[House Hearing, 112 Congress]
[From the U.S. Government Publishing Office]




 
                       OVERSIGHT OF THE CONSUMER
                      FINANCIAL PROTECTION BUREAU

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

                                HEARING

                               BEFORE THE

                 SUBCOMMITTEE ON FINANCIAL INSTITUTIONS

                          AND CONSUMER CREDIT

                                 OF THE

                    COMMITTEE ON FINANCIAL SERVICES

                     U.S. HOUSE OF REPRESENTATIVES

                      ONE HUNDRED TWELFTH CONGRESS

                             FIRST SESSION

                               __________

                             MARCH 16, 2011

                               __________

       Printed for the use of the Committee on Financial Services

                           Serial No. 112-18


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                 HOUSE COMMITTEE ON FINANCIAL SERVICES

                   SPENCER BACHUS, Alabama, Chairman

JEB HENSARLING, Texas, Vice          BARNEY FRANK, Massachusetts, 
    Chairman                             Ranking Member
PETER T. KING, New York              MAXINE WATERS, California
EDWARD R. ROYCE, California          CAROLYN B. MALONEY, New York
FRANK D. LUCAS, Oklahoma             LUIS V. GUTIERREZ, Illinois
RON PAUL, Texas                      NYDIA M. VELAZQUEZ, New York
DONALD A. MANZULLO, Illinois         MELVIN L. WATT, North Carolina
WALTER B. JONES, North Carolina      GARY L. ACKERMAN, New York
JUDY BIGGERT, Illinois               BRAD SHERMAN, California
GARY G. MILLER, California           GREGORY W. MEEKS, New York
SHELLEY MOORE CAPITO, West Virginia  MICHAEL E. CAPUANO, Massachusetts
SCOTT GARRETT, New Jersey            RUBEN HINOJOSA, Texas
RANDY NEUGEBAUER, Texas              WM. LACY CLAY, Missouri
PATRICK T. McHENRY, North Carolina   CAROLYN McCARTHY, New York
JOHN CAMPBELL, California            JOE BACA, California
MICHELE BACHMANN, Minnesota          STEPHEN F. LYNCH, Massachusetts
KENNY MARCHANT, Texas                BRAD MILLER, North Carolina
THADDEUS G. McCOTTER, Michigan       DAVID SCOTT, Georgia
KEVIN McCARTHY, California           AL GREEN, Texas
STEVAN PEARCE, New Mexico            EMANUEL CLEAVER, Missouri
BILL POSEY, Florida                  GWEN MOORE, Wisconsin
MICHAEL G. FITZPATRICK,              KEITH ELLISON, Minnesota
    Pennsylvania                     ED PERLMUTTER, Colorado
LYNN A. WESTMORELAND, Georgia        JOE DONNELLY, Indiana
BLAINE LUETKEMEYER, Missouri         ANDRE CARSON, Indiana
BILL HUIZENGA, Michigan              JAMES A. HIMES, Connecticut
SEAN P. DUFFY, Wisconsin             GARY C. PETERS, Michigan
NAN A. S. HAYWORTH, New York         JOHN C. CARNEY, Jr., Delaware
JAMES B. RENACCI, Ohio
ROBERT HURT, Virginia
ROBERT J. DOLD, Illinois
DAVID SCHWEIKERT, Arizona
MICHAEL G. GRIMM, New York
FRANCISCO ``QUICO'' CANSECO, Texas
STEVE STIVERS, Ohio

                   Larry C. Lavender, Chief of Staff
       Subcommittee on Financial Institutions and Consumer Credit

             SHELLEY MOORE CAPITO, West Virginia, Chairman

EDWARD R. ROYCE, California, Vice    CAROLYN B. MALONEY, New York, 
    Chairman                             Ranking Member
DONALD A. MANZULLO, Illinois         LUIS V. GUTIERREZ, Illinois
WALTER B. JONES, North Carolina      MELVIN L. WATT, North Carolina
JEB HENSARLING, Texas                GARY L. ACKERMAN, New York
PATRICK T. McHENRY, North Carolina   RUBEN HINOJOSA, Texas
THADDEUS G. McCOTTER, Michigan       CAROLYN McCARTHY, New York
KEVIN McCARTHY, California           JOE BACA, California
STEVAN PEARCE, New Mexico            BRAD MILLER, North Carolina
LYNN A. WESTMORELAND, Georgia        DAVID SCOTT, Georgia
BLAINE LUETKEMEYER, Missouri         NYDIA M. VELAZQUEZ, New York
BILL HUIZENGA, Michigan              GREGORY W. MEEKS, New York
SEAN P. DUFFY, Wisconsin             STEPHEN F. LYNCH, Massachusetts
JAMES B. RENACCI, Ohio               JOHN C. CARNEY, Jr., Delaware
ROBERT J. DOLD, Illinois
FRANCISCO ``QUICO'' CANSECO, Texas


                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on:
    March 16, 2011...............................................     1
Appendix:
    March 16, 2011...............................................    47

                               WITNESSES
                       Wednesday, March 16, 2011

Warren, Elizabeth, Special Advisor to the Secretary of the 
  Treasury for the Consumer Financial Protection Bureau (CFPB), 
  U.S. Department of the Treasury................................     8

                                APPENDIX

Prepared statements:
    Warren, Elizabeth............................................    48

              Additional Material Submitted for the Record

Capito, Hon. Shelley Moore:
    Written statement of the National Association of Federal 
      Credit Unions (NAFCU)......................................    82
Watt, Hon. Melvin:
    Speech given by Elizabeth Warren on September 29, 2010, with 
      a personal note to Representative Watt.....................    84
Warren, Elizabeth:
    Written responses to questions submitted by Representative 
      Capito.....................................................    90
    Written responses to questions submitted by Representative 
      McHenry....................................................    91
    Written responses to questions submitted by Representative 
      Meeks......................................................    92
    Written responses to questions submitted by Representative 
      Westmoreland...............................................    97


                       OVERSIGHT OF THE CONSUMER
                      FINANCIAL PROTECTION BUREAU

                              ----------                              


                       Wednesday, March 16, 2011

             U.S. House of Representatives,
             Subcommittee on Financial Institutions
                               and Consumer Credit,
                           Committee on Financial Services,
                                                   Washington, D.C.
    The subcommittee met, pursuant to notice, at 10:02 a.m., in 
room 2128, Rayburn House Office Building, Hon. Shelley Capito 
[chairwoman of the subcommittee] presiding.
    Members present: Representatives Capito, Royce, Manzullo, 
McHenry, McCotter, Pearce, Westmoreland, Luetkemeyer, Huizenga, 
Duffy, Dold, Canseco; Maloney, Gutierrez, Watt, Ackerman, 
Hinojosa, McCarthy of New York, Baca, Miller of North Carolina, 
Scott, and Lynch.
    Ex officio present: Representative Bachus.
    Also present: Representatives Neugebauer, Garrett, and 
Green.
    Chairwoman Capito. The committee is called to order. I 
would like to welcome everyone to what I believe will be one of 
the most important hearings that the subcommittee will hold 
this Congress.
    We are joined this morning by Professor Elizabeth Warren, 
Special Advisor to the Secretary of the Treasury for the 
Consumer Financial Protection Bureau, who will be answering 
questions from the members of the subcommittee about the 
creation of the Consumer Financial Protection Bureau which we 
are going to call the CFPB, because I can't get those four 
words out in great succession very quickly.
    So I would like to welcome her and thank her for her 
participation. She has made a request because of her scheduling 
issues; she can only be in the hearing until 12:30. So we want 
to respect that. And I think we will have a good and vibrant 
hearing and plenty of time to do that.
    The debate over the creation of the CFPB was intense, with 
many members having very different opinions on the best way to 
modernize the financial regulatory system for consumer 
protection. I think we can all agree that there were lapses in 
oversight and inherent problems within the regulatory 
structure.
    That said, many of my colleagues in the House of 
Representatives have serious concerns about the creation of a 
new bureaucracy with little congressional oversight. Many of us 
would have preferred to truly cut the red tape and create a 
modern regulatory structure that demands better communication 
between Federal regulators and provides consumers with the 
tools they need to report fraud in the system.
    What consumers need is a regulatory structure that allows 
for them to obtain information on a variety of financial 
products and then make an informed decision about which 
products best suit their financial needs. And from reading the 
professor's statements, she will be addressing those issues.
    One of my concerns with the creation of the CFPB was that 
consumers could start to lose the ability to choose from a wide 
variety of products. It would be better for all parties if a 
portion of the bureau's budget was a part of the annual 
appropriations process. Claiming that congressional oversight 
is present because Congress has the ability to overturn rules, 
I don't believe is the most effective way to conduct oversight.
    Additionally, I have questions about the role the staff of 
the bureau are playing in ongoing rulemaking. It has come to 
light that representatives from the bureau have been playing an 
active role in settlement discussions between large mortgage 
servicers, regular regulators and State attorneys general.
    By statute, the bureau will not be operational until July 
of this year. I think the involvement of bureau employees in 
these discussions raises some questions. I have many more 
questions for Professor Warren and realize that time is 
limited. I would like to thank her again for joining us today 
and for her willingness to meet so many Members of Congress. In 
her statement, she mentions that she has met with over 60 
Members, and certainly, as one of those Members, I appreciate 
that very much.
    I would like to now recognize the ranking minority member, 
the gentlelady from New York, Mrs. Maloney, for the purpose of 
an opening statement, and I am going to scoot out very quickly, 
but I will be back.
    Mrs. Maloney. But not before I thank you for calling this 
hearing and for your friendship and for your leadership on so 
many important issues including this one.
    And thank you and welcome to Elizabeth Warren, who has been 
at the forefront of the effort to create a consumer bureau for 
years. Thank you for your service and for your commitment to 
all American families. You have a been a true champion for the 
American consumer and for fair and you--and I am getting 
reports from all sectors, all stakeholders and our financial 
community that you have reached out to them and you have been 
fair and balanced in your approach.
    History has long shown us that our country is at its most 
secure and most prosperous when the middle class is 
economically vibrant and growing. Recent history has also shown 
us that the reverse is true. Though it is hard to come by an 
exact figure, in 2008, the worst year of the ``Great 
Recession,'' household wealth in America fell by more than $11 
trillion. Let me repeat that stunning figure, $11 trillion.
    And the middle class by any reasonable measure has borne 
the brunt of the economic damage. Millions lost their jobs, 
lost their homes, lost the chance to go to college, lost the 
hope of a better and brighter future. That hard and inescapable 
fact was one of the most compelling reasons for the enactment 
of the Dodd-Frank Act and the creation of the Consumer 
Financial Protection Bureau.
    We took a huge step forward toward creating a more level 
playing field for the American consumer and the American middle 
class. For far too long in our financial system, regulatory 
concerns about consumer protection came in a distant second or 
third or were not considered at all.
    But now, for the first time, anyone who opens a checking 
account or savings account, anyone who takes out a student loan 
or a mortgage, anyone who opens a credit card or takes out 
payday loan will have someone looking out for them and a 
Federal agency on their side to be fair and balanced and to 
protect them.
    For the first time, consumer protection authority will be 
held in one place, the CFPB, with an independent, appointed 
director, an independent budget and an autonomous rule-making 
authority. For the first time, a truly independent authority 
will be able to write new rules for non-bank financial firms 
including payday lenders, debt collectors, mortgage brokers, 
and other financial institutions.
    And very importantly, for the first time, consumers will 
have a seat at the table at the Financial Stability Oversight 
Council (FSOC). And the Council will have the authority to 
nullify any rule it believes will harm an institution's safety 
and soundness. This kind of evenhandedness and commonsense 
oversight of our financial system with strong consumer 
protections will ensure the safety and soundness of the system 
as a whole and is clearly in the best interests of the American 
consumer and the driving force of the American economy.
    Elizabeth Warren has been at the helm since September 2010, 
as the agency gets off the ground. So I will be very interested 
to hear how the process is going as well as what the agency's 
initial priorities are going to be when authority is officially 
transferred to the agency in July.
    I thank the Chair again for calling this hearing, and I 
welcome Ms. Warren. Thank you.
    Mr. Royce. [presiding] Thank you very much.
    Welcome, Professor Warren. It is good to see you.
    I would just like to make a couple of observations here. 
One is that a number of people in the regulatory community and 
a number of economists have raised concerns about some of the 
unintended consequences of the titles in Dodd-Frank, Titles I 
through IX, there are provisions throughout the legislation 
that weren't really thought through.
    But Title X seems to be particularly problematic and I will 
explain some of the concerns. Beginning July 21st, the Federal 
Reserve has to transfer to the bureau whatever funds the 
bureau's director has requested despite the fact that neither 
the Fed nor Congress will have any say into the bureau's 
budget. Now, that is unique and that is one concern that has 
been raised.
    The second observation is, the byproduct of that, when you 
think it through, really raises two problems. First, this 
agency will be able to act outside of the normal appropriations 
process in the way Dodd-Frank set it up, which means that it 
will not be held accountable for the actions taken. And the 
other problem comes from putting safety and soundness 
protection behind consumer protection in our regulatory 
structure.
    This is something you and I have talked about, but we have 
tried this model with the GSEs and it did not work. Both the 
acting and former heads of the FHFA have said that the 
competing regulatory structure, OFHEO versus HUD, contributed 
to the failure of Fannie and Freddie. And here, instead of 
abolishing that model, we have with Dodd-Frank replicated that 
regulatory model throughout the financial system. That gives 
cause for all of us, I think, to ponder whether this was done 
correctly.
    And the final concern I have with Title X is the assault on 
preemption. Regardless of our political affiliation, I think we 
should all be able to agree that one uniform standard is much 
simpler, much more effective. We already have 97 percent of the 
lawsuits in the world today that occur here encouraging more 
litigation and more uncertainty in this.
    I just think Dodd-Frank takes a major step back; we now 
have every single State attorney general interpreting Federal 
laws and banks' subsidiaries will now have to comply with State 
consumer protection laws instead of one national uniform 
interpretation here. And I think that is going to be a boon for 
the trial lawyers but it will do little to protect consumers or 
make our capital markets more competitive.
    So it is my hope this committee will take the next 
necessary steps to correct these failures in the Dodd-Frank 
legislation.
    And we now go to Mr. Scott of Georgia for his 5 minutes.
    Mr. Scott.. Thank you very much, Mr. Royce, I appreciate 
that.
    Welcome, Ms. Warren. Ms. Warren, I think that you have sort 
of a delicate balance that you have to walk here. On the one 
hand, you have to make sure that the consumers have not only 
the proper information to educate them about some of the 
practices in our financial services industry but you also have 
the requirement to make sure that what you do will not thwart 
access to capital for our consumers, for the banking community, 
particularly for small businesses, while at the same time give 
the confidence today that you will also protect the American 
consumer, protect access to capital to them, protect the 
consumer.
    I would also like for you to address just what impact my 
good friend on the other side of the aisle--Representative 
Neugebauer has a bill and that bill basically seeks to defund 
and keep you in Treasury. I would like for you to address just 
what this means to you. How will this either make your duties 
better or make your duties worse with this bill?
    And then finally, I would like for you to address the 
concerns of the banking industry. The banking industry is 
scared to death of this. They feel this is a threat, while at 
the same time; the banking industry is the heart of our 
economic system. It pumps the money which basically is sort of 
like the blood, the life source throughout our system.
    It might be good for you to address that, to ease some of 
the concerns within the Banking Committee that you are not the 
threat or the evil empire that perhaps some of them might 
think. And so, I think that this is a very timely hearing and 
you do have a delicate balance. And I hope that you will 
address some of these concerns, and that we all will leave this 
hearing far more wiser and more confident in your ability and 
the operations of this new bureau, that it is not a threat. But 
it is a much needed solution and approach in a very trying 
economic time.
    Thank you, and I yield back the balance of my time.
    Mr. Royce. We are going to go to Chairman Bachus. Before we 
do that, I ask unanimous consent, without objection, to allow 
Representative Al Green of Texas to participate in the hearing. 
I will now go to Chairman Bachus.
    Chairman Bachus. Thank you.
    Director Warren, you are probably directing the most 
powerful agency that has ever been created in Washington. It is 
not a commission; it is one single person. And it will regulate 
all providers of credit, savings, payment, and consumer 
financial products and services.
    A covered person is defined as any person who engages in 
offering or providing a financial product or service. The 
definition of a financial product or service, you--or whomever 
at the agency--will define what that is. It is not defined in 
the statute.
    And also, you will have the ability to identify and ban any 
financial product or service that is deemed unfair, deceptive, 
or abusive. But there is really no legal definition of abusive, 
so you--or whomever heads this agency--will have the right to 
make that determination.
    And your budget, you have as much as $500 million from the 
Federal Reserve available--and you can seek appropriations of 
$200 million more. That compares to: the CFTC, which has $169 
million; the FTC, which has $300 million; and the SEC, which 
has $900 million.
    I will start by saying that no one questions your 
commitment to consumer protection, and I want to acknowledge 
that. But you will basically make the decision as to when 
consumers are protected and when they are not and what products 
will be offered and which products won't. And you will have 
quite a budget. You have not been nominated by the President. I 
don't know when that will happen or whether you will be 
nominated. We asked Secretary Geithner in September and he said 
that nomination will be made soon. It is 6 months later, and I 
think you would like a nomination to be made. Certainly, no one 
has been confirmed by the Senate.
    And yet, you have a lot of discretion and a lot of power, 
but I see very little accountability. We have almost just a 
good faith reliance on your abilities, integrity, and judgment. 
That is quite a burden for you and quite a burden for us and I 
think it adds to a great deal of uncertainty. So, I look 
forward to hearing your testimony.
    But I will tell you that since last July when we passed the 
Dodd-Frank Act, I have advocated for a commission all along. 
And I believe that having a board is a much better approach 
because I think it is asking one person to do too much. Thank 
you.
    Chairwoman Capito. Thank you, Mr. Chairman.
    I would like to recognize Mr. McHenry from North Carolina 
for 1 minute.
    Mr. McHenry. I thank the chairwoman.
    When the CFPB was debated, many of us were concerned that 
your agency would have a great deal of power with very little 
congressional oversight, after all, as the chairman mentioned, 
the appropriations process is one point of congressional 
oversight which you will not have.
    We were concerned that severe economic consequences would 
arise from the separation of consumer protection and safety and 
soundness duties. While that question was before us in theory, 
it is now in front of us in a very real way in the form of the 
recently released mortgage servicer settlement term sheet.
    Our economy is still very fragile and recovery in the 
housing market will play a big part in getting our Nation back 
on its feet. A number of the provisions of the term sheet could 
cause a crippling slowdown in that recovery.
    I look forward to speaking with you about this and other 
matters.
    And I appreciate, Chairwoman Capito, your holding this 
hearing.
    Chairwoman Capito. Thank you.
    I would like to recognize Mr. Pearce from New Mexico for 1 
minute.
    Mr. Pearce. Thank you, Madam Chairwoman.
    And thank you, Ms. Warren, for being here today. We 
appreciate that--as everyone is saying here--your new agency is 
going to wield a lot of power.
    The basic problem in the country is that we are spending 
$3.5 trillion a year and our revenues are $2.2 trillion a year. 
Our economy has frozen in place. The recovery is--out by 
regulations which are causing uncertainty.
    The health care regulation and the whole health care bill 
is causing people to lay off employees, to get below caps. It 
is freezing the creation of jobs in the medical field.
    We see the regulators freezing loans. Banks have money to 
lend and they are afraid to lend it because they are not faced 
with $50,000 fines that used to be simply be simply write-ups.
    So, I would be interested to see what you are doing to 
unfreeze the market to create certainty instead of the 
uncertainty that is coming out of the government right now. 
Without that, our economy is doomed to fail. It is doomed to 
fail if we continue on the path that we are on.
    I look forward to talking with you on this briefing.
    I yield back.
    Chairwoman Capito. I recognize Mr. Luetkemeyer from 
Missouri for 1 minute.
    Mr. Luetkemeyer. Thank you, Madam Chairwoman.
    And welcome, Ms. Warren.
    I understand that the Consumer Financial Protection Bureau 
will be a self-regulated, unchecked body governed by one 
individual and funded outside the congressional appropriations 
process.
    This bureau promises to promulgate rules to regulate every 
financial product available. All American financial firms, not 
just the ones who played a role in the financial crisis, will 
be subject to its regulatory authority in some way, and all 
these powers will be given with little or no mechanism for 
oversight.
    As a former bank regulator, I am concerned that this agency 
puts consumer protection ahead of the safety and soundness of 
our financial institutions. In a time when we are just now 
seeing signs of recovery, the last thing our lenders need is 
for an intrusive one-size-fits-all government regulatory agency 
submitting more regulation to them.
    I thank our witness for attending. I look forward to the 
hearing.
    Thank you, Madam Chairwoman. I yield back.
    Chairwoman Capito. Thank you.
    I would like to recognize Mr. Dold from Illinois for 1 
minute for the purpose of giving an opening statement.
    Mr. Dold. Thank you, Madam Chairwoman.
    And I want to thank you, Professor Warren, for your time 
today.
    I think all of us on the panel are certainly concerned 
about consumer protection. However, we can't let theoretical 
consumer protection become the vehicle for categorically 
eliminating consumer choices or for effectively prohibiting new 
customized or sophisticated financial products.
    Doing so, I believe, would not protect consumers or jobs. 
Ultimately, the question comes down to, who makes the best 
decisions about financial products for consumers? Unelected or 
unaccountable bureaucrats in Washington or the consumers 
themselves? At both the State and Federal levels, we already 
have countless relevant laws, regulations, and regulators, not 
to mention great incentives for class action lawyers to 
privately enforce these preexisting legal standards.
    Do we really need to superimpose another multibillion 
dollar bureaucracy on top of preexisting legal infrastructure? 
If so, shouldn't that new Federal bureaucracy at least be 
accountable to the American people through their elected 
representatives?
    And shouldn't Congress give the new bureaucracy more 
guidance than relying on abstract concepts like whether a 
product is unfair, whether it is deceptive or risky? And should 
we also ensure that this new bureaucracy never jeopardizes bank 
safety and soundness in the name of consumer protection?
    Our economy is already struggling with enough uncertainty 
and dislocation. I hope that we will all carefully reflect on 
whether any theoretical bureaucratic benefits justify the risk 
that this new bureaucracy itself poses to consumers, to jobs 
and to our economic growth.
    Thank you. I yield back.
    Chairwoman Capito. Thank you.
    And I would like to recognize Mr. Canseco from Texas for 1 
minute for the purpose of giving an opening statement.
    Mr. Canseco. Thank you, Madam Chairwoman.
    And thank you, Ms. Warren, for being here today.
    Now, on its face, the Consumer Financial Protection Bureau 
seems like a good idea, an agency whose mission is to protect 
the consumers. Unfortunately, like so much else within the 
Dodd-Frank bill, the unintended consequences of the CFPB 
continue to come to light.
    It turns out that consumer protection really means consumer 
restriction, consumer control. Having the Federal Government 
restrict the choices available to consumers in the name of 
protection sets a terrible precedent.
    Professor Warren has styled herself as an advocate for 
families. There is no greater advocate for families than a 
husband and a wife sitting down at the table, pen and pen paper 
in hand, planning their family's finances without government 
interference or oversight; there is no room for a third seat at 
that table, one occupied by a faceless bureaucrat who does not 
even know their names much less what is in their best interest.
    American families deserve the dignity of being able to make 
their financial decisions by themselves. Decisions about credit 
cards and mortgages belong to the family at the family table, 
not a Washington bureaucracy.
    Thank you, and I look forward to your comments.
    Chairwoman Capito. Thank you.
    That concludes our opening statements. So, I welcome the 
professor back, and I look forward to hearing her testimony. 
Thank you.

   STATEMENT OF MS. ELIZABETH WARREN, SPECIAL ADVISOR TO THE 
SECRETARY OF THE TREASURY FOR THE CONSUMER FINANCIAL PROTECTION 
         BUREAU (CFPB), U.S. DEPARTMENT OF THE TREASURY

    Ms. Warren. Thank you, Chairwoman Capito, Ranking Member 
Maloney, and members of the subcommittee for inviting me to 
testify about the work of the Consumer Financial Protection 
Bureau.
    This is the first oversight hearing for the new consumer 
agency, and I welcome it. I hope you will permit me to begin 
with a personal note. I didn't come to Washington because I 
yearned to be a government official. I came to Washington 
because Congress asked me here.
    My first job started 2\1/2\ years ago when I was appointed 
to the Congressional Oversight Panel, where I served as Chair. 
At the Oversight Panel, we worked to produce detailed reports 
for you about TARP every single month.
    During that time, I came to Capitol Hill on many occasions 
to testify about our oversight of TARP and to answer your 
questions. You schooled me early on the importance of oversight 
and I believe in it.
    Since taking the job of putting together the new bureau, I 
have had more than 60 one-on-one conversations with Members of 
Congress. I have sought your good council on many issues.
    For today's hearing, I have prepared 34 pages of detailed 
written testimony to document our start-up effort. The 
testimony describes our vision for the new consumer bureau and 
the progress we have made so far. I hope it is helpful in 
guiding your oversight efforts.
    The consumer bureau's mission is straightforward--make 
prices clear, make risks clear so consumers can compare one 
product to two or three others. Fine print is great for those 
who want to hide something, but not good for families who want 
to know what they are getting into. Mortgages, credit cards, 
checking accounts, America's families have a right to see the 
deal right upfront.
    There is another issue that I know many of you are 
concerned about, and I would like to address it head on, 
reports of serious deficiencies at mortgage servicers. The 
Department of Justice through the Financial Fraud Enforcement 
Task Force, has been coordinating with other Federal agencies 
and 50 State attorneys general to review and address these 
deficiencies.
    Last month, this country's chief banking regulator came to 
Congress and said these deficiencies have resulted in 
violations of State and local foreclosure laws. And they have 
damaged mortgage markets and the U.S. economy at large.
    As you know, this new consumer agency is still getting 
started and doesn't yet have any enforcement authority. 
Therefore, we will not be a party to any formal settlement with 
mortgage servicers.
    However, later this year, the bureau will receive authority 
to set standards for the mortgage servicing industry. For this 
reason, Secretary Geithner, the Justice Department and other 
agencies have requested the consumer agency to provide advice 
on this matter.
    We have provided our comments, and let me tell you why. If 
there had been a cop on the beat with the authority to hold 
mortgage servicers accountable a half dozen years ago, if there 
had been a consumer agency in place, the problems in mortgage 
servicing would have been exposed early and fixed while they 
were still small, long before they became a national scandal.
    The mortgage servicing problem illustrates the importance 
of fair, consistent enforcement. We need a cop on the beat that 
American families can count on. It is critical that we get this 
right, a real cop on the beat.
    Right now, our government is trying to work out a 
settlement to end this scandal. This is a law enforcement 
matter. It includes a bipartisan or nonpartisan roster of law 
enforcement officials at Federal agencies, at the Department of 
Justice and 50 State attorneys general.
    While it would be inappropriate for me or for anyone else 
in government to disclose the substance of the discussions 
regarding an ongoing enforcement matter, I do want to say that 
I am glad that the consumer agency has been able to provide 
assistance in this important matter.
    I thank Congress for creating this agency to help provide a 
voice for American families; that is why we are here and that 
is what we are doing.
    Thank you, Congresswoman.
    [The prepared statement of Ms. Warren can be found on page 
48 of the appendix.]
    Chairwoman Capito. Thank you, Professor Warren.
    I will start the questioning and then we will go through 
the various members.
    In reading your statement and looking at the goals for the 
bureau that have been lined out in your statement, you have 
mentioned repeatedly going back in and looking at old 
regulations, removing old regulations and determining which of 
those are obsolete instead of piling more and more on top.
    But as I was reading, I couldn't really see where you would 
actually--actually that is an effort that is moving forward in 
terms of weeding out and regulatory reform with the existing 
regulations.
    Can you give me just a brief update on where you are on 
that particular issue?
    Ms. Warren. Yes, ma'am.
    I really am glad that you asked this question because what 
it permits us to talk about is not just our overall, but we 
really are trying to look through regulations and find places 
where they can be more efficient and I should mention this, our 
process for doing that.
    We have reached out particularly to community banks, to 
credit unions, to the financial industry, to people across the 
spectrum to try to learn from them where the regulations are 
most problematic.
    We have settled on our first priorities for this agency, 
and that is to take two forms: one is called the TILA form; and 
the other is called the RESPA form. These are forms you may 
remember from the last time you bought a home or did a mortgage 
refinancing, somewhere in those stack of documents that you 
dealt with.
    These are two forms that community bankers tell me have 
roughly about an 80 percent overlap in terms of the content. 
But they are written differently. They are organized 
differently. They have different pieces to them.
    And as a result, they are expensive to fill out. They have 
regulatory compliance cost, that is they have to show that they 
comply with the regulations. And there are real regulatory 
consequences if they get something wrong, if they leave 
something blank.
    In fact in several meetings, I have had community bankers 
and credit unions come to me and show me these forms and show 
me what it is like, and how much time they have to spend, and 
how much training it takes to fill these out.
    So, what we have proposed to do at the consumer agency, and 
we are very much doing this in concert with the banking 
industry and with the mortgage industry is to bring those two 
forms together.
    And I want to pause here to say, you would think that 
wouldn't be a hard thing to do if there is that much overlap. 
Because financial regulation has been scattered, the consumer 
issues have been scattered among seven different agencies, this 
particular one has been held by two different agencies. And 
there have been negotiations for more than 15 years to try to 
merge those two forms into one.
    Now, they are both coming to the new Consumer Financial 
Protection Bureau. We are now able to work with the community 
banks and the credit unions and with others in the industry. 
And we are going to put those together. What we are looking for 
is a one-page mortgage shopping sheet that is simpler, easier, 
shorter, and more valuable to the consumer. So, lower 
regulatory cost, higher value to the consumer.
    We regard that as the sweet spot for this agency.
    Chairwoman Capito. All right. Thank you.
    I am interested in your response. You mentioned more than a 
few times community banks and credit unions. I am sure that is 
not by accident. But in creating this bureau, those entities 
were led to believe that they were going to be exempted from 
the purview of the CFPB, an impression which your comment 
pretty much nullifies.
    You are going to them for ideas. You are creating a form. 
And I applaud that effort, having bought homes before. It is 
very confusing. And nobody can read through those forms. We all 
know that.
    But, I think, you are backing up what my banker, community 
banker, Charles Natty, said when he testified before this 
committee, that he has already had a thousand pages of new 
proposed rules. There will be thousands more. He has already 
had to hire one person in a community bank to meet these 
challenges.
    And I think this is a question that goes to the heart of 
the overreach or implicitly exempting these community banks 
which don't have the $10 billion level. And actually, they are 
a part of this.
    And I will say just--because I am running out of time, I 
only have 24 seconds, in terms of the servicer issue, I am 
glad. Obviously, we addressed that a lot in our opening 
statements. You kept saying, ``cop on the beat, cop on the 
beat.''
    The real question is, this agency doesn't really go into 
effect until July and are you really a cop on the beat? Can you 
perform as the cop on the beat when you really haven't had 
your, I don't know, your training yet or you haven't been 
equipped yet?
    And I think that the properness of that is what has come 
into question.
    So with that, I will ask Mrs. Maloney--
    Mrs. Maloney. Thank you.
    Thank you very much. First of all, I would like to ask 
unanimous consent to place in the record an article that was in 
The Wall Street Journal yesterday on the CFPB's efforts to 
reach out to the community, to the financial institutions 
across our Nation, and outlining some of their efforts to get 
input and to respond to concerns of the public.
    Chairwoman Capito. Without objection, it is so ordered.
    Mrs. Maloney. Thank you so much.
    The Dodd-Frank Act has a slew of checks and balances that 
are imposed on the CFPB so that it is accountable to the 
American people and Congress. Could you identify some of those 
and go through some of those checks and balances?
    Ms. Warren. Yes. Thank you, Congresswoman.
    I would just like to start by making the point about 
accountability. As I said, I came here originally because 
Congress asked me to be part of the effort to oversee TARP 
through the Congressional Oversight Panel.
    But I hope that every time we talk about accountability 
that we are also talking about the accountability of financial 
institutions, that there will be someone, that there will be a 
cop on the beat to make sure that they follow the law.
    So, in terms of accountability, accountability for the 
financial services industry, accountability for this new 
bureau, let me remind everyone of the structure of this new 
bureau.
    It is the only agency in all of government--let me 
underline that--the only agency whose rules can be overruled, 
obliterated, wiped out, negated by other agencies. The 
structure of Dodd-Frank is quite frankly to make this the one 
agency that other agencies can come in and say under the 
Financial Stability Oversight Council, ``We don't like that 
rule. And so, we are not going to permit that rule to become 
law.''
    That is not true for any other agency.
    The second thing is to focus on banking regulators. In case 
of banking regulators throughout American history, it has been 
the case that banking regulators are funded outside the 
political process. They have always had independent funding. 
And the consumer agency, the one voice for American families, 
should have that same independence. So, I think the reasons for 
making banking regulators independent is pretty obvious given 
the way that the process works.
    But I will say again, here in terms of the budget, that 
unlike any of the other banking regulators, the consumer 
banking regulator will not be able to set his own budget if the 
budget is capped. It is capped by statute in Dodd-Frank.
    If the consumer agency thinks that it doesn't have enough 
money to put enough cops on the beat in order to supervise the 
lending industry or to supervise mortgage servicers, the 
consumer agency has to come back to Congress and ask Congress 
for more money.
    That means in these two critical respects, the consumer 
agency is not the strongest agency in government. It is the 
most constrained and the most accountable agency in government.
    I should also note in the overall structure of Dodd-Frank, 
because I think it is important, is that there are about 18 
Federal statutes that have bits and pieces and chunks of 
consumer financial protection.
    Currently, those 18 statutes are scattered among 7 
different Federal agencies, 7 different agencies which have 
responsibility for rule writing and responsibility for 
enforcement in different bits and pieces. But most critically, 
for no agency is it of first importance.
    What the Consumer Financial Protection Bureau, what Dodd-
Frank provided in its first point was to say, we are going to 
take existing law, not change existing law, we are going to 
take existing law and we are going to gather it up. And instead 
of having the duplication, the conflict, the inability the 
chairman and I were talking about to be able to negotiate and 
get a single form, we are going to sweep that inefficiency out. 
We are going to sweep that inattention out. And we are going to 
concentrate on exactly one agency that will be accountable on 
consumer issues.
    Now, there are many more cases, and I have referred to them 
in my testimony, Congresswoman. I apologize for going on so 
long. But I think the issue of accountability is really 
important. And I just wanted to hit the three highlights.
    Thank you.
    Chairwoman Capito. Thank you.
    I would like to recognize the chairman of the full 
committee, Mr. Bachus, for questioning.
    Chairman Bachus. Thank you.
    Professor Warren, you have participated in the foreclosure 
settlement discussions with the banks. And you have 
acknowledged that earlier?
    Ms. Warren. Actually, Congressman, let me put this more 
clearly. We have been asked for advice by the Department of 
Justice, by the Secretary of the Treasury, and by other Federal 
agencies. And when asked for advice, we have given our advice.
    Chairman Bachus. Sure. And did you give that as advice from 
the Consumer Financial Protection Board? Was it given--were 
they consulting you in that role? In what role were you acting 
when you say, ``We were asked for advice?'' Who is the ``we?''
    Ms. Warren. Right now, as you know, Congressman, we are a 
part of Treasury. We are just a division.
    Chairman Bachus. The CFPB, when you say, ``we are.''
    Ms. Warren. That is right. The consumer, the standing up of 
the consumer agency.
    Chairman Bachus. So, you were asked, in your role as the 
CFPB?
    Ms. Warren. As part of Treasury, sir.
    Chairman Bachus. Right, as part of Treasury.
    Ms. Warren. That is right. We are part of Treasury. And in 
fact, I think the first request was specifically from Secretary 
Geithner.
    Chairman Bachus. Okay. And Secretary Geithner asked you for 
advice on what to do or how to structure this settlement?
    Ms. Warren. As I said, he asked for advice about the 
ongoing problem we have with the mortgage servicers who, the 
OCC said, have violated both State and Federal law.
    Chairman Bachus. Okay. And these are criminal and not civil 
enforcement procedures?
    Ms. Warren. It is my understanding that is what the 
Department of Justice is dealing with. I don't know whether 
there are criminal proceedings involved or not.
    Chairman Bachus. Have you sat down and talked to the 
Justice Department about these enforcement actions?
    Ms. Warren. The Justice Department asked for our advice. 
And--
    Chairman Bachus. Yes. And again, ``our'' being the CFPB?
    Ms. Warren. Our being a section of Treasury.
    Chairman Bachus. A section of Treasury, okay.
    Ms. Warren. That is right.
    Chairman Bachus. Do you envision yourself as the acting 
director of this to-be-agency?
    Ms. Warren. No, Congressman. There is no acting director.
    Chairman Bachus. Okay. That is right. So, you envision 
yourself as just a political advisor to the President?
    Ms. Warren. I actually have two jobs.
    Chairman Bachus. Okay.
    Ms. Warren. One is that I have a job as an assistant to the 
President. And then the job that is the 14-hour-a-day job and 
that is the special advisor to the--special assistant I believe 
it is--to the Secretary of the Treasury for the purpose of 
starting the Consumer Financial Protection Bureau.
    Chairman Bachus. Okay. Have you discussed with Secretary 
Geithner or with the President who should be nominated to head 
this agency?
    Ms. Warren. In the course of my work in trying to get this 
agency going, I have had many conversations with the Secretary, 
with the White House, and with others about those--the 
qualities of what might be needed, the qualities of the person 
who would run the consumer agency. And--
    Chairman Bachus. Have they told you when they will make a 
nomination? Have you urged them to make a nomination?
    Ms. Warren. Congressman, I tried to make it clear that it 
is important that we have a nomination.
    Chairman Bachus. And will they do that almost immediately, 
would you say?
    Ms. Warren. I would not want to describe any conversation 
in detail. But I am aware of the need for--
    Chairman Bachus. Urgency?
    Ms. Warren. Urgency.
    Chairman Bachus. All right. Have they given you any 
indication? What if they made a recess appointment, and then 
that recess appointment was you? Would you accept that or would 
you say, ``I would rather not have a recess appointment,'' 
knowing the type of blowback from that.
    Ms. Warren. Congressman, there is a process in place. That 
much I can say for certain. I have tried to contribute what I 
can. And I understand that there will be a nomination soon.
    Chairman Bachus. Okay.
    Ms. Warren. But that is all I know, sir.
    Chairman Bachus. Let me ask you this--the setting of 
mortgage servicing standards.
    Ms. Warren. Yes, sir.
    Chairman Bachus. You have given input and advice into 
those. Is that correct?
    Ms. Warren. When we have been asked by the Secretary, by 
the Department of Justice and others, we have given advice 
about mortgage servicing. Yes, sir.
    Chairman Bachus. Okay.
    Thank you very much.
    Ms. Warren. Thank you.
    Mr. Royce. [presiding] We will go now to Mr. Gutierrez, of 
Illinois.
    Mr. Gutierrez. Thank you so much, professor for coming 
before the committee this morning. And I wish you Godspeed in 
your endeavors.
    I find it interesting that we are worried about how it is 
that it is going to become a permanent nomination to head the 
agency and what is going on within the servicers and the 
different departments.
    And I think we are going to find that is the theme that 
would probably be carried out most of the morning and continued 
out during the next couple of years.
    I am really concerned about consumers and not the financial 
institutions because I have a funny feeling that if we--not 
that I would do this--if we kind of carded everybody that is 
sitting behind you, the banks, and the investment bankers, and 
the payday lenders, and the rent-to-own.
    They are out there. And they are very well-represented. I 
don't know how many budget makers are very well-represented out 
there. So, I am not to worry because as a Member of Congress, I 
can assure everybody here that those from financial 
institutions are ready, willing, and able, and have had a 
strong voice here, sometimes an overwhelming voice. And how it 
is the legislative process works.
    So, I would like to ask you, when we did Dodd-Frank--and I 
just want to make this clear--are you able to supervise, 
regulate car dealerships?
    Ms. Warren. Congressman, no. We are not. We will not be 
able to do that.
    Mr. Gutierrez. That is expressly prohibited in Dodd-Frank?.
    Ms. Warren. Yes, sir. It is.
    Mr. Gutierrez. Okay. I just wanted to make that clear for 
those of us who were here while we created your agency, the 
financial institutions including the car dealers got their 
take. And they got to be taken out.
    Now, I just want to say that as I sit around my family 
table, I assure you they were here. The banks were here. 
Goldman Sachs was here. The car dealers were here. The payday 
lenders were here. The rent-to-own were here. They were all 
here.
    And let me tell you, they were extremely, to my chagrin, 
too successful in terms of crafting. So, let's not all be kind 
of crying and feeling all sorry and sympathetic about the poor 
corporations out there.
    I am concerned about that man and woman at the dining room 
table. And it does seems incredible to me that--let me see, 
before I bought my house, the greatest financial investment or 
decision I have to make was buying a car. And I think for a 
large portion of the American public, it will be the one 
instance.
    And I think for all of us unless there is something 
different about you all who sit in this committee, it is a 
scary proposition buying that car. And it is rife with lots of 
danger, especially financial exposure if not done correctly.
    So, I am sorry that I don't--I am not too worried about 
them being here.
    We created the Consumer Financial Protection agency last 
year to protect consumers from unfair, deceptive, and abusive 
practices and also to improve transparency, effectiveness, and 
fairness for consumer financial products and services.
    Some people would argue that we already have Federal 
agencies that serve as regulating bodies. Can you, Professor 
Elizabeth Warren, describe how is it that the Consumer 
Financial Protection Bureau is different from regulators like 
the Federal Reserve and the Office of the Comptroller of the 
Currency?
    Ms. Warren. Thank you, Congressman.
    I think the big difference is about what people want to do. 
The Fed is a terrific agency. It does a lot of things. But the 
people who go to the Fed go to the Fed because they want to do 
monetary policy. And that is how they are evaluated by 
Congress. They come back. They make regular reports.
    I think that it was Chairman Frank, 2 years ago, who made 
the point that in 20 years of reports from the Fed back to 
Congress, the question of consumer protection never came up.
    And so, what this is really about is saying those powers 
that had been with the Fed will now move to a new consumer 
agency. And there will be someone who will act as a cop on the 
beat. Who will be out there to look at how mortgage servicers--
just to pick an example out of the headlines--are executing on 
their obligations, whether or not they are following the law.
    Someone there to watch and someone to make sure and be able 
to say to the American people that no matter how big you are, 
you have to follow the rules. The laws are the laws and you 
have to follow them.
    The Office of the Comptroller of the Currency has done a 
lot of different kind of work. But principally, they are in the 
work of prudential regulation. They have watched out for how 
they can protect the financial institutions.
    The difficulty has been that in attention to consumer 
issues, to consumer products like the kinds of mortgages that 
made it into the system over the last 10 years, turned out now 
only to be ruinous for American families, but also ruinous for 
American banks.
    So, again, the idea the Congress had was to say, ``Let's 
take those functions and move them to the new Consumer 
Financial Protection Bureau where we have to have a cop on the 
beat to make sure that there is someone who is going to enforce 
the law.''
    If we had had this agency, 6 years ago, 8 years ago, we 
would not be in the mess we are in today.
    Mr. Royce. If I could interject here, it is also government 
intervention. If perhaps, if we restructure things with the 
agency, but if we also did not have the temerity to believe 
that Congress should go in and muscle the market and get 
downpayments down to zero, if we hadn't had the temerity to 
pass the GSE Act and allow a Government-Sponsored Enterprise to 
go into the business of arbitrage and overleverage, what I am 
sharing with you is that there are a number of factors.
    Ms. Warren. Sure.
    Mr. Royce. A number of factors. And some of it is because 
of congressional intervention in the market. And also because 
Congress tied the hands of the regulators, and I am talking now 
about the prudential regulators, the safety and soundness 
regulators to actually go in and deleverage the portfolios, for 
example, for systemic risk with Fannie Mae and Freddie Mac.
    I witnessed all of that.
    I think that there is an additional consideration here. 
Part of it--and we have talked about this--is the idea that 
Washington can better understand what the consumer demands of 
the consumer.
    And I will just give you one example. It was with overdraft 
protection. The presumption here is Americans don't want 
overdraft protection. They don't want to be paying for that. We 
are going to have--they are all going to have to opt in to get 
that.
    And what did we find when the government did that? They all 
opted in. Overwhelmingly, yes. People wanted that service. But 
the presumption here was that was a waste of time.
    So I just think those--the idea that those in government 
will dictate what products are allowed in the market and which 
are not regardless of the willing buyer and seller, it is a 
consideration in all of these as is the consideration of the 
fact that your agency is going to be able to act outside of the 
normal appropriations process. That is unique. That is new, the 
idea that it won't be held accountable for the actions it takes 
in terms of the budget.
    But my main concern is an additional concern and this I 
have shared with you. It comes from putting safety and 
soundness protection behind consumer protection in our 
regulatory structure.
    And as I have said, we have tried that with the GSEs. We 
have tried that where we have this goal--everybody has the 
right to own a home, right? And Congress interprets that 
right--to me, if you don't have any downpayment, you should 
have a right to own a home, right at the downpayment zero.
    If nobody will buy the subprime loan because you don't any 
credit and you don't have a downpayment and nobody will buy 
this junk called Countrywide, why not mandate with the goals, 
through HUD, that this has to happen?
    So, we do that and we set up bifurcated regulation where 
HUD is on your side of the equation here, the consumer 
protection, HUD is driving the goals. And on the other side, 
you had OFHEO, a weak regulator--the prudential regulator that 
was supposed to be regulating for safety and soundness. But 
guess what? They couldn't step in and deleverage the 
portfolios, because the first consideration was not safety and 
soundness.
    We have set this up so that the first consideration is not 
safety and soundness. And having gone through this and watched 
this--this is my issue--we have tried bifurcated regulation, 
OFHEO--we have had the regulators, current and past, who had 
this particular responsibility both tell us, this helped to 
create the collapse in the housing market and the wider 
systemic risk. Yes, it did. And had we had a single regulator, 
it would have been better, okay?
    So, all of us have heard this debate and I just wanted your 
take on that--
    Ms. Warren. Thank you, Congressman. I think this is a 
really important issue that you have raised. The point about 
safety and soundness I think also goes to the point about 
dictating products. I want to be really clear about the vision 
of this agency.
    What we are about is making the price clear to consumers, 
making the risks clear to consumers, making it so that the 
family really has a chance to compare two or three credit cards 
or a couple mortgages, to figure out two things: first, can I 
really afford this thing; and second, have I gotten the one 
that is best? Have I gotten the cheapest one or the best 
service or the one with the new cool iPhone app?
    I think Congress was very cautious on your point when it 
set up the new consumer agency.
    Mr. Royce. If I could interrupt you for just a second--
    Ms. Warren. Of course.
    Mr. Royce. I had an amendment that would make safety and 
soundness the first priority. It would have the prudential 
regulators sign off on that and the Majority opposed that 
amendment. So, we weren't that cautious because the amendment 
wasn't accepted. So--
    Ms. Warren. Although, you do remember, Congressman, that 
the way it was ultimately set up is that the other banking 
regulators, the safety and soundness banking regulators can 
overrule when they--
    Mr. Royce. With a high, very high threshold as opposed to--
    Ms. Warren. No.
    Mr. Royce. I have given you the example of what really 
happened in the world. It happened once. It could happen again 
and it is likely to, I think.
    Ms. Warren. And I think this is why the consumer agency was 
set up, so that its rule--whatever it promulgates can be 
overruled by a combination of the safety and soundness 
regulators, something that exists literally nowhere in 
government.
    You know I should say because I think this is important, 
for families to know the price--for families to know the--
    Mr. Royce. We have no disagreement on that.
    Ms. Warren. And that is what--
    Mr. Royce. The other implications of it.
    Ms. Warren. --the safety and soundness and I appreciate 
that, Congressman.
    Mr. Royce. Right.
    Ms. Warren. I know we have had good conversations on that. 
I appreciate it.
    Mr. Royce. Thank you, Professor Warren. We are going to go 
Mr. Watt of North Carolina. Thank you.
    Ms. Warren. Thank you.
    Mr. Watt. Thank you, Mr. Chairman, and I yield 30 seconds 
to the ranking member to clarify a point, and I will clarify it 
myself.
    Mrs. Maloney. I think we should all continue to clarify 
that any action that the CFPB has written into statute can be 
overruled on safety and soundness by the Financial Stability 
Oversight Council--which includes the OCC, the FDIC, and the 
Federal Reserve--and safety and soundness is their top 
priority. So, I wanted to clarify that, and I yield back to the 
gentleman.
    Mr. Watt. I thank the--
    Mr. Royce. Will the gentleman yield?
    Mr. Watt. Yes. For a second. If you are going to yield me 
some more time now.
    Mr. Royce. I will yield you more time. If I could--I just 
want to continue the--
    Mr. Watt. I am happy to yield to the gentleman if he--
    Mr. Lynch. Point of order.
    Mr. Royce. I appreciate that.
    Mr. Lynch. Point of order, Mr. Chairman.
    Mr. Royce. Yes.
    Mr. Lynch. As one of the junior members here, I am just 
concerned about the allocation of time. You just made a 5-
minute interjection.
    Mr. Royce. You are making a good point. I go to Mr. Watt.
    Mr. Watt. I think he identified himself on his own time for 
that 5-minute interjection. I don't think he was out of order. 
He never identified--he never yielded himself time. But I 
assume that you--
    Mr. McHenry. --consent that the gentleman may have 30 
additional seconds.
    Mr. Royce. We are going to go to Mr. Watt. Go ahead with 
your--
    Mr. Watt. That doesn't compensate me for the time that is 
already running.
    Mr. Royce. You have the 30 seconds, Mr. Watt.
    Mr. Watt. That doesn't compensate me 30 seconds--
    Mr. Royce. Mr. Watt, go ahead. I am going to give you your 
time--
    Mr. Watt. I appreciate that. Let me welcome Ms. Warren here 
and thank you for being here. I once thought--and I am getting 
a copy of the speech that you delivered to the Financial 
Services Roundtable. I am going to put it in the record.
    I was there. I thought it was one of the most thoughtful 
speeches I have ever heard given to a group who came into the 
room with, as I will describe it, an adversarial nature, and 
walked out of the room I think feeling a lot more confident 
that none of the horror stories or horror possibilities that 
have been postulated and tossed around rhetorically in the 
political context were about to happen as a result of the 
passage of Dodd-Frank and the creation and expanding of the 
Consumer Financial Protection Bureau.
    I want to compliment you--I came to you that very night and 
complimented you on the speech and asked you to send me a copy 
of it and I have circulated it to a number of the financial 
services people in my congressional district when they have 
raised concerns, many of the same rhetorical concerns that have 
been raised.
    I wanted to compliment you again today on your 
presentation, the 30-some pages that you have given to us that 
outlines how this agency is being stood up, and I want to 
recommend it to my colleagues, particularly in light of the 
debate that we had yesterday and the day before about how the 
Consumer Financial Protection Bureau has no oversight.
    I want to particularly recommend to them pages 18, 19, and 
20 of Ms. Warren's testimony, that outlines in detail the 
amount of oversight that this agency has been given that far, 
far, far exceeds any oversight that any other financial 
regulator has, including the point that the ranking member just 
made that any rule that this agency promulgates can first of 
all like any other rule be reversed by Congress. And second of 
all--or maybe I should put it in the reverse--or the first of 
all, it can be reversed by this oversight board. And then, 
second of all, if we are not happy with them, we can reverse 
them ourselves as we can do with any other financial services 
or any other regulation that is promulgated by a Federal 
Government agency.
    And with that, my time is waning. I don't know how much 
time I have left.
    Mr. Royce. No. You have more time.
    Mr. Watt. I do want to ask unanimous consent to put into 
the record the speech that was delivered to the Financial 
Services Roundtable leadership dinner by Elizabeth Warren on 
Wednesday, September 29, 2010, with her personal note to me 
saying, ``With thanks, Ms. Warren.''
    Mr. Royce. Without objection, it is included, including the 
personal note.
    Mr. Watt. And I want to recommend that to my colleagues, if 
that does not set them at ease--I am probably undermining your 
credibility with the consumer groups out there--but I am 
speculating that at the end of this stand-up period, it may be 
the financial services industry that is the biggest advocate 
for Ms. Warren to be the head of the Consumer Financial 
Protection Bureau, because of her approach to these very tough 
issues, streamlining regulation, getting down to simple forms, 
the kinds of things that both sides of this committee have 
advocated and certainly have been the primary focus of the 
advocacy of my Republican colleagues on this committee.
    This is not an ogre stand-up person, Ms. Warren, nor is it 
an ogre Consumer Financial Protection Bureau. This is an 
important ingredient for consumers in this country and I regret 
I didn't have a chance to ask to ask you any questions. I am 
just advocating for it.
    Mr. Royce. It wasn't for a lack of time. We go now to Mr. 
McHenry for his questions.
    Mr. McHenry. Thank you, Ms. Warren, for being here. Now, I 
understand your protocol point you--
    Mr. Watt. Will the gentleman yield for just a second? Just 
so I can be clear that this is on the record. Did I get the 
unanimous--
    Mr. Royce. You got the unanimous--
    Mr. Watt. Okay. I am sorry. I ask unanimous consent for the 
gentleman to have 30 additional seconds.
    Mr. McHenry. Are you going to yield me 30 seconds? Thanks. 
So, you are a political appointee of the White House and a 
political appointee in Treasury.
    Now, I want to go through a scenario with you just to get 
context for folks on your position. So, walk with me here. This 
is more of a mind exercise. I want your judgment on the merits 
of this.
    It is shortly after the Enron scandal. Okay? So, let's 
rewind. And the Justice Department has a special task force to 
go after Ken Lay and Enron. In your opinion, would it be an 
appropriate thing for the White House Assistant to the 
President for Energy Policy, who is rumored to be a potential 
nominee to head up (FERC) to call up the Attorney General and 
give advice on how to deal with the Enron matter on what terms 
to potentially settle?
    Ms. Warren. Congressman, as best I remember, following the 
Enron scandal, the Justice Department asked for advice from a 
number of specialists--
    Mr. McHenry. Right. Did they ask Karl Rove?
    Ms. Warren. --outside the government. I am not sure if they 
asked for his advice.
    Mr. McHenry. Okay, but I am--
    Ms. Warren. But I do know they called my teaching 
institution and--
    Mr. McHenry. Right, but that is different. Look, we are 
talking about a political appointee in the White House. So I am 
just trying to see if you understand why the position you are 
currently in is controversial. Do you have an understanding 
that you are in a unique position? The fact that you are a 
political appointee, you have not have been confirmed by the 
Senate to head this institution that you are in all terms 
directing, you have no statutory authority to engage in these 
matters that you are engaging in.
    Do you understand why it is controversial? It is similar 
to--Karl Rove had a similar position in the White House of the 
last President and if he injected himself on settlement matters 
like this, there would be a hue and cry. Do you understand that 
this is a bit controversial for folks?
    Ms. Warren. Congressman--
    Mr. McHenry. ``Yes'' would be a good answer.
    Ms. Warren. I work for the Secretary of the Treasury. And 
in my work for the Secretary of the Treasury, I have begun to 
help put this new consumer agency together. And we have tried 
to build already a lot of expertise on a lot of different 
market facing issues, on credit cards, on mortgages, on 
installment loans, on payment systems, and on credit reporting.
    When the Secretary of the Treasury came to me and said, we 
would like your advice, I was glad to--
    Mr. McHenry. Don't you answer directly to the President as 
well?
    Ms. Warren. When the President asks for my advice, I--
    Mr. McHenry. Yes or no, do you answer directly to the 
President, Ms. Warren?
    Ms. Warren. I answer when the President asks for my advice.
    Mr. McHenry. Okay. So you--it is in your title--I am just 
trying to make sure you have an understanding of the magnitude 
of the challenge faced in your unique position here. And under 
what statutory authority are you currently acting?
    Ms. Warren. I am an employee of the Treasury of the United 
States.
    Mr. McHenry. Okay, that sounds eminently reasonable.
    Ms. Warren. And the Secretary--
    Mr. McHenry. I want to get to the settlement question 
because media reports are saying that there is a $20 billion--
some are saying $30 billion--settlement. It is my understanding 
that if the U.S. Government reaches monetary settlements with 
banks, the funds would go to the U.S. Treasury. That is how--a 
very standard process over the course of our Nation's history.
    Therefore, it wouldn't be legally permissible for HUD or 
even CFPB or any other regulator to resolve these matters by 
having these funds directed to any other place than back to the 
taxpayers, back to the Treasury. To allocate these settlement 
funds, would you need to come back to Congress for 
authorization to spend them?
    Ms. Warren. Congressman, we are not involved, we are not 
negotiating with anyone at the consumer agency. This is a law 
enforcement matter that is headed by the Department of 
Justice--
    Mr. McHenry. So you are not engaged in these discussions?
    Ms. Warren. --in their financial fraud enforcement task 
force. And so the negotiations--
    Mr. McHenry. So you are not engaged in these discussions?
    Ms. Warren. The negotiations--
    Mr. McHenry. I am reclaiming my time. Are you engaged in 
these discussions on the settlement?
    Ms. Warren. The negotiations with private parties are 
entirely directed by the Department of Justice, by the State 
attorneys general, and by other Federal agencies.
    Mr. McHenry. So you are not engaged in these discussions?
    Ms. Warren. We do not negotiate with private parties. We 
have been asked for advice, Congressman. And wherever we can be 
helpful, we are not only glad to be helpful, we are proud to be 
helpful.
    Chairwoman Capito. Thank you.
    Mr. Hinojosa, for 5 minutes.
    Mr. Hinojosa. Thank you, Madam Chairwoman.
    Professor Elizabeth Warren, thank you for your valuable 
advice to the U.S. Treasury and to our President. I have had 
lots of meetings with representatives of the financial services 
industry: community banks; regional banks; and others. And I 
want to say that Texas bankers argue that the Consumers 
Financial Protection Bureau will put many of them out of 
business.
    Bankers argue that the bureau will force banks to comply 
with consumer laws and regulations that could eliminate one key 
source of bank revenue--the overdraft fees. Banks also, both 
small and medium- sized regional banks are concerned that they 
might lose another key source of revenue--interchange fees.
    Having seen how consumers are struggling with the increase 
in cost of groceries, the increase in the cost of gasoline, 
many having lost their jobs, many having lost their homes, I 
can't help but want to root for your work and say that 
consumers need some protection. They don't have the lobbyists 
that we have seen here in Congress working to protect the 
representatives of all the financial services.
    Tell us, what we can do in Congress to ensure that this law 
is implemented and that it will help our consumers get jobs 
and, hopefully, put our country back into the prosperity that 
we experienced during the 1990s?
    Ms. Warren. Thank you, Congressman. That is an enormously 
thoughtful and heartfelt question. And I wrestle with the 
issues you describe every single day. America's working 
families have really been on the ropes for a long time. Flat 
wages and rising core expenses have caused many families to 
turn to debt only to find that what they thought would be a 
temporary help was far more dangerous and far more costly than 
they had anticipated. This consumer agency is here for American 
families. And I want to say it is also here for America's 
banks.
    I met with community bankers. I was down in San Antonio, 
Texas, when Holly Petraeus, who heads up our Office of Service 
Member Affairs and I went down to Lackland Air Force Base where 
my brothers had taken basic training. And when we had the 
chance to meet with community bankers to listen to their 
concerns, it really has become clear to me that what we can do 
as a consumer agency to cut regulatory burdens, to try to make 
prices clear and risks clear so that competition is straight 
upfront in the marketplace.
    That will be good for families. It will also be good for 
community banks. It will be good for credit unions. It will be 
good for the financial institutions which really want to serve 
American families.
    Right now, we have a world in which financial institutions 
are willing to engage in pretty slick practices; are willing to 
put out a product pretending that it is at one price, knowing 
they are going to make their money back on the backend with 
fees and revenues and re-pricing. Those competitors take 
families away from a safer, sounder banking system.
    So, what I see this consumer agency as doing is speaking up 
for stronger families. And stronger families mean stronger 
banks. Stronger families and stronger banks mean a stronger 
economy. That is what we are here to do. Thank you.
    Mr. Hinojosa. Thank you for that response. I heard my 
friend, Congressman Gutierrez, talk about all that was exempted 
in the final bill. And yet, it seems like they are the voice 
for medium-sized banks and the large banks even though they are 
exempted. Explain to why they are so concerned.
    Ms. Warren. Congressman, there are a lot of people who 
built business models around the way that the world is who have 
figured out how to return incredible profits and revenue.
    Literally, in the tens of billions into the hundreds of 
billions of dollars, selling products, mortgages, credit cards, 
payday loans, car title loans, we could go on and on, 
remittances, to consumers without making the prices clear up 
front, without making the risks clear up front, making it 
impossible through the fine print ever to compare one product 
to two or three others.
    And they are very--some of them very concerned.
    Mr. Hinojosa. We needed to hear that answer. Thank you very 
much, Professor.
    Ms. Warren. Thank you.
    Chairwoman Capito. Thank you.
    Mr. Huizenga, from Michigan, for 5 minutes.
    Mr. Huizenga. Thank you, Madam Chairwoman. I appreciate the 
opportunity.
    And, Professor Warren, I appreciate your time coming here. 
I want to actually--along that vein--explore that a little bit 
and find out, probe your views on some of these organizations 
and where they fit, and where you believe that they should fit.
    I have a background in real estate and developing. The 
first home I ever listed was a two-family home on 17th Street 
in Holland, Michigan, which is a very rough neighborhood, and 
it listed for $49,000.
    The families who were living there and the families who 
were looking at trying to make an opportunity for themselves 
really, in many ways, weren't going to be able to fit into 
those conventional boxes.
    We were talking about big banks and medium-sized banks. But 
I think a number of people acknowledge that maybe somewhere 
those problems were in some of these more offline, smaller, 
non-FDIC type of entities that have been able to service 
people.
    And whether it is people holding land contracts--I know 
many people who have been involved in real estate, they will 
literally hold millions of dollars in personal funds in land 
contracts, for example, and some of these other non-conforming 
loans.
    And you hit on a phrase just in this last answer of serving 
America's families. I think there are a number of people who 
are willing to do that, but they are quite afraid of some of 
the regulations and the discussions and the direction that this 
appears to be going that they may not be able to function.
    I am hoping to hear from you exactly what are some of your 
views of those less than conventional institutions and 
organizations that serve those families because whether they 
are vets, or whether they may be disabled, or whether they may 
be low- and moderate-income, there is a marketplace that needs 
to be served. How do you envision that being served?
    Ms. Warren. Thank you, Congressman. I think that is a very 
important question, a very, very thoughtful question, and I 
will say along the same line, the first house I ever bought was 
for $23,300 and we were not conventional buyers, the first time 
out.
    I understand the importance of being able to serve American 
families across a wide variety of circumstances. In fact, I 
should say I think it has been one of the important themes that 
community banks and credit unions in particular were also non-
bank lenders when they have come to visit have talked about 
with me how it is that they build a business model around 
adjusting to the different needs of different customers, that 
they acknowledge the importance of what they call relationship 
banking, that they know their customers and they know how to 
customize products.
    And I think the best way I can say this is that we are 
working with those in the industry who serve families. We are 
committed that prices should always be clear. There should 
never be a family ready to take out a mortgage who isn't clear 
what the price is on that mortgage. There should never be a 
family considering taking out a mortgage who doesn't get what 
the basic risk is, whether, for example, this is a fixed-rate 
mortgage or a mortgage that could adjust.
    There should never be the case that a family gets 
information in a way that they can't make some kind of 
straightforward comparison of one mortgage to two or three 
others.
    That is the direction we are driving this agency. That is 
the direction we have been driving it since the first day I 
have been there. And I have really tried to build those 
structurally into the agency and into its entire attitude 
because, ultimately, that is what we want to be able to do. We 
want to make sure that there is a robust and diversified 
financial services industry there to serve the American people. 
That is our job.
    Mr. Huizenga. My concern is that--I appreciate that. I 
believe that people, I have sat through countless closings 
myself and there is--trust me, if anybody has either refinanced 
their home lately or if they have ever been buying anything--I 
see a few people, heads nodding in the background--there is 
plenty of paperwork that you are signing to the point of 
writer's cramp.
    One, I am concerned a little bit about the redundancy and 
whether some of these things are necessary. But, two, and more 
importantly, not just the notice to the consumer, how will this 
work for the lenders, conventional or non-conventional? How 
will this work for the broker? Oftentimes, there are mortgage 
brokers who may be in there or even individuals and let's call 
them an implementer of that particular deal.
    Because I will tell you that there is a number, and I have 
this man, and I will call him Mike, who takes his family's 
money, has about $1.25 million in land contracts. He looks at 
this and says, ``I am not going to be able to function. I am 
not going to be able to serve those people who couldn't go get 
a conventional loan because of potentially the paperwork and 
the layering of that.'' Now, I would like to hear how that 
would be taken care of?
    Thank you, Madam Chairwoman.
    Chairwoman Capito. Thank you.
    Mr. Miller, for 5 minutes.
    Mr. Miller of North Carolina. Thank you.
    Professor Warren, first I want to commend you for your work 
to merge the TILA and RESPA forms and do it in plain English, 
something that can actually be understood. I have heard from 
consumers that they are very frustrated. They are given a big 
sack of stuff that is useless to them because it is written in 
unreadable legalese. But I have also heard from credit unions 
and community banks.
    And it is easy to forget with all the cheating that went on 
in the last decade, most people really, in the financial sector 
really were trying to make an honest living and provide a 
needed service and do right by people. They felt like they had 
to simply regurgitate the language of a regulation or a statute 
which is legalese and set it out in full. And they knew that 
nobody could read it.
    But that is all--they felt that was the safest thing, so if 
you were developing the forms that they feel safe to use, that 
people can understand is they servers to consumers and it is a 
service to those industries who are trying to make an honest 
living, so do that and do more of it.
    Second, I do remember with respect to CFPB and the first 
proposal, there was a requirement that financial institutions 
all have a ``plain vanilla'' product, and that got dropped 
fairly quickly. In fact, to make the point very clear, 
Republicans offered in the amendment that said that CFPB cannot 
require any financial institution to offer any product.
    So, when there are complaints that their solvency--their 
safety and soundness may be threatened by a consumer 
protection, it will not be that they are required to do 
something that would be unprofitable for them. It is that they 
have to do things that CFPB determines are abusive to consumers 
to stay in business. Is that correct?
    Ms. Warren. That is correct, Congressman. Yes, sir.
    Mr. Miller of North Carolina. Okay. The argument about 
safety and about, excuse me, about consumer choice reminds me 
of the argument a century ago with respect to that, that meat 
packers made about proposed food drug laws, pure food laws that 
it would impinge upon consumers' God-given right to buy spoiled 
beef.
    And it turned out that consumers did not really want to buy 
spoiled beef. They did not want that right. They wanted the 
assurance that they were buying pure beef. If they really 
wanted rotten beef, they could buy it pure and let it rot. But 
they did not particularly value the right to buy spoiled beef.
    I have yet to talk to anybody who wanted--who actually 
chose some of the products made and offered in the last decade, 
that suppose at one-size-fits-all, I can't think of any size if 
some of those products fit. And I have asked before, I asked 
the president of the American Bankers Association if he could 
identify for me someone who qualified for a prime loan, but 
instead wanted a 2/28 with an increase in the monthly payment 
of 30 percent to 50 percent and then a 3 percent prepayment 
penalty and all the rest. And I have asked if he could identify 
for me someone who actually chose that knowingly.
    Or someone mentioned overdraft fees. I want an overdraft 
protection. I want that, but I do not want the bank to be able 
to process overdrafts not in the order in which they come in, 
but in the order that would maximize overdraft fees, or that 
the ATM machine, when I ask my balance, tells me funds 
available, which means how much could I take out in addition 
even though every transaction would have an overdraft fee.
    Do you know people who wanted that?
    Ms. Warren. No, Congressman, I do not.
    Mr. Miller of North Carolina. Okay. Finally, with respect, 
and I made that offer on the House Floor, that request on the 
House Floor and this committee that please if anyone knows of 
someone who really wanted those products, who got a subprime 
loan and qualified for a prime loan, let me talk to the--give 
me their names and contact information so I can talk to them 
and understand why they would have chosen that. And I still 
have not had any name provided to me.
    With respect, and I know that you are not playing the lead 
or you are only being consulted in the reported settlement 
talks that one of the criticisms of it is it doesn't say what 
is it that the banks supposedly did, the servicer supposedly 
did. Usually, when there is a settlement of an enforcement 
action, the party being subject to the action does not want 
that in the settlement because it is bad press, and 
particularly when there are pending private claims that can be 
used against them, particularly if it is couched as a finding 
and they don't want that, that is part of the negotiation is 
that there is no specificity, there is no detail about what the 
supposed violations are.
    Do you know if the banks or the servicers have asked that 
there be some detail of what they have done or supposedly done 
as part of any settlement agreement?
    Ms. Warren. Congressman, I have no knowledge one way or the 
other about that.
    Mr. Miller of North Carolina. Okay, what I said about how 
settlement actions usually work, that settlement agreements 
usually work, is that consistent with your own experience and 
knowledge?
    Ms. Warren. That is what I understand from those who do 
settlement negotiations.
    Mr. Miller of North Carolina. Okay, thank you.
    Chairwoman Capito. Thank you, Mr. Miller.
    Now, Mr. Duffy, for 5 minutes
    Mr. Duffy. Thank you, Madam Chairwoman.
    Good morning, Ms. Warren.
    Ms. Warren. Good morning.
    Mr. Duffy. I would echo your point that I think all of us 
here want to see clear prices in regard to lending and want to 
make sure that borrowers know the risk of the loan they are 
taking. I think we would all agree with you on that point. I 
think there are other issues that are flaring up here. And I 
don't want to beat a dead horse, but I want to go back over, 
again, what your role is here with the CFPB. Would you--you 
said you are a political appointee but would you also agree 
that you are kind of the acting director of this organization?
    Ms. Warren. There are truly two jobs contemplated by the 
Dodd-Frank Act. One is that there will be a director and that 
process is the President will nominate someone, and the Senate 
will confirm. The other is that it is perfectly clear in the 
Dodd-Frank Act that someone has to get this agency up and 
running, that is charged by the Secretary of the Treasury and--
    Mr. Duffy. And that is why I am asking the question because 
as the acting director--because it is one of these situations 
where if it walks like a duck and it quacks like a duck and it 
looks like a duck, it is a duck. And you are hiring the staff, 
you have a welcome video on the Web site, your schedule is on 
the Web site. I know you might say that you work for the 
Treasury Secretary, but I think anyone who looks at what is 
happening here they ought to agree that you are behaving as if 
you are the acting director and I think that is a concern here.
    And I think that we come back to this point of we want to 
see confirmation from the Senate of an acting director and back 
to one of the original points you said you know what, this 
agency provides the voice for the American people. I look at 
this Congress, we are the voice of the American people, and 
when we don't have any oversight of what you are doing, I see 
that as incredibly problematic.
    I guess I would ask for your comments on that.
    Ms. Warren. Thank you.
    I appreciate your interest in what is happening during this 
period between the time that the President signed the bill into 
law and the time that this agency receives its transferred 
authority under the statute. And it says, ``The Secretary of 
the Treasury shall set the agency up.'' And that is hiring and 
signing contracts and building the mechanism--
    Mr. Duffy. But the Treasury Secretary is not on the Web 
site. His schedule is not on the Web site; it is you.
    Ms. Warren. And the Secretary of the Treasury who is 
responsible for many things delegates to other people. And he 
has delegated to me, he has asked me to come in and spend my 
time doing this and I will say, Congressman, it has been a 14-
hours-a-day, 7-days-a-week job.
    Mr. Duffy. I agree about the 14-hour days, I know exactly 
what you are talking about, but I was asking, are you acting as 
the director?
    Ms. Warren. I am acting as the delegate of the Secretary of 
the Treasury as the statute contemplates.
    Mr. Duffy. Let me move on because I just--my concern is my 
duck analogy. It appears that you are the acting director by 
everything that we are reviewing, and you are aware that the 
FTC, the SEC, and the FDIC all have five-member boards but the 
CFPB, we are going to have one director, possibly you, possibly 
someone else. I guess that gives me some concern that we are 
consolidating power in one person instead of a board.
    Does that give you any pause or concern?
    Ms. Warren. There are two models in government, the Office 
of the Comptroller of the Currency and the Office of Thrift 
Supervision, the primary prudential regulators, the safety and 
soundness regulators that we were talking about earlier have a 
single director. And I think the reason for that is the belief 
that, Congressman, having the single director when you have 
someone who is doing banking regulation makes for a more 
efficient operation.
    Mr. Duffy. The FDIC, the SEC, and the FTC are involved in 
some very important areas and they are five-member boards and 
they work well, right?
    Ms. Warren. They certainly are involved in many things, 
they are not banking examiners--
    Mr. Duffy. Would you be opposed to a five-member board?
    Ms. Warren. And they do not run a banking staff, all I can 
say--
    Mr. Duffy. Would you be opposed to a five-member board?
    Ms. Warren. What I will say is that this was fully 
deliberated.
    Mr. Duffy. Let me ask you this, are you opposed to a five-
member board?
    Ms. Warren. Congress made the decision to--
    Mr. Duffy. Are you--I am not asking about Congress, I am 
asking if you are opposed to a five-member board?
    Ms. Warren. I think when Congress made that decision, it 
was the right decision.
    Mr. Duffy. So you would say yes, you are opposed to a five-
member board, you think a one person director--
    Ms. Warren. When Congress made the decision to have one 
regulator, they got the point.
    Mr. Duffy. That leads me to my next point. I think you have 
seen a concern here with my colleagues that what you are doing 
in regard to consumer protection could trump safety and 
soundness. And we look at FSOC and it is a 10-member board 
where we need a supermajority of two-thirds to overrule your 
decisions. And you have a seat and the President has a seat, 
all you need is one more and we can't overrule the decisions 
that you--I yield back, I apologize, my time is up.
    Mr. Dold. [presiding] Thank you. Next, we are going to have 
Mr. Lynch, for 5 minutes.
    Mr. Lynch. Thank you, Mr. Chairman.
    First of all, I want to start off by saying thank you 
Professor Warren for your great work. I, for one, being on the 
Oversight Committee, have followed your work very, very 
closely. I have seen you in action and I think you do a 
wonderful job and I just want to--in spite of all the criticism 
we see here I hope you understand that for those of us whose 
primary concern is for the consumer and those of use who really 
understand what happened in this financial crisis, you are the 
champion for working people and for consumers.
    I, for one, hope that you are nominated and I pray that you 
are confirmed because I think you would be perfect for this 
job. I think you have shown a lot of courage to stand up 
against the folks that you stand up against. There are a lot of 
people who stand up and fight for the big banks. There are a 
lot of folks who stand up and fight for financial institutions 
and there are a lot of constituencies in the financial sector, 
obviously very heavily financed and a lot of lobbyists and you 
are right into the teeth of that. And I just, on a personal 
level, I ask you to keep at it.
    I think you are fighting the good fight. You are on the 
side of the angels and I think that you know, hopefully you 
will be nominated and you will be confirmed, I honestly hope 
for that.
    I understand this is change, and sometimes there is great 
investment in the status quo and we certainly see that in the 
financial services industry and people are nervous, but I do 
think that Dodd-Frank, in allowing the CFPB to be overruled by 
the safety and soundness regulators, does put a short circuit 
in place where if there was something that was unwise, not that 
you would do anything that is unwise but in the event that that 
might happen there is a fail safe and I that review is 
certainly warranted and I think it is already included in the 
bill so I am encouraged by that.
    Look, the damage done to American families and the American 
taxpayers by this recent financial crisis cannot be overstated, 
but one of the things that I worry about greatly is the 
integrity of our financial markets. There has been such damage 
to the integrity of the U.S. financial markets and reputational 
damage done to our markets that investors, consumers I think 
feel that the current arrangement is rigged. That the banks run 
the show and with insider trading and these super fast 
computers that really they don't believe that the system is 
honest, they think it has been compromised greatly.
    And they are hoping that you might be part of that solution 
in rebalancing of the scales. I certainly hope that. The 
complexity of the markets is just growing exponentially with 
derivatives and structured products and it is beyond the basic 
understanding of the average investor or the average consumer.
    And what I am asking is for you to try to explain to 
consumers who are out there about your role as someone who, if 
confirmed, might help rebalance the power there between 
consumers and financial institutions.
    Ms. Warren. I appreciate that, Congressman. I think you 
have put it exactly the right way when you talk about balance, 
that the banks will be heard from in Washington and the 
political process. The question is whether ordinary families 
will be heard from and quite honestly whether or not those who 
actually want to serve those families will be heard from, 
community banks, credit unions, servicers who want to provide 
good products.
    What I see this about is that this is about this agency, it 
is about a real belief in markets so long as they are honest. 
So long as you have a cop on the beat who says, there is that 
law down here, everybody, I don't care how big you are, I don't 
care how powerful you are, I don't care who your friends, 
everybody follows the law. That is just the deal.
    And the laws are directed toward you folks so you can 
actually have a real chance in this financial marketplace, at 
least in the personal part of this, the borrowing and your own 
personal financial management because the costs ought to be 
clear, the risks ought to be clear. It ought to be that you can 
compare one product to two or three others. That is really all 
this agency is about.
    Mr. Lynch. Thank you very much. Mr. Chairman, my time has 
expired. I yield back.
    Ms. Warren. Thank you.
    Mr. Dold. Thank you.
    Next, we will hear from the gentleman from Texas, Mr. 
Canseco, for 5 minutes.
    Mr. Canseco. Thank you, Mr. Chairman. And I am going to 
yield some of my time to the gentleman from Georgia, Mr. 
Westmoreland.
    Mr. Westmoreland. I will only take 30 seconds. And I want 
to tell the gentleman from North Carolina, today is your lucky 
day. I would like to present this evidence to Ms. Warren and 
ask her if it would prevent this from happening. I sought out a 
loan, a second mortgage to go into business. It was a 5-year 
prepayment penalty, I paid 6 points up front. I probably paid 4 
percent or 5 percent more than the going rate to be able to get 
a second mortgage on my home to go into business. And I am 
proud to tell you that I was able to repay that. I was able to 
fulfill my dream of being in business for myself and I have 
been in business for myself for 30 years.
    And what you are talking about today and what Mr. Miller is 
talking about today is preventing people from being able to 
fulfill the American dream when they know themselves that they 
can do it. They can meet the challenge but yet the government 
is going to tell them it is a bad deal, they can't do it, and 
not allow businesses to make those kind of loans. That is 
wrong.
    Thank you. And I will yield back.
    Mr. Canseco. Thank you, sir.
    Professor, I appreciate your being here today and I also 
appreciated your visit in my office some time ago when we had a 
very nice friendly discussion about San Antonio and our home. 
And I thank you for being here today.
    But in regards to San Antonio, I spoke with a group from 
San Antonio that represents a lot of entrepreneurs, a lot of 
young businesses that are just getting started. And one of the 
things about it is that they used a lot of their own personal 
credit in order to finance these things. The U.S. Chamber of 
Commerce estimates that more than 47 percent of small business 
owners use personal credit cards as opposed to business credit 
cards. That is just the nature of start-up companies and the 
beauty of the American dream.
    How will the CFPD distinguish between an individual using 
credit cards to buy fancy clothing and a small business owner 
obtaining credit to expand his business?
    Ms. Warren. So, Congressman, again, thank you for your 
hospitality. It was good to be able to visit with you and to be 
able to visit about San Antonio.
    I want to be clear about what we are trying to do with the 
consumer agency. We are trying to make the cost clear up front. 
We are trying to make the risk clear. We are trying to make it 
easy for anyone to be able to compare one product to another. I 
believe in small businesses. I have not only studied small 
businesses for a long time, one of my three brothers has been a 
small business owner all his life and supported his family from 
his efforts. And I know how small businesses struggle.
    Mr. Canseco. Pardon me for interrupting your answer but how 
are you going to distinguish that individual who is using his 
personal credit for business from someone who is using it for 
personal use?
    Ms. Warren. Congressman, perhaps the distinction you want 
to make and quite rightly is that business loans are excluded 
from any oversight by the Consumer Agency. But let me make the 
point that we are here to make credit clear in terms of its 
price, not to ask what you bought with it. It is not our 
question about whether you bought good-looking clothes or ugly 
clothes. That is just not--
    Mr. Canseco. But what is it going to mean to the more than 
47 percent, almost 50 percent of business startups and business 
people who use that personal credit for their business that 
they are putting skin in the game? If your agency comes in 
there and regulates their activities, what does it mean to that 
private sector that is growing and it is going to be 
contributing so much to job creation, innovation and growth and 
opportunity in our community?
    Ms. Warren. Congressman, I heard--I think it was 2 weeks 
ago--from a group representing small businesses, and small 
businesses are very concerned because when they finance their 
business activities, as you rightly point out with credit, 
wherever they can get it, the prices are not made clear, the 
risks are not made clear.
    What this agency is about is about making those prices and 
risks clear. That is good for American families, but believe 
me, it is even better for small businesses. They need to know 
how much money they are spending.
    Now, business loans will be segregated, Congress made that 
choice. But in personal credit, it is about costs and risks and 
making them clear.
    Mr. Canseco. Let me ask you another question because I am 
running out of time here. If I run a bank that has over $10 
billion in assets or we originate mortgages, exactly what part 
of my business practices would your agency not regulate?
    Ms. Warren. We are not the safety and soundness regulators, 
the consumer agency does not regulate the ordinary banking 
activities. Those are regulated by the Office of the 
Comptroller of the Currency. What we do is we do what was 
clearly sorely missing over the past few years. That is, for 
example, in an area like servicing home mortgages, we make sure 
that the servicers are following the law.
    We make sure that when someone is putting out a new 
mortgage, originating a new mortgage, what are the obligations 
to comply with--and RESPA. That is why we talked about how, 
with the help of the banks--sorry--we are figuring out how to 
combine those two forms, make those forms smaller and come 
earlier in the process when they will be helpful to consumers. 
So we are focused on the consumer credit product and whether or 
not those who are using them to lend money are actually 
following the law.
    Mr. Canseco. Thank you very much.
    Ms. Warren. Thank you.
    Chairwoman Capito. Thank you.
    Before I recognize Mr. Green, I would like to ask unanimous 
consent to insert the comments letter on the CFPB from the 
National Association of Federal Credit Unions.
    And I now recognize Mr. Green for 5 minutes.
    Mr. Green. Thank you, Madam Chairwoman. And I thank you and 
the ranking member for allowing me to have the unanimous 
consent to be a part of this most important hearing.
    I would also like to thank Ms. Warren for her service to 
her country.
    Ms. Warren, I believe that you are doing a very difficult 
job and I trust that you will continue to serve your country as 
well as you have.
    I would like to, if I may, Madam Chairwoman, with unanimous 
consent, place in the record a report from Americans for 
Financial Reform. It is a progress report, dated January 21, 
2011. And I would note that on page four of the report, make 
that page five of the report, there is an indication that there 
is a need for a permanent director. I mentioned this only 
because it is apparent that these 250 organizations and 
individuals do not see Ms. Warren as a permanent director, they 
see her as a transitional person helping us to establish an 
organization.
    So if there are no objections, may it be submitted for the 
record, Madam Chairwoman?
    Chairwoman Capito. Without objection, it is so ordered.
    Mr. Green. Thank you.
    I would like to now move to Ms. Warren's report, page 30 of 
her report that she has submitted to us, reads, and I will not 
read it in its entirety, but it reads, ``Community bankers and 
credit unions have also made it clear that they face a 
regulatory crisis.'' And you go on to indicate that this is 
because they can't afford to hire an army of lawyers to 
investigate the complex rules and navigate them.
    You indicate that the importance of small banks and credit 
unions cannot be overstated, they are disproportionately the 
providers of credit to small business. And they are therefore 
part of the chain toward higher employment and economic 
recovery.
    I concur with your comments. I think the community bankers 
are exceedingly important because of the relationships that 
they have to small businesses and the credit unions as well.
    I had a good many of them visit with me and they have made 
it very clear to me that there is a crisis that they perceive. 
There are many who fear that they may be regulated out of 
business. I see this as something that impacts both consumers 
as well as small banks because without the small banks, the 
consumers don't benefit from what the small banks can provide.
    My question is, first, is it possible within the bounds of 
ethics for us to work together to help these small banks 
continue to provide a good service for consumers within the 
bounds of ethics? And I don't want to do anything that is 
unethical.
    And also, how are you immediately embracing this crisis 
that they perceive as one that may cause them to cease to be 
able to function as they function currently because of the 
additional cost?
    Ms. Warren. Yes. Congressman Green, thank you. Thank you 
for the thoughtful comments and the thoughtful question.
    I see this very much the same way. I worry about our 
community banks. I worry about our credit unions. I worry about 
our smallest financial services providers because many of them 
are good partners to their customers. And they want good long-
term relationships. They are clear about their product. They 
are willing to make prices clear up front, to make risks clear 
up front. They can't thrive by pretending to sell at one price 
and then mugging people after they get them in the door.
    But they are worried about a challenging regulatory 
environment. We are doing what we can on the consumer side, in 
the consumer agency, on the consumer product.
    Mr. Green. Let me suggest this because I have one 
additional thing that I must do. Would you agree that within 
the constraints of ethics, we will work to try to make sure 
that the consumers and the banks or credit unions are 
protected?
    Ms. Warren. Absolutely, Congressman, I should have given a 
shorter answer.
    Mr. Green. Okay. Let me quickly state this. In your report, 
on page 18, you indicate in addition to the fundamental 
constraints that Congress has imposed and you have talked about 
Dodd-Frank, you indicate that specifically you are required to 
submit--the agency is required to submit annual financial 
reports to Congress. You have to report to Congress twice a 
year to justify your budget. The director, whomever that 
happens to be, has to testify before and reports twice each 
year regarding the activities of the agency, you indicate that 
the GAO has to conduct an audit each year of the agency. You 
indicate that you have to submit financial operating plans and 
forecasts and quarterly financial reports to the Office of 
Budget and Management. And you indicate that oversight is also 
available through the Financial Stability Oversight Council.
    Madam Chairwoman, I just mentioned these things because I 
want to allay some of the concerns with reference to the 
oversight of the organization, clearly you have more oversight 
than most Federal agencies.
    And I thank you for the time.
    Chairwoman Capito. Thank you, Mr. Green.
    I would like to recognize Mr. Pearce, from New Mexico, for 
5 minutes for questions.
    Mr. Pearce. Thank you, Madam Chairwoman.
    I have a lot of questions, so I recommend a second round if 
we get the opportunity. A couple of observations in that--I 
read the report here and I see the word straight up, too 
complicated, clear, concise. And two, I don't have much 
interest in what our colleagues up behind me were asking about 
the confirmation process, but you are demanding something from 
the people you enforce things over that you are not willing to 
give yourself and that is straightforward, clear, concise 
answers. And that has created lot of the repetitive questions. 
That is just an observation.
    The second thing is that I hear you testify, I know you are 
talking about the protection of consumers and you build this 
process in, as if the government agency is going to solve the 
problem. And I would like to believe in it but frankly I am 
going to think about the SEC and Mr. Madoff and I am going to 
believe that in 2 years, your agency is going to be operating 
exactly the same. That is simply out there grinding wheels away 
and that it might also itself fall short of being this angel. I 
have heard a lot, it was really champion and these words that 
we have heard.
    So with--maybe you are going to be the government agency 
that actually does this work. The idea that you propose on page 
four that few of us seriously believe that we have the 
marketplace that American families deserve.
    Now, when I go to the bank and ask for a loan, the first 
thing I go to actually has fairly clear APRs and everything. It 
is clear, it is concise. And so what you are trying to enforce 
is to an extent consumers who don't like the answer they get 
from institutions that have paperwork that is clear and 
concise.
    And so you are going to enforce the standard on the lending 
institutions and those institutions which are only answering 
the demands of people to come and get products, that is because 
they can't get the products somewhere else and they are 
demanding these and you are going to stop those.
    I remember a day when I was in the State legislature where 
we wanted to regulate payday lenders, those people who charge 
$20 for loaning you $100 for a month. And I too felt like that 
was too exorbitant, it was thousands of percent. I got back to 
my hometown and one of the guys who worked in the oil field 
came up to me and asked, ``What damn business is it of yours, 
if I borrow $100 today, and I want to pay back $120?''
    That still rings clear and I think maybe at some point you 
should ask that to your agency. So the question that I have, it 
is my understanding from what you are saying that we would not 
be here payday, we would not be here, we would--if the rules, 
the basic rules of the road in place for mortgages were 
consistently enforced, protecting consumers, we would not be 
here.
    So I get from that you believe that there was no 
enforcement in the--that there were no rules for mortgages. Is 
that right?
    Ms. Warren. Congressman, I think it is fair to say that 
this economic crisis started--
    Mr. Pearce. No, that I am asking--you say that if rules had 
been enforced, that we would not be here. So you are saying the 
FDIC and the OCC didn't do their jobs? That the Real Estate 
Settlement Protection Act did not do its job? You are telling 
me that nobody in the enforcement of mortgages did their jobs?
    Ms. Warren. I think the evidence is fairly clear that they 
did not do their jobs. Yes, sir.
    Mr. Pearce. Is that in regard to the superficial 
instruments, the bonds?
    Ms. Warren. No.
    Mr. Pearce. Or was it maybe that the government asked banks 
to give loans to people who could not afford it, which they 
did, the government insisted that banks give loans to people 
who could not afford it. No loan, no payments were ever made on 
those. Those loans without the ability to ever be repaid, 
without one payment ever being made were then lumped into bond 
and then the exotic instruments, the CDOs and the MBSs were 
created out of that, that is what was not regulated.
    But the banker down in Main Street of Hobbs, New Mexico, I 
will guarantee you still risks losing its bank today if he 
gives a product that is not in compliance.
    Ms. Warren. Congressman, I think we can agree that the 
crisis in home mortgages and the rest of this economy was not 
caused by community bankers, it was not caused by credit 
unions; it was caused one mortgage at a time with mortgage 
brokers and who put out products that were extraordinarily 
dangerous and often deceptive to those who took them.
    I think there is ample evidence of what went wrong on the 
front end of this crisis.
    Mr. Pearce. And there is ample evidence that the rating 
agencies rated those as triple AAA and I don't see that 
anywhere in your scope of work. And I do have a second round, 
if we get there, Madam Chairwoman.
    Chairwoman Capito. Thank you.
    I would like to recognize Mr. Luetkemeyer for 5 minutes for 
questioning.
    Mr. Luetkemeyer. Thank you, Madam Chairwoman.
    Ms. Warren, in your testimony, in your written testimony, 
you indicate that many of the rules make it very non-
competitive for community banks, credit unions and others to 
compete, and your words are, ``put them at a competitive 
disadvantage.''
    If we can choose a better way, can you tell me what that 
better way is?
    Ms. Warren. I think that the example of the first priority 
of the new Consumer Financial Protection Bureau is an example 
of the better way. We are going to take two fairly long, fairly 
complicated forms that have substantial overlap that two 
government agencies have negotiated or been at war, depending 
on your metaphor here, for more than 15 years about combining 
those forms. And because it comes to one agency, we are going 
to combine the forms. And we are using the help of the 
community banks and the credit unions and the mortgage brokers, 
the people on the frontline who originate these mortgages to 
find the most effective, the most efficient way to do that and 
give us a smaller one-page mortgage shopping sheet that might 
actually produce some value for the family.
    Mr. Luetkemeyer. Okay. Whenever you do this, are you going 
to look at the cost-benefit of that rule, that new form that 
you are going to put out, of what it is going to cost the 
institution to comply with?
    Ms. Warren. Congressman, we will certainly look at the 
cost-benefit.
    Mr. Luetkemeyer. Okay. If you are going to look at it, can 
you explain to me on what basis you would throw a rule out or 
not make a rule? Can you give me the numbers? Is it--because I 
can give you numbers all day long. I had a community banker 
drop in front of me about 2 weeks a sheet of paper, as he said, 
``Blaine, this is what it costs me to comply with one rule--
$16,500 per year.'' And it is a small institution. Another one 
told me it cost over $100,000 a year to comply on one rule.
    Ms. Warren. Yes.
    Mr. Luetkemeyer. Now, you multiply that by all the banks in 
the country. At one point are you going to say this rule, the 
cost-benefit of it is not worth implementing?
    Ms. Warren. Congressman, I am glad you raised the problem 
of regulatory burdens for our community banks. And I remind you 
of course that the community banks are struggling because of 
the regulations they face elsewhere in the system, not because 
of regulations from the Consumer Financial Protection Bureau.
    Indeed, we have worked with the community banks, we have 
worked with--
    Mr. Luetkemeyer. Ma'am, you have spent 30 seconds of my 
time not answering my question. I am sorry to interrupt here, 
but I want a specific answer to a specific questions. At what 
point are you going to say this rule is too costly to 
implement, it doesn't yield any benefits, it costs too much to 
implement?
    Ms. Warren. Congressman, we are required by law to do a 
cost-benefit analysis.
    Mr. Luetkemeyer. I know you are. I read it in the 
testimony. I understand it.
    Ms. Warren. I am sorry.
    Mr. Luetkemeyer. At what point are you going to say, no, 
this rule is going to be thrown out?
    Ms. Warren. When the costs outweigh the benefits, 
Congressman.
    Mr. Luetkemeyer. Okay. When it costs $100,000, when it 
costs $1 million, when it costs $1 billion for the industry, at 
what point are you going to say no, we can't do this?
    Ms. Warren. Congressman, that is what a cost-benefit 
analysis is. When the cost outweighs the benefits--
    Mr. Luetkemeyer. Okay.
    Ms. Warren. --then we will not engage.
    Mr. Luetkemeyer. But you don't know at what point that is 
yet?
    Ms. Warren. Congressman, I think your question about the 
point is an important one. We are communicating right now with 
the community banks, with the credit unions about the changes 
they want to see because they think there are cost savings for 
them that also benefit consumers by starting earlier on the 
problem, not when we have a--
    Mr. Luetkemeyer. Absolutely. I agree with you 100 percent. 
And my concern is that we are going to say, we are going to put 
a new form in place here but instead of combining two forms, 
now you have the front and the back that you have to work on. 
And we haven't done a thing to improve our situation, it still 
remains more costly.
    Let me move on to another question before my time expires 
on me here.
    You are going to be the new examiners on the block. Are you 
taking over all of the Consumer Financial Protection 
examinations, from all other agencies across-the-board? Are you 
going to be just another form that the institutions are going 
to have to deal with?
    Ms. Warren. For all--
    Mr. Luetkemeyer. Okay, in other words, for FDIC, are you 
taking away all their consumer complaint stuff?
    Ms. Warren. No. For the--
    Mr. Luetkemeyer. So this is going to be a second exam that 
is coming forth?
    Ms. Warren. For all financial institutions with more than 
$10 billion in assets, the new consumer agency will be the 
primary regulator and supervisor.
    Mr. Luetkemeyer. Okay. But the other ones are still going 
to be in place and they are still going to come in with the 
compliance exams as well?
    Ms. Warren. No. There will be something called the transfer 
date. And the transfer date is July 21st of this year, and that 
is when the other seven 7 stand down in terms of their 
responsibilities for enforcement and rule-writing--
    Mr. Luetkemeyer. Okay. In terms of--
    Ms. Warren. --on the 18 existing Federal statutes and the 
new consumer agency stands up. This is like a relay race.
    Mr. Luetkemeyer. But in terms of enforcement, are you going 
to be doing the same thing that the other agencies are doing or 
are you going to be doing something different?
    Ms. Warren. No, we will be doing something different. We 
will be enforcing. They will no longer be enforcing the laws 
that we will be enforcing.
    Mr. Luetkemeyer. So you are going to come in and enforce 
them? Are you going to be coming in to help the institutions 
understand them or are you going to be slapping more fines?
    Chairwoman Capito. Your time has expired. Thank you, 
Congressman.
    Mr. Dold, for 5 minutes of questioning.
    Mr. Dold. Thank you, Madam Chairwoman.
    And I want to thank you, Professor Warren, for taking the 
time to be with us today.
    I would like to just continue down the vein and in terms of 
how you think this is going to impact small businesses. And so 
if I can, for consumers who are out there, if a consumer 
voluntarily enters into a consumer transaction with full 
disclosures and full information, are there any reasons on 
which you or the agency could possibly prohibit, penalize, or 
invalidate the transaction, and if so, what are those possible 
reasons?
    Ms. Warren. Congressman, I have tried to make it clear. 
What this agency is about is about making the prices clear, the 
risks clear, making it easy to compare one product to another. 
We would have to go through all 18 statutes to see if there are 
already certain prohibitions.
    But the point is to get an informed consumer because I 
believe that American families are good at making decisions 
when they have information up front.
    Mr. Dold. I couldn't agree with you more. And this is about 
protecting consumers. But I guess my question is, is that the 
way the statute is written and the law, that there is going to 
be one person in charge? And that person, according to the way 
it is written, anything that is risky or potentially uncertain 
isn't going to necessarily be--or could be subject to be 
invalidated? And so I am trying to get a better handle on what 
will you determine is going to be a risky proposition.
    Again, for someone who is informed, an informed consumer 
who may choose to enter into a financial transaction or a 
purchase of a financial product, that for some reason the 
Consumer Protection Bureau determines is risky, is that going 
to be invalidated?
    Ms. Warren. I think perhaps it might be that you are 
referring to the authority that is currently with the Federal 
Reserve, often referred to as UDAP, unfair and deceptive 
practices. So the authority is currently there in the statute, 
it is there. In fact--I don't know if it is in all 50 States, 
but in most State laws the capacity to say certain practices 
are deemed unfair and deceptive, there is a long case law on 
this and a long history on it. That will come to the CFPB, it 
will be part of our responsibility to enforce those laws, 
Congressman.
    Mr. Dold. Can you give me any sort of an idea in terms of 
how do you plan to reduce the regulatory burden on small 
institutions by adding yet another regulator into the mix? 
Right now, when I talk to people back in my district all the 
time, it is the uncertainty that is out there. Uncertainty is 
preventing people from investing; they are unsure about what 
tomorrow will bring and so therefore they don't.
    And what I see this doing is, again, creating another level 
of uncertainty. And especially with the amount of power that is 
being put into the bureau, they are just going to--my take is 
that they are going to wait and we are not going to have 
investment. And this could be potentially problematic. So I 
would just be interested in your take on that.
    Ms. Warren. No, I appreciate it. And I appreciate the 
concern that this question expresses. We will take transfer of 
the authorities that are currently there in seven other 
agencies. We will put them in one agency and we will hold that 
agency accountable, accountable ultimately to the American 
people.
    And what we will do in this process and what we are trying 
to do in this process is reach out to all potential 
stakeholders. We have talked with community banks. We have 
talked with credit unions. We have talked with very large 
financial institutions. We have talked with some non-bank 
lenders.
    In fact, Congressman, we have even gone out and had 
extensive conversations with the investment community, those 
who invest in financial institutions because they have had 
questions about how this new agency would be setup. And it has 
been very interesting to find where there are a lot of allies 
for this agency, the investors for example who have said, ``If 
you are going to make these consumer products a little more 
obvious for consumers to understand, that dialed risks out of 
the system overall. And we think long-term good for banks and 
long-term good for our investors.''
    Mr. Dold. I appreciate that. And certainly, we want more 
transparency. But I want to get to accountability if I can.
    Ms. Warren. Sure.
    Mr. Dold. I anticipate that people make mistakes. And 
certainly with one individual, the chances of making mistakes 
are probably greater than several people making mistakes.
    In terms of oversight, can you tell me, right now my 
understanding is that FSOC has a 10-person board, has the 
ability to basically overrule decisions done by the bureau. Is 
that correct?
    Ms. Warren. Madam Chairwoman, may I answer?
    Chairwoman Capito. Yes.
    Ms. Warren. The answer is, yes, the FSOC can overrule this 
agency and no other.
    Chairwoman Capito. But that would be with a two-thirds 
majority, correct?
    Ms. Warren. I believe it is with the two-thirds majority. 
Of course that consumer agency doesn't vote.
    Chairwoman Capito. Right. We have Mr. McCotter, from 
Michigan.
    Mr. McCotter. Thank you, Madam Chairwoman. I would like to 
yield 2 minutes to my colleague from New Mexico, Mr. Pearce.
    Mr. Pearce. Thank you.
    I thank the gentleman for yielding. My only question really 
deals with the idea that we are protecting consumers and that 
we are doing a thing that either way ups their ability to pay 
their mortgages. And the more else, is that here, that we are 
here to protect the consumer from fraudulent practices.
    Ms. Warren. Yes, we are here to make the prices clear, 
risks clear, make it easy for consumers to compare one product 
with another.
    Mr. Pearce. Okay. So again, going back to your statement on 
page eight, the thing that have caused the situation to get 
imminently worse, it is up in the middle, there have been basic 
rules of the road and blah-blah-blah, that statement.
    I wonder if you are going to be the angel, be the champion 
of the consumer as it comes to inflation. As I look at the 
Federal Reserve printing $2.6 trillion, as I look at the price 
of vegetables going up, as I look at the price of gasoline 
going up, I realize one of the most fraudulent practices right 
now that is defrauding the consumers, that is taking trillions 
away from their bank accounts is the fact that they are 
printing money.
    So is your consumer protection going to log into the heavy 
duty fight or you are going to fight--are you going to take on 
the Fed for printing money or is that something that you don't 
see your role in?
    Ms. Warren. I am sorry, Congressman, but our job is not in 
monetary policy.
    Mr. Pearce. It is to protect the consumer. And anyone who 
defrauds the consumer, I thought we are going to protect. I was 
just wondering.
    Thank you very much. I appreciate it. I yield back to the 
gentleman.
    Mr. McCotter. And I thank the gentleman.
    And I thank you, Ms. Warren, for being here today.
    Just a couple of quick notes. We have earlier heard about 
how anyone who loaned money that was considered morally 
reprehensible in many ways have been carved out of the Dodd-
Frank Bill. And in the spirit of St. Patrick's Day, I would 
like to think that if that was the case, there were no 
nefarious motives on the part of the Democratic Majority and 
the Democratic President who allowed it to happen.
    Secondly, we had heard from another one of our colleagues 
about how spoiled beef was once opposed by people who wanted to 
eat it. And as a fair point, no one wanted to eat it. But what 
happened so often is that where there is legitimate concern for 
governmental action to prevent this social harm, we wind up 
going from the inspection to prevent spoiled beef at the 
Federal level to the elimination of happy meals at municipal 
levels decades later.
    In your eyes, with the fact that we as Congressman, that 
the statute does not annually appropriate to your entity, what 
do you believe is our--it is a two-point question--what are the 
appropriate limits in your mind or the agency that it will 
never do and what is the appropriate role of congressional 
oversight and how would we make our voices heard, absent the 
Comptroller of the--
    Ms. Warren. Thank you, Congressman. I appreciate your 
concern about oversight and appropriations. As you know, none 
of the banking regulators are part of the appropriations 
process and they never have been as a matter of history. 
Congress has repeatedly made a very wise decision that pulling 
a banking regulator, somebody who is going to have to stand up 
to the richest and most powerful and say sometimes no is not a 
good idea. And Congress has never done that.
    As it stands right now, the other banking regulators stay 
outside the process, the CFPB is the only one of the banking 
regulators who actually does not have full control over its own 
budget. Its budget is effectively set by the Fed unlike the 
Federal Reserve's ability to set its own budget, the FDIC's 
ability to set its own budget, the OCC's ability to set its own 
budget and the OTS's ability to set its own budget.
    So the consumer agency is more constrained on the financial 
side and it is subject to being overruled by FSOC unlike any 
agency anywhere else in government. I am convinced that this 
consumer agency will be a voice on behalf of American 
consumers. But Congress quite reasonably, in setting this 
agency up, made it the most constrained of the Federal 
agencies.
    Mr. McCotter. I appreciate that but not necessarily by us.
    Ms. Warren. Well--
    Mr. McCotter. You happen to be, and to the Constitution, 
that entity within the Federal Government that is most directly 
accountable to the people, the House of Representatives and in 
conjunction with the United States Senate. So I would think 
maybe the richest and most powerful people, but we can differ 
on that.
    Thank you.
    Chairwoman Capito. Mr. Manzullo, for 5 minutes.
    Mr. Manzullo. Thank you, Madam Chairwoman.
    If someone calls the CFPB with a complaint about a mutual 
fund, will that person be directed to the SEC or would the CFPB 
investigate this complaint instead?
    Ms. Warren. Congressman, I believe that the boundaries on 
our jurisdiction are pretty clear. And that the Consumer Agency 
does not do--
    Mr. Manzullo. You don't get involved in it?
    Ms. Warren. --investment funds or other similar--
    Mr. Manzullo. They don't get involved with investors?
    Ms. Warren. I think that investment issues are left to the 
SEC?
    Mr. Manzullo. Okay. In your letter to Congressman Randy 
Neugebauer dated January 31st of this year, your concluding 
paragraph says, ``I sincerely appreciate your thoughts and good 
counsel regarding the task ahead of us. Building this new 
bureau is exciting and challenging. I hope we could work 
together on behalf of the millions of Americans, large banks, 
community banks, credit unions, and investors who are counting 
on us to build a strong, independent, effective and fair bureau 
that makes the consumer credit markets work for everyone.''
    You used the word ``investors.''
    Ms. Warren. I did, Congressman. And I have been reaching 
out to investors since the first--
    Mr. Manzullo. But you just said that investment would be 
left to the SEC.
    Ms. Warren. No. You asked me if there were consumer 
complaints about an investment--
    Mr. Manzullo. Right.
    Ms. Warren. --would it be part of the Consumer Financial 
Protection Bureau?
    Mr. Manzullo. Right. And you said no.
    Ms. Warren. And the answer is no. The investors I have been 
speaking with are those who invest in financial stocks. I have 
been meeting with them because I actually believe they are 
stakeholders.
    Mr. Manzullo. Invest in financial stocks where they would 
also be covered by the SEC. Isn't that correct?
    Ms. Warren. If you will permit me to explain, investors in 
financial stocks want to understand about what space--
    Mr. Manzullo. I understand that, but the issue is the 
jurisdiction of the CFPB and the SEC. Now, who has jurisdiction 
over this, you or the SEC?
    Ms. Warren. Congressman, it is clear that the SEC has 
jurisdiction if the consumer has a complaint about an 
investment--
    Mr. Manzullo. So then you will stay--you will completely 
stay out of that whole area? Would you--
    Ms. Warren. Of course, Congressman, because Congress has 
made it clear what that boundary is. Those who are investing in 
bank stocks, the same way that they are to invest in airplane 
stocks.
    Mr. Manzullo. But that is not your jurisdiction. Isn't that 
correct?
    Ms. Warren. My jurisdiction is consumer financial products 
and among the people who are interested in--products.
    Mr. Manzullo. I understand that. I thought you answered the 
question clearly, and, now, you are backtracking on it.
    Ms. Warren. No, Congressman. I am not backtracking at all. 
I--
    Mr. Manzullo. Does the SEC have jurisdiction and the 
ability to protect people who buy stocks?
    Ms. Warren. It is the jurisdiction of the SEC to deal with 
consumer complaints about investments, absolutely, sir.
    Mr. Manzullo. Okay. So then, therefore, there would be no 
room for the CFPB to be involved in that issue. Isn't that 
correct?
    Ms. Warren. In the issue of consumer complaints about 
stocks, there is no reason for the consumer agency to be 
involved, yes, sir.
    Mr. Manzullo. Alright, so you are going to stay away from 
that area?
    Ms. Warren. We will not go beyond our jurisdiction.
    Mr. Manzullo. Okay. The other question I have is, in going 
through your testimony, I just--it is this, on page six, at the 
bottom, pages of fine printed long passages of legalese, and 
they serve some lender, but they can make it impossible for the 
customer to know what is really going on. This is wrong. The 
average consumer who takes out credit should not have to 
struggle to understand the basic agreement.
    Wouldn't you agree that the legalese that the banks and 
credit unions are using is there because of legal requirements 
or regulations?
    Ms. Warren. Sometimes, Congressman, the fine print is there 
because of regulations and that is--
    Mr. Manzullo. --when I practiced law, I closed a thousand 
real estate transactions or more, we had one page. I could 
close it in 20 minutes. Now, Regulation Z in HUD-1, multiple 
pages, it takes 2 hours or more. So the consumer knows less 
because he can't read through all this stuff. But how are--they 
are going to go up against all these other agencies that are in 
each of these rules and regulations and just say this is 
unreasonable, let's go back to one page.
    Ms. Warren. Congressman, when the transfer date comes and 
we pick up from the other seven Federal agencies--
    Chairwoman Capito. The gentleman's time has expired.
    Ms. Warren. Sorry--
    Chairwoman Capito. Thank you to everybody.
    Mr. Ackerman, for 5 minutes?
    Mr. Ackerman. Thank you very much.
    I am buoyed by the notion that anybody who could withstand 
the kind of badgering in defending yourself and the position 
and the agency it is going to be doing a very, very incredible 
job in defending the consumers of this country against those 
who would exercise the amount of greed that we have seen 
exhibited.
    Let me yield a moment or two to my friend, Mr. Miller from 
North Carolina, who has some answers and an explanation that he 
would like to--
    Mr. Miller of North Carolina. Thank you.
    Just a quick question, at the beginning of the last decade 
or early in the last decade, I was careful to distinguish 
subprime lending and predatory lending, and not all subprime 
was predatory; and then predatory took over and--out all the 
others, all the wholesome, legitimate subprime.
    I earlier asked you if you knew of anyone who qualified for 
a prime mortgage and got a subprime mortgage, and I outlined 
some of the predatory terms, and you said you did not. The 
gentleman from Georgia, I think in the spirit of helpfulness, 
offered himself as an example. He then outlined the terms of 
the mortgage that he had once gotten. It was hard to tell what 
his circumstances were at that time what term made me think it 
probably was predatory and that would have a 5-year prepayment 
penalty.
    So I am sure he thinks he is a smart businessman, but they 
probably snickered and gave themselves high-fives when he 
walked out of the room having signed that mortgage. But he also 
said that he could not otherwise get a loan.
    So even after you have now heard the example of the 
gentleman from Georgia, do you know someone who qualified for a 
prime loan, but consciously picked a subprime loan with the 
kind of terms that became prevalent in the middle of the last 
decade?
    Ms. Warren. No, Congressman, I do not.
    Mr. Miller of North Carolina. Thank you.
    Mr. Ackerman. You are one of the few witnesses I have seen 
in my many years here who begins an answer with yes or no. So I 
don't think there is a lot of beating around the bush in 
listening to your explanations.
    One of the things that troubles me--and I don't know how I 
wound up on everybody's sucker list, but I get an awful lot of 
mail, a lot of it junk mail and a lot of it I don't open and--
as a lot of consumers do. But there is a whole group of 
financial institutions in various sectors that send you mail 
which is solicitations for programs and offers and they don't 
identify themselves on the envelope. There is no return 
address; and sometimes, the return address, that is a post 
office box somewhere.
    What you can see through the usual window that they have in 
these types of promotions besides your name and address that it 
concerned your account at blank financial institution which you 
have an account at. And you are anxious to open it up because 
this is coming from my bank or my credit union or what have 
you. And you open it up and it talks all about selling you an 
insurance product or life insurance because you just refinanced 
your mortgage or opened a mortgage or an account which becomes 
a matter of public record.
    You think because of the presentation on the envelope that 
this is from your financial institution. And you can read three 
pages worth of information and sales pitch before you realize 
it is from somebody you do not know or have a relationship 
with.
    I don't want to interfere with anybody's right to free 
speech or advertiser or a promoter to inhibit their business in 
any way, but it is meant to be deliberately deceptive to the 
potential consumer--or the consumer in making them think that 
this is from their bank.
    Would you be amenable to exploring a method of requiring 
some form of identification? And could I have somebody on your 
staff meet with me and my staff so that at least you know on 
the envelope who this is from rather than being deceived into 
thinking it is from a legitimate, established institution with 
which you have a relationship?
    Ms. Warren. Congressman, we would be very pleased to send 
someone over from the Consumer Financial Protection Agency to 
work with you and see how we can do this.
    Mr. Ackerman. But it should be somebody who has an 
understanding of people's rights under our Constitution from 
the promoter side and the business side also to be able to do 
that while still protecting the interests of the consumer.
    Ms. Warren. Congressman, we want to be as helpful as we 
can. I only offer one small caveat--we are just getting started 
and we are still small and trying to build out. So you may have 
to be a little tolerant with us on timing, but we really want--
    Mr. Ackerman. I am just getting started myself, so we will 
work together.
    Ms. Warren. Alright. Thank you.
    Mr. Ackerman. Thank you.
    Chairwoman Capito. Thank you.
    Mr. Garrett, from New Jersey, for 5 minutes.
    Mr. Garrett. And I thank the Chair.
    I just want to start my statement or my questions--my 
statement first. In your statement, you constantly--and I have 
probably heard you say this before--compare the CFPB to other 
banking regulators. But, as you said today, I believe that is 
an inappropriate comparison.
    You stated specifically that Congress has consistently 
provided for independent funding for bank supervisors to ensure 
that banks are examined regularly and thoroughly for both 
safety and soundness in compliance with the law. But your 
agency doesn't have a safety and soundness aspect or mission to 
it, does it? Yours is a consumer protection.
    So the reason why other--that banking regulators have 
independent funding is because of the safety and soundness 
function. And that is authority. And you don't want the Members 
of Congress or the political aspect to get involved affecting 
anything dealing with safety and soundness of financial 
institutions as opposed to what you are involved with what you 
just told us, which is consumer protection.
    You have a consumer protection function. Now, the other 
consumer protection agencies on the Federal level, what do they 
have? They have a funding mechanism that goes through the 
appropriation process, unlike yours. Yours is a consumer 
protection agency. Just like the other ones, you should go 
through the appropriations process.
    What also do they have? What is the other difference? If 
you were like the other banking regulators that you suggest 
that you are, then wouldn't you have a board as a sort of check 
and balance as opposed to just one lead authority, which is 
where you are? All the other ones have boards in their 
framework. Yours does not.
    So I don't think your comparison to bank regulators or--is 
the appropriate one and, therefore, the appropriation process 
should be, as we said before, that we have a check and balance 
on what comes out of the agency that you may be involved with.
    Let me go to the question. And I appreciate the fact that 
you are commended on giving yes or no answers. And so I have 
some easy questions for yes and no answers. Talking about the 
legal settlement and servicing issue that is out there right 
now in the news, let me ask you this: Is there a difference, do 
you believe first of all there is a fundamental issue between 
penalties for criminal wrongdoings in a wrongly foreclosed on 
homeowners versus your paperwork violations?
    Is there a difference in how those should be treated?
    Ms. Warren. Congressman, there is an ongoing legal 
enforcement action.
    Mr. Garrett. Right. And that is why I am asking.
    Ms. Warren. And it would not be appropriate for any member 
of the government, me or anyone else, to comment on what is 
involved in those negotiations. That would not be right.
    Mr. Garrett. Let me ask you this: Have you pushed for or 
advocated a recommended dollar amount with regard to the other 
regulators involved in this situation?
    Ms. Warren. Congressman, I know that given the level of 
problems that have been uncovered with mortgage servicing that 
the acting Director of the Comptroller of the Currency has been 
here in Congress to talk about--
    Mr. Garrett. Right. But what about--
    Ms. Warren. --violations of State laws and local laws that 
as--
    Mr. Garrett. But what about you? You are here today, so 
just tell us what you are doing. Are you making recommendations 
to the other regulators as far as the dollar amount of the 
penalties involved in this case?
    Ms. Warren. As the government is trying to negotiate with 
those servicers that the OCC found have violated the law--
    Mr. Garrett. Right. Okay.
    Ms. Warren. --they have asked that no one speaks about the 
content of those negotiations.
    Mr. Garrett. So you cannot tell what your--can you tell us 
what your role is in this?
    Ms. Warren. I can certainly tell you what our role is.
    Mr. Garrett. Okay, good. Have you made recommendations to 
them with regard to what the penalties should be? That would be 
part of your role.
    Ms. Warren. What I can tell you about--
    Mr. Garrett. Is part of your role to make recommendations 
to them with regard to penalties and the dollar amounts in 
these cases?
    Ms. Warren. The Secretary of the Treasury has asked for the 
consumer agencies to give advice. The Department of Justice has 
asked us.
    Mr. Garrett. So the answer is--the answer is yes?
    Ms. Warren. Congressman, it is the case that the government 
is trying to negotiate on behalf--
    Mr. Garrett. I understand that, but I am just trying to 
find out what you are doing.
    Ms. Warren. --on behalf of the American people.
    Mr. Garrett. I understand that. What are you doing?
    Ms. Warren. And they have asked--
    Chairwoman Capito. Will the gentleman yield?
    Mr. Garrett. I only have 30 seconds left.
    Ms. Warren. The Department of Justice has made it clear 
that they don't want people who are part of the government--
    Mr. Garrett. I understand that. Can you tell us, because 
they have asked you to be involved in this--your answer to 
that--what legal authority does a political appointee have in a 
situation like this making recommendations with regard to 
either civil or criminal actions?
    Ms. Warren. Congressman, I think we need cops on the beat 
to enforce the law.
    Mr. Garrett. Right, but we need to know what the law is. 
Can you cite--
    Ms. Warren. We need--
    Mr. Garrett. Can you cite what the authority is to enforce 
that law that you have?
    Ms. Warren. We need to enforce the law.
    Mr. Garrett. Can you tell me what that law is please?
    Ms. Warren. The Office of the Comptroller of the Currency 
has been here to make it clear that the mortgage servicers--
    Mr. Garrett. I am not talking about the OCC. I am talking 
about you, not the OCC. Can you cite what--
    Ms. Warren. --have violated the law.
    Mr. Garrett. Can you cite what the legal authority is for 
you to do these actions?
    Chairwoman Capito. The gentleman's time has expired.
    I want to, first of all, turn to Ranking Member Maloney for 
a short statement.
    Mrs. Maloney. I just want to thank you for your remarkable 
public service and for serving so well in two jobs now as a 
Special Assistant to the President of the United States and as 
a Special Assistant to the Secretary of the Treasury. I truly 
do hope that he appoints you to be the first permanent director 
of this body.
    You have worked extremely hard, you are a champion really 
for consumers, and you have been balanced and fair. I 
compliment you on your work and on your testimony today and on 
the fine job that you are doing. Thank you.
    Chairwoman Capito. Thank you.
    And I would like to thank you also, Professor Warren. I 
have another--I was hoping we could get in the time allotted to 
another question. But I would say the duplication and the 
financial education across-the-board, the GAO study, there was 
a great concern over the gap that is going to occur if this 
agency doesn't have a leader in July and regulations that are 
moving forward and what is going to happen there. And there are 
a lot of players at the table that are very concerned about 
that. So I appreciate your coming in and testifying.
    The Chair notes that some members may have additional 
questions for this witness which they may wish to submit in 
writing. Without objection, the hearing record will remain open 
for 30 days for members to submit written questions to this 
witness and to place her responses in the record.
    This hearing is adjourned.
    [Whereupon, at 12:32 p.m., the hearing was adjourned.]


                            A P P E N D I X



                             March 16, 2011


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