Democrats are urging the Consumer Financial Protection Bureau to put racial equity at the core of its agenda, using action on mortgages, student loans and even its own hiring to help close a wealth gap.
House and Senate Democrats said in interviews that the agency under President Joe Biden should return to a more aggressive policing of discrimination in the consumer financial sector. One House Democrat has even introduced a bill that would revive and expand undercover CFPB investigations of lending practices.
The Democrats’ comments are not only an indication of what they expect from the next CFPB director, but also a signal of what he can expect — if he’s confirmed — when he appears before Congress.
Biden’s nominee, Rohit Chopra, is awaiting a Senate vote. Democrats will have to discharge his nomination from committee before voting on confirmation because the Senate Banking panel was deadlocked in the March vote to advance him.
“A strong agency is going to help us take on structural racism,” Senate Banking Chairman Sherrod Brown, D-Ohio, said in an interview. “We know that there is all kinds of discrimination in people’s dealings with financial institutions. … The people that need the help the most, the people that have been hurt the most, are more likely to be women and more likely to be people of color.”
Established by the 2010 financial overhaul, the CFPB polices financial institutions’ dealings with consumers. The agency has jurisdiction over banks, credit unions, securities firms, payday lenders, mortgage and student loan servicers, and debt collectors.
Under President Barack Obama, the agency’s aggressive enforcement agenda returned $11.9 billion to 29 million consumers, according to CFPB data.
Enforcement actions plummeted by 80 percent under President Donald Trump, according to a 2019 study by the Consumer Federation of America that used a 2015 baseline for the comparison. The consumer advocacy group found that the average financial relief for consumers fell 96 percent during that same period.
The CFPB spent the first half of Trump’s term embroiled in a legal fight over whether the president could dismiss the director without cause. The Supreme Court ultimately ruled that he could, paving the way for Trump to install Kathleen Kraninger as the agency’s head.
Biden dismissed Kraninger when he took office and nominated Chopra, a CFPB alumnus and now a commissioner on the Federal Trade Commission.
Democrats and progressive groups say they hope Chopra will restore the CFPB reputation earned under Obama.
‘Bootstraps are loans’
Linda Jun, senior policy counsel for the Americans for Financial Reform, said the CFPB’s focus on lending products makes it pivotal in the Biden administration’s efforts to narrow the racial wealth gap and predicted that equity will be at the core of the bureau’s work.
“There will be a lot of attention to the racial wealth gap and why that exists,” she said. “What is available for borrowers of color? And how does that compare to what other borrowers are being offered? That question, that comparison, that research probably applies to almost every product the CFPB supervises.”
Texas Democrat Al Green, a member of the House Financial Services Committee, which has jurisdiction over the CFPB, said ensuring a fair shot at borrowing money is key to closing the racial wealth gap.
“In this country, we expect people to pull themselves up by their bootstraps, and bootstraps are loans,” he said in an interview. “Loans, good lending can make a great difference for a good many people. This is important because, as you know, there’s the wealth gap that we’re trying to close.”
Green introduced a bill that would establish an office within the CFPB to test compliance with fair lending requirements by sending out undercover investigators of different races, genders and sexual orientations — but with identical qualifications — to apply for loans. They would compare results to uncover unfair treatment.
“It’s not going to be a silver bullet, but it is another tool that can be used to prevent invidious discrimination,” Green said. “Once it’s known that this is taking place, I think many loan officers, many institutions will adopt policies that will give greater protection for those who are being discriminated against.”
The CFPB used “mystery shoppers” in at least one enforcement action under Obama. The agency secured a $10.6 million settlement in a 2016 case brought against BancorpSouth for alleged lending discrimination against Black borrowers; the bank did not admit guilt as part of the settlement.
The agency did not disclose how often it uses undercover operatives.
David Vladeck, a professor at Georgetown Law School who previously worked on consumer protection at the FTC, said the CFPB could resume its use of undercover testers without the OK from Congress.
However, Green’s bill, by formalizing the practice through an agency office, would help ensure that the agency conducted this type of investigation regardless of who sits in the Oval Office, Vladeck said in an interview.
“I think that the congressman’s intent is to ensure that, whichever party is in charge, the CFPB actually does the law enforcement work that Congress enacted it to do,” he said. “If you look at the enforcement statistics for the last four years, CFPB has basically been missing in action.”
Rep. Ed Perlmutter, D-Colo., said the agency will also have to ensure that new technologies in lending don’t perpetuate old discrimination.
“The agency is going to have to watch these things very closely,” he said in an interview. Perlmutter leads the House Financial Services Subcommittee on Consumer Protection and Financial Institutions.
“What I am worried about is, as we add more machine learning and artificial intelligence to the process, that the algorithms and the computer processing aren’t shaded in a way that discriminates,” he added.
Perlmutter said student loans are likely to be another focus for Chopra, who oversaw the CFPB’s student loan work first as assistant director and later as the first student loan ombudsman from 2010 to 2015.
Democrats have argued that the student debt burden is a racial justice issue. Black students are more likely to take out loans than their white peers, and the loans tend to be bigger and take longer to pay back, according to research by the Brookings Institution.
Perlmutter said it will be up to Congress to do something about reducing the burden on borrowers, but policing student loan servicers will fall to the CFPB. He said he preferred lowering interest rates on loans rather than canceling debt.
“So we have some responsibility on the legislative side,” he said. “The bureau has responsibility on making sure that the servicing of the loans is aboveboard.”
Diversity at the CFPB
Ohio’s Brown said the CFPB, like other financial regulators, needs a staff that’s more representative of the consumers it defends, if it’s going to carry out its mission fairly.
“If it’s all people who look like me sitting around the room, you don’t have a very wide-ranging perspective on a social problem or economic problem,” he said.
Of more than 300 political appointees to lead federal financial regulators since the New Deal, only 10 have been Black, according to a 2020 study by Georgetown Law professor Christopher Brummer, who hosts CQ Roll Call’s Fintech Beat podcast.
“Part of the problem in this town — and Biden actually has attacked it better than any president I’ve seen — is so many of the people that run this town and run this government came from Ivy League schools, and they’re mostly white, and they’re mostly men,” Brown said. “That’s changing dramatically under Biden — more people graduated from state universities, more women, more people of color.”
Nominating Chopra, a person of color, is a start, but “we need to do much better,” Brown said.