Chief Overseer: Fines Can’t Stop Bad Business Behavior


NEW YORK (AP) — The head of the country’s financial watchdog has doubts about the usefulness of fines in deterring illegal behavior in the financial sector, saying some companies have gotten so big that money does little of difference.

In an interview with The Associated Press, Rohit Chopra reported that the Consumer Financial Protection Bureau plans to deploy a range of tools that could limit a bank or financial company’s ability to do business if it breaches the law.

In less than a year as head of the CFPB, Chopra decided to return the agency to the asserted regulator it was under President Obama. The bureau has taken far fewer enforcement actions under the Trump administration.

Some staff who had left the CFPB under President Trump have returned. The office added law enforcement personnel and reprioritized such as fair lending that had been shelved under the previous administration.

Chopra, in a video interview with The Associated Press, said the office changes were necessary because the financial services industry has been radically transformed. Apple is now one of the biggest payment processors and owns a credit card, Facebook has attempted to launch its own digital currency, and Amazon acts as a financial intermediary between merchants and customers in ways unthinkable a few years ago. years.

There has also been the rapid growth of buy-it-now, pay-later companies, which offer borrowers ways to split a purchase into a small number of equal installments. This is a product that did not exist in the United States three or four years ago.

In some of his early moves, Chopra asked the bureau to investigate whether tech companies such as Apple, Amazon, PayPal, Square and others were violating payment privacy laws. The bureau is also studying whether buy-now-pay-later companies are pushing consumers into too much debt, as well as how such loans should be reported on consumer credit reports.

“We’re trying to make sure that we have a real understanding of the markets today, not in light of what happened during the pandemic, but in light of the fact that the banking industry has really changed over the over the past few years,” he said.

Banks and other businesses have taken note of the office change. The U.S. Chamber of Commerce launched an ad campaign this summer deliberately targeting Chopra, who the business lobby group says is trying to “radically change” the financial services industry.

Chopra is re-evaluating some of the traditional tools available to regulators. Due to the size of some of these companies, he said tools such as fines may no longer be enough to punish bad actors.

The CFPB is exploring other ways to curb illegal practices, from limiting a company’s growth to prohibiting a company from opening new accounts, to imposing fines and liability. individuals rather than just the company.

One option currently being considered for repeat serious breaches would be to revoke a bank’s deposit insurance, on the assumption that it is operating in a dangerous and unhealthy manner. Revoking bank deposit insurance would be a crippling blow to any financial firm.

In April, the CFPB sued TransUnion for allegedly deceptively marketing credit products, in violation of a 2017 enforcement order. The bureau also sued one of TransUnion’s executives in its lawsuit. , who is asking for fines as well as an injunction to put an end to the practices.

“We’re shifting our focus from law enforcement to those bigger players who knew something was a violation of the law but made the calculated decision to break that law,” Chopra said.

TransUnion has denied violating the 2017 order and is fighting the CFPB lawsuit.

Chopra’s comments partly reflect his experience as one of the Democratic seats on the Federal Trade Commission under President Trump. During his tenure, Chopra was openly critical of the regulator’s history of major investigations into anticompetitive behavior that ultimately resulted in an inconsequential fine against a major company.

In 2019, the FTC fined Facebook $5 billion for the social media company’s numerous 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 have done little to stem Facebook’s malpractices.

“It felt like there were two standards at the FTC: Hammer the little guy when he breaks the law, but when a big company commits repeated violations, it felt like nothing happened” , did he declare.

Chopra has publicly referred to the need more application forms that one beautiful Wednesday after a company belonging to Warren Buffett’s Berkshire Hathaway was convicted of unlawfully discriminating against potential black and Latino homeowners.

“We will continue to seek new remedies to ensure that all lenders respect and fulfill their responsibilities and obligations,” Chopra said.

Other financial regulators have also taken a multifaceted approach. Regulators have fined Wells Fargo billions of dollars for various bad practices, including pressuring its employees to illegally open millions of bogus accounts to meet unrealistic sales targets.

But the Federal Reserve went further. Wells has remained under constraints set by the Fed since 2018, unable to expand its business until the central bank deems its culture issues resolved.


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