Baltimore Sun

Watchdog head: Fines may not stop firms’ bad behavior

- By Ken Sweet

NEW YORK — The head of the nation’s financial watchdog is having second thoughts about how useful fines are in deterring illegal behavior in the financial industry, saying some companies have gotten so big that the money makes little difference.

In an interview, Rohit Chopra signaled that the Consumer Financial Protection Bureau plans to deploy an array of tools that could limit the ability of a bank or financial firm to conduct business if it violates 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 Barack Obama. The bureau took far fewer enforcemen­t actions during the Trump administra­tion.

Some staff that had left the CFPB under President Donald Trump have returned. The bureau has been adding enforcemen­t staff and has reprioriti­zed issues such fair lending that were set aside during the previous administra­tion.

In the interview Chopra said the changes at the bureau have been necessary because the financial services industry has been transforme­d dramatical­ly. Apple is now one of the biggest payment processors and has launched a credit card, Facebook tried to launch its own digital currency, and Amazon acts a financial middleman between merchants and customers in a way that was unthinkabl­e a few years ago.

There’s also been the rapid growth of buy-now, pay-later companies that offer ways for borrowers to split a purchase into a number of equal installmen­ts, a product that effectivel­y did not exist in the U.S. even three or four years ago.

In some of his earliest

moves, Chopra directed the bureau to investigat­e whether technology companies such as Apple, Amazon and PayPal may be violating privacy laws when it comes to payments. The bureau is also investigat­ing whether buy-now, pay-later companies are causing consumers to take on too much debt, as well as how those loans should be reported on consumers’ credit reports.

“We are trying to make sure that we have a realworld understand­ing of today’s markets, not in light of what happened in the pandemic, but in light of banking has really changed in the past few years,” he said.

Banks and other businesses have taken notice. The U.S. Chamber of Commerce launched an advertisin­g campaign this summer deliberate­ly targeting Chopra, who the business lobbying group has alleged is trying to “radically change” the financial services industry.

Chopra is reevaluati­ng some of the traditiona­l tools at regulators’ disposal. Because of the size of some of these companies, he said that tools such as fines may no longer be sufficient to punish bad actors.

The CFPB is exploring other ways to rein in illegal

practices, ranging from limitation­s on a firm’s growth or banning a company from opening new accounts, as well as imposing fines and liability on individual­s instead of just the company.

One option now being considered for repeat gross violations would be to revoke a bank’s deposit insurance, under the premise it is operating in an unsafe and unsound manner. Revoking deposit insurance would be a crippling blow for any financial company.

“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.

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

“It felt like there were two standards at the FTC: Hammer the little guy when they break the law, but when a big firm engaged in repeat offenses, it felt like nothing happened,” he said.

 ?? SUSAN WALSH/AP 2019 ?? Consumer Financial Protection Bureau Director Rohit Chopra says assessing fines may no longer be enough to deter illegal behavior in the financial industry.
SUSAN WALSH/AP 2019 Consumer Financial Protection Bureau Director Rohit Chopra says assessing fines may no longer be enough to deter illegal behavior in the financial industry.

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