimes referred to as stablecoins. We need to make sure that they actually are stable.
We’re looking at ways to restrict how some of these payments firms can harvest, surveil, and monetize our personal data. Later this month, we’re going to be proposing some rules when it comes to open banking and personal financial data rights so that Americans can have confidence when they share their financial data that those companies aren’t reselling it or trafficking it for purposes that the consumer never even wanted.
JENNIFER SCHONBERGER: You’ve already done a report on big tech. You found that Google and Apple are serving as chokepoints to the US payment system, preventing smaller players from coming in and hurting innovation. And you mentioned this morning that you’re set to issue a supplementary order on big tech to get more info. What are you looking for specifically there?
ROHIT CHOPRA: Well, I think we want to know, really, what are their business practices and plans for new currencies? And what information are they using? One of the things we released last month was an analysis of the regulations that some of these big tech firms impose on users of their payment systems.
We found that Apple, for example, blocks other apps from using near-field communication or the tap-to-pay features. It’s worrisome when we don’t have a real open and decentralized system that consumers and businesses and new types of startups in the financial sector can all use to get ahead. So we’re going to be continuing to look really carefully at how that data harvesting and surveillance is working.
JENNIFER SCHONBERGER: You said the US payment system is careening towards a Chinese-style system. I’m curious what that means for CBDC in your view and the role of privacy concerning that. Would you be for or against one?
ROHIT CHOPRA: Well, you know, there’s many different ways you can have digital currencies both issued publicly or privately. What I really focus on is, what’s going to happen to the consumer? What’s going to happen to their data?
And what we see in China in WeChat Pay, Alipay, these are really ubiquitous services in China. We think that there’s an enormous amount of surveillance and even certain types of censorship that go on through these payment platforms. And I think in the US, we’ve really tried to create systems that are fair, open, and private at the same time when it comes to the use of our money.
So there’s a lot to think about there, but I do want to make sure that we are really looking at the risks posed by big tech firms trafficking more and more of our transactions.
JENNIFER SCHONBERGER: I know you’re worried about a run, potentially, on stablecoins and what that could mean for the economy. Specifically, we’re wondering about how you view Tether because Tether is such a black box. And I’m wondering what concerns you most about that and if you know who the corresponding bank is in the US for tether. And does it worry you that Tether has been buying up more US treasuries than perhaps some countries, like Spain?
ROHIT CHOPRA: Well, I don’t want to comment specifically on one stablecoin. All I’ll say is in general, we have seen many of those coins were primarily used for speculative trading in crypto markets. The question on the table is, to what extent are any of those coins going to be used in consumer payments?
It’s been widely publicized that PayPal is looking to create their own private currency or stablecoin. We obviously have the experience with Libra. But there is really a lot of risks to consumers and to the financial system if a widely used digital coin is not actually stable at all.
We have seen some of the consequences about this throughout our history. So one of the things that we have described is that there are some authorities on the books today, including through the Financial Stability Oversight Council, where that may be a way to get more safeguards and frankly, Jennifer, more transparency as to what is backing some of those coins.
JENNIFER SCHONBERGER: Are you looking at PayPal’s crypto that they’re looking to issue? Does that worry you at all? Are you circling that at all?
ROHIT CHOPRA: Well, I think all the regulators are taking a hard look at any new proposal for a large-scale alternative private dollar. It raises a huge number of questions about consumer fraud, about privacy, and even our national security. Look, I think everyone saw the warning signs from Facebook’s Libra project in 2019.
We want to take a hard look at any type of proposal that’s out there. Obviously, PayPal, which, you know, operates also the Venmo product, has had a number of run-ins with the law when it comes to their compliance with consumer protection and privacy laws. So obviously, it’s going to require a close look from all the regulators.
JENNIFER SCHONBERGER: And before I let you go, Director, I know that you sit on the board of the FDIC, which, along with the Federal Reserve, has put out new proposed capital requirements for Basel III. The banks vehemently oppose these proposals. They say it could hurt credit availability in the United States and push banking into unregulated areas like the shadow banking system. Is the FDIC at all considering softening certain areas of these capital proposals?
ROHIT CHOPRA: So look, I think at the end of the day, we all need to remember what really happened when banks were on the brink of failure, especially around the time of the financial crisis. The answer ended up being lots and lots of bailouts. I don’t think we can have a system where banks and bank executives can roll the dice where they get all the winnings, but then taxpayers and our economy are holding the bag when their bets go badly.
We’ve got to make sure that if they are taking insured deposits, that they have some real skin in the game. We’ve proposed some rules. We’re going to take lots of public feedback on it. But of course, I have never met a single banker that ever wanted to hold more capital. So it’s no surprise that they will not want to do this. But we’ve got to think of our country and the economy too.
JENNIFER SCHONBERGER: And, Director Chopra, thank you so much for your insight. It’s so appreciated. I hope you’ll come back and see us again soon.
ROHIT CHOPRA: Thanks so much, Jennifer.
