Business

Director of Government Financial Watchdog Rohit Chopra Looks for Signs of Stress as Consumers Increase Debt to Deal With Inflation

Stefani Reynolds | Afp | Getty Images

Rohit Chopra leads the Consumer Financial Protection Bureau, the federal agency whose mission is to protect consumers from "abusive and deceptive financial practices."

As the director of the CFPB, he is keeping a close eye on trouble spots that could potentially cause another financial crisis.

With inflation significantly impacting household budgets for millions of Americans, Chopra is focused on how financial products and services are being used or misused.  

Chopra said housing and mortgage debt are topping his watchlist right now.

"There are a lot of metro areas where first-time homebuyers are almost locked out," he said in an exclusive interview at CFPB headquarters in Washington. "They're competing with private equity buyers, they're competing with cash buyers.

More from Invest in You:
Former Fed vice chair sees recession likelihood at up to 60%
Money stress is taking toll on Americans' mental health
Inflation costing Americans $341 a month more

"I think that's a cause for concern about how we can get people into their first home," Chopra said.

Signs of mortgage debt distress

"We want to make sure that we have high-quality servicing that is not leading to preventable foreclosures, and really making sure that we keep the housing market stable and resilient, even through the various economic cycles," Chopra said.

Yet he said he sees signs of stress among many Americans who are again making the mortgage payments they'd paused as part of Covid relief at the height of the pandemic.

"We are seeing some increases, as expected, in distress and foreclosure, but it's certainly not at a panic level," Chopra said. "But we are keeping a close eye on that to make sure that those servicers are serving borrowers well."

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

Understanding extent of consumer debt

Director Rohit Chopra sits down with CNBC's Senior Personal Finance Correspondent Sharon Epperson at CFPB headquarters in Washington, D.C.
Stephanie Dhue
Director Rohit Chopra sits down with CNBC's Senior Personal Finance Correspondent Sharon Epperson at CFPB headquarters in Washington, D.C.

Chopra said the increasing popularity of BNPL could be clouding the picture for the overall level of consumer debt. "Under typical credit card laws and regulations, there is a way in which credit card companies have to go through some basic protocols to make sure you can repay the loan," he said. 

"The problem is that when they're using 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 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. 

"A lot of mortgage lenders and auto lenders are also concerned that they don't have a full picture of consumers' obligations when they're issuing loans," he said. "This is something that is being watched by all corners of the consumer finance markets.  

"The key piece is to make sure we're not creating systems sending people into a spiral of debt that they ultimately cannot repay," he added. 

Alerting consumers to crypto risks

Francesco Carta Fotografo | Moment | Getty Images

Providing a basic level of consumer protection for 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, yet among these transactional users of cryptocurrencies, 13% did not have a bank account.

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

The CFPB and the Federal Deposit Insurance Corp. are working together to make sure that crypto companies and other firms don't make false claims about insuring deposits and mislead consumers into thinking they have the same protections as banks.

"Many people have compared some advances in crypto to the advances in subprime mortgages over a decade ago," Chopra said. "We want to make sure that people have an understanding of the costs and risks and that there is some help for them when things go wrong."

SIGN UP: Money 101 is an eight-week learning course to financial freedom, delivered weekly to your inbox. For the Spanish version Dinero 101, click here.

CHECK OUT74-year-old retiree is now a model: 'You don't have to fade into the background' with Acorns+CNBC

Disclosure: NBCUniversal and Comcast Ventures are investors in Acorns.

Copyright CNBCs - CNBC
Contact Us