Cordray Denies CFPB Involvement in Operation Choke Point

Tuesday, June 10, 2014 – Today, Director Richard Cordray of the Consumer Financial Protection Bureau (CFPB) appeared before the Senate Banking Committee, presenting the semi-annual report for the nation’s consumer financial watchdog. Director Cordray was asked by committee members about student debt refinancing, the collection of identifying data by the Bureau, and building renovation costs for the Bureau’s headquarters. Additionally, Senators asked about the status of rulemaking for pre-paid cards (due at the end of summer), the small dollar credit market, and forced arbitration. The Director was briefly asked about the Bureau’s involvement in Operation Choke Point.” Director Cordray denied active CFPB involvement in the Department of Justice’s efforts, and confirmed that he had given no advice to DOJ in that regard.

Key discussion points during today’s hearing included:

• Mortgages and Data Collection – In hisopening statement, Chairman Tim Johnson (D-SD), mention his continued concern with the mortgage industry. However, there was only a tacit connection to the topic during questioning as senators—both Republican and Democrats—lamented the Bureau’s collection of personal data. Senators said that information such as social security numbers and religious affiliations was being collected. In response to that concern, Director Cordray said that he was also extremely anxious about the way in which this information is collected and secured. Cordray went on to say that without it, there is little that the CFPB can do in regard to investigation of fraud or illegal activity, and that their collection has more to do with the state of the raw data obtained via private databases.
• Payday Lenders – Several senators including, Sens. Mike Crapo (R-ID),Sherrod Brown (D-OH), Heidi Heitkamp (D-ND), and Jeff Merkley (D-OR), used their time to question Director Cordray about the small dollar credit market, or payday lenders. Sen. Crapo directly asked about the CFPB’s involvement in DOJ’s so-called “Operation Choke Point.” The Senator said he is concerned about news reports that businesses such as payday lenders and retail arms sellers are being targeted by the government via payment facilitator restrictions. Director Cordray said that they Bureau determines entities that are breaking the law and committing fraud, especially online, and then uses its policing authority to enforce the law. Director Cordray said that he has not been coordinating with DOJ on any efforts by the government to pressure banks into discontinuing business arrangements with legitimate businesses. Sen. Heitkamp, a former attorney general, said that she would like the CFPB to tread carefully on rulemaking for payday lenders; rules about payday loans are expected out in September.
• Student Debt – Sen. Robert Menendez (D-NJ) noted the current issue with the continuation of student debt when a student becomes disabled or killed. Menendez said that there is no clear process for dealing with such circumstance. There was also a concern voiced by Sen. Brown and Sen. Heitkamp that loans are being sent directly to collections agencies following the death of a co-signer despite exemplary repayment by the student.
• Forced Arbitration – Sen. Elizabeth Warren (D-MA) asked Director Cordray to comment on the terms that would be necessary in the Bureau’s forthcoming study to subsequently issues rules about the arbitration practices that most commercial entities require consumers to consent to. Director Cordray was very politic and said that the Bureau will thoroughly review the study when it is completed at the end of 2014.

If you are interested in additional details about this hearing, please contact Jessica Golibart (jgolibart@thornrun.com).