Big business has despised the Consumer Financial Protection Bureau since its creation, and now the director of the agency has provided additional basis for that enmity. Rohit Chopra recently delivered a speech to the University of Pennsylvania Law School that amounted to one of the most aggressive statements on corporate misconduct ever made by a federal regulatory official. And he put forth some bold ideas for dealing with the problem.
Chopra began with the observation that the CFPB, which has been in operation for only about a decade, has had to take action against some major financial institutions on multiple occasions—five times in the case of Citigroup and four times against JPMorgan Chase, for example. These cases have resulted in billions of dollars in penalties and consumer redress.
The CFPB’s experience is not unique. “Repeat offenses – whether it’s for the exact same offense or more malfeasance in different business lines,” are, Chopra stated, “par for the course for many dominant firms.”
This conclusion is reinforced by the data collected in Violation Tracker. Over the past two decades, the commercial banks in the Fortune 100 have paid over $190 billion in fines and settlements. More than 100 corporations across all sectors have each paid over $1 billion in penalties.
The central question, as Chopra put it, is: “How do we stop large dominant firms from violating the law over and over again with seeming impunity? Corporate recidivism has become normalized and calculated as the cost of doing business; the result is a rinse-repeat cycle that dilutes legal standards and undermines the promise of the financial sector and the entire market system.”
Chopra’s address was remarkable in that it also put forth a vision for solving the problem. In addition to more prosecutions of individual executives, he calls for a focus on structural remedies, including putting restrictions on the ability of rogue corporations to grow.
This idea is not unprecedented; in fact, as Chopra notes, it was implemented by regulators in the case of Wells Fargo. In 2018, following revelations that the bank had created two million bogus customer accounts to generate illicit fees, the Federal Reserve took the unusual step of barring it from growing any larger until it cleaned up its business practices.
Chopra proposes to take even more aggressive measures. He wants to see misbehaving corporations forced to close or divest portions of their operations. He would deny such companies access to government-granted privileges. For example, pharmaceutical violators could lose their patents; lawless banks could lose access to FDIC deposit insurance.
Chopra indicated he is also exploring the most remedy of all: putting corrupt corporations out of business entirely. He warned that the CFPB will be deepening its collaboration with officials at the state level, where corporations are chartered, “to ascertain whether licenses should be suspended or whether corporate assets should be liquidated.”
In other words, Chopra is proposing greater use of what is often called the corporate death penalty (he doesn’t used that phrase). Such punishment is applied by some states in dealing with bad actors, but they are usually small, fly-by-night operations.
Talk of putting a large company out of business has been largely taboo since the case of accounting firm Arthur Andersen, which shut down in 2002 after being prosecuted for offenses relating to its role as the auditor of the fraudulent energy company Enron. There was a strong backlash in the business world against the prosecution, especially after the conviction was later overturned by the U.S. Supreme Court.
Chopra is no longer daunted by that episode. He argues that terminating corporate charters and licenses “should be considered for institutions of all sizes when the facts and circumstances warrant it.”
His speech may be a turning point in the prosecution of corporate crime. The two decades since the Enron/Arthur Andersen case have seen a tsunami of misconduct. Violation Tracker, whose mission is to document the phenomenon, is now up to more than 500,000 cases with fines and settlements of $786 billion.
While the penalties continue to accumulate, there is no evidence that corporate behavior is improving. Another approach is needed. Chopra’s roadmap is a good place to start.