CFPB Director Recommends "Structural Penalties" for Corporate Recidivists

CFPB Director Rohit Chopra asserted that large entities are often indifferent to financial penalties and simply treat them as a cost of doing business.

In a lecture at the University of Pennsylvania, Mr. Chopra concluded that enforcement regulators go lightly on large corporations that are recidivists, but go hard on small firms because they have less resources with which to fight the government. Mr. Chopra pointed to numerous instances where the SEC waived various disqualifications against financial firms that had been found to have engaged in misconduct. He singled out Facebook as an example of a firm that "routinely violated the terms of its government order with no real consequences." Mr. Chopra said that while the FTC had imposed a $5 billion fine on Facebook, the penalty amount was to a significant degree the result of a trade where the FTC agreed not to seek testimony and documents from Mr. Zuckerberg.

According to Mr. Chopra: (i) large fines have little effect on large corporations, (ii) corporate boards will go to great lengths to shield executives, and (iii) committees, compliance units, and procedural requirements have higher costs than bright-line structural remedies that change business incentives.

Rather than merely seek fines against large corporations, Mr. Chopra recommended that the FTC should impose structural penalties with lower enforcement and monitoring costs, such as: (i) caps on growth, (ii) bans on certain types of business practices, (iii) forced divestitures, (iv) limits on the ability of firms to raise equity capital, and (v) revocation of government granted privileges.

For insured depository institutions with repeat offenses, the Director suggested they could lose their federal depository insurance, and licensed nonbank institutions could have their licenses suspended and assets liquidated through coordinated efforts with state officials. As to individuals, Mr. Chopra said there are multiple ways in which they may be held accountable, including referrals to enforcement agencies, dismissals from the jobs and "lifetime occupational bans."