The government’s financial watchdog is looking for consumer inflation stress

Rohit Chopra heads the Consumer Financial Protection Bureau, the federal agency whose mission is to protect consumers against “abusive and deceptive financial practices”.

As director of the CFPB, he closely monitors hot spots that could potentially cause another financial crisis.

With inflation having a significant impact on the household budgets of millions of Americans, Chopra focuses on how financial products and services are used or misused.

Chopra said housing and mortgage debt are at the top of her watch list right now.

“There are a lot of metro areas where first-time home buyers are almost on lockdown,” he said. “They’re competing with private equity buyers, they’re competing with cash buyers.

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“I think that’s cause for concern as to how we can get people into their first homes,” Chopra said.

Signs of mortgage over-indebtedness

“We want to make sure that we have high-quality services that don’t lead to avoidable foreclosures, and really make sure that we keep the housing market stable and resilient, even through different economic cycles,” Chopra said.

Still, he said he saw signs of stress in many Americans who are again making the mortgage payments they cut off as part of Covid relief at the height of the pandemic.

“We’re seeing increases, as expected, in distress and seizures, but it’s definitely not at a panic level,” Chopra said. “But we are monitoring this closely to make sure these services are serving borrowers well.”

Chopra said consumers are also taking on more credit card debt, increasing their balances and turning to fast-growing “buy now, pay later” products to pay for their purchases. The Federal Reserve found that more than half of consumers who used buy it now and pay later last year did so because they otherwise couldn’t afford the purchase.

Understanding the extent of consumer debt

Director Rohit Chopra speaks with CNBC Senior Personal Finance Correspondent Sharon Epperson at CFPB headquarters in Washington, D.C.

Stephanie Dhue

Chopra said BNPL’s growing popularity could darken the picture of overall consumer debt levels. “Under typical credit card laws and regulations, credit card companies must follow certain basic protocols to ensure that you can repay the loan,” he said.

“The problem is that when they use buy now, pay later for more and more expenses, including groceries and other in-store purchases, they can rack up a lot of debt,” Chopra said, adding that the CFPB has ordered major BNPL companies to provide more information about business plans and practices, as well as how they plan to share information with credit reporting agencies.

“Many mortgage lenders and auto lenders are also concerned that they don’t get the full picture of consumer obligations when making loans,” he said. “This is something that is being observed by all corners of the consumer credit markets.

“The key thing is to make sure we don’t create systems that send people into spirals of debt that they can’t ultimately repay,” he added.

Alert consumers to crypto risks

Francesco Carta Photography | time | Getty Images

Providing a basic level of consumer protection to consumers using cryptocurrency for transactions is another issue the CFPB is addressing. A new Federal Reserve survey found that only 3% of adults used cryptocurrency for purchases or money transfers in 2021, but of those transactional cryptocurrency users, 13% did not have an account. banking.

Chopra says that although crypto is primarily used for what he calls “speculative trading” for investors, he recognizes that a growing number of consumers are using crypto to buy something or make a payment.

The CFPB and the Federal Deposit Insurance Corporation work together to ensure that crypto companies and other businesses do not misrepresent deposit insurance and mislead consumers into thinking they benefit the same protections as banks.

“A lot of people have compared some advances in crypto to advances in subprime mortgages over a decade ago,” Chopra said. “We want to make sure people understand the costs and the risks and get help when things go wrong.”

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