    [House Hearing, 111 Congress]
    [From the U.S. Government Publishing Office]

      THE PROPOSED CONSUMER FINANCIAL PROTECTION AGENCY: IMPLICATIONS FOR
                             CONSUMERS AND THE FTC

    =======================================================================

                                    HEARING

                                   BEFORE THE

                        SUBCOMMITTEE ON COMMERCE, TRADE,
                            AND CONSUMER PROTECTION

                                     OF THE

                        COMMITTEE ON ENERGY AND COMMERCE
                            HOUSE OF REPRESENTATIVES

                         ONE HUNDRED ELEVENTH CONGRESS

                                 FIRST SESSION

                                   __________

                                  JULY 8, 2009

                                   __________

                               Serial No. 111-57

          Printed for the use of the Committee on Energy and Commerce

                            energycommerce.house.gov

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                        COMMITTEE ON ENERGY AND COMMERCE

                     HENRY A. WAXMAN, California, Chairman

    JOHN D. DINGELL, Michigan            JOE BARTON, Texas
      Chairman Emeritus                    Ranking Member
    EDWARD J. MARKEY, Massachusetts      RALPH M. HALL, Texas
    RICK BOUCHER, Virginia               FRED UPTON, Michigan
    FRANK PALLONE, Jr., New Jersey       CLIFF STEARNS, Florida
    BART GORDON, Tennessee               NATHAN DEAL, Georgia
    BOBBY L. RUSH, Illinois              ED WHITFIELD, Kentucky
    ANNA G. ESHOO, California            JOHN SHIMKUS, Illinois
    BART STUPAK, Michigan                JOHN B. SHADEGG, Arizona
    ELIOT L. ENGEL, New York             ROY BLUNT, Missouri
    GENE GREEN, Texas                    STEVE BUYER, Indiana
    DIANA DeGETTE, Colorado              GEORGE RADANOVICH, California
      Vice Chairman                      JOSEPH R. PITTS, Pennsylvania
    LOIS CAPPS, California               MARY BONO MACK, California
    MICHAEL F. DOYLE, Pennsylvania       GREG WALDEN, Oregon
    JANE HARMAN, California              LEE TERRY, Nebraska
    TOM ALLEN, Maine                     MIKE ROGERS, Michigan
    JANICE D. SCHAKOWSKY, Illinois       SUE WILKINS MYRICK, North Carolina
    CHARLES A. GONZALEZ, Texas           JOHN SULLIVAN, Oklahoma
    JAY INSLEE, Washington               TIM MURPHY, Pennsylvania
    TAMMY BALDWIN, Wisconsin             MICHAEL C. BURGESS, Texas
    MIKE ROSS, Arkansas                  MARSHA BLACKBURN, Tennessee
    ANTHONY D. WEINER, New York          PHIL GINGREY, Georgia
    JIM MATHESON, Utah                   STEVE SCALISE, Louisiana
    G.K. BUTTERFIELD, North Carolina
    CHARLIE MELANCON, Louisiana
    JOHN BARROW, Georgia
    BARON P. HILL, Indiana
    DORIS O. MATSUI, California
    DONNA CHRISTENSEN, Virgin Islands
    KATHY CASTOR, Florida
    JOHN P. SARBANES, Maryland
    CHRISTOPHER S. MURPHY, Connecticut
    ZACHARY T. SPACE, Ohio
    JERRY McNERNEY, California
    BETTY SUTTON, Ohio
    BRUCE BRALEY, Iowa
    PETER WELCH, Vermont

                                      (ii)
            Subcommittee on Commerce, Trade, and Consumer Protection

                            BOBBY L. RUSH, Illinois
                                      Chairman
    JAN SCHAKOWSKY, Illinois             CLIFF STEARNS, Florida
        Vice Chair                            Ranking Member
    JOHN SARBANES, Maryland              RALPH M. HALL, Texas
    BETTY SUTTON, Ohio                   DENNIS HASTERT, Illinois
    FRANK PALLONE, New Jersey            ED WHITFIELD, Kentucky
    BART GORDON, Tennessee               CHARLES W. ``CHIP'' PICKERING,
    BART STUPAK, Michigan                    Mississippi
    GENE GREEN, Texas                    GEORGE RADANOVICH, California
    CHARLES A. GONZALEZ, Texas           JOSEPH R. PITTS, Pennsylvania
    ANTHONY D. WEINER, New York          MARY BONO MACK, California
    JIM MATHESON, Utah                   LEE TERRY, Nebraska
    G.K. BUTTERFIELD, North Carolina     MIKE ROGERS, Michigan
    JOHN BARROW, Georgia                 SUE WILKINS MYRICK, North Carolina
    DORIS O. MATSUI, California          MICHAEL C. BURGESS, Texas
    KATHY CASTOR, Florida
    ZACHARY T. SPACE, Ohio
    BRUCE BRALEY, Iowa
    DIANA DeGETTE, Colorado
    JOHN D. DINGELL, Michigan (ex
        officio)

                                 C O N T E N T S

                                  ----------
                                                                       Page
    Hon. Bobby L. Rush, a Representative in Congress from the State
      of Illinois, opening statement.................................     1
        Prepared statement...........................................     4
    Hon. George Radanovich, a Representative in Congress from the
      State of California, opening statement.........................    11
    Hon. Henry A. Waxman, a Representative in Congress from the State
      of California, opening statement...............................    12
    Hon. Cliff Stearns, a Representative in Congress from the State
      of Florida, opening statement..................................    13
    Hon. John D. Dingell, a Representative in Congress from the State
      of Michigan, opening statement.................................    14
    Hon. Ed Whitfield, a Representative in Congress from the
      Commonwealth of Kentucky, opening statement....................    16
    Hon. Janice D. Schakowsky, a Representative in Congress from the
      State of Illinois, opening statement...........................    17
    Hon. Joe Barton, a Representative in Congress from the State of
      Texas, opening statement.......................................    18
    Hon. Gene Green, a Representative in Congress from the State of
      Texas, opening statement.......................................    19
    Hon. Joseph R. Pitts, a Representative in Congress from the
      Commonwealth of Pennsylvania, opening statement................    20
    Hon. Doris O. Matsui, a Representative in Congress from the State
      of California, opening statement...............................    21
    Hon. Betty Sutton, a Representative in Congress from the State of
      Ohio, opening statement........................................    22
    Hon. Kathy Castor, a Representative in Congress from the State of
      Florida, opening statement.....................................    23
    Hon. Steve Scalise, a Representative in Congress from the State
      of Louisiana, opening statement................................    24
    Hon. G.K. Butterfield, a Representative in Congress from the
      State of North Carolina, opening statement.....................    25

                                   Witnesses

    Michael Barr, Assistant Secretary for Financial Institutions,
      Department of the Treasury.....................................    26
        Prepared statement...........................................    30
        Answers to submitted questions...............................   189
    Jon Leibowitz, Chairman, Federal Trade Commission................    47
        Prepared statement...........................................    50
        Answers to submitted questions...............................   202
    Gail Hillebrand, Senior Attorney and Manager, Financial Services
      Campaign, Consumers Union......................................    80
        Prepared statement...........................................    83
        Answers to submitted questions...............................   257
    Stephen Calkins, Esq., Associate Vice President for Academic
      Personnel and Professor of Law, Wayne State University.........   107
        Prepared statement...........................................   108
        Answers to submitted questions...............................   261
    Prentiss Cox, Associate Clinical Professor of Law, University of
      Minnesota......................................................   120
        Prepared statement...........................................   122
        Answers to submitted questions...............................   267
    Rachel E. Barkow, Professor of Law, New York University School of
      Law............................................................   137
        Prepared statement...........................................   139
        Answers to submitted questions...............................   270
    Chris Stinebert, President and CEO, American Financial Services
      Association....................................................   154
        Prepared statement...........................................   156

                               Submitted Material

    Statement of J. Thomas Rosch, Federal Trade Commission...........   177

      THE PROPOSED CONSUMER FINANCIAL PROTECTION AGENCY: IMPLICATIONS FOR
                             CONSUMERS AND THE FTC

                                  ----------

                            WEDNESDAY, JULY 8, 2009

                  House of Representatives,
               Subcommittee on Commerce, Trade,
                               and Consumer Protection,
                              Committee on Energy and Commerce,
                                                        Washington, DC.
        The Subcommittee met, pursuant to call, at 10:10 a.m., in
    Room 2123 of the Rayburn House Office Building, Hon. Bobby L.
    Rush [Chairman of the Subcommittee] presiding.
        Members present: Representatives Rush, Schakowsky,
    Sarbanes, Sutton, Green, Gonzalez, Butterfield, Barrow, Matsui,
    Castor, Space, DeGette, Dingell, Waxman (ex officio),
    Radanovich, Stearns, Whitfield, Pitts, Terry, Gingrey, Scalise
    and Barton (ex officio).
        Staff present: Anna Laitin, Professional Staff; Will Casey,
    Special Assistant; Michelle Ash, Chief Counsel; Timothy
    Robinson, Counsel; Marc Groman, Counsel; Stephanie Bazell,
    Intern; Caren Auchman, Communications Associate; Bruce Wolp,
    Senior Adviser; Phil Barnett, Staff Director; Jeff Wease,
    Deputy Information Officer; Earley Green, Chief Clerk; Brian
    McCullough, Senior Professional Staff; Shannon Weinberg,
    Counsel; Will Carty, Professional Staff; and Sam Costello,
    Legislative Assistant.

     OPENING STATEMENT OF HON. BOBBY L. RUSH, A REPRESENTATIVE IN
                  CONGRESS FROM THE STATE OF ILLINOIS

        Mr. Rush. The Subcommittee on Commerce, Trade and Consumer
    Protection will now come to order.
        The purpose of today's hearing is to hear witnesses on the
    subject of the proposed Consumer Financial Protection Agency,
    implications for consumers and the FTC. I certainly want to
    welcome all the witnesses, Mr. Barr and Chairman Leibowitz. The
    Chair recognizes himself for 5 minutes for the purposes of an
    opening statement.
        I would like to thank all my colleagues and all the
    witnesses who diligently worked to prepare testimony over the
    Fourth of July holiday so that today's hearing would be as
    meaningful as possible as we commence our examination of the
    Administration's proposal to create a new Consumer Financial
    Protection Agency. My view on the matter is fairly
    straightforward. I believe that the FTC should remain intact as
    it is currently constituted and that this committee and
    subcommittee should continue to oversee and authorize the FTC.
        The Commission, which was established in 1914 during our
    Nation's Progressive Era, was designed to be a regulatory
    agency with disinterested expertise to ensure compensation and
    to promote free enterprise. That mission and those prescient
    concerns are as vital today as they were almost a century ago.
    The Commission operates best as a lone eagle. From high above,
    the agency can survey the marketplace and swoop down on
    predators that deceive unsuspecting and misinformed consumers.
    The higher and farther away that the FTC is from other agencies
    and the entities that it regulates, the better it is at
    spotting unfair commercial and trading practices and at
    isolating those practices that cast the longest shadows.
    Similarly, by staying at a distance, the agency can keep would-
    be credit captors at bay while staying on course to achieve its
    critical mission of protecting consumers.
        Looking at all reliable indicators, the commission has
    performed commendably for a small and scrappy staff and
    abridged powers, working alone with a five-person bipartisan
    commission, possibly 1,100 dedicated employees spread out
    across three bureaus: Bureau of Competition, Consumer
    Protection and Economics. Although its expertise is deep and
    broad, the FTC's statutory tools under the FTC Act consist of
    an antiquated and cumbersome of rulemaking under the Magnuson-
    Moss Act paired with anemic litigation authority. These two may
    be successful at landing glancing blows but they fail to pack a
    full punch of detergents that businesses will respect and
    consumers deserve. Currently at the FTC's disposal are its
    expertise and its agency crafted instruments of research,
    policy and study development, consumer compliant and education,
    competition, legal analysis and economics. While the FTC does
    well, it has done without power relative to its sister
    agencies, and what it hasn't done particularly well is in the
    process of being fixed.
        Just a few weeks ago, our subcommittee worked intently to
    mark up H.R. 2309, the Credit and Debt Protection Act, which
    directs the FTC to adopt rules using APA rulemaking authority
    that would address rampant unfair and deceptive practices in
    the area of payday lending, automobile financing, mortgage and
    foreclosure rescue and debt settlement. Our subcommittee's
    objective in passing H.R. 2309 was to confer more authority
    upon the FTC and to equip it with sufficient resources so that
    it could adopt rules faster in the areas of credit and debt
    through APA rulemaking procedures and bring enforcement action
    through the threat of civil penalties. Our committee had worked
    devotedly in the past more than a few times with members from
    the Financial Service Committee to bolster the FTC's
    shortcomings, hold out the FTC's best practices for banking
    agencies to emulate and protecting consumers and to improve the
    ability of bank regulatory agencies to protect consumers by
    ensuring unfair and deceptive rules under the FTC Act. I have
    witnessed the respective chairs of the Committees on Energy and
    Commerce and Financial Services jointly introduce H.R. 3525 to
    tackle some of these challenges.
        Further, I offered a further amendment to H.R. 3526, which
    was introduced by the chair of the Financial Services Committee
    in the 110th Congress to require that a GAO report
    investigating federal banking and credit union regulations and
    the perpetuation of unfair and deceptive acts and practices by
    depository institutions. Importantly, this push and pull
    between our respective committees has pressured providers of
    financial services and products including banks and depository
    institutions to balance the allure of profits and determination
    of safety and soundness against the needs of consumers. This
    collaborative working relationship between committees has
    produced good and sustainable consumer protection bills to
    safeguard consumers of financial services and of consumer
    credit products and is a vital example of the independent
    agencies that would be affected by the Administration's
    proposal as it will allow each of them to maintain their
    independence and respective biases and expertise when
    addressing serious problems that cut across sectors and affect
    market supplies and consumers.
        I want to thank the witnesses for being here today, for
    taking the time out from their busy schedules to participate in
    this hearing. With that, I yield back the balance of my time.
        [The prepared statement of Mr. Rush follows:]

        Mr. Rush. The Chair now recognizes the gentleman from
    California, the ranking member, Mr. Radanovich for 5 minutes
    for the purposes of an opening statement.

     OPENING STATEMENT OF HON. GEORGE RADANOVICH, A REPRESENTATIVE
                IN CONGRESS FROM THE STATE OF CALIFORNIA

        Mr. Radanovich. Thank you, Mr. Chairman, good morning. I
    appreciate your calling today's hearing on this important
    topic.
        Whenever something goes wrong in this country, Washington
    proposes a solution regardless of whether the situation calls
    for one. However well-intentioned our actions, they rarely work
    out because they are often undertaken as a knee-jerk response.
    We have seen many unintended consequence of rush to legislation
    in recent history, for example, the Sarbanes-Oxley Act. At
    best, we have seen marginal improvements in the markets
    diverting billions of dollars toward new compliance costs to
    the detriment of many small- and medium-sized businesses. In
    another example, last Congress we enacted a law in response to
    lead paint on toys. The paint violated an existing standard but
    what was a compliance problem rather than a deficient standard
    problem led to numerous costly new mandates that put many
    small- and medium-sized businesses out of business because the
    cost was too high without any corresponding increase in safety.
        This is not to say that weaknesses in our financial system
    don't exist; they obviously and clearly do. The failure of so
    many financial institutions and the ongoing problem of
    foreclosures on mortgages some borrowers never should have
    taken out are evidence of that, and if the bailout of banks and
    financial firms really were necessary to save the financial
    system, something clearly needs to be done to address the
    systematic risk.
        Additionally, fraud and deception by both lenders and
    borrowers in the mortgage market ran rampant. The FBI reported
    an increase in fraud by more than 400 percent since 2005. Few
    people question anything was wrong in the market until home
    prices started plummeting and borrowers began defaulting. If
    uniformity in the enforcement of existing laws can address
    these problems, I would support that. Apart from the lack of
    systemic risk regulation to prevent future financial collapses
    required in the taxpayer bailout, I am still trying to
    understand what holes exist in the FTC's consumer protection
    authority and to what extent the government contributed to the
    crisis with its intervention in housing policy. I am far from
    convinced that the market problems require the creation of a
    new federal regulator as contemplated by the Administration's
    proposal.
        Fannie Mae and Freddie Mac are under government control in
    part because they did exactly what Congress and the government
    wanted: extend home ownership to as many people as possible
    under the watch of the federal regulators. Fannie and Freddie
    along with the federal housing agencies and programs were
    encouraged to extend credit, and when they did, their
    shareholders played the price for failing. To accomplish the
    policy goal of extending home ownership to as many people as
    possible, changes in lending standards had to occur. The
    lowering of lending standards meant more borrowers qualified
    for loans they couldn't afford. My point is that laws on the
    books didn't stop people from taking out risky mortgages,
    either in spite of or because of rapidly increasing home
    prices, nor has it stopped regulators and law enforcement from
    prosecuting those who we now know committed fraud and broke the
    law.
        While many experts believe that the banking regulators
    performed their duties inadequately, I will leave that to the
    Financial Services Committee to decide. But with regard to the
    FTC, it seems to me that we are throwing out the baby with the
    bathwater by stripping the authority over consumer protection
    for financial products and services from the one agency that
    has performed well. If we agree we need legislation, we should
    take the approach of legislating with a scalpel rather than
    with a bulldozer.
        With that said, I have two primary concerns with this
    proposal. First, it creates a new federal entity with an
    enormous scope of authority. The proposal grants sweeping
    authority to a new agency over financial products that would
    cover every sector of the economy. As I understand it, the
    draft legislation would touch everyone from a certified public
    accountant to a realtor and subject them to a new tax to fund
    the agency.
        Second, I am concerned about transferring functions from
    the FTC to a new agency without any evidence that it is
    necessary or that it will be as effective as a regulator as the
    FTC is. By removing the FTC's authority, we could lose the
    FTC's unique expertise in balancing consumer protection and
    competition.
        Finally, the legislation contains several new broad
    authorities for the FTC regarding rulemaking authority and
    civil penalty authority. I have previously disagreed with these
    and do not need to repeat them at this time. However, I do have
    some questions of the witnesses regarding these provisions and
    I will ask them when they are appropriate.
        I want to welcome the members to the panel as well and
    yield back, Mr. Chairman.
        Mr. Rush. The Chair thanks the gentleman. The chairman of
    the full committee is recognized for purposes of opening
    statement for 5 minutes.

    OPENING STATEMENT OF HON. HENRY A. WAXMAN, A REPRESENTATIVE IN
                 CONGRESS FROM THE STATE OF CALIFORNIA

        Mr. Waxman. Thank you very much. I want to thank you, Mr.
    Chairman, for holding this important hearing.
        Last year, as chairman of the House Oversight Committee, I
    held several hearings examining the causes of the financial
    crisis. Those hearings revealed a government regulatory
    structure that was unwilling and unable to meet the
    complexities of the modern economy. We found regulatory
    agencies that had fully abdicated their authority over banks
    and had done little or nothing to curb abusive practices like
    predatory lending. The prevailing attitude was that the market
    always knew best. Federal regulators became enablers rather
    than enforcers.
        The Obama Administration has developed an ambitious plan to
    address these failures and to strengthen accountability and
    oversight in the financial sector. Today's hearing will take a
    close look at one piece of that plan, the proposal to create a
    single agency responsible for protecting consumers of financial
    products. A new approach is clearly warranted. The banking
    agencies have shown themselves to be unwilling to put the
    interests of consumers ahead of the profit interests of the
    banks they regulate and the structure and division of
    responsibilities among these agencies has led to a regulatory
    race to the bottom. The Federal Trade Commission has taken
    steps to protect consumers but its jurisdiction is limited and
    it has been hampered by a slow and burdensome rulemaking
    process.
        I am pleased that this subcommittee is holding today's
    hearing and examining the Administration's proposal carefully.
    There are two areas of which attention and focus from this
    committee are particularly needed. First, the new agency must
    be structured to avoid the failures of the past. It only makes
    sense to create a new agency if that new agency will become a
    strong, authoritative voice for consumers. And second, we must
    ensure that the Federal Trade Commission is strengthened, not
    weakened, by any changes. Unlike the banking agencies, FTC has
    consumer protection as its core mission.
        In recent months, FTC has taken great strides to protect
    consumers of financial products, bringing enforcement actions
    against fraudulent debt settlement companies and writing new
    rules governing mortgages. The Administration's proposal would
    give most of the FTC's authority over financial practices and
    some of FTC's authority over privacy to the new agency. At the
    same time, the Administration proposes improving FTC's
    rulemaking authority and enforcement capabilities. It is not
    clear what impact these proposals would have on FTC or its
    ability to perform its consumer protection mission. As we build
    a new structure for protecting consumers of financial products,
    it is our responsibility to ensure that we do not weaken the
    agency currently responsible for consumer protections in this
    and many other areas.
        Once again, I thank Chairman Rush for holding this hearing.
    I welcome our witnesses to the committee and look forward to
    their testimony.
        Mr. Rush. The Chair thanks the chairman of the full
    committee, and now the Chair recognizes the gentleman from
    Florida, Mr. Stearns, for 2 minutes for the purposes of opening
    statement.

     OPENING STATEMENT OF HON. CLIFF STEARNS, A REPRESENTATIVE IN
                   CONGRESS FROM THE STATE OF FLORIDA

        Mr. Stearns. Good morning, and thank you, Mr. Chairman.
        This is a very important hearing. It is important for us as
    members of this subcommittee, and Mr. Chairman, in terms of our
    jurisdiction and what the implications are for jurisdiction in
    the future. The Administration's newly proposed CFPA, or the
    Consumer Financial Protection Agency, is relevant. It is an
    idea that a lot of us have mixed reactions. It has implications
    for our subcommittee. Although this is only one component of
    the Administration's broad-reaching financial regulatory reform
    proposal, it certainly is an important part of that overall
    program and it needs detailed examination.
        We must carefully consider the long-term effects that this
    will have on the Federal Trade Commission, the consumers it is
    charged with protecting and on industry. Currently, the Federal
    Trade Commission has broad authority to protect consumers from
    unfair and deceptive practices in the credit and debt areas,
    and the FTC has notably been an effective and reliable agency
    in terms of consumer protection. We have seen it in this
    subcommittee. However, this new agency, the CFPA, proposal
    strips the Federal Trade Commission of virtually all of its
    consumer protection authorities pertaining to financial
    practices and even some of its privacy protection authority.
    So, Mr. Chairman, I think that has to be a concern.
        The proposal compensates for this shifting of authority by
    granting the Federal Trade Commission streamlined
    Administrative Procedures Act, APA, rulemaking authority and
    the ability to seek civil penalties against unfair and
    deceptive practices. But this is a term of which there is no
    clear definition as well as making it unlawful to ``aid and
    abet'' in deceptive acts. So due to the shifting of power and
    the potential economic consequences of businesses, we must
    ensure that effective stakeholders have a voice at the table
    but ultimately we need to be sure that the CFPA, the new
    agency, will be an agency designed to do what is in the best
    interests of the consumers and not what is in the best interest
    of the bureaucrats who run it.
        One other concern I would have, Mr. Chairman, with the APA
    is it has 180 days for consideration. Is this sufficient time
    under the Magnuson-Moss Act rulemaking requirements included a
    public hearing and so, Mr. Chairman, perhaps as this bill moves
    along we might want to include some kind of public hearing as
    well as this 180 days of consideration.
        With that, I yield back the balance of my time.
        Mr. Rush. The Chair thanks the gentleman. The Chair now
    recognizes the gentleman from Michigan, the chairman emeritus
    of the full committee, my friend, Mr. John Dingell, for 5
    minutes for opening statement.

    OPENING STATEMENT OF HON. JOHN D. DINGELL, A REPRESENTATIVE IN
                  CONGRESS FROM THE STATE OF MICHIGAN

        Mr. Dingell. Mr. Chairman, I thank you, and I commend you
    for this hearing. It is a very important one. It follows on a
    series of events which began with a raid on this committee by
    other committees and by the banking industry and by repeal of
    Glass-Steagall, which removed all the penalties and
    prohibitions against many of the illegal activities which
    brought us to the current lowest state in which we find
    ourselves financially and economically. At the Treasury
    Department, there was an office still in being called the
    Controller of the Currency, who pushed to totally deregulate
    banks and to unlearn the lessons which we learned during the
    Depression and to permit the abuses which the Pecora Commission
    found to be a problem, things which brought about the 1929
    crash, and lo and behold, the failure to learn those lessons or
    to preserve the protections which the Congress and the
    President in the 1930s put into place led to the economic
    collapse which occurred in the United States in the last
    calendar year and this calendar year.
        So the questions that we will be concerned with are going
    to be, are consumers protected, is the Federal Trade Commission
    able to continue doing the work that it does to protect
    consumers, and this committee is going to concern ourselves
    this morning with these issues and means by which to ensure
    improved consumer protections continue to exist with regard to
    financial products and services and to see to it that the
    Federal Trade Commission is able to carry out the
    responsibilities which in a rather contemptible fashion were
    disregarded by the SEC and also by the Controller of the
    Currency.
        Now, we need to know if our concerns here and the pause
    which it gives us occurs in part because of a transfer of
    existing authority from the Federal Trade Commission to a newly
    minted Consumer Financial Protection Agency, an agency whose
    behavior we don't know but an agency which is going to probably
    be composed of many of the goodhearted people who have brought
    us to this curious and unfortunate state of events. I will be
    truthful: I have significant concerns about these plans and I
    will be intending to engage today's witnesses in a frankly
    discussion about their merits. The Administration, which has no
    fault in the events of the deregulation and the collapse of the
    American economy last year, envisions consolidating all
    consumer protection functions related to financial products
    including rulemaking, supervision, examination and enforcement
    under the aegis of the new CFPA, which would receive sole
    rulemaking enforcement authority over consumer financial
    protection statutes such as the Truth in Lending Act. At first
    glance, this strikes me as a dejure and possible unwarranted
    reassignment of FTC's consumer protection authorities in the
    financial services area. I will be looking to see whether this
    is so and whether in fact is a good thing or can be justified
    by the Administration.
        While a comparatively small agency, it is to be observed
    that FTC has some superb work in protecting consumers, and in
    this the country would benefit not from a diminished mandate to
    that agency but rather to additional statutory authority,
    personnel and funding. Consequently, I have more than a modest
    degree of skepticism regarding the Administration's proposal.
    In brief, I wish for our witnesses to elucidate upon several
    matters associated with the CFPA proposal.
        First, if CFPA were mandated under law, what authorities
    would be left to FTC and why would that occur. Second, what
    latitude would FTC have in enforcing consumer protection
    statutes as they relate to financial services, and what
    consumer protection statutes would be denigrated or dissipated
    under this proposal. Third, how would one characterize the
    level of interagency cooperation in the drafting of the
    Administration's proposal. Financially, if CFPA receives its
    proposed mandate, what will become of this committee's
    jurisdiction over consumer protection as designated under rule
    10 of the House of Representatives? I will welcome the
    witnesses' responses to these and other questions in order to
    properly establish an adequate record for additional action by
    the Congress if such is deemed necessary.
        I would ask at this time that I have unanimous consent to
    keep the record open to submit a list of questions to the
    witnesses today and to have those responses and the questions
    inserted into the record.
        I want to commend you, Mr. Chairman, for your courtesy and
    foresight in this hearing. I would conclude by a personal note
    in welcoming Dr. Stephen Calkins, associate vice president for
    academic personnel and professor of law at Wayne State
    University in my home State of Michigan. His testimony has been
    invaluable to my understanding of this matter and I look
    forward to his participation in the continuing debate on
    consumer financial protection, and I note, Mr. Chairman, that
    my wife is a member of the Board of Governors of that great
    institution, which gives me a particularly warm feeling about
    it, and again, Mr. Chairman, I urge you and my colleagues to be
    most diligent, most cautious, most careful and most dutifully
    suspicious of the events that we inquire into today. Thank you.
        Mr. Rush. The Chair thanks the chairman emeritus. The Chair
    wants to put before the committee the UC request, and hearing
    no objection, so ordered, the UC request by the chairman
    emeritus. And the Chair also wants to take a moment of personal
    privilege to celebrate the chairman emeritus's birthday and to
    wish him a happy birthday, so we want you to know that we all
    wish you a very happy birthday and many, many more.
        Mr. Dingell. Mr. Chairman, I thank you for your kind
    observations. At 83, a fellow is a little more careful about
    celebrating his birthdays. The good news is, I am celebrating
    my 83rd birthday. The bad news is that I am 83. I thank you,
    Mr. Chairman, for your courtesy and I thank my friends for
    their kindness and their courtesy.
        Mr. Rush. Thank you. The Chair now recognizes the gentleman
    from Kentucky, Mr. Whitfield, for 2 minutes for opening
    statement. Excuse me. I didn't see Mr. Barton there. He just
    walked in? OK. Mr. Barton is recognized.
        Mr. Barton. Well, you can go to Mr. Whitfield. He was here
    before me. I am fine with going to Ed and then come back to me
    after the next----
        Mr. Rush. You all worked that out then. OK. Mr. Whitfield.

      OPENING STATEMENT OF HON. ED WHITFIELD, A REPRESENTATIVE IN
               CONGRESS FROM THE COMMONWEALTH OF KENTUCKY

        Mr. Whitfield. We are all very polite today so thank you
    very much.
        Mr. Chairman, I want to thank you also for holding yet
    another important hearing examining the ongoing financial
    crisis and ways we can help our constituents get through these
    difficult times and mitigate future problems. Secretary
    Geithner said that this new Consumer Financial Protection
    Agency would have only one mission, and that is, to protect
    consumers. It is also my understanding that this proposal would
    eliminate the consumers protections at the FDIC, the Federal
    Reserve Board, the Controller of the Currency, and the impact
    on the FTC, perhaps we should explore expanding the authority
    of the FTC.
        Another problem that concerns me about the proposed
    legislation is that there is no federal preemption of any State
    law that is more stringent than the federal law, and anyone
    that has gone through a mortgage process and when they hand you
    the 45 pages of documents, you are going to find yourself
    getting more documents if you have these conflicting State laws
    on these consumer issues, and I think that is a real concern as
    well.
        But the problem that I have most of it, how much will this
    cost? Every day we pick up another article in a newspaper,
    growing national debt may be next economic crisis. Unless we
    demonstrate a strong commitment to fiscal sustainability in the
    longer term, we will have neither financial stability nor
    healthy economic growth. Interest payments on the debt alone
    last year were $452 billion. This year it is expected to be
    $470 billion, the largest federal spending category after
    Medicare, Medicaid, Social Security and defense. Another
    article today, economist declares train wreck because out-of-
    control federal budget deficits. The economist talks about the
    real question is, how much damage will greater indebtedness do
    to economic growth and government's credit worthiness. Those
    things may transcend what limited additional protection
    consumers get from this legislation. So I think we need to move
    cautiously, find out how much costs are we talking about here
    and what will the benefits be. Thank you, Mr. Chairman.
        Mr. Rush. The Chair thanks the gentleman. The Chair now
    recognizes the vice chair of the subcommittee, my friend from
    Illinois, Congresswoman Schakowsky, for 2 minutes.

           OPENING STATEMENT OF HON. JANICE D. SCHAKOWSKY, A
         REPRESENTATIVE IN CONGRESS FROM THE STATE OF ILLINOIS

        Ms. Schakowsky. Thank you very much, Mr. Chairman.
        I just came from a roundtable on women's financial
    literacy, clearly an important issue, but what we have found is
    how daunting the environment has been for anyone who even is
    pretty literate in financial issues. We have seen the
    systematic production and marketing and sales of countless
    financial products including mortgages that were extremely
    risky, even downright dangerous for borrowers, and often it was
    pretty hard to figure out what was what. For years bank and
    non-bank lenders operated with too little oversight by
    government regulators, and when regulation was taking place
    there was little focus on whether the financial products and
    services sold were safe for consumers.
        The Federal Trade Commission, and I am so glad its chairman
    is here today, is essentially the only agency with a mandate to
    prioritize consumer safety and protect Americans from unfair or
    deceptive practices, and I commend Chairman Leibowitz for his
    renewed commitment to consumers' rights in the areas of credit
    and debt. However, as has been mentioned, the FTC's
    jurisdiction is limited to non-bank activities. The agency has
    been hampered for decades by cumbersome rulemaking authority
    and in recent years its actions were limited by the previous
    Administration's general contempt for oversight of the private
    sector.
        Overall, current regulations aren't sufficient and they
    aren't working. We can't maintain a system which neglects
    consumer protection for the bulk of the financial service
    industry. Americans deserve access to honest information that
    will help them make educated decisions on mortgages, credit
    cards and bank accounts. Dangerous financial products should be
    kept off the markets and advertisers must be held accountable
    for their claims. We have to move forward with these goals, and
    I look forward to hearing today's testimony on how a consumer
    financial protection agency might achieve them.
        Thank you, and I yield back.
        Mr. Rush. The Chair thanks the gentlelady. The Chair now
    recognizes the ranking member for the full committee, the
    humble and honorable Mr. Barton from Texas, for 5 minutes.

       OPENING STATEMENT OF HON. JOE BARTON, A REPRESENTATIVE IN
                    CONGRESS FROM THE STATE OF TEXAS

        Mr. Barton. Well, thank you, Mr. Chairman. Before I give my
    opening statement, let me amplify what you said about the
    chairman emeritus, Mr. Dingell. Some people get 1 year of
    experience and that is it. In his case, you could say that
    would be 1 year 83 times. But in Mr. Dingell's case, each year
    he adds it to the base where it compounds and amplifies by
    orders of magnitude. I think you can honestly say that our
    friend and chairman emeritus is the most influential Member of
    Congress in our lifetime and it is such a privilege to have him
    on our committee and it is really fun when he is on my side. It
    is not so much when he is not on my side, but even then I learn
    from him. So the heartiest congratulations from the minority to
    a true gentleman of the House, the conveyor and the protector
    of institutional viability for this body. We wish you many,
    many more.
        With regards to this hearing, Mr. Chairman, I would bring
    the members' attention to today's Wall Street editorial op-ed
    piece about the particular agency. It is entitled, ``Let us
    treat borrowers like adults.'' It calls into question whether
    there needs to be a super consumer financial products
    protection agency which the legislation we are looking at today
    would empower. We accept the intention as being honorable but
    people like myself have extremely strong reservations about the
    implementation of such an agency. What would the legislation
    actually accomplish that some federal agency isn't already
    attempting to do? We would like to know what is gone so wrong
    with our existing protection agencies that we deem it necessary
    to create another brand-new agency.
        I am a bit taken back by the breadth of the proposed
    coverage. This legislation, of course, relates a great deal to
    banking and other financial institutions over which this
    committee unfortunately has no jurisdiction, at least not now.
    One never knows about the future. But it reaches beyond that.
    It could reach accountants, auditors, gift cards, all other
    types of institutions and entrepreneurial activities. It
    doesn't fall strictly within our jurisdiction because it
    applies to banks but it is still of concern. There seems to me
    to be an exception that swallows the preemption rule. According
    to the proposal, if I understand it correctly, State consumer
    laws of general application and those State laws enacted
    pursuant to federal law intended to, and I quote, ``exceed or
    supplement federal law'' will now apply to any national bank.
    The Harvard professor who is credited with inspiring this all-
    inclusive consumer financial protection agency described the
    need for it in her article, ``Unsafe at any Rate.'' Professor
    Warren wrote that we need this agency in order to reverse
    industry practices that make it difficult for consumers to
    understand what they are getting in a financial product world,
    for example, 30 pages of contract terms for a simple credit
    card or 50 lines of convoluted and excessive text to explain
    all required disclosures. I understand that. I just cosigned
    for my stepdaughter's new condo in Austin, Texas, and it took
    an hour of signing various documents, some of which were
    documents I signed certifying that I just signed the previous
    document. So I understand the need for simplicity and the need
    for perhaps a review of some of the existing documents that we
    are asked to sign but I am not sure that this agency gets
    there.
        This bill would assume that businesses and their customers
    are eager to pay more for such protection, maybe even a lot
    more, because there are no limits on the burdens to either.
    There are all kinds of reports this new agency could mandate,
    regular and special requests, but there are no limits to how
    often the agency could require those reports, and there is no
    mandate to consider the burden placed on the businesses to
    produce these reports. The preemption provisions really convey
    no preemption at all. In one paragraph, the proposal mandates
    all State laws are preempted but only to the extent that they
    conflict. In the next, the legislation permits a State law to
    supersede federal law if the new agency determines the State
    law is more protective. That seems to be almost in direct
    opposition to the prior paragraph. What if a company is
    compliant with the federal law, but while the agency hasn't yet
    determined whether a state law is more protective, the attorney
    general believes it is and brings action against the business
    for a violation, is that company liable for its violations of
    State law without any notice? This would seem to exacerbate the
    decisions but rather by making certain that the products
    themselves don't become the source of the trouble.
        I see my time is about to expire, Mr. Chairman. I have
    another page and a half of written commentary. Simply put me
    down as extremely doubtful about the positive impact of this
    legislation. I think we would be better served on this
    committee and your subcommittee to go in and reform existing
    authority, clarify the differences between existing regulatory
    agencies, and if there is something that has really fallen
    through the cracks, try to figure out one of the existing
    agencies like the FTC and see if we couldn't give them explicit
    authority in that area that needs reinforcing.
        With that, Mr. Chairman, I yield back.
        Mr. Rush. The gentleman from Texas, Mr. Green, for 2
    minutes for opening statement.

       OPENING STATEMENT OF HON. GENE GREEN, A REPRESENTATIVE IN
                    CONGRESS FROM THE STATE OF TEXAS

        Mr. Green. Mr. Chairman, thank you for holding this timely
    hearing to examine the Administration's proposal to create a
    new agency that would consolidate and be responsible for
    consumer protection with regard to financial products and
    services. After the events of last year, there should be no
    doubt that Congress needs to act to further protect consumers
    with regard to financial regulation.
        This subcommittee has already taken steps to address this
    by moving forward legislation, H.R. 2309, the Consumer Credit
    and Debt Protection Act, to give the Federal Trade Commission
    additional powers to better address consumer credit and debt
    issues. It was widely agreed in the hearings that the
    legislation with the added authority H.R. 2309 would provide
    the FTC, it should take a broader and more effective role in
    consumer financial protection.
        With regard to the new tools this proposal would give the
    FTC, the Administration has addressed many of the problems that
    have hamstrung the Commission from taking steps to implement
    additional financial consumer protections equally with regard
    to the FTC rulemaking process. Magnuson-Moss procedures are
    lengthy and cumbersome and can prevent the FTC from taking
    action on widespread problems in a timely and efficient manner,
    so I strongly support the provision in the Administration
    proposal to grant the Commission authority to conduct
    rulemaking under the Administrative Procedures Act. The
    proposal also follows 2309 granting the FTC authority to seek
    civil penalties for any violations of section 5 of the FTC Act
    which would provide a great deterrent to would-be actors.
        The portions of the proposal I am less certain about,
    however, would move nearly all the FTC's consumer protection
    authority for financial practices to the newly created Consumer
    Financial Protection Agency. I do not disagree that additional
    law enforcement is a good thing for the consumers. My main
    concern is, we are adding a new enforcement regime that is
    siphoning off authority from our Nation's primary consumer
    protection agency when that agency is more than capable of
    doing the job given the necessary tools and funding. Many of
    the consumer protection functions the new agency would be
    responsible for would be moved from other agencies and
    departments that do not have consumer protection as their
    primary function. However, this is not the case with the FTC.
        I look forward to hearing from our witnesses on why the
    Administration believes the FTC should not continue these
    roles, and again, Mr. Chairman, I thank you for the timeliness
    of the hearing. I look forward to exploring with regard to this
    bill and look forward to the best paths to protect consumers.
        Mr. Rush. The Chair thanks the gentleman. Mr. Pitts is
    recognized for 2 minutes for the purposes of opening statement.

    OPENING STATEMENT OF HON. JOSEPH R. PITTS, A REPRESENTATIVE IN
             CONGRESS FROM THE COMMONWEALTH OF PENNSYLVANIA

        Mr. Pitts. Thank you, Mr. Chairman. Thank you for holding
    this important hearing on the Administration's proposal to
    create a new agency responsible for consumer protection.
        I think we all agree that we need strong consumer
    protection measures. The recent housing and credit crisis our
    country has faced makes this abundantly clear. We must do this
    prudently, though, avoiding the mistakes of the past. It seems,
    however, the proposal we have before us creates yet another
    divided system of regulation, making room for gaps in
    oversight. We saw the effects of divided regulation at Fannie
    Mae and Freddie Mac where two regulators meant less regulation,
    not more.
        The proposed new agency would also have the authority to
    set prices rather than allowing costs to be determined by
    consumers in the marketplace. Everything from ATM fees, check
    overdraft fees and late payment fees for credit cards would
    fall under the purview of this new agency. Instead of adding
    layers of bureaucracy to financial regulation and intervening
    in the marketplace, things we have tried in the past, we should
    work to bring transparency and consumer choice to our markets.
        Consumer financial protection is a worthy goal.
    Unfortunately, increasing the layers of bureaucracy in the
    financial industry has not protected consumers in the past and
    I see no reason why it will this time around. Again, we all
    desire effective and efficient enforcement of consumer
    protection laws. It is my hope that this committee moves
    forward in a wise and careful manner with increased
    transparency and consumer choice as their primary goals.
        I look forward to hearing from our distinguished witnesses.
    Thank you, and I yield back.
        Mr. Rush. The Chair now recognizes the gentleman from
    Texas, Mr. Gonzalez, for 2 minutes for the purposes of opening
    statement.
        Mr. Gonzalez. I will waive opening.
        Mr. Rush. The Chair now recognizes the gentlelady from
    California, Ms. Matsui, for 2 minutes.

    OPENING STATEMENT OF HON. DORIS O. MATSUI, A REPRESENTATIVE IN
                 CONGRESS FROM THE STATE OF CALIFORNIA

        Mrs. Matsui. Thank you, Mr. Chairman, and thank you for
    calling today's hearing. I applaud your leadership in
    addressing this important issue. I would also like to thank the
    witnesses for joining us today.
        In today's economic recession, many families in home
    district of Sacramento are struggling to make ends meet. I have
    heard countless stories of people struggling to keep their
    homes, their jobs and their way of life. California and in
    particular my constituents in Sacramento have been greatly
    impacted by the economic crisis. Many of my constituents were
    and continue to be victims of predatory home loan lending,
    unfair credit card practices, payday loans and other forms of
    unscrupulous business practices.
        Just recently, the President signed into law credit card
    reform legislation to regulate unfair credit card practices.
    The ink is hardly dry. The companies are already trying to find
    ways to arbitrarily raise credit card interest rates and fees
    on consumers. Struggling homeowners are also seeking assistance
    to keep their homes but continue to be tricked into contacting
    scam artists who just so happen to be the same crowd that
    initially steered homeowners into subprime loans. This is also
    occurring as job losses mount, foreclosures continue to rise
    and Americans are increasingly turning to other forms of credit
    to make ends meet. It is clear that consumers are not being
    properly protected from unfair and deceptive financial
    practices. When is enough enough?
        The President's proposal to create a new financial consumer
    protection agency could be the answer that American consumers
    are seeking but it must be done in a thoughtful way to ensure
    consumers are protected from fraudulent activity. We must make
    sure any new agency has real authority and just as much bite as
    it has bark. Consumers need to feel protected and have
    confidence in our financial system. Right now it is clear that
    they do not.
        I thank you, Mr. Chairman, for holding this important
    hearing today and I look forward to working with you and the
    committee on this issue moving forward. I yield back the
    balance of my time.
        Mr. Rush. The Chair thanks the gentlelady. The Chair now
    recognizes the gentleman from Nebraska, Mr. Terry, for 2
    minutes.
        Mr. Terry. Thank you, Mr. Chairman. I will try to be quick.
        I think the fundamental premise of this bill is that the
    FTC, the entity in charge of protecting consumers, has
    evidently been an abysmal failure. I don't agree with that
    premise. I think the issue should be, how do we make sure that
    the FTC is properly empowered to protect consumers and that
    should be what we are working for as opposed to stripping away
    whatever jurisdiction they have over protecting consumers and
    creating some monolithic new government agency in replace of
    what already exists.
        So I am very skeptical of this process or this bill and I
    look forward to hearing from our witnesses so we can determine
    if FTC is capable of doing what they have been doing and
    whether or not this bill is even necessary. So I yield back.
        Mr. Rush. The Chair recognizes the gentlelady from Ohio,
    Ms. Sutton, for 2 minutes.

      OPENING STATEMENT OF HON. BETTY SUTTON, A REPRESENTATIVE IN
                    CONGRESS FROM THE STATE OF OHIO

        Ms. Sutton. Thank you, Chairman Rush, and thank you for
    holding today's very important hearing on the newly proposed
    Consumer Financial Protection Agency.
        As Elizabeth Warren aptly stated in describing the need for
    an agency like this, ``It is impossible to buy a toaster that
    has a one in five chance of bursting into flames and burning
    down your house but it is possible to refinance an existing
    home with a mortgage that has the same one in five chance of
    putting the family out on the street, and the mortgage won't
    even carry a disclosure of that fact to the homeowner.''
    Unfortunately, many people in my district who were preyed upon
    by so many unscrupulous companies, people know this all too
    well.
        The well-known and tragic case of one of my constituents,
    Addie Polk, is a shocking example of a financial product that
    not only caused someone to almost be homeless but caused
    someone to attempt to take their own life. At the age of 86,
    Ms. Polk was given a new 30-year mortgage on a house she
    already owned and for an amount greater than the value of her
    house. Let me say that again. At the age of 86, Ms. Polk was
    given a new 30-year mortgage on a house she already owned and
    for an amount greater than the value of her house. Less than 4
    years later, Ms. Polk, probably of no surprise to the person
    who sold the mortgage to her, began to have trouble making her
    payments and her house fell into foreclosure. Feeling trapped
    and without options, Ms. Polk shot herself rather than lose the
    house she lived in for 40 years. No one ever should be in Ms.
    Polk's position. Now is our chance in honor of Ms. Polk and
    countless other Americans who have found themselves the
    unfortunate owners of financial products with indecipherable
    terms, smoke-and-mirror-like provisions and gotcha fees to
    truly support strong consumer protection.
        I look forward to hearing from the panel about how we make
    sure we provide the needed protection, and I yield back.
        Mr. Rush. The Chair thanks the gentlelady. The Chair now
    recognizes the gentleman from Georgia, Dr. Gingrey, for 2
    minutes.
        Mr. Gingrey. Mr. Chairman, I thank you, and I thank you for
    calling the hearing and welcome back Jon Leibowitz and
    Honorable Barr, the assistant secretary of financial
    institutions.
        I associate my remarks really with what the gentleman from
    Nebraska on our side just said, Mr. Terry. Here we are creating
    a whole new federal government bureaucracy when we have one
    already that is doing a heck of a job as it certainly seems to
    me and I think most members on this panel. So the question
    becomes, you know, why, to use a medical expression, throw the
    baby out with the bathwater if the FTC is doing the right and
    proper job and the right and proper oversight and all of a
    sudden we come in and spend more federal dollars, as the
    gentleman from Kentucky was talking about earlier, by creating
    a whole new federal bureaucracy. So again, I am happy to hear
    from the witnesses and maybe they can explain that. Hopefully
    they will explain that.
        But I think this is something that we need to look at very,
    very carefully as we just continue to create one more or
    consider creating one more government bureaucracy at a time
    when we are running billions of dollars of deficit year after
    year after year. And with that, Mr. Chairman, I will yield
    back.
        Mr. Rush. The Chair recognizes the gentlelady from Florida,
    Ms. Castor, for 2 minutes.

      OPENING STATEMENT OF HON. KATHY CASTOR, A REPRESENTATIVE IN
                   CONGRESS FROM THE STATE OF FLORIDA

        Ms. Castor. Thank you, Chairman Rush, for calling this
    critically important hearing on the Obama Administration's
    proposal for a Consumer Financial Protection Agency.
        Last Congress, in the wake of widespread concerns about
    toxic lead in paint on children's toys and other toxic consumer
    products, this subcommittee originated legislation to
    reorganize and strength the Consumer Product Safety Commission,
    and last year as the economy plunged, there were some analogous
    terms being used to describe some of the mortgage and
    investment products. We heard about toxic assets, poisoning
    banks balance sheets and toxic mortgage products, leaving
    millions of our neighbors facing foreclosure.
        Predatory lenders wreaked havoc on my community and the
    subsequent significant decline in property values has affected
    millions of folks in my home State, and unfortunately consumers
    could not count on State oversight of these mortgage brokers.
    In my home State, they just turned a blind eye and I recommend
    the Miami Herald expose that documented how many convicted
    felons entered into the subprime mortgage loan marketing
    business.
        So this financial crisis has taught us that in order to
    maintain a healthy economy, effective regulation must focus on
    protecting consumers from abusive, deceptive and unfair lending
    practices. The FTC has the enforcement authority to go after
    only non-depository lending institutions that deal unfairly
    with their borrowers but the abuses that led to the financial
    crisis spread deep into the banking system. So in light of the
    need for more-effective regulation of all lending institutions,
    depository and non-depository, the Obama Administration has
    rightly proposed a reorganization, and I think all of us can
    agree that regulation of financial institutions must be
    improved to better protect consumers. However, we must be aware
    not only of the impact of granting authority to a new Consumer
    Financial Protection Agency but also the consequences to
    consumers of the changes that have been proposed to the FTC.
    The Administration's proposal would reshape the FTC by shifting
    authority over consumer credit but also by streamlining its
    rulemaking process and allowing it to assess civil penalties on
    bad actors.
        So I look forward to your testimony on what this new FTC
    might look like and how its ability to achieve its mandate of
    consumer protection will be affected. I yield back.
        Mr. Rush. The Chair now recognizes the gentleman from
    Louisiana, Mr. Scalise, for 2 minutes.

     OPENING STATEMENT OF HON. STEVE SCALISE, A REPRESENTATIVE IN
                  CONGRESS FROM THE STATE OF LOUISIANA

        Mr. Scalise. Thank you, Mr. Chairman. I want to thank you
    and the ranking member for having this hearing.
        The Administration is proposing yet another new federal
    agency with vague, sweeping authority. We all know there have
    been bad actors in our financial system that took advantage of
    consumers and contributed to the current economic crisis.
    Unfortunately, many of the problems that brought on today's
    financial crisis are not even being addressed in this bill. The
    proposed legislation does not address the real bad actors in
    our financial systems, Fannie Mae and Freddie Mac and other
    institutions that engaged in subprime lending and relaxing
    their standards to encourage more people to take out loans they
    could not afford. Those warning signs were brought before
    Congress for years and yet many of the same people in this
    Administration and in the leadership in this Congress are the
    same people who opposed the very reforms that would have
    prevented this financial crisis from happening in the first
    place.
        This proposed new agency represents yet another step in the
    federal government trying to run all aspects of our lives. The
    government is running banks and car companies with disastrous
    results. The so-called stimulus bill, which spent $787 billion
    of money we don't have, is now being recognized even by this
    Administration as a failure that didn't create any jobs that
    were promised. There are even some in this Administration
    floating the reckless idea of yet another massive spending bill
    since the last one didn't work. Scores of experts predict that
    this Administration's cap-and-trade energy tax will cost us
    millions of jobs while increasing electricity rates on all
    American families. We are debating a bill that proposes a
    government takeover of health care, which has been tried and
    failed in other countries to the point that sick people with
    the means in those countries come here to get their health care
    because government-run health care leads to rationing
    everywhere it has been tried. Now we have this bill to create a
    consumer czar. Enough is enough. Let us fix the problems that
    exist and make reforms to federal agencies that are causing
    these problems rather than adding yet another layer of
    government bureaucracy that simply covers up the root causes of
    the problem while punishing those who play by the rules.
        I look forward to hearing the comments from today's panel
    and would like to hear how the Administration's plan impacts
    the FTC. In his testimony, Chairman Leibowitz speaks to the
    successes the FTC has had in protecting consumers in financial
    matters, which begs the question why we need a new agency with
    all these sweeping new powers and spends more money that we
    don't have. I yield back.
        Mr. Rush. The Chair now recognizes the gentlelady from
    Colorado, Ms. DeGette.
        Ms. DeGette. I will waive opening.
        Mr. Rush. The Chair thanks the gentlelady. The Chair
    recognizes the gentleman from Ohio, Mr. Space, for 2 minutes.
        Mr. Space. I will waive.
        Mr. Rush. The Chair thanks the gentleman. The Chair
    recognizes now the gentleman from North Carolina, Mr.
    Butterfield, for 2 minutes.

    OPENING STATEMENT OF HON. G.K. BUTTERFIELD, A REPRESENTATIVE IN
               CONGRESS FROM THE STATE OF NORTH CAROLINA

        Mr. Butterfield. Thank you, Chairman Rush, for holding this
    very important hearing and I especially want to thank the
    witnesses for their testimony today.
        Mr. Chairman, I hope this hearing will provide an
    opportunity for the subcommittee to address some concerns that
    we have about the proposed agency, particularly the loss of
    jurisdiction on the part of the Federal Trade Commission. Now,
    my colleagues are right, Mr. Chairman, there are many actors to
    blame for the current state of our economy. Unscrupulous
    subprime mortgage lenders and speculators and the like have all
    contributed to the financial meltdown. Of deep concern and
    rightfully so is the regulatory patchwork of federal agencies
    charged with regulating all aspects of financial institutions.
    For example, depository institutions such as banks and credit
    unions are overseen by many different agencies. Conversely, all
    non-depository institutions are overseen by one agency, and
    that is the FTC. The FTC has done a good job, and I think we
    can agree all on that, at regulating these players and I am
    concerned that reducing FTC oversight as part of the creation
    of the Consumer Financial Protection Agency may do more harm
    than good. While I am pleased that the Administration's
    proposal seeks to strengthen the FTC's rulemaking and
    enforcement abilities in areas unrelated to financial products,
    I believe that it is extremely important that the FTC maintain
    strong non-depository institution oversight.
        The Administration's proposed agency would seek to achieve
    four important objectives aimed at bolstering consumer
    confidence in financial institutions and transactions, and
    these objectives include ensuring consumer education and
    understanding of these financial products, better protecting
    consumers from unfair and deceptive practices and
    discrimination, ensuring consumer financial services operate
    fairly, making certain that underserved communities like my
    district have increased access to financial services. These are
    excellent objectives and I strongly support the goals of the
    proposed agencies but I want to be certain that the creation of
    a new regulatory agency will not place undue and unnecessary
    strains and burdens on existing federal regulatory framework
    that may still be capable of meeting those same goals and
    objectives.
        And so, Mr. Chairman, this hearing today is vitally
    important. I look forward to hearing the testimony of the
    witnesses and I thank you for the time.
        Mr. Rush. The Chair thanks the gentleman. The Chair sees no
    other members who have opening statements.
        Now it is my pleasure to introduce panel one. This is a
    two-panel hearing, and panel one consists of the Hon. Michael
    Barr, who is the assistant secretary for financial institutions
    at the Department of Treasury. We want to welcome Mr. Barr back
    to this committee once again. And also joining him at the
    witness table is one who is very familiar to this subcommittee,
    the Hon. Jon Leibowitz, who is the chairman of the Federal
    Trade Commission, and Chairman Leibowitz, we certainly welcome
    you back again to this subcommittee. It is the practice of this
    subcommittee to swear in the witnesses, so I would like each of
    you to stand and raise your right hand.
        [Witnesses sworn.]
        Mr. Rush. Let the record reflect that the witnesses have
    answered in the affirmative. Now we want to recognize beginning
    with Mr. Barr the witnesses for an opening statement. You have
    5 minutes or thereabouts for your opening statement.

        TESTIMONY OF HON. MICHAEL BARR, ASSISTANT SECRETARY FOR
     FINANCIAL INSTITUTIONS, DEPARTMENT OF THE TREASURY; AND HON.
           JON LEIBOWITZ, CHAIRMAN, FEDERAL TRADE COMMISSION

                       TESTIMONY OF MICHAEL BARR

        Mr. Barr. Thank you, Mr. Chairman, and thank you, Ranking
    Member Radanovich for providing me with this opportunity to
    testify about President Obama's proposal to establish a new
    strong financial regulatory agency charged with just one job:
    looking out for consumers across the financial services
    landscape.
        As Secretary Geithner has said, protecting consumers is
    important in its own right, and also central to safeguarding
    our financial system as a whole. We must restore honesty and
    integrity to our financial system. That is why President Obama
    personally feels so strongly about creating this new Consumer
    Financial Protection Agency.
        I understand the committee's concerns that have been
    expressed today with respect to boundary issues, jurisdictional
    issues and the role of the FTC. I think as we work together on
    those issues, it is important to keep in mind the central goal
    we all share: having one agency for one marketplace with one
    mission, protecting consumers. The new agency will have the
    authority and the resources it needs to set consistently high
    standards for banks and non-bank financial providers alike, to
    put an end to regulatory arbitrage, to put an end to
    unregulated corners of our financial system that inevitably
    weaken standards across the board. This agency will be
    accountable for its mission yet independent. It will have a
    wide range of tools to promote transparency, simplicity and
    fairness. It will act in a balanced manner, considering costs
    as well as benefits, in a way that products consumers from
    abuse while ensuring their access to innovative, responsible
    financial services. It will be able to reduce regulatory burden
    while helping consumers, for example, by creating one simple
    mortgage disclosure form for all consumers to use. It will not
    set prices for any service.
        The federal government has failed to date in its most basic
    regulatory responsibility, utterly failed to protect consumers.
    The deep financial crisis that we are still in, let me
    emphasize, that we are still in today, revealed the alarming
    failure of our existing regime to protect responsible consumers
    and to keep the playing field level for responsible providers.
    Instead of leadership and accountability, we have had a
    fragmented system of regulation designed for failure. Bank and
    non-bank financial service providers compete vigorously in the
    same consumer markets but are subject to two different and
    uncoordinated federal regimes, one based on examination and
    supervision, the other on after-the-fact investigation and
    enforcement.
        Less-responsible actors are willing to gamble that the FTC
    and the States lack the resources to detect and investigate
    them. This puts enormous pressure too on banks, thrifts and
    credit unions to lower their standards to compete and on their
    regulators to let them, and no financial provider should be
    forced to choose between keeping market share and treating
    consumers fairly. This is precisely what happened in the
    mortgage market. Independent mortgage companies peddled risky
    mortgages in misleading ways to borrowers who could not handle
    them. To compete, banks and thrifts and their affiliates
    relaxed their standards on underwriting and sales and their
    regulators were slow to act. The consequences for homeowners
    were devastating and our economy is still paying the price.
        Fragmented regulation facilitated abusive credit cards.
    Tricks and traps enabled banks to advertise selectively low
    annual percentage rates to grab market share and boost income.
    Other banks could not compete if they offered fair credit cards
    through transparent pricing and consumers ended up with
    retroactive rate hikes and unfair terms. The list goes on and
    on. Credit unions and community banks with straightforward
    credit products struggled to compete with less-scrupulous
    providers who appeared to offer a good deal and then pulled a
    switch on the consumer.
        Our federal agencies do not currently have the mission,
    structures and authority suited to effective consumer
    protection in consumer financial markets. The FTC has no
    jurisdiction over banks and it does not have supervisory and
    examination authority to detect and prevent problems before
    they spread throughout the market.
        Mr. Chairman, I see that I will be significantly over my
    time. Could I take several additional minutes?
        Mr. Rush. Yes, you are so approved.
        Mr. Barr. Thank you.
        Mr. Rush. You are on the ``thereabouts'' part of your
    testimony.
        Mr. Barr. Thank you.
        Bank regulators have supervisory powers over banks but
    their primary mission is to ensure that banks are safe and
    sound and not to protect consumer. Consumer protection
    supervision is never going to share the front seat with safety
    and soundness. Tinkering with the consumer protection mandates
    or authorities of our existing agencies cannot solve these
    structural problems. We need a structural solution. We need one
    agency for one marketplace with one mission: to protect
    consumers of financial products and services and the authority
    to achieve that mission. That is the agency we are proposing to
    create.
        The CFPA will have the sole mission of protecting
    consumers. It will write rules, supervise institutions, examine
    them and lead enforcement efforts for the whole marketplace.
    The implications for our proposal for consumer protection and
    competition are enormous. The proposal will bring higher and
    more consistent standards, stronger, faster responses to
    problems, the end of regulatory arbitrage, a level playing
    field for all providers, and more-efficient regulation. Our
    proposal gives the agency the power to strengthen mortgage
    regulation across all lenders and brokers. It can strengthen
    disclosure, make it easier for consumers to choose simple
    products, prevent lenders from paying yield spread premiums
    that pay brokers more if they deliver loans with higher rates
    than consumers qualify for. The agency would implement credit
    card protections and update these protections as markets
    change, and it would set high national standards for licensing,
    bonding, monitoring of all non-bank financial service
    providers.
        Let me say the FTC is a good agency. The chairman and I are
    good friends. Our legislation does not affect the jurisdiction
    of the FTC over the vast array of non-financial markets and
    actually strengthens its ability to police those markets. To
    increase the FTC's ability to protect consumers, we propose
    that the FTC be able to adopt rules to prohibit unfair or
    deceptive acts or practices with standard notice and common
    rulemaking, to obtain civil penalties when companies act in an
    unfair or deceptive way and to pursue those who substantially
    aid and abet providers that commit unfair or deceptive
    practices.
        The Administration also supports increased resources for
    the FTC so that consumers can be better protected across all
    markets. As for financial markets, the FTC would continue to
    have authority under the FTC Act to pursue financial fraud
    without delay including on foreclosure rescue and loan
    modification scams. The FTC will retain authority for writing
    rules under the Telemarketing Sales Act and concurrent
    responsibility for enforcing them over financial products and
    services, and the FTC would retain primary authority in the
    area of data security for non-bank entities. In addition, the
    FTC would have backstop authority to enforce the same consumer
    credit statutes that it can enforce today. Under that
    authority, the FTC, or frankly, a bank regulator, could if it
    becomes aware of a possible law violation refer to the new
    agency, and if the new agency doesn't act, take action itself.
    That same referral requirement will apply to the bank
    regulators, and it is designed to ensure a consistent federal
    approach to interpreting and enforcing our consumer protection
    statutes.
        Finally, let me just say this. It is time to put consumer
    protection responsibility in an agency with a focused mission
    and comprehensive jurisdiction over all financial services
    providers, banks and non-banks alike. It is time for a level
    playing field for all financial services providers. It is time
    for an agency that consumers and their elected representatives
    can hold fully accountable and responsible for consumer
    protection in all financial sectors, and it is also long past
    time for a stronger FTC. The President's legislation fulfills
    these needs.
        Thank you for this opportunity to discuss the proposal, the
    additional time you have graciously given me, and I will be
    happy to answer any questions at the conclusion of our opening
    statements.
        [The prepared statement of Mr. Barr follows:]

        Mr. Terry. Mr. Chairman, I would like to make a unanimous
    consent request that the gentleman from the FTC have 9 minutes.
        Mr. Rush. The chairman of the FTC will take whatever time
    he may consume.

                       TESTIMONY OF JON LEIBOWITZ

        Mr. Leibowitz. Thank you so much, Mr. Chairman.
        Chairman Rush, Ranking Member Radanovich, Vice Chair
    Schakowsky, members of the subcommittee, I appreciate the
    opportunity to be here to discuss consumer protection
    regulatory reform including President Obama's far-reaching
    proposal to enhance consumer protection through the creation of
    a new Consumer Financial Protection Agency, the CFPA.
        As all of us in this room know and as many of you on the
    panel articulated and as Mr. Barr also effectively articulated,
    the need for reform has become as painfully clear as the
    distress the consumers are now experiencing in these difficult
    economic times from a failure of regulation. All of us on the
    Commission support the President's goal of elevating consumer
    protection, although some of us have different views as to the
    best means to that end.
        For my part, this initiative, which enhances the resources
    and authority for the FTC and which creates the CFPA, is
    clearly preferable to the status quo. In any case, the
    Commission will continue to vigorously protect consumers of
    financial services while this proposal is under discussion and
    while the CFPA if it is enacted is ramping up. Beyond that, we
    look forward to working collaboratively with the new agency.
        In the last 5 years, we have brought more than 100
    financial consumer protection cases and have recovered nearly
    half a billion dollars in the last decade for consumers. Since
    I last testified before this subcommittee in late March, we
    have continued aggressively pursuing financial predators,
    bringing 14 new cases in this area. In fact, today we are
    announcing distribution of an additional $8 million in consumer
    redress checks to Americans who were deceived by deceptive
    mortgage origination fees, and on June 1st, using the new APA
    rulemaking authority that you gave us in the omnibus
    appropriations bill, we began a rulemaking addressing mortgage
    modification and foreclosure rescue scams which have become, as
    all of you know, all too common recently, and also addressing
    the entire mortgage lifecycle, advertising, origination,
    appraisals and servicing. Simply put, this work will help
    ensure that consumers aren't ripped off by bogus mortgages or
    false advertising.
        Mr. Chairman, President Obama emphasized the importance of
    giving the FTC tools and increased resources, the ones that we
    need to stop practices that harm consumers and violate the law.
    First, the proposal grows our agency, giving us the staff that
    we need to do the job that you all want us to do. Currently we
    have just over 1,100 FTEs. That is down from about the 1,800
    FTEs we had in the late 1970s and early 1980s, despite a
    considerable growth in the U.S. population, and in our own
    responsibilities including enforcing canned spam, Do Not Call,
    COPPA, the Children's Online Privacy Protection Act, Gramm-
    Leach-Bliley and other statutes. Second, the proposal provides
    the FTC with APA notice and comment rulemaking which is used by
    virtually every other agency in the federal government. It
    would strengthen the Commission's ability to address widespread
    problems more quickly. Third, the proposal authorizes the FTC
    to obtain civil penalties for violations of section 5 of the
    FTC Act. This new power we believe would help deter would-be
    violations and help protect consumers more effectively. I think
    something like 47 State attorneys general have fining
    authority. And by the way, fining authority was originally
    proposed by Casper Weinberger when he was chairman of the
    Federal Trade Commission under President Nixon in the early
    1970s. Finally, the proposal authorizes the FTC to go after
    those who aid and abet others who violate the law.
        We would also urge Congress as you consider this
    legislation to give both the FTC and the CFPA the ability to
    bring civil penalty actions on our own, which would put both of
    us on equal footing with other consumer protection agencies
    like the SEC and the CFTC and not make us as we do currently
    have to wait for the Justice Department to clear our going
    forward.
        Now, we expect that as with any bold and complex new
    initiative clarifications will be worked out as the legislative
    process moves forward, but from my perspective, the President's
    goal of streamlining the overall system for protecting
    consumers from financial abuse is more than commendable, and
    eliminating the balkanization of consumer protection oversight
    over non-banks and banks, as Mr. Barr has alluded to, is
    laudable and very, very critical.
        We do have some concerns, however, about the draft
    legislation or the legislation as it was initially drafted,
    although I am optimistic that we can work these out as the
    legislative process moves forward. So for example, the proposal
    states that the FTC would have backstop authority but the draft
    legislation imposes a review period that could require us to
    wait 120 days before filing certain cases. We also believe it
    would be helpful to make definitions of the proposal's terms
    such as credit and financial activity clearer, and let me tell
    you why with an example. So suppose the FTC finds a
    telemarketer making illegal robo calls to millions of consumers
    on the Do Not Call Registry urging them to purchase something
    like advanced fee credit cards which are, I wouldn't say per se
    illegal but almost always, let us say often illegal, and
    suppose that a payment processor participated in the fraud. It
    is critical that we be able to bring action against all of the
    malefactors expeditiously but it is unclear under this draft
    whether we would have the jurisdiction over the telemarketer
    offering the financial products or the payment processor, and
    if so, whether the 120-day waiting period would come into play.
    Now, we have made much progress with Treasury on several of
    these boundary issues and we are continuing to make progress
    but getting this right and allowing us to put an immediate halt
    to harmful practices is crucially important.
        Having said that, with this committee involving in writing
    any legislation, I am confident that this very, very important
    initiative will be considered, discussed, clarified and refined
    with all open issues resolved in favor of American consumers.
    We understand, of course, that under this proposal rulemaking
    authority and primary enforcement responsibility for financial
    products and services would go to the new agency but we will
    continue to aggressively enforce these laws as a cop on the
    beat where necessary as well as each and every other consumer
    protection law within our jurisdiction. We look forward to
    working with the Administration and Congress to reach a plan
    that best protects American consumers, and I thank you for your
    time.
        [The prepared statement of Mr. Leibowitz follows:]

        Mr. Rush. The
    Chair thanks the gentleman, the chairman of the FTC, and the
    Chair now recognizes himself for 5 minutes for the purposes of
    questioning the witnesses.
        With the continuation of the financial crisis, we see more
    and more scam artists preying on desperate consumers seeking to
    reduce their debts and to keep their homes out of foreclosure
    or from selling their homes at a loss, and I am concerned about
    this proposal in that this new agency would not do enough in
    the short term because we all know that it takes some time for
    a new agency to rev up, to get going and get running. Another
    option that the Administration might have considered is
    proposing that the FTC take on this essential role. By
    increasing its staff and authority, it is conceivable that FTC
    could be taking on these issues within weeks or months rather
    than years. Mr. Barr, did the Administration consider other
    options other than creating a new agency?
        Mr. Barr. Yes, Mr. Rush. Let me just say, Mr. Chairman,
    that with respect to the transition issues, our view is that
    the FTC should act aggressively as it is doing now under the
    chairman's leadership to continue to enforce the law, be a cop
    on the beat, be quite aggressive in this area, and we are at
    the same time that we are pushing to create the new agency
    pushing on all the existing agencies working closely with them
    to do everything we can under existing authority. So I don't
    think there is any sense that anybody thinks we should slow
    down, rather, quite the opposite.
        With respect to other options, the Administration
    considered a wide range of options with respect to consumer
    protection, and our basic view was that the existing system was
    fundamentally broken and we needed a quite large, significant
    change to create one agency whose sole job was protecting
    consumers across the financial services marketplace. I think
    that the chairman is deeply aware of the ways in which
    consumers have been abused and neglected for quite a long time
    and the existing structure is just inadequate to meet the
    needs. So our strong view, the President's personally strong
    view was that we needed a new financial agency with that core
    mission that was strong and could achieve the goals that I
    think the chairman articulated so eloquently in the opening
    remarks.
        Mr. Rush. Chairman Leibowitz, during this interregnum
    between this bill becoming law and this new creation actually
    taking place, that is going to put a lot more pressure on the
    FTC. Do you have the requisite resources and personnel? How
    will the FTC function during this interregnum?
        Mr. Leibowitz. I would say that during the sort of
    interregnum period if the legislation is enacted, we are going
    to work very closely with the new agency. I think the period
    for transfer is somewhere between 6 and 24 months, depending on
    how quickly they are ready to ramp up. We are going to continue
    to bring cases, and I think that was always the notion. I do
    think that going forward, you know, we could use more
    resources, and we talked about this before in hearings, and I
    do think that even after the agency is created, assuming it is,
    that it would be useful for us to have concurrent enforcement
    authority so that if we are going after--you know, the bad guys
    don't always act in silos, as Mr. Barr knows, as all of you
    know. You know, sometimes they are violating the Do Not Call
    rule and they are violating reg Z or reg E which would go over
    to the new agency, and so I think it is important going forward
    that when there is ongoing consumer harm that we are able to
    sort of jump over the kind of legislative, the new legislative
    fence to help consumers and not have to wait potentially 120
    days. I think we are working through a lot of these issues,
    making a lot of progress between our staffs and ourselves.
        Mr. Rush. The Chair sees that his time is up. The Chair now
    recognizes the ranking member for 5 minutes.
        Mr. Radanovich. Thanks, Mr. Chairman, and welcome,
    gentlemen, to the panel. I am pleased to see you here today.
        Mr. Leibowitz, welcome back to the committee. I know you
    have been here a number of times already and probably will be
    more in the future. I have to think you are doing a bit of a
    dance because you stand to lose some jurisdiction in the FTC,
    and it seems to me that you are getting, at least under the
    proposal, getting more money and authority to do less, and I
    want to know what your reaction to that statement is, given the
    fact that the FTC has dual jurisdiction, and that is, two
    missions to ensure competition but also consumer protection.
        Mr. Leibowitz. Well, Mr. Radanovich, let me just start by
    saying I hope that familiarity is not breeding contempt here.
        Mr. Radanovich. Not at all.
        Mr. Leibowitz. Look, you know, if you read through our
    written testimony, you can sort of see it is a complex matrix
    within the Commission about what we support and what we don't.
    I do think from our perspective if you create this--from my
    perspective, if you create this new agency and you also give us
    more resources and authority, from the perspective of consumers
    they will be getting a better deal because we will be able--we
    will continue to have a backstop authority with respect to
    financial matters and we are going to be able to concentrate
    and just do more for consumers. As you know, because we have
    talked about this, we spent a lot of time leveraging----
        Mr. Radanovich. But if I may, you are losing jurisdiction.
        Mr. Leibowitz. We would be losing jurisdiction and----
        Mr. Radanovich. How does that loss of jurisdiction deal
    with your two missions of ensuring competition and providing
    consumer protection?
        Mr. Leibowitz. Well, I would say on the competition side,
    we wouldn't be losing jurisdiction. We would still retain that
    jurisdiction. On the consumer protection side, we would be
    losing jurisdiction to this new agency but this new agency
    would be another cop on the beat protecting consumers, and
    then--and we would also be losing personnel, and we have
    already lost a few personnel, I would say, to the new agency...
        Mr. Radanovich. But it does seem to me like you are getting
    more money and authority to do less.
        Mr. Leibowitz. Well, we will do more. I mean, we really
    will. It is not a question from our perspective of moving to a
    government--I mean, our guys work extremely hard. They have
    been commended by OPM for always scoring high on sort of
    effectiveness and quality of work, and we will just do more in
    the areas where we have--while retaining backup authority, if
    the proposal goes through, we will do more in the other areas
    of consumer protection and there is plenty to do.
        Mr. Radanovich. Thank you.
        Mr. Barr, welcome to the subcommittee. You know, in Russia
    during the height of communism, it was often talked about the
    fact that there was not a lot of food on the shelves, and when
    you go into stores you might be able to get a loaf of bread,
    but if you wanted sourdough, you probably had to have the
    standard loaf, if you wanted rolls, you got a loaf of bread, if
    you wanted something else, you got a loaf of bread. Tell me
    how--explain to me how you are not doing the same thing in the
    credit markets in the name of consumer protection.
        Mr. Barr. Thank you very much for that terrific question. I
    was smiling as you were describing the example because I spent
    some time in Poland had the same experience where you go to the
    store and there is nothing there and you can actually literally
    go hungry. This agency has nothing to do with that, literally
    nothing to do with that. The new agency----
        Mr. Radanovich. Tell me how you are not doing that though
    in the credit markets, because that is a question I would like
    answered.
        Mr. Barr. The new agency is in no way pursuing that kind of
    command and control model. It is in no way pursuing price
    setting. It is in no way saying you can't offer certain kinds
    of products. The new agency under the legislation----
        Mr. Radanovich. And I understand the reason for looking at
    this because we have all experienced this financial crisis but
    doesn't this end up providing consumers with less choice and
    driving up the cost of credit for consumers?
        Mr. Barr. With respect, sir, our strong view is that it
    does not. It continues to provide for financial innovation.
    Consumers can get access to whatever products and services
    providers want to offer. Our basic approach is to improve
    disclosure, reduce regulatory burden, for example, by merging
    authorities so you can have one simple mortgage form at the
    time of disclosure, improve----
        Mr. Radanovich. But weren't there existing authorities that
    have and could and should deal with the current crisis that we
    are in? Doesn't the added restrictions and regulations that you
    are going to be putting on the credit industry will drive up
    the cost of credit to consumers?
        Mr. Barr. I think that the better judgment, sir, again,
    with respect, is that the current system we have had, the
    status quo on consumer protection was a dismal failure and I
    think we have evidence all around us of that, and our view was,
    both for banks and for non-banks, for consumers and for
    households, the system failed. If you talk to, and I am sure
    you do, the community bankers in your community who had to
    compete against unregulated providers who were sucked into
    offering products----
        Mr. Radanovich. Actually competing against large banks for
    TARP money, but--thank you very much, Mr. Chairman. I yield
    back.
        Mr. Rush. The Chair now recognizes the gentlelady from
    Illinois, the vice chair, Ms. Schakowsky.
        Ms. Schakowsky. Thank you. Mr. Barr, could you describe how
    we potentially would have been in a different situation today
    had this agency been in existence as the current problems
    started to unroll?
        Mr. Barr. Yes. I think we would have been in, could have
    been in a fundamentally different situation if we had an agency
    that could set the rules of the road for everybody to follow,
    if we had an agency that could say to mortgage brokers, you
    can't get paid more for offering riskier, higher-priced, more
    confusing products than a basic product, if we had a rule that
    said mortgage brokers, you have a duty of care, you have to do
    best execution for a mortgage so you can't offer the mortgage
    that is the best deal for the broker, you are supposed to offer
    a mortgage that is the best deal for the consumer, if we had a
    duty that said mortgage brokers have to have some skin in the
    game, they need to be paid over time, securitization trusts
    have to have skin in the same so that you don't have a system
    where all the bad mortgages are made up front and eventually
    sold to the investor at the other end with nobody in the chain
    having responsibility, nobody having any of their own capital
    at risk. So we could have had fundamental change. We could have
    had a fundamentally different situation in which consumers were
    protected at the front end and the financial system was
    protected all the way through.
        Ms. Schakowsky. And you are saying without any change in
    legislation beyond the creation of this agency, that you would
    have the authorities then under the bill, which I haven't read
    thoroughly yet, you would be able to have done all those
    things?
        Mr. Barr. Yes. This agency would be granted the authority
    to do all the things that I just described.
        Ms. Schakowsky. Did you want to comment on that, Mr.
    Leibowitz?
        Mr. Leibowitz. Well, I would just say that one of the
    things that is critical here is APA rulemaking authority, and
    of course, under the new proposal, they will be able to do it
    for non-bank- as well bank-related financial instruments and
    mortgages. And so in the omnibus you gave us, for which we are
    very grateful, APA rulemaking for non-bank mortgages and we are
    going to look at that and we are going to do, I think, a very,
    very good rule, and Mr. Rush, you have legislation that would
    expand our jurisdiction a little bit more but it only goes--it
    is only within the context of non-bank-issued financial
    instruments. So 20 years ago we did a lot of matters relating
    to credit cards and all the credit cards are now, virtually
    every credit card is now issued by a bank. We have no
    jurisdiction there. So I think that is a critical advantage
    from the consumer's perspective of what this new agency might
    do.
        Ms. Schakowsky. And let me just say that while I absolutely
    in theory think pulling it all together in one place is a good
    idea, but, you know, we have seen in the startup of the
    Department of Homeland Security lots of difficulties in pulling
    it all together and making it all happen. The creation of a
    director of national intelligence, certainly in that case many
    of us on the Intelligence Committee see a large bureaucracy
    itself developing, and have some problems with the coordination
    that was actually supposed to happen. How can we be assured
    that this will achieve its goals, achieve it in a timely way
    and not just be another bureaucracy?
        Mr. Barr. Thank you very much. Again, I think that our view
    is, the agencies that have the authority now should
    aggressively use those authorities. Those authorities are
    inadequate to the task. The basic structure of the system was a
    dismal failure. We need to do this. We need to take this
    action. The legislation has tight timelines for transition.
    Treasury has responsibility to make sure that transition
    happens effectively. You can come see me, you can come see
    Secretary Geithner. We are responsible for making sure. You can
    hold us accountable.
        Mr. Rush. The Chair recognizes Mr. Stearns from Florida.
        Mr. Stearns. Thank you, Mr. Chairman. Mr. Chairman, we have
    had a lot of hearings on privacy here in this committee, and
    when I was chairman of the committee we had many hearings on
    privacy, and I think my concern is that if we transfer some of
    the Federal Trade Commission's privacy work to this new CFPA,
    particularly in light of all the expertise that you have, and
    you have been the leading federal agency in the area of
    consumer privacy for all these years, and including financial
    privacy as well as identity theft, information security. So
    with that in mind, what do you feel about this transfer?
        Mr. Leibowitz. Well, I guess I would make a couple points,
    and this committee and you have been leaders in privacy-related
    issues. You know, we will be transferring over a lot of laws.
    We hope to keep sort of a backstop authority that is
    concurrent, and of course, this is the beginning of the
    legislative process. It is not the end and, you know, I see a
    lot of agreement on many things within this committee on ways
    to go forward. The way we read the legislation, it was unclear
    whether issues like data security, privacy would stay with us.
    I think Mr. Barr has represented today, the better reading of
    the proposed statute or the reading of the way the proposed
    statute will move forward is that we will keep issues like
    that, and I think that is very, very important.
        Mr. Stearns. So identity theft, you would still keep?
        Mr. Leibowitz. I think we would keep identity theft.
        Mr. Stearns. And financial privacy?
        Mr. Leibowitz. Financial privacy, I think mostly moves over
    to the new agency. I mean, again, I think that is to some
    extent up to you. I think we would keep the safeguards rule
    under Gramm-Leach-Bliley but a lot of this has to be worked
    through of course during the transition period. We will keep on
    doing this and again we will have backstop authority. And I
    should probably turn this over to Mr. Barr, who is one of the
    true architects of the plan.
        Mr. Stearns. But what you are saying today is that some of
    this is still up for negotiation?
        Mr. Leibowitz. Yes. These boundary issues, that you have
    raised the same concerns that we saw when we got the
    legislation at the end of last week but it seems that it is
    being resolved on many of these boundary issues in favor of
    retaining jurisdiction by the existing Commission, and I assume
    that, you know, as this legislation moves forward, that is what
    this committee would be most interested in, but let me turn it
    over to Mr. Barr.
        Mr. Barr. Just to add to that, the chairman is correct that
    with respect to data security issues, identity issues,
    safeguard red flags, all that would stay at the FTC and the
    parallel authority for that at the bank agencies but the front-
    end privacy notices that have to do with disclosure would fit
    in the new disclosure regime of the new Consumer Financial
    Protection Agency.
        Mr. Stearns. So let us say Internet privacy, consumer
    privacy, would that remain with Federal Trade Commission?
        Mr. Barr. Again, with respect to the disclosure aspect on
    the financial side, the disclosure would be unified with the
    disclosure regime at the new financial agency. All the data
    security, identity theft and related issues would remain at the
    FTC and the parallel authorities with respect to banks.
        Mr. Leibowitz. But if you are thinking about core issues
    like spam, spyware, behavioral marketing, we keep all of those.
    You know, there might be some issues about whether we are going
    after a malefactor or a group of malefactors and one of them is
    on the other side of the core new agency's fence, you know,
    right now there's 120-day waiting period, which we are a little
    concerned about from the perspective of consumers, but going
    back to your original point, a variety of issues including sort
    of the core privacy issues we do we will be keeping and
    retaining jurisdiction.
        Mr. Stearns. Well, I think, Mr. Barr, what you should
    realize with all that expertise in the Federal Trade Commission
    we are starting a new federal agency here. You know, I would
    think that as many have pointed out on this side, we are
    worried about a new federal agency, particularly when you have
    an agency that already has the expertise. I think the bill says
    that the cost of development of this new agency is such sums as
    are necessary. Is there any more definitized information you
    can give on what the cost would be for this new federal agency?
        Mr. Barr. I don't at this time have an overall cost
    estimate for the agency or size estimate for the agency. It is
    something we are working on. We will work with the appropriate
    committees on it and with OMB and CBO. We anticipate that the
    agency will be pulling in staff and resources from the existing
    agencies and additionally having new resources required. I
    would be happy to continue to work with you on that question.
        Mr. Stearns. Can you talk about the resources the agencies
    will need besides--I mean, have you identified any of the
    resources?
        Mr. Barr. We have begun the process of identifying the
    number of individuals and the other resources the agency would
    need but we are not at a place now where I could give you even
    a reasonable estimate of what additional measures beyond the
    transfer authorities would be required. It is something we are
    working quite hard on.
        Mr. Stearns. I will just close. Mr. Chairman, you might
    think as a subcommittee chair since a lot of the expertise for
    this is already in the Federal Trade Commission and this is a
    new agency, you might--and particularly in your jurisdiction
    here, I think we have to move carefully as Mr. Dingell out,
    developing a brand-new agency. They don't know how much they
    are going to spend, they don't know what resources they are
    going to need, and also they are going to be taking on
    expertise for areas they know nothing about that the Federal
    Trade Commission has years on, so I just wonder, you as the
    chairman, you might want to be very careful and cautious about
    endorsing this new agency without, you know, some more hearings
    on it and try to get more of the stakeholders here, perhaps
    more than we have on the witness list here, to try and get into
    the discussion here. So I thank you, Mr. Chairman.
        Mr. Rush. The Chair thanks the gentleman. The Chair
    observes that there is a vote going on on the floor. There are
    three votes. It is the desire of the chairman that we should
    delay the committee hearing until after the votes are concluded
    and then return. I am not sure what the witnesses' time
    commitments are but it would be very important if you return I
    would say within 15 minutes after the last vote. Then the
    subcommittee will reconvene.
        [Recess.]
        Mr. Rush. The subcommittee will reconvene. The Chair
    recognizes the fact that there might be members of the
    subcommittee who did not have an opportunity to ask questions
    of our witnesses before we recessed. However, I am very
    cognizant of the witnesses' time and will take this time to go
    into a second round of questions, and if there are members who
    come in who have not asked questions in the first round, then
    the chair will prolong their questioning to 7 minutes.
        So with that, the Chair recognizes himself for 2 minutes of
    additional questions.
        In its White Paper describing the proposed regulatory
    reforms, the Department of Treasury stated clearly that, and I
    quote, ``The FTC shall retain authority for dealing with fraud
    in the financial marketplace.'' Despite this assurance, the
    proposed language appears to weaken FTC's authority in this
    area. FTC will retain the authority to enforce against unfair
    and deceptive acts and practices using the FTC Act. However,
    the FCC could not add any statutory claims such as the Truth in
    Lending Act or the Equal Credit Opportunity Act to a complaint
    without first referring the case to the new agency and waiting
    120 days for that agency to decide if it wants to take the
    case. Chairman Leibowitz, let me ask you, how will this change
    impact the FTC's ability to consume financial problems? Could
    the FTC consume one part of a case while the other is under
    consideration or would you expect that it would simply not
    bother with additional claims? Will the FTC's cases be weakened
    if they only rely on FTC Act claims?
        Mr. Leibowitz. Well, I think, Mr. Chairman, that is an
    great question, and keeping in mind that we are at the
    beginning of the legislative process, not near the end of the
    legislative process, those are questions that this committee
    will want to think through as the legislation proceeds forward.
    Last week we brought a bunch of cases which we called Operation
    Short Change, and it was about scams that were hitting people
    in economic distress, and a lot of those were basically fraud
    claims under the FTC Act, but one of them involved the
    Electronic Funds Transfer Act, I think it is reg E. Now, reg E
    would go to the new agency, and so this would sort of invoke
    two parts of your question or two components of your question,
    one of which is, would we have to wait 120 days to bring this
    case while there is ongoing harm, and then the second issue is
    really, what is the nature of our backup authority, and I want
    to say, Mr. Barr and I have been working through this with our
    staffs and very, very productively. You know, I worked on the
    Hill for 13 years and I never wrote a piece for legislation for
    my bosses then that didn't change as it went forward. And so
    but I think these are precisely the questions that we worry
    about at the FTC. We want to make sure, and I know Mr. Barr
    does too, that this legislation is as effective as it can be
    for the consumers that all of us represent, and so I think it
    is important that you----
        Mr. Rush. Well, it seems that the consumers would benefit
    more if the FTC didn't have to solely rely on the so-called
    backdrop authority. Do you agree with that?
        Mr. Leibowitz. Well, again, I mean, from my perspective,
    and I will turn the mic over to Mr. Barr in a second but from
    our perspective, if the backup authority is weak, and, you
    know, we have backup authority involving the SEC and the CFTC
    which we use very rarely, only when we need it. But here, a
    couple of points. One is, as the transition is happening, if
    this legislation is created, you and certainly even after very
    good lawyers are transferred and attorneys and jurisdiction,
    you know, it is going to take a while for this agency, and Mr.
    Barr knows better than anyone, to ramp up, and I like--I
    believe that they are going to want us involved using our
    backup authority, probably more earlier than later. Now, we
    understand that they will have primary jurisdiction but I think
    it is very important that the backup authority be robust so
    that we can sort of help out and also so that when we have
    these cases that involve malefactors that don't fit into the
    old or new silos that we can effectively go forward and stop
    ongoing harm involving consumers.
        Mr. Rush. I have just one question. Earlier you stated that
    you had lost some personnel. Were the individuals transferred
    to Treasury?
        Mr. Leibowitz. We have one or two people who have gone
    over.
        Mr. Rush. And what is the purpose of them going over to
    Treasury? Are they on loan to Treasury or are they reassigned
    to Treasury?
        Mr. Leibowitz. Oh, I think they are on detail.
        Mr. Rush. What is the purpose of them being on detail to
    Treasury? What are they doing over there?
        Mr. Leibowitz. I think they are--well, I will turn that
    over to Mr. Barr. But I do know that the one person I know who
    is on detail to Treasury is a fabulous attorney and really
    cares about consumer protection.
        Mr. Rush. All right. Well, why don't you turn it over to
    Mr. Barr and let him answer the question. Thank you. Mr. Barr,
    would you begin your answer with that last question and then
    you can respond to the other question.
        Mr. Barr. Sure, and then I would be happy to address the
    broader points. We have on our staff a terrific attorney from
    the FTC who has come over on detail and is going to be a
    permanent employee of the Treasury Department working on
    consumer issues. With respect to the broader sets of questions,
    I would just say first and foremost the chairman and I have
    been working closely together and are committed to working
    closely together on these sets of issues. On financial fraud,
    it is clear from the President's proposal that it would not in
    any way diminish the FTC's ability to take on financial fraud
    cases as it is stated in the white paper and in the
    legislation. The FTC would retain its authority and its duty to
    bring financial fraud causes without delay.
        With respect to coordination, there are many issues that
    the agencies will want to coordinate on. The 120-day measure is
    not like the existing authorities that the FTC uses where it is
    the primary entity doing enforcement. This is a proposal that
    kicks in if the FTC is doing its work and finds a problem, it
    can let the new agency know, the consumer agency know about it.
    It doesn't have to wait as the FTC does today, it doesn't wait
    until it has gone through its investigation, gone through the
    whole charging process and gotten it all ready and then refer
    it to the Justice Department. It is totally unlike that. This a
    chance for the FTC to let the new agency know about a problem
    that it sees that has come to its attention. So it is a
    fundamentally different mechanism. We are committed to being
    sure that that in no way delays any financial fraud cases.
        And with respect to the transition issues again, the FTC
    and the bank agencies will have large transition issues. We are
    committed to working those through and, as I mentioned to
    Representative Schakowsky, Treasury is responsible for ensuring
    that transition happens smoothly and you can hold us
    accountable for that.
        Mr. Rush. With that, my time is concluded. Now Mr.
    Radanovich is recognized.
        Mr. Radanovich. Thanks, Mr. Chairman, and welcome back.
        Mr. Leibowitz, uncertainty is one of the key factors behind
    the perpetuation of our current economic crisis, and granting a
    new and unknown regulatory agency with this broad scope of
    power places a dangerous--could place a dangerous level of
    uncertainty into the financial markets. Do you think that it
    might be better to have an experienced regular such as the FTC
    with a long and trusted history of working with business at the
    helm with these new powers?
        Mr. Leibowitz. Well, as you know, I am very fond of the
    Federal Trade Commission as you are. I would say this. You
    know, as you know, I testified here a few months ago that we
    thought we could do the consumer protection mission involving
    predatory financial instruments. The proposal that has been
    developed, though, is one that is broader than that. It has
    bank examiner components. It has compliance components. So
    those are not things in our core competency. You know, again,
    we are a creature of Congress. We are an independent agency,
    and so we will do whatever you tell us we are going to do, and
    then beyond that, I just want to come back to my initial point,
    which is, based on what we have seen in this marketplace and
    the restrictions that we have operated under, I do think that
    if these issues are worked through, and I believe they will be,
    I do think that having this new agency and the FTC both going
    after unfairness, deception, fraud is considerably preferable
    to the status automobile accident.
        Mr. Radanovich. We agree on that. I think the issue is, how
    you go about it. I will say, though, that meeting with the
    bankers in my district back home, they are afraid of this, and
    I think the uncertainty question is a legitimate question, and
    if it does bring the specter of increased regulatory management
    over the industry, not that something has to be done in order
    to correct the mistakes of the last year, but, you know, what
    is it going to do to the industry's willingness to get out
    there and unfreeze liquidity like we are all wanting?
        Mr. Barr. If I could just add to Chairman Leibowitz's
    comment on that, I think that a key new factor is, this agency
    would have all the supervisory and examination authority it
    needs, not just with respect to banks but also with respect to
    non-bank competitors of those banks, so I understand that many
    banks are worried about the scope of the new Consumer Financial
    Protection Agency. I appreciate those concerns. I think the
    additional upside for them is that the non-bank competitors
    will have the same high standard that they need to meet, the
    same level playing field, the same consistent rules. So they
    don't have to worry. A community bank and a credit union
    doesn't have to----
        Mr. Radanovich. Something tells me that you are just
    broadening the uncertainty to include the entire financial
    markets, you are not----
        Mr. Barr. No, I think what we are able to do, sir, with
    respect----
        Mr. Radanovich. It seems to me the uncertainty is being
    broadened, not--that doesn't answer the question about
    uncertainty and the banks are afraid of this kind of
    legislation.
        Mr. Barr. I think what we are able to do is create a high,
    consistent, clear standard. We are able to reduce regulatory
    burden in many cases, for example, combining the TEAL and RESPA
    forms that drive everybody crazy and don't help consumers. We
    need a single, uniform, simple standard for disclosure that
    applies----
        Mr. Radanovich. I suggest that you need to convince the
    banks because they are the ones that are expressing the real
    concern. If I may, though, Mr. Barr, I do have a second
    question, and that is that President Obama has stated that a
    streamlined system will provide better oversight and will be
    less costly for regulated institutions but the preemption
    statutes in the bill create a floor rather than a ceiling for
    State regulation. Doesn't that mean we are looking at 51
    different versions of this thing by giving the preemption
    statutes to the States and does that not conflict with
    President Obama's statement that we are looking at a
    streamlined system?
        Mr. Barr. Well, as you know, the States have long played an
    important role in consumer protection. I think one of the
    upsides of living in our country is that we have independent
    States that----
        Mr. Radanovich. But they have not had preemptive status in
    this situation before.
        Mr. Barr. They have not been able to apply State laws in
    some context to national banks, but they certainly have been
    very active in the consumer area across lots of different
    products and services in the past.
        Mr. Radanovich. Do you think that could lead to 51
    different versions of this----
        Mr. Barr. I think we are much more likely to see a high
    standard at the national level. I think it is very rare if you
    set a good, high standard at the national level you are going
    to find it very rare for States to go off in their own way, but
    sometimes States are right. Sometimes States protect consumers
    in innovative ways, and our view is, we shouldn't block the
    States' ability to do what the States think in their judgment
    is right.
        Mr. Radanovich. All right. Thank you, Mr. Chairman.
        Mr. Rush. The Chair recognizes Dr. Gingrey for 7 minutes
    for the purposes of questions.
        Mr. Gingrey. Mr. Chairman, thank you for your generosity of
    time. I am sorry I missed the first round, and I appreciate you
    letting me ask some questions. And I did want to ask Secretary
    Barr, in your testimony you indicated that we need only one
    agency charged with protecting consumers for financial products
    and services. As one of the principal architects of the
    Administration's plan and the proposed Consumer Financial
    Protection Agency, you lay out very broad and sweeping changes
    that will fundamentally change a number of government agencies
    of course including the FTC. However, while this is still in
    the early stages, there are some concerns held by members
    including me that an overly broad new regulatory agency will
    have the same effect of hitting a nail with a sledgehammer, and
    these efforts under the guise of uniformity I feel that there
    may be some different standards set for industries within this
    proposed agency. For example, I have heard some suggestion that
    small banks should be exempt from some or all of the rules
    written by the proposed agency and the drafted legislation
    contains exempted authority based on asset size. Is it the
    Administration's play to apply different consumer protections
    depending on whether a customer transacts with a small or a
    large bank, and furthermore, if you intend to carve out smaller
    institutions, what are the types of rules they would be
    exempted from and what is the policy reason for carving out
    these institutions?
        Mr. Barr. Thank you very much for that set of questions. I
    do think that our proposal does involve sweeping change, a
    sweeping change that in our judgment is essential to protect
    consumers. Our old system was fundamentally broken and we do
    need fundamental reform.
        With respect to smaller institutions, we don't expect to
    see, would not expect that small banks and big banks would have
    different rules of disclosure, but you may see differences in,
    say, how much examination or supervision there would be. In the
    bigger institutions as we do today on site there are examiners
    on site year round. You wouldn't want that for a small bank. So
    you may see differences like that but not differences in the
    basic standards affecting consumers. Those would be uniform
    across the board. So if you walk into a bank or you walk into a
    credit union, you walk into a big bank or you go to your
    independent mortgage broker or you go to an independent
    mortgage company, you get the same simple mortgage disclosure
    so consumers can understand what they are getting.
        Mr. Gingrey. Chairman Leibowitz, as you outlined in your
    testimony, there will be a number of changes to the FTC as a
    result of the Consumer Financial Protection Agency it that
    becomes law. Many responsibilities will be pulled from the
    current jurisdiction of the FTC and to be given to this new
    agency. With all of these proposed changes, what then will be
    the role of the FTC in this new landscape and how much of that
    new role will be duplicative of this proposed agency? You guys
    have been doing a good job, you know, we are appreciative of
    that.
        Mr. Leibowitz. And we appreciate, you know, and are
    heartened by what you said about our agency. I do think we do a
    good job and we have terrific attorneys who really care about
    enforcing the mission of the agency and good commissioners who
    are also committed. You know, we will still have all of our
    competition, right, our antitrust authority. We will continue
    to do all the other things we do, whether it is fraud or
    privacy outside of the financial context or, you know,
    advertising and marketing practices, and then we will continue
    to stay involved here, I think especially during the transition
    period and hopefully beyond with concurrent jurisdiction. You
    know, look, there are, as we know in this room, as you guys
    know better than anybody else, there are a lot of bad actors
    out there who are, you know, trying to rip off American
    consumers and so, you know, by growing the federal ability to
    go after these malefactors, you know, that can only help even
    the playing field. What we do at the FTC and I think we do it
    really well but it's a sort of triage, right? You know, we look
    at different cases, potential cases as we are going through an
    investigation and we say which one can we best leverage, which
    are the ones that, you know, are the greatest harm to the
    greatest number of people, which are the ones that might make
    better, change bad case law, for example, and we are always
    making decisions based on sort of the lack of resources that we
    have. We just try to do the best job we can.
        Mr. Gingrey. Well, let me reclaim my time just for a
    second. I did want to ask you one other question. We don't
    disagree with the need for oversight, but it seems to me that
    in this current financial crisis that we are in and all of
    these bad loans and toxic assets and all of that, that the
    oversight got really heavy after the horse had already left the
    barn and so that is kind of a concern, and there is always the
    concern that the oversight becomes too much, so restrictive
    after the fact that these institutions, particularly your small
    banks and lending institutions, can't function, and I certainly
    see this across my district in privately held banks, smaller
    banks that the oversight should have been steady and consistent
    and it always should be but yet, you know, when some
    catastrophe occurs because somebody was not minding the store,
    then all of a sudden the oversight comes down on these
    institutions to the point that all of a sudden they go out of
    business, it hurts the local community. But let me just ask you
    in the little bit of time I have got left, you mentioned to us
    what the FTC would be able to continue to do. What percentage
    of what you currently do is that? Does that represent 50
    percent of your current responsibilities, 25 percent? Are you
    losing more than 50 percent of what you currently are charged
    to----
        Mr. Leibowitz. No, no, no. You know, I think it would be
    more like in terms of--if I think it through in terms of
    resources, I will get back to you with a response but I would
    say it is more like 5 to 10 percent of what we do, and of
    course, it has been an area, as you know, that we have been
    concentrating on more and more because it is very important to
    American consumers, many of whom are suffering from--almost of
    whom are suffering from some----
        Mr. Gingrey. Well, I would appreciate it if you would get
    back to me.
        Mr. Chairman, thank you for your patience and generosity,
    and thank the witnesses.
        Mr. Rush. Again, the Chair thanks the witnesses for the use
    of their time. You were very generous to us with your time and
    we want you to know that you have really contributed
    significantly to this process and we are better off because you
    testified today and helped us move along on this new proposal.
    So we will be in touch with you in the future, and the Chair
    wants you to know that we will give members 72 hours to ask
    questions in writing, and if you will respond to them in a
    reasonable amount of time, the Chair will really appreciate it,
    so thank you so very much.
        The Chair now calls the second panel. The Chair welcomes
    the second panel to this hearing. The Chair apologizes for the
    inconveniences that you might have had to endure while we were
    on the floor voting, and the Chair is very respectful and
    appreciative of the fact that you have come from far and wide
    to be here to testify.
        I want to introduce our witnesses, and I will begin my
    left. Ms. Gail Hillebrand is the senior attorney and manager
    for the Financial Services Campaign for the Consumers Union.
    Sitting next to her is Mr. Stephen Calkins, Esquire. He is
    associate vice president for academic personnel and a professor
    of law at Wayne State University. Next to him is Mr. Prentiss
    Cox, who is an associate clinical professor of law at the
    University of Minnesota, and sitting to Mr. Cox is Ms. Rachel
    E. Barkow, and Ms. Barkow is a professor of law at New York
    University School of Law. And last but not least, the gentleman
    with the smile next to her is Mr. Chris Stinebert. Mr.
    Stinebert is the president and CEO of American Financial
    Services Association. Again, we want to thank you and welcome
    you to this committee hearing.
        It is the practice of this committee that we swear in the
    witnesses, so would you please rise and raise your right hand?
        [Witnesses sworn.]
        Mr. Rush. Let the record reflect that all the witnesses
    responded in the affirmative.
        Now it is my privilege to recognize you for 5 minutes for
    an opening statement, so Ms. Hillebrand, we will start with
    you.

      TESTIMONY OF GAIL HILLEBRAND, SENIOR ATTORNEY AND MANAGER,
    FINANCIAL SERVICES CAMPAIGN, CONSUMERS UNION; STEPHEN CALKINS,
       ESQ., ASSOCIATE VICE PRESIDENT FOR ACADEMIC PERSONNEL AND
        PROFESSOR OF LAW, WAYNE STATE UNIVERSITY; PRENTISS COX,
     ASSOCIATE CLINICAL PROFESSOR OF LAW, UNIVERSITY OF MINNESOTA;
    RACHEL E. BARKOW, PROFESSOR OF LAW, NEW YORK UNIVERSITY SCHOOL
       OF LAW; AND CHRIS STINEBERT, PRESIDENT AND CEO, AMERICAN
                     FINANCIAL SERVICES ASSOCIATION

                      TESTIMONY OF GAIL HILLEBRAND

        Ms. Hillebrand. Thank you, Chairman Rush, Ranking Member
    Radanovich and members of the committee, you know Consumers
    Union as the nonprofit publisher of Consumer Reports but our
    mission is to inform, protect and empower consumers, and that
    is the role in which I appear before you today. My written
    testimony was joined by six national consumer organizations.
        Consumer groups want and consumers in the United States
    need a strong consumer financial protection agency, a robust
    Federal Trade Commission and a strong role for States in
    consumer protection in financial services. We believe that
    those goals are entirely consistent with one another. The goal
    is a better financial services marketplace and better
    government in financial services oversight. We have to face it,
    the current system doesn't work. It is not delivering products
    or encouraging products that are understandable to consumers
    who use them or that meet the reasonable expectations created
    in the sales process. Instead we have gotcha banking. We have
    multiple regulators by type of providers, even when those
    providers are competing directly for the very same consumer. We
    have long delays for regulatory action and we don't have much
    of open public enforcement except by the FTC. And finally, we
    have abusive features in products that are squeezing their way
    through the holes in the existing law and the existing
    regulatory scheme.
        I believe the job of government is to serve the people. We
    are not here to talk about more government, we are here to talk
    about better government in financial services oversight. Today
    our system isn't designed to do the job. It is spread out over
    six or more agencies with a hodgepodge of rules and statutes,
    and how much enforcement a provider receives depends in part on
    who its regulator is. That is just not a system designed to
    match the realities of today's market. We want to give the
    federal government a different and new job in the financial
    services marketplace, and that is to promote a fair as well as
    an efficient financial services market to watch for the market
    to prevent harms as they start to develop.
        I come from the great State of California, where the option
    ARM and some of the other products that have gone so terribly
    sideways were pioneered, and you can only wonder if someone had
    been watching those markets more closely whether that would
    have spread around the country.
        The mandate of the CFPA is the right mandate. It is to
    promote transparency, simplicity, fairness with accountability
    and access, and note I say ``promote.'' It is a different job
    from what the federal government has had before, and with the
    CFPA we have the opportunity for an agency who has an
    obligation to get information, to learn about the market, to
    watch that market and then to make a conscious decision about
    what needs to be regulated and what doesn't and which
    regulatory tools to use and then to apply those tools evenly no
    matter who is providing the product. With the CFPA, we could
    get one agency to watch over the market, faster-acting
    responses, one agency that is responsible to you and to me when
    things gone wrong, and one place for your constituents to go
    instead of the alphabet soup they have now of trying to figure
    out who to complain to and who to get relief from.
        The CFPA model is one federal rulemaker but multiple
    enforcers, and that brings me to the incredibly important
    continuing role of the FTC. I would like to disclose, Mr.
    Chairman, I was once a summer law intern at the Bureau of
    Competition at the FTC, longer ago than could possibly be
    relevant for today, but I want to disclose that. The FTC keeps
    its enforcement authority. It keeps its section 5 authority
    with a simple, regardless of the topic, financial services or
    not, with a simple consultation that can be at the staff-to-
    staff level. It keeps its authority with respect to all the
    statutes it now has with that referral process, and I think it
    is very important to note that is a refer and wait process but
    they are not waiting for a yes or no. If the CFPA does not take
    on a case the FTC thinks needs to be brought, it can still
    bring that case. The CFPA cannot say no. We have made a
    recommendation to you in the written testimony that the statute
    should allow the CFPA to waive that notice or to shorten it by
    individual case by type or category of case and by agency so
    that they can work these things out where there is commonly,
    for example, the telemarketer case with the EFTA claim. And we
    also are recommending to you that the FTC be given the
    authority to be a secondary regulator with respect to enforcing
    the CFPA rules, not writing them but enforcing them.
        The FTC does lose jurisdiction to write unfair and
    deceptive acts and practices rules in financial services but
    that has not been a role they have been able to use widely in
    the last couple decades since the credit practice rule which
    went into effect in the 1980s. They keep all of their
    enforcement, and of course, it will be made stronger with the
    aiding and abetting enforcement. We believe this is the only
    way to put all the competing products under the same set of
    rules. I have some examples but I will hold them for the Q&A
    because I am conscious of your time, and I do want to say that
    I think it is very important what the FTC does right now in the
    recession. It is very important what the FTC will continue to
    do after the transfer of authority in those cases where there
    is overlapping enforcement and it will be extremely important
    what the FTC does with its additional authority.
        There are a lot of things the FTC can do right now to help
    consumers who are suffering from the recession including
    cleaning up the problem with credit-reporting errors, the work
    it is now beginning to do under the new authority you gave it
    in mortgage modification and foreclosure, debt collection and
    debt settlement. All those things will remain extremely
    important. I would be happy to take questions. Thank you.
        [The prepared statement of Ms. Hillebrand follows:]

        Mr. Rush. Thank you very much.
        Mr. Calkins, you are recognized for 5 minutes.

                      TESTIMONY OF STEPHEN CALKINS

        Mr. Calkins. Thank you. Chairman Rush, Ranking Member
    Radanovich, members of the subcommittee, thank you for inviting
    me here to testify about this important matter.
        The proposed legislation would effect sweeping changes in
    the Federal Trade Commission. The key to the bill is in the
    definitions and they are written extremely broadly. Applying
    those definitions and working your way through the bill, you
    find that the bill would transfer out of the Federal Trade
    Commission much of the work that the Federal Trade Commission
    now does, giving those responsibilities to the new agency and
    giving it the exclusive authority to prescribe role and issue
    guidance with respect to much of what the Bureau of Consumer
    Protection does.
        If you take the FTC's most recent annual report for 2009
    and turn to consumer protection and start reading what they
    have done, subprime credit, mortgage servicing, foreclosure
    rescue, fair lending, mortgage advertising, debt collection,
    payday lending, Operation Clean Sweep, Operation Telephony, the
    Sumtasia marketing case, payment systems, the Naovi case,
    Nationwide Connections case, global marketing case and so on
    and so forth, prepaid phone calls, on matter after matter after
    matter of what they have been doing, I read the bill as saying
    that all of that would be transferred to the new agency. In
    short, we would have major change. Indeed, if you read the bill
    carefully you would find that even some of the antitrust
    responsibility of the Commission would be transferred. I assume
    that is a mistake but that is how it is currently written.
        Now, why have this sweeping change in what the Federal
    Trade Commission does? It might make sense if the Federal Trade
    Commission was a bad agency that was doing bad work, but as you
    all have spoken so eloquently this morning, the Federal Trade
    Commission is a good agency that has been doing good work. It
    has a unique bipartisan structure. It combines consumer
    protection and competition to bring the best from both
    perspectives to bear on problems and it has been doing
    important work for consumers including in the world of credit
    for a very, very long time. Transferring responsibility from
    the Federal Trade Commission to another agency obviously
    creates some pretty significant risks, and my recommendation to
    you is to proceed with great caution, to weigh those risks to
    decide whether they are really worth running and certainly if
    they are to work very hard to try to minimize those risks
    because the bill as written would make major changes and you
    need to be very careful to make sure that all of this makes
    sense.
        Thanks very much, and I am happy to answer questions when
    the time comes.
        [The prepared statement of Mr. Calkins follows:]

        Mr. Rush. Thank you.
        Mr. Cox, you are recognized for 5 minutes.

                       TESTIMONY OF PRENTISS COX

        Mr. Cox. Thank you, Mr. Chairman and Ranking Member
    Radanovich.
        Abuses of consumer finance products were a disaster for
    millions of consumers before anyone recognized them because we
    had a financial crisis, a disaster. We heard previous testimony
    about someone committing suicide. I have sat with people whose
    families committed suicide after I worked with them who had
    heart attacks from the stress. Millions of people experienced
    this.
        Our federal regulatory system did not respond to this. It
    was dominated completely by the thinking and needs of the
    lenders and sellers and not by what was happening on the
    ground. It is often said that no one could have seen this. The
    people who were working with the victims of subprime lending
    and were talking to people who reflected the experience of
    those people as well as the others who were subject to the
    abuses of consumer finance products absolutely knew what was
    going on and were screaming at the top of our lungs. No one was
    listening. It was predictable and it was preventable.
        The Consumer Financial Protection Agency as proposed offers
    the first hope in generations, certainly in my adult lifetime
    working on these issues, for an agency with sufficient power
    and focus on consumer protection issues to seriously address
    these problems. It gets it right in terms of its model. It sets
    up a unified rulemaking process. It is not about whether the
    FTC was good or bad. It is about the fragmentation of authority
    and the lack of perspective and a unified rulemaker. It gets it
    right and setting the floor and allowing innovation where
    innovation should occur, which is in the state regulatory
    system, and it couples that with an open enforcement system. It
    allows the enforcement of those clear, unified rules to occur
    in multiple places, and there are two reasons you want that.
    The first is that you compare the proper enforcement agency
    with the problem at hand. If you have got a problem that just
    occurs in Indiana, the Indiana attorney general is the right
    place to do it. It simply won't get taken care of if you allow
    a federal agency. Conversely, if the Indiana attorney general
    turns up a problem that appears to be nationwide, that can
    highlight the need for the agency. Secondly, agencies like the
    FTC and state attorneys general often will bring violations of
    rules ancillary--which is what Chairman Leibowitz was saying--
    ancillary to other investigations because these things don't
    come up in little neat silos. So an open public enforcement
    model, which is what this bill has, by allowing the Federal
    Trade Commission and other federal agencies to enforce the
    rules and state attorneys general to enforce the rules enhances
    enforcement.
        I will make two quick comments, one about the details of
    the enforcement mechanisms and the other about the rulemaking
    investigative authority. The open enforcement mechanisms in the
    bill are excellent; however, I agree completely with Chairman
    Leibowitz that the 120 days' restriction on the FTC is way too
    cumbersome. It needs to be streamlined and made more efficient.
    Secondly, and this is, I think, a very important point in the
    bill as currently constructed--the FTC is given the authority
    to enforce extant federal consumer credit laws but not the
    regulations passed by the CFPA. The CFPA regulations over time
    will become much more important than the extant consumer credit
    regulations. It is really critical that the FTC get the
    authority to enforce the regulations that are passed by the
    CFPA.
        There is also a consulting power in there, a requirement,
    and that is correct and I hope that on an informal basis the
    agency takes account of the fact that the FTC, which enforces
    UDAP, unfair and deceptive acts and practices laws, gains a
    particular type of experience and understanding that is vital
    to setting those rules.
        Secondly, state AGs have authority but mechanisms for
    remedies need to be clarified because right now the section
    1055 powers--it is unclear whether those are bootstrapped into
    the AG enforcement.
        Finally, in its rulemaking authority, the new CFPA
    desperately needs detailed and express and clear investigatory
    powers. Otherwise the data that is brought to bear in what the
    rules are will be data held by the industry that the CFPA
    simply doesn't have access to, so it is critical that the CFPA
    have that investigative power so that they can get the rules
    right the first time.
        I really appreciate the opportunity to be at this historic
    hearing and wish the Congress great luck in making this project
    work.
        [The prepared statement of Mr. Cox follows:]

        Mr. Rush. Thank you very much.
        Ms. Barkow.

                     TESTIMONY OF RACHEL E. BARKOW

        Ms. Barkow. Thank you, Mr. Chairman, Ranking Member
    Radanovich and members of the subcommittee. Thank you for
    inviting me to testify before you today. I am honored to have
    the opportunity to discuss this piece of legislation.
        The linchpin of the Consumer Financial Protection Agency
    Act is of course the agency it creates, so whether this Act
    will succeed or fail in its mission to protect consumers will
    depend entirely on whether the agency it creates will succeed
    or fail. I therefore analyzed the structure and powers of the
    proposed CFPA to determine if it has been designed in the most
    effective way to achieve its stated statutory mission. I take
    no position on the merits of that mission or whether there is a
    need for a new agency to regulate this field. Rather, my focus
    is on whether the CFPA has been designed as effectively as it
    can be to achieve that mission. In that regard, I would like to
    make six brief suggestions and observations about the design of
    the CFPA and this legislation.
        My first recommendation and the most important is to add a
    provision to this Act that would limit the CFPA board's
    membership to no more than three members of the same political
    party. Unlike virtually all other legislation that governs
    multi-member independent regulatory agencies including the FTC,
    the SEC and the Consumer Products Safety Commission, the CFPA
    Act as it is currently written does not require political
    balance among the agency's membership. There is a wealth of
    empirical studies that are demonstrating that a group comprised
    solely of ideologically like-minded people tends towards
    extreme decision making. Without a provision in the CFPA Act
    requiring partisan balance, the CFPA is likely to change
    positions from one extreme to another with each new
    presidential administration. This is unhealthy for the
    regulation of any market and certainly the consumer financial
    products market. A political balance requirement can serve as a
    stabilizing force. In addition, a political balance requirement
    can lead to dissenting opinions, which is valuable for alerting
    Congress and the public if the agency goes in an extreme
    direction one way or the other.
        Second, I suggest amending the Act's requirement that the
    CFPA consult with all federal banking agencies and any other
    relevant agency before passing rules to make sure those rules
    will be consistent with the prudential market or systemic
    objectives of the agencies being consulted. Because this
    consultation requirement sweeps so broadly covering every
    conceivable agency regulating-related field and anything of any
    importance to those agencies, this process is likely to
    dramatically delay the promulgation of CFPA rules. This is
    precisely the kind of requirement that aids industry
    participants in tying of agency rules for years. So unless
    Congress is of the view that the delay in legal uncertainty is
    outweighed by the benefits of this provision, I suggest making
    clear that consultation is at the discretion of the CFPA and
    not subject to judicial review.
        Third, I advise modifying the statute of limitations
    provision in the Act to begin running from the time the CFPA
    discovers a violation, not from the time a violation has
    occurred. Because violations by sophisticated business
    interests are not discovered for years in many cases, this
    provision is--as it is currently written--might hamper the CFPA
    in its enforcement efforts.
        Fourth, I recommend including a limitation on the ability
    of CFPA board members to practice before the CFPA for a period
    of time after their service on the board is expired. This kind
    of restriction would limit the negative effects that are often
    caused by having a revolving door between agencies and the
    industries that they regulate.
        Fifth, I just would like to highlight a protection in the
    Act that I think is going to be critical to achieving the Act's
    law enforcement objectives, and that is section 1042 of the Act
    which allows the state attorneys general to enforce provisions.
    The state AGs have demonstrated in many areas that they can be
    effective law enforcement partners, and I think this is
    particularly true in the area of consumer protection where
    agency capture is a significant risk.
        Finally, I would like to alert the subcommittee's attention
    to the fact that it is unclear from this Act as it is currently
    written whether the CFPA will be subject to Presidential
    directives and oversight including review by the Office of
    Information and Regulatory Affairs, known as OIRA. There is
    language in the Act that suggests this is actually going to be
    an executive agency and will be subject to this kind of
    oversight. Congress may intend for the CFPA to be part of the
    President's oversight process but if not, the Act would need to
    be rewritten to make clear that the CFPA is an independent
    regulatory agency for purposes of OIRA review. I take no
    position on whether or not the agency should be subject to this
    type of review but because it is a fundamental question, I note
    for you that it is currently unclear in the legislation.
        Thank you again for allowing me to testify and share my
    thoughts on this proposed legislation, and I would be happy to
    answer questions when we are all done speaking.
        [The prepared statement of Ms. Barkow follows:]

        Mr. Rush. Mr. Stinebert.

                      TESTIMONY OF CHRIS STINEBERT

        Mr. Stinebert. Thank you, Mr. Chairman, and thank you for
    this opportunity to speak with you today. I am very glad to
    hear that this is kind of a first step and hopefully which will
    be a long process because as many have expressed here today,
    there are certainly some concerns about this issue and we hope
    that there will continue to be somewhat of a cautious approach
    as we go forward.
        The American Financial Services Association has been around
    for almost 100 years and we represent about 30 percent of all
    consumer credit in the United States with members in the
    mortgage, credit card, auto and personal installment loans.
    First and foremost, AFSA supports strong financial consumer
    protection regulation. Just because we have concerns going
    forward about the current agency does not mean that the
    industry and that the association is not committed to strong
    consumer protection regulation regarding financial services. We
    believe that consistent enforcement of existing consumer
    protections laws by government regulators would have greatly
    lessened the harmful impact that the current crisis has on
    consumers and certainly our economy. Many AFSA members are
    regulated primarily at the State level and subject to a
    patchwork of requirements. We firmly believe that consumer
    protection should be uniform in every State. Therefore, AFSA
    supports strong national consumer protection standards that
    allow the members to meet their consumer protection obligation
    in an efficient and cost-effective manner.
        In addition, strong national consumer protection standards
    will provide a benefit to consumers only to the extent that
    they are consistent with sound potential regulation. Consumer
    protections that threaten the safety and soundness of financial
    service providers offer really no protection at all. We believe
    consumers will be better served by a regulatory structure where
    prudential and consumer protection regulations are housed
    within a single regulator. Congress tried to separate these two
    intertwining functions with the GSEs. When it became apparent
    that this situation was unavoidable, Congress brought the two
    regulatory functions back under a single regulator and for good
    reason. We urge Congress to support regulatory structure that
    does not separate safety and soundness from consumer
    protection.
        The authority proposed to be vested in the new agency is
    breathtaking in both its scope and its effect. It would cover
    many entities and persons who have little or no involvement in
    the activities leading to the current economic crisis. Without
    any demonstrated need, many unsuspecting persons will be swept
    into a web of scrutiny and reporting requirements that yield
    little in the way of consumer protection but much in the way of
    increased cost for consumers. Attorneys, accountants, consumer
    reporting agencies, auto dealers, title companies among others
    will find themselves subject to review with no evidence that
    they behaved unfairly. Financial service providers will find it
    increasingly difficult to plan for risk as virtually any
    practice or product other than prescribed standard plain
    vanilla products could be labeled as unfair or abusive.
    Innovation will be discouraged.
        Given the vast scope of the proposed agency's authority,
    its funding needs are also staggering. The proposal seeks to
    fund the CFPA by assessing fees on persons and entities it
    regulates while including many that would not expect to be
    covered currently. There is no doubt that any assessment on
    financial service products will be passed on eventually to
    consumers. That direct unavoidable result will be an increase
    in the cost and availability of credit.
        Most AFSA members are regulated by the FTC, which has a
    proven record of enhancing consumer protection. It has
    addressed the economic crisis in two ways, first by using the
    enforcement authority to pursue bad actors in the financial
    services industry, and second, by setting federal policy
    through guidance and public comment. Numerous examples are
    listed in our written testimony.
        But in conclusion, AFSA believes that the FTC has done an
    excellent job in enforcing consumer protection law and is best
    suited to continue that role going forward. We believe the
    Administration's goal can be achieved with adjustments to the
    current regulatory structure and the result will be more
    efficient, less costly and certainly more effective. To that
    end, we have two specific suggestions. One, make current and
    future consumer protection rules apply to all financial
    services providers. Congress should ensure that all federal
    consumer protection laws and regulations apply with equal force
    to all providers of financial services with respect to similar
    cases of products and services. These laws should include
    strong national standards that preempt State laws and permit
    all Americans to enjoy a consistent level of service and access
    with respect to financial products and services. We have heard
    again and again today as you have 50 different States that can
    meet or exceed the current laws that this is not
    simplification. We are just going to wind up with 51, as you
    stated, Mr. Chairman, different rules that these people are
    going to have to follow.
        And number two, pursue a regulatory structure that does not
    separate financial products and services from the viability of
    the companies that offer them. All prudential agencies should
    work together to coordinate consumer protection regulation for
    financial products and services with the goal that regulations
    be preemptive, consistent and uniform. If we don't have that,
    we are not going to make any headway. Thank you for your time.
        [The prepared statement of Mr. Stinebert follows:]

        Mr. Rush. The Chair thanks the witnesses and the Chair now
    recognizes himself for 5 minutes for questioning.
        According to the Administration's proposal, the States will
    be able to enforce the statutes and rules being transferred to
    the new agency right away. In contrast, the FTC will be
    required to provide the CFPA with notice of a proposed action
    and has been stated earlier wait 120 days for the CFPA to
    determine if it would take the case before it takes any action.
    This applies to the very rules and laws currently enforced by
    the FTC.
        Mr. Calkins, in your testimony you suggest that this 4-
    month delay will prevent the FTC from ever investigating or
    taking action in these areas. Can you explain and expound upon
    that, please?
        Mr. Calkins. When I read the bill, I sat and tried to think
    about what life would be like under the new legislation and the
    120-day rule, what would the FTC do, and as I thought about it
    and I read the bill, I read where the bill says ``all consumer
    financial protection functions of the Federal Trade Commission
    are transferred to the other agency.'' So who at the FTC is
    going to be doing the work to find that there is a violation
    that they wish to use the 120-day rule to develop. Maybe the
    FTC will go out and develop new resources to do this. Does that
    make sense? And I don't think that makes sense because the
    whole point of the bill, it appears, is to transfer a large
    part of what the FTC does to this new agency. Let us talk about
    the 120-day rules. Well, we have experience with the FTC and
    the Department of Justice where the FTC can ask the Justice
    Department to bring a civil penalty action for it, 45 days
    there. The reality is that the FTC, although I am not sure they
    would admit it, goes out of its way to avoid using that
    authority. It is a lot more effective and efficient for the
    Commission to go directly to court, bring an action, take
    action against a wrongdoer, stop a fraud, stop some harm, get
    relief and so they use the authority they can use by
    themselves, and time and again they don't go to the Department
    of Justice. I think that 120-day authority will be very rarely
    used in the new world. It is really there in case we have a new
    agency that is so opposed to enforcing these rules than an FTC
    might come along and try to develop some sort of alternative
    world as a backstop, but I think that the world that I see
    would have the FTC using this authority very, very rarely and I
    just do not think that is the vision contemplated by the bill
    as written.
        Mr. Rush. Does any other witness want to chime in here? I
    am hearing skepticism on the part of the other witnesses. Ms.
    Barkow, are you skeptical of this backdrop rule?
        Ms. Barkow. It does seem like 120 days would be the
    equivalent of a lifetime in this kind of an industry where you
    are talking about the----
        Mr. Rush. Well, if it was 60 days, would that make a real
    difference?
        Ms. Barkow. Well, that I leave to the FTC to decide but the
    fact that they are worried about the 120 days I think speaks
    volumes about the fact that it is probably going to be a
    significant issue.
        Mr. Rush. Does anyone else want to chime in here on this?
        Mr. Stinebert. Well, I think if you look at some of the
    discussion that occurred earlier and they were talking about
    the number of days, but perhaps more importantly look at the
    actual structure. If they have taken so many of the personnel,
    the team has been taken from the FTC and is now part of the new
    agency and yet they are supposed to maintain the backstop or
    the backup in these areas, but the team is gone, and as Mr.
    Calkins suggested, all they can do is go out and rehire new
    experts that are supposed to be the backup. It doesn't sound
    like a very good system to me.
        Mr. Rush. Ms. Hillebrand?
        Ms. Hillebrand. Yes. Thank you, Mr. Chairman. Under the one
    rule writing many enforcers model, we want it to be as easy as
    possible for the FTC to bring the cases in its existing
    jurisdiction as well as to enforce the CFPA rules. If the
    Commission recommends a shorter time period, we would want you
    to look at that very seriously. We think a waiver process also
    could help here. The Commission and the CFPA could agree that
    for this kind of case we don't need to know in advance and for
    these other cases we need a shorter period.
        Mr. Rush. The Chair's time is concluded. The Chair
    recognizes the ranking member, Mr. Radanovich.
        Mr. Radanovich. Thank you, Mr. Chairman.
        Mr. Calkins, the proposed legislation defines a covered
    entity to include those who provide tax planning, financial and
    other related advisory services or provide educational courses
    and instruction materials to consumers. PBS often runs such
    programming on TV for their audiences as do financial cable
    stations and radio stations. Would these entities be covered
    persons under the proposed legislation, in your opinion?
        Mr. Calkins. Certainly there is a risk that they would be
    covered persons. Certainly the Commission would have to think
    about whether it was required to transfer responsibility for
    all those and then, very important, even if they are not
    covered entities today, the new agency has authority to define
    for itself additional activities that it would have
    jurisdiction over, and so even if the FTC didn't have to
    transfer authority today, they might have to transfer authority
    a year from now when the definitions got changed.
        Mr. Radanovich. Thank you, Mr. Calkins. I want you to
    comment on a prior statement about the FTC's bipartisanship in
    the way it conducts its activities and how that is good. Can
    you elaborate on that and how the lack of bipartisanship might
    hinder the CFPA's ability to effectively carry out what is now
    the FTC's mission?
        Mr. Calkins. Well, the FTC I think has over the years
    developed credibility with Congress, with the States, with
    international observers because it operates in a bipartisan
    way. The commissioners try to work by consensus. They try to
    take the actions that make the most sense. When somebody wants
    to go out on a limb and be really wild and crazy to the left or
    the right, there is someone from the other side to pull them
    back in. As noted before, Ms. Barkow, when you have people
    going too far, dissents can be filed, and it succeeds in
    developing a shared understanding of the sensible way to
    proceed and then as presidents come and go there exists some
    continuity and that continuity I think adds credibility to the
    agency's operations and really has made it into a more
    effective agency.
        Mr. Radanovich. All right. Thank you.
        Ms. Barkow, would you care to respond to that question as
    well?
        Ms. Barkow. I agree completely, and I think that the whole
    idea of an independent regulatory agency which I think is part
    of the goal in this legislation is to have that kind of
    consensus generating form of norms that transcend any
    particular presidential administration so that you don't have
    the instability that comes with every new presidential
    administration means sweeping changes one way or the other. You
    have a stabilizing force in an agency that has membership from
    both parties. I think it has proven to be effective in other
    context and it is hard to understand why you would have a
    multi-member agency here that doesn't have that mix of
    political views on it. I mean, why not just then have a single-
    member board.
        Mr. Radanovich. Thank you very much.
        Mr. Stinebert, I want to ask you about uncertainty in the
    financial markets, this massive shift of responsibility and the
    creation of a new agency on consumer protection, your bird's
    eye view on the industry, how it would react to something like
    this and the level of uncertainty that it might bring into the
    markets where uncertainty is--we are trying to do everything to
    avoid uncertainty. Would you comment on that, please?
        Mr. Stinebert. Well, some might argue that this is the
    perfect time to do something like this. I think it is
    absolutely the worst time. We are finally starting to see some
    stability in the financial markets. We are starting to see some
    recovery. We are starting to see investors come back into the
    marketplace, which eventually investors have to buy these loans
    out there. In Europe and the United States, we are starting to
    see movement back in there. This does introduce a whole level
    of uncertainty back into the whole arena because people are now
    going to stand back and wait and see what goes on, whether
    there is additional liability requirements and regulations on
    these entities. So yes, I do agree that is going to bring a new
    level of uncertainty into the marketplace at the worst possible
    time for that.
        Mr. Radanovich. Can you describe a scenario where the
    duplicative regulatory authorities allowed by this Act's weak
    preemption provision might actually prevent consumers from
    access to valuable financial services? This is the State
    preemption issue where you would have 51 different----
        Mr. Stinebert. Right now it is set up as basically a floor
    or a standard that States will have the ability to exceed.
    Someone will make a judgment whether what the State is trying
    to do is meeting or exceeding. I am assuming that would be the
    new agency. But if a determination is made by them that it
    exceeds it, of course anything that they would do to exceed
    would be permitted. So I think you have seen it in many other
    instances. I will give you the most recent, the new SAFE Act.
    That was the licensing for residential mortgage originators.
    You basically have out there in the implementation of that law
    50 different standards that everyone is trying to meet and each
    of them, many of them exceeding the federal guidelines. So
    people that are regulated at the State level will have to
    register in multiple States as originators are going to have to
    follow very, very many different laws.
        Mr. Radanovich. Thank you very much. Thank you, Mr.
    Chairman.
        Mr. Rush. The Chair now recognizes the gentleman from
    Massachusetts, Mr. Sarbanes--Maryland. I am sorry.
        Mr. Sarbanes. We are trying to get to Massachusetts. We
    have one Republican left. Thank you, Mr. Chairman. I appreciate
    the hearing.
        Mr. Stinebert, you said this is absolutely the wrong time.
    What would be a good time?
        Mr. Stinebert. Well, I think when you go back, and there is
    plenty of history to point fingers at what was the cause of the
    subprime mortgage crisis and currently economic crisis but I
    don't think you would get anybody that would predict that
    whatever is done here today or by Congress that you can control
    every bubble that is going to occur in the future. Most
    economists would agree that yes, this bubble is a housing
    bubble, before it was a tech bubble, before that it was a
    savings and loan bubble. You cannot have government totally
    controlling financial markets unless they can totally control
    potential bubbles, unless you totally stymie innovation and all
    you have is a plain vanilla standard product out there, and I
    don't think that is good for the very consumers that we are
    trying to protect here.
        Mr. Sarbanes. Yes, I agree with that. I mean, I don't think
    you can have government totally controlling every single
    financial dimension in the market. I don't think you can do
    that. I don't think this tries to do that. I think what this
    tries to do is provide some oversight and direction and rules
    of the road so that people stop driving off the road, not only
    because in the view of Alan Greenspan that causes the drivers
    to crash and hurt themselves but because they run over hundreds
    of thousands of innocent bystanders in the process.
        Let me switch back to a discussion from a few minutes ago
    because I think it is very relevant. As attractive as the new
    agency may be to some, and I am partial to it as it is being
    described, we still have to get from here to there, and I worry
    a lot because even if we had in place now the regulatory
    structure that we thought was necessary, it would have to be in
    overdrive, I would argue, to be on the lookout against
    predatory action that is lurking out there. But certainly in a
    transitional phase, predators have a lot of opportunities to
    make mischief, and I think the discussion about the 120 days
    kind of points to some of this anxiety, but I would like anyone
    who would care to, I would like to hear you respond to the idea
    of some kind of a special initiative or taskforce or
    consciousness that during this transition we need to be paying
    attention to, maybe it is a limited set of activities or
    potential mischief but there has got to be a special focus on
    that so that we don't make the transition, say now we have got
    a good regulatory structure in place, but in the meantime while
    that happened, a lot more people got hurt, and I say this
    because there is a lot of money that is flowing right now,
    taxpayer money, into the financial infrastructure of the
    country and many of the same players that took advantage of
    people over the last few years are thinking creatively of ways
    to take advantage of them again by accessing some of these
    dollars. So speak to that issue of how we can not be caught
    napping during the transition. We can start with you, Ms.
    Hillebrand.
        Ms. Hillebrand. Thank you. I believe you are asking exactly
    the right question. There will be a danger period during the
    transition. There are a couple of things, and I don't have the
    whole answer. One is the work that the FTC does right now and
    continues to do up to that date of the transfer of rulemaking
    so it will be incredibly important. It could be up to 2 years
    after enactment. If these two titles are enacted together, the
    FTC will get its rulemaking improvements right away and can get
    some of these rules that have been kind of backlogged because
    of the limitations on its power moving into place. That will
    help certainly to put that policing into place. We do need to
    be paying attention to the new problems that will be
    developing. One that worries me in particular is a new form of
    zombie debt. You know, that is a debt where no one has got the
    paperwork, someone just has a list saying you owe this money,
    that might come out of some of these mortgage unsuccessful
    modifications or post kind of mortgage dispositions. So there
    are new issues, a lot of old issues. The more we can get the
    FTC to do now before the transfer, I think the better shape it
    will be in, but we will have to watch for that, yes.
        And the other thing is, there is not going to be enough
    enforcement resources. Moving people from where they are over
    from all the different agencies is not going to give us enough
    enforcement staff to do the whole job for the country. The FTC
    worked very hard. They said they had 100 cases over 5 years. If
    you talk to any State AG in the country, they will tell you,
    100 cases, we could bring that in my State tomorrow. There is
    more need than the number of people that are currently in place
    to do consumer protection enforcement financial services at the
    federal level.
        Mr. Sarbanes. Yes, sir.
        Mr. Cox. I think you need to break your question, which is
    a great question, in two parts. One part is more scam-like
    activities, and I think this Congress effectively delegated the
    FTC, charged to go over foreclosure rescue scams where a lot of
    mortgage brokers were moving in and loan modification scams and
    that kind of thing. That kind of activity the existing
    authority clearly is sufficient to regulate and the additional
    authorities recently give them help. You break that from more
    traditional and large-scale sale of products such as mortgages,
    et cetera, and I think in that area the credit markets are so
    beaten down that I think that this agency would be up and
    running effectively to get ahead of the new products that would
    be----
        Mr. Sarbanes. OK. That is helpful. Thank you very much.
        Mr. Rush. The Chair will extend to the members additional
    time for one additional question, and the Chair would recognize
    himself for one additional question.
        I want to get back to this area of concurrent enforcement,
    and, you know, are there any risks or downsides to consumers or
    industry with this whole idea of concurrent enforcement between
    two agencies? Can you predict or look into a crystal ball and
    tell us what you see in terms of downsides or harm to the
    industry or to consumers regarding this whole area of
    concurrent enforcement? Anybody want to jump in? Mr. Stinebert?
        Mr. Stinebert. Well, I will give it a try and go first. One
    of the whole things that I think the agency being proposed is
    supposed to do is have single-source responsibility. Then you
    take enforcement and you break that among current enforcement
    agencies and then you have a new agency that is supposed to
    share some type of dual enforcement. It doesn't sound practical
    to me. We think that enforcement should continue to stay with
    the existing agencies. Now, to your question, Congressman,
    about the timing and you mentioned the speed limit and the
    people watching the people going down the road, I think that--I
    don't think anybody would deny that the regulations or the
    speed limits were in place but up until several years ago that
    perhaps the regulations were in place but the enforcement and
    the oversight was not. But I think if you look today in all of
    these agencies whether it be the FTC or the other agencies in
    Washington, I think everybody has their radar guns out and are
    certainly looking at consumer protection issues as well as
    credit and lending issues in general. I don't think there has
    ever been a focus in this area like there is today, and so to
    that respect, I think that going back to your question, Mr.
    Chairman, I think that it is very important, I think most
    important, that there be continued responsibility between
    safety and soundness and the viability of those companies and
    consumer protection, and I think it is unwise to separate those
    two entirely. We have gone through a good example with the GSEs
    of trying to do that and finding out why that doesn't work, and
    it would be very simple if that agency that is just concerned
    about consumer protection can make everything so safe that is
    not really good for the companies offering those products or
    for the consumers themselves. There is always going to be risk
    in this industry. That defines what it is. And I don't think
    you an eliminate that entirely.
        Mr. Rush. Ms. Barkow.
        Ms. Barkow. I think it is a really good question and I
    would say that I think it is not so much of a risk as long as
    the rules of the game as clear, so as long as you have the one
    agency that is setting the rules and what it is that companies
    have to do, the fact that there would be multiple enforcers of
    those rules is less disconcerting because you have clear
    standards and everyone would know what they are and you would
    have essentially this kind of more cops on the beat analogy and
    so that is why you could have state AGs helping out, you could
    have the FTC helping out. You would just be getting more
    manpower. But the rules would be clear. So really the success
    of it would depend upon what kind of rules end of being
    produced from this process, and I guess I would just state,
    that is why it works to have, for example, all the States can
    police Medicare fraud, for example, and it is not a risk
    because everybody knows what they are looking for and so it
    would just be really important for the agency that is created
    to have clear rules, and if they see an enforcement action that
    looks like it is not really in the spirit of those rules, the
    act as it is written, for example, if the state AG brings it,
    the CFPA could intervene and they could step into that action
    and make clear that that is a bad interpretation of their rule
    or it is a bad enforcement action. So I think it is oK to have
    multiple law enforcers and in fact probably necessary because
    there just aren't enough resources for all the fraud that is
    out there.
        Mr. Rush. Ms. Hillebrand.
        Ms. Hillebrand. Thank you, Mr. Chairman. I had to think for
    a moment about your question to remember that there already are
    six concurrent enforcing authorities. It is just that the
    banking agencies haven't used that open public enforcement
    model to bring cases with the vigor and approach that the FTC
    has used. So we already do have concurrent enforcement and the
    downside has been that many of the agencies other than the FTC
    that have enforcement authorities also have other obligations
    that tie them very close to the industry that they regulate. At
    least with the concurrent enforcement authority with the CFPA
    and the FTC, we won't have that problem and I think that is a
    good step forward.
        Mr. Rush. Mr. Calkins.
        Mr. Calkins. Mr. Chairman, I think that concurrent
    enforcement authority could work if done carefully but I worry
    that there is too much attention to the FTC as an enforcer. I
    prepared for this over the weekend when the Web site was down
    so I was reduced to the documents that I happened already to
    own. I owned a 2004 annual report that happened to be in my
    files. I opened it up to consumer protection where the FTC has
    a good list of the range of activities in which the agency
    engages and that is part of what makes it a success. Consumer
    protection policy, one, research and reports; two, hearings and
    workshops; three, advocacy; four, amicus briefs; five, consumer
    and business education and outreach. The FTC is not just a cop
    on the beat. It is an agency that has economists, that does
    competition, that does consumer protection and uses a whole
    range of tools to develop expertise, to identify problems and
    to craft solutions, and if a huge part of what the FTC does as
    a matter of subject matter is transferred out and if the new
    agency has the exclusive authority to give guidance in this
    way, then we have lost a very great deal of what the FTC does
    and I think that the consumers would be the worse for it.
        Mr. Rush. Mr. Cox.
        Mr. Cox. Chairman Rush, I think ultimately the industry
    will make two arguments about he concurrent authority and the
    problems with it. The first is, it is too much enforcement, but
    as Ms. Hillebrand said, and as someone who spent years making
    priority lists, your list is way longer than you will ever get
    to and the problem with this bubble bursting was not too much
    enforcement. The second problem which is more subtle or real is
    an inconsistency in enforcement policy, and Ms. Barkow
    appropriately says that this rulemaking authority, if it is
    clear, if the rules are clear enough, certainly will solve the
    problem, and I would further say that the CFPA is given the
    sufficient authority to make sure the is happening in a uniform
    way.
        But there is a second response to the inconsistency, which
    is unlike rulemaking where I agree you want a unified
    rulemaker, when it comes to enforcement, this is where
    regulatory competition actually works because you are competing
    to be a better enforcer as opposed to competing for a race to
    the bottom so that people will charter with you, which was a
    serious problem in creating this situation. And when you
    compete to do better, you are aware that if you don't do it and
    somebody else enforces your rule in a situation that you might
    get embarrassed, Madoff, SEC, you know, that when you have
    competitive enforcement you have a market that essentially
    forces public entities to be aware of that. That actually
    works, and when it comes to UDAP authority, I just want to say,
    it is so important. The state attorneys general, and I am
    patting myself on the back here because I was part of a small
    group who did this. We were the only ones out there screaming
    about and bringing these cases. The FTC was saying it is great
    because they were going after different actors but did one case
    where we got half a billion dollars back to people with
    subprime mortgages followed by another case where there was
    $300 million and I thought that was too little and I had left
    by then. I mean, this was a problem that if you were on the
    ground you saw it. I mean, it was visceral. These people were
    utterly out of control. The State AGs were able to enforce it
    because they had a different enforcement agenda. They were
    sitting at a different place. Regulatory competition works in
    terms of an open enforcement model.
        Mr. Rush. The Chair now recognizes Mr. Radanovich for one
    question.
        Mr. Radanovich. Thanks, Mr. Chairman. I appreciate
    everybody's testimony but Mr. Cox, what I thought I heard was
    that we need multiple agencies having to do the same job to
    make sure that the people are doing their job, and that to me a
    recipe for wasted spending. But I do want to ask you a question
    about, I believe it was Ms. Sutton who was here earlier talked
    about a situation where an 84-year-old woman who owned her
    place free and clear was duped into a 30-year mortgage. I would
    like to know whether or not there was family involved putting
    her up to that and that happened for reasons that wouldn't have
    anything to do this with this current financial crisis. I
    happen to represent Stanislaus County in California. It is the
    epicenter of mortgages, the number one county in the Nation
    where mortgage defaults and foreclosures have happened. So I
    have a great appreciation for what is happening here. And you
    would hear tales about, one in particular, non-English-speaking
    people that were talked into a home that all they needed to do
    was come in and sign the papers. Once they got there, they were
    jammed with points and fees that they knew absolutely nothing
    about and were put into an uncomfortable situation, signed the
    mortgage papers, later lost the house. So I am curious to know
    after we have spent in reaction to this financial crisis
    anywhere between $800 billion to $1.5 trillion dollars to
    stimulate the economy. We get a rise in the unemployment rate
    that was supposed to drop with all that spending. I am a little
    leery of broad, sweeping reactions to the problems that we are
    in. So how does something like--and I would offer that to you,
    Mr. Cox, Mr. Stinebert or anybody else that wants to respond to
    this thing. How would that help the person--I am not sure about
    the Sutton case, and I want to know whether the family put her
    up to that, that poor, unfortunate, elderly person up to that
    situation. But my situation in Modesto, California, where the
    non-English-speaking person was jammed into that loan and a
    shyster put points on there and then they quickly sold the
    mortgage to somebody else and this guy was washing his hands
    and he was out of there. How does this broad, sweeping change
    that you are talking about prevent something like that from
    happening and at what cost any more so than what is currently
    on the books to prevent?
        Mr. Cox. Thank you, Ranking Member Radanovich. I will
    respond to that by also responding to Mr. Stinebert's earlier
    comment, that we all agree that the regulation that was there
    was an enforcement problem. We don't all agree on that, and
    here is--the problem had two parts to it if you want to break
    it into its grossest problem. The first part was the type of
    products that were being sold. They were simply way too high
    risk, way too complex and way too aggressively sold for average
    consumers to work through all the problems and understand all
    the costs and consequences and the context of these mortgages.
    For instance, held up at the time as the great financial
    innovation, the payment option ARM, it was sold so aggressively
    on its benefits but its risks were not clear to the average
    consumer, to my aunt. You know, it was the kind of thing I
    could have sold her on if I was an evil person without
    informing her of the risks. So there is a product regulation
    problem that existed here. The Fed, if you read the Fed's
    papers during this time and you put them right next to the
    industry's papers, you could change the titles and you couldn't
    tell the difference. There was one type of thinking. That needs
    to change.
        The second problem was a fraud problem. The fraud problem
    got so far out of control, I have never seen anything like it.
    You know, if you were talking to the people and you saw this
    going on, if you talked to the ex-workers in these agencies, et
    cetera, in these companies that were selling these things,
    fraud was so rampant in this industry that, you know, that was
    almost a separate problem from the product regulation problem,
    and so we also had a lack of enforcement, particularly at the
    federal level, you know, on fraud but we fundamentally had a
    product regulation problem. I hope that responds.
        Mr. Radanovich. Mr. Stinebert.
        Mr. Stinebert. Commenting back to Mr. Cox's earlier
    discussion about whether we should have multiple regulators is
    a good thing, I ask you, if you are a business and you have
    multiple regulators, two and three regulators, is competition
    really good if you are the regulated entity and the costs that
    are involved in that. I mean, so the FTC is in your office one
    week and having your staff gather everything else and the next
    week, you know, another regulator is in there. I can see where
    there might be some contention where that is good but you won't
    have businesses, anyone that operates a business, small profit
    or a large business having multiple regulators and enforcers
    coming into your offices is necessarily a good thing because--
    and all of those costs are eventually passed on to consumers.
    These do not happen in vacuums. So, yes, there are protections
    I think that need to be in place and you are absolutely right
    about that, but I do think you can overdo a process to. We want
    to have a process that protects consumers but is efficient for
    everyone involved, that it is efficient for the safety and
    soundness and the viability of the companies that are being
    regulated as well as good for the consumers that are buying
    their products, and I think that that is an important thing.
        Mr. Radanovich. Thank you, Mr. Chairman.
        Mr. Rush. The Chair recognizes the chairman emeritus, Mr.
    Dingell.
        Mr. Dingell. Chairman, I thank you for your courtesy.
        This question is to Gail Hillebrand and to Professor
    Calkins. What authority will remain in the FTC to protect the
    consumers after the Administration's plan has been adopted if
    it is adopted in its current form?
        Ms. Hillebrand. Thank you, Chairman Emeritus. The FTC
    retains all of its authority to bring section 5 enforcement
    subject only to a staff level of consultation, coordination and
    discussion----
        Mr. Dingell. But we would lose that authority?
        Ms. Hillebrand. The FTC retains that authority. I am going
    to give you a list of things it retains. It retains its section
    5 authority. It retains its authority to bring cases under the
    statutes and rules for the enumerated consumer statutes. That
    is our alphabet soup: ECOA, EFTA, reg Z and so on. It retains--
    well, those are the big things that it retains. It also retains
    its pure fraud authority. I mean, there are financial services
    and then there are people who tell lies who say sign up with me
    and give me your Social Security number and your checking
    account number and you will never see me again. It retains that
    authority. Those folks are not selling financial services, they
    are selling lies, and it retains that authority, and we have
    recommended that it also be given the same kind of backstop
    authority that it now has currently and would have under this
    proposal for the existing consumer statutes with respect to
    enforcement of the CFPA rules. That is not yet in the proposal.
        Mr. Dingell. Now, what would it lose? What would FTC lose?
    What consumer protection jurisdiction would it lose?
        Ms. Hillebrand. Yes. The FTC would lose the jurisdiction
    that has been important but difficult for it to use which is
    its authority to develop unfair and deceptive acts and
    practices rules in the financial services area. I am sure you
    are aware the last time that authority was used was in the
    credit practices rule, which came into effect in the mid-1980s.
        Mr. Dingell. OK. Now, why should that be taken away from
    FTC?
        Ms. Hillebrand. If we were looking at just the FTC, there
    would be no reason to take it away, but the problem is, we
    need----
        Mr. Dingell. There is no reason to take it away?
        Ms. Hillebrand. No, I am not quite finished.
        Mr. Dingell. Let us just go a wee bit further and explain
    to me why we should give it some of those goodhearted folks who
    led the fight for the repeat of Glass-Steagall who deregulated
    banking and financial services and who left us this glorious
    mess which we now have in the form of probably the biggest
    depression that this country has had since 1929. Now, why
    should we do that?
        Ms. Hillebrand. We need to give the authority to an agency
    that can make one set of rules that applies to the bank
    provider and the non-bank provider. If the FTC----
        Mr. Dingell. I have no objection to taking care of the bank
    regulatory agencies. Let them create them and let them do their
    thing. But why wouldn't we want the honest men and women at FTC
    looking over their shoulder and why wouldn't we want them
    looking over the shoulder of those goodhearted banks and
    financial folks and MBAs up in New York that created this mess?
    Now, help me. Why wouldn't we want that?
        Ms. Hillebrand. We definitely want oversight. We want
    someone who can look over no matter what kind of----
        Mr. Dingell. Do you like the idea of having the FTC sort of
    keep an eye on those people?
        Ms. Hillebrand. We like the idea of having an agency that
    can look at everybody, not just the non-bank providers, keep an
    eye, and we think the best way to----
        Mr. Dingell. And what about all the goodhearted banks that
    are going to be engaging in all kinds of things? They are going
    to be engaging in real estate, they are going to be engaging in
    issuing of bonds and securities. They are going to be engaged
    in all kinds of wonderful activities on derivatives which are
    really gambling devices. So why shouldn't the FTC retain its
    continuing and ancient jurisdiction over keeping honest men
    honest and maybe occasionally catching a rascal? Now, why
    should we take that away from FTC?
        Ms. Hillebrand. Mr. Chairman Emeritus, I respectfully
    suggest----
        Mr. Dingell. You represent consumers. Why shouldn't we just
    leave FTC as it is and let these other folk go about their
    nefarious business under the kind of weak-minded regulation
    that the Treasury has traditionally given to these
    institutions?
        Ms. Hillebrand. We are absolutely in favor of----
        Mr. Dingell. I will give you a good reason for that. You
    are speaking here for the consumers, and I am trying to figure
    out do you really understand the consumers' needs or are you
    engaged in perhaps disregarding the consumers because these
    other folks have done a better job of telling you what a
    wonderful job they are going to do after they have brought
    about not one but two depressions?
        Ms. Hillebrand. I am looking at it from the point of view
    of the ordinary person who is trying to get a mortgage, and
    they want to know--I mean, the consumer doesn't think it is----
        Mr. Dingell. No, no, you are giving me a wonderful answer
    but it is to the wrong question. Answer my question, please.
        Ms. Hillebrand. The answer is, we think----
        Mr. Dingell. Why should we not keep FTC in its traditional
    jurisdiction of protecting consumers? When I was a boy,
    Roosevelt tried to give FTC jurisdiction over the stock market,
    and you can't imagine the outrage that this generated in New
    York because they were scared to death of the Federal Trade
    Commission, which is under the jurisdiction of the committee.
    We keep them honest. And we find that as soon as the FTC got
    away from this committee, they all of a sudden became a wholly
    owned subsidiary of the securities industry and the banking
    industry. Now, why should we sanctify that by stripping the
    consumers of the one remaining protection which they have, the
    FTC, in favor of giving it to a congregation of folks well
    known to be influenced by some of the worst scoundrels in our
    society?
        Ms. Hillebrand. Are you ready for my answer? We believe
    that we need to put it in one place so that the non-banks
    aren't saying oh, don't regulate us the banks can still do
    that. The banks are saying oh, don't regulate us because the
    other guy can still do it.
        Mr. Dingell. We don't mind having this agency that would be
    created by the Administration's proposal do that. What we want
    is to have the FTC there so as to sort of watch over these
    people and let them know that there are honest men and women
    watching them so that the rascality is diminished and the
    consumers are protected. What is wrong with that?
        Ms. Hillebrand. I think we have the same goal and perhaps a
    different with respect about how to get there.
        Mr. Dingell. So then are you telling me that you like the
    idea of having the FTC continue its jurisdiction while these
    other goodhearted folk go about their nefarious business?
        Ms. Hillebrand. We have endorsed full retention of FTC
    enforcement authority but we think----
        Mr. Dingell. We have talked about what FTC is going to lose
    and you are apparently advocating the losing of it. I am not of
    a view that maybe we want FTC to lose that jurisdiction and
    maybe we want FTC to be around to sort of provide a minor
    dampening of the rascality which is going to continue to occur
    in the financial services industry. Now, what is your objection
    to that?
        Ms. Hillebrand. We believe that you need----
        Mr. Dingell. Dear friend, in just a few words, what is your
    objection?
        Ms. Hillebrand. Put the rulemaking in one place so that it
    is very clear whose job it is, and then you can hold them
    accountable.
        Mr. Dingell. They arranged that one-stop shopping when they
    moved this whole thing across the hall, and since then the
    whole financial services industry of the United States has had
    to be bailed out to the amount of $700 billion, which was
    congregated by Mr. Paulson, who came from that industry, and
    which has done nothing but enriched the same rascals that had
    caused trouble, and it has not only enriched those rascals but
    it has given us something new to think about, and that is, it
    has seen to it that they have had the funds to pay the same
    scoundrels who made the mess enormous bonuses amounting to as
    much as $165 million in one instance. Obviously, this is the
    product of one-stop shopping which I suspect you were telling
    me you support or maybe you want to tell me now you don't
    support.
        Ms. Hillebrand. We are trying to end the ability to shop
    for your regulator by having one entity write the rules no
    matter what kind of charter and what kind of provider. That is
    our position.
        Mr. Dingell. Well, I have to say, I think somebody else
    wrote your statement but I thank you for your presence, and Mr.
    Chairman, I thank you for your courage and ability to bring
    this event about. Thank you.
        Mr. Rush. The Chair thanks the chairman emeritus. The Chair
    thanks the witnesses. This hearing now stands adjourned. But
    before we adjourn, I wanted to let you know how grateful we are
    for you to extend your time with us and spend your time with
    us.
        By unanimous consent, I request that members submit all
    questions to be sent to the witnesses for the record within
    seven calendar days and that witnesses will respond promptly to
    the questions that are submitted to them. Thank you so very
    much, and safe travel.
        [Whereupon, at 2:15 p.m., the subcommittee was adjourned.]
        [Material submitted for inclusion in the record follows:]