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



 
                    LEGISLATIVE PROPOSALS TO IMPROVE
                     THE STRUCTURE 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

                               __________

                             APRIL 6, 2011

                               __________

       Printed for the use of the Committee on Financial Services

                           Serial No. 112-24




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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
THADDEUS G. McCOTTER, Michigan       BRAD MILLER, North Carolina
KEVIN McCARTHY, California           DAVID SCOTT, Georgia
STEVAN PEARCE, New Mexico            AL GREEN, Texas
BILL POSEY, Florida                  EMANUEL CLEAVER, Missouri
MICHAEL G. FITZPATRICK,              GWEN MOORE, Wisconsin
    Pennsylvania                     KEITH ELLISON, Minnesota
LYNN A. WESTMORELAND, Georgia        ED PERLMUTTER, Colorado
BLAINE LUETKEMEYER, Missouri         JOE DONNELLY, Indiana
BILL HUIZENGA, Michigan              ANDRE CARSON, Indiana
SEAN P. DUFFY, Wisconsin             JAMES A. HIMES, Connecticut
NAN A. S. HAYWORTH, New York         GARY C. PETERS, Michigan
JAMES B. RENACCI, Ohio               JOHN C. CARNEY, Jr., Delaware
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:
    April 6, 2011................................................     1
Appendix:
    April 6, 2011................................................    59

                               WITNESSES
                        Wednesday, April 6, 2011

Andersen, Leslie R., President and Chief Executive Officer, Bank 
  of Bennington, on behalf of the American Bankers Association 
  (ABA)..........................................................     9
Hunt, Richard, President, Consumer Bankers Association (CBA).....    45
Levitin, Adam J., Professor, Georgetown University Law Center....    47
Sharp, Jess, Executive Director, Center for Capital Markets 
  Competitiveness, U.S. Chamber of Commerce......................    12
Shelton, Hilary O., Director, NAACP Washington Bureau, and Senior 
  Vice President for Advocacy and Policy, NAACP..................    14
Smith, Lynette W., President and Chief Executive Officer, 
  Washington Gas Light Federal Credit Union, on behalf of the 
  National Association of Federal Credit Unions (NAFCU)..........    11
Staatz, Rod, President and Chief Executive Officer, SECU of 
  Maryland, on behalf of the Credit Union National Association 
  (CUNA).........................................................    43
Wilcox, Noah H., President and Chief Executive Officer, Grand 
  Rapids State Bank, on behalf of the Independent Community 
  Bankers of America (ICBA)......................................    42

                                APPENDIX

Prepared statements:
    Andersen, Leslie R...........................................    60
    Hunt, Richard................................................    71
    Levitin, Adam J..............................................    79
    Sharp, Jess..................................................    90
    Shelton, Hilary O............................................   101
    Smith, Lynette W.............................................   106
    Staatz, Rod..................................................   119
    Wilcox, Noah H...............................................   130

              Additional Material Submitted for the Record

Capito, Hon. Shelley Moore:
    Written statement of the American Financial Services 
      Association (AFSA).........................................   136
Smith, Lynette:
    Additional information provided in response to questions from 
      Representatives Maloney and Carney.........................   140


                    LEGISLATIVE PROPOSALS TO IMPROVE
                     THE STRUCTURE OF THE CONSUMER
                      FINANCIAL PROTECTION BUREAU

                              ----------                              


                        Wednesday, April 6, 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 10:25 a.m., in 
room 2128, Rayburn House Office Building, Hon. Shelley Moore 
Capito [chairwoman of the subcommittee] presiding.
    Members present: Representatives Capito, Royce, Manzullo, 
McHenry, McCotter, Pearce, Westmoreland, Luetkemeyer, Huizenga, 
Duffy, Renacci, Dold, Canseco; Maloney, Hinojosa, McCarthy of 
New York, Miller of North Carolina, Scott, Velazquez, and 
Carney.
    Ex officio present: Representative Bachus.
    Also present: Representative Green.
    Chairwoman Capito. This hearing will come to order. This 
morning's hearing marks the third hearing that the Financial 
Institutions and Consumer Credit Subcommittee has held on the 
oversight of the Consumer Financial Protection Bureau (CFPB). 
We have before us today two panels who will comment on 
legislation that members of this subcommittee have been working 
on for the last month to make structural reforms to the CFPB.
    The first measure is H.R. 1121, which changes the 
leadership of the CFPB from a single director to a five-person 
commission. In my view, this is a critical change to the 
structure of the Bureau, and I would like to thank Chairman 
Bachus for his lead on this legislation of which I am a 
cosponsor.
    This is not unprecedented for a regulatory agency. The 
Securities and Exchange Commission, the Commodities Future 
Trading Commission, and the Federal Trade Commission are 
examples of regulatory agencies led by a commission. Most 
notably, the Consumer Product Safety Commission, which 
regulates the safety of thousands of non-consumer products, is 
led by a five-member commission. The powers of the Bureau are 
simply too broad for a single director, and the move to put the 
commission in place I think puts an important check on power.
    I would like to commend Mr. Duffy for his leadership on the 
second bill we will be considering today, H.R. 1315. This 
legislation makes important improvements to the Financial 
Stability Oversight Council's ability to overturn a CFPB 
regulation. Current law creates a situation in which the 
Financial Stability Oversight Council (FSOC) only has the 
authority to overturn a CFPB regulation if ``the regulation or 
provision would put the safety and soundness of the United 
States banking system or the stability of the financial system 
of the United States at risk.'' Wow, that is a pretty high 
standard there, I would say.
    Current law also requires a two-thirds majority vote to 
overturn a CFPB regulation. This simply sets the bar too high. 
Consumer protection and safety and soundness should go hand-in-
hand.
    Mr. Duffy is to be commended for his legislation, which 
makes dramatic improvements by lowering the threshold for a 
vote by changing it to ``regulation which is the subject of the 
petition is inconsistent with the safe and sound operations of 
United States financial institutions.''
    In addition to lowering this threshold, Mr. Duffy's bill 
changes the FSOC vote from a two-thirds majority to a simple 
majority and excludes the director of the CFPB from voting on 
CFPB regulations.
    It is my intent for the two discussion drafts to serve as 
an opportunity to explore two other issues within the structure 
of the CFPB: the first delays the transfer of consumer 
protection functions until there is a confirmed director; and 
the second prevents the CFPB from sending personnel to 
accompany credentialed regulators on examinations. These are 
two critical discussions on the current structure of the CFPB 
before the designated transfer date, and I look forward to 
hearing from our witnesses.
    This is just the beginning of what will be an ongoing 
dialogue on how to better reform the CFPB. The current 
structure simply puts too much power into the hands of one 
individual and does not allow for sufficient oversight of the 
regulations put forth by this Bureau.
    There have been recent statements made about the Bureau 
being created as ``the voice for American families'' and the 
willingness of the Bureau to stand up and stick up for those 
families. The members of this subcommittee are elected by the 
American people. It is our responsibility to protect the 
freedoms and liberties of our constituents. We also have a 
responsibility to ensure that regulations are in place to 
properly protect consumers.
    Finally, we have a responsibility to ensure that their 
personal financial decisions are left up to them and not unduly 
influenced by unelected bureaucrats who seek to limit consumer 
choice.
    I would now like to recognize the ranking minority member, 
the gentlelady from New York, Mrs. Maloney, for the purpose of 
making an opening statement.
    Mrs. Maloney. I would like to welcome the witnesses today, 
and thank you, Madam Chairwoman, for calling this important 
hearing.
    I appreciate the opportunity to consider these legislative 
proposals, but I take issue with the title of today's hearing, 
``Legislative Proposals to Improve the Structure of the 
Consumer Financial Protection Bureau,'' because I disagree that 
these proposals are meant to improve it. These proposals we are 
considering today come from some of the members who last year 
voted against the Dodd-Frank Financial Protection and Consumer 
Protection Act which created the CFPB. Taken together, these 
proposals will only serve to delay and disrupt the CFPB from 
being able to fully do its job before it is even opened for 
business on July 21st.
    The Consumer Financial Protection Bureau was created in 
response to the worst financial crisis since the Great 
Depression. Any attempt to delay or weaken the CFPB could leave 
American families, their communities, and the economy as a 
whole exposed to many of the same risks that brought our 
financial system to the brink of collapse.
    According to the Majority, the four bills we are discussing 
today are to create and promote greater accountability and 
transparency at the CFPB, but that is precisely what the CFPB 
is doing. The CFPB is working on how to make credit and other 
financial products clearer and easier to understand so that 
consumers have the information they need to make informed 
decisions.
    These moves, in my opinion, are an attempt to return to the 
failed policies of the past: the same regulatory indifference; 
the same blindness to real-world consequences. It is 
reinstating the same mindset of deregulation that was firmly in 
place in the prior Administration as the economy headed towards 
disaster. It is as if all the loss, all the sorrow, all the 
misery of the ``Great Recession'' never happened.
    If you doubt the benefits of effective consumer protection, 
then please take a look at what the Center for Responsible 
Lending had to say about the effects of my Credit Card Bill of 
Rights that was passed with broad bipartisan support in the 
last Congress. The study shows that the Credit Card Act of 2009 
has reversed much of the unclear pricing on credit cards 
without leading to higher rates or more difficulty in getting 
credit. Furthermore, the greater transparency about the real 
costs of credit makes it less likely that consumers will get in 
over their heads, something many believe was one of the 
contributing factors to the great credit crisis. This is all 
reflected in the fact that consumer complaints about credit 
card company practices have dropped dramatically since the 
implementation of my bill.
    With the Consumer Financial Protection Bureau, we can begin 
to do for all financial products what the credit card bill did 
for consumer credit cards--make the arena more competitive and 
the products more fair, less deceptive, and more transparent so 
that consumers can compare costs. These are all traits an 
efficient free market system needs in order to thrive.
    The Bureau is designed to be funded through the Federal 
Reserve, just as all bank supervisory agencies are 
independently funded, in order that it might be just that, 
independent. This is vital in order to avoid the kind of 
politicizing of its mission.
    The claim that the CFPB will not be subject to oversight is 
simply not based on reality. The CFPB director will testify 
twice a year to Congress. The Board will report annually to 
Congress on its budget and operating plan. It will submit 
quarterly financial reports to the Office of Management and 
Budget. The Government Accountability Office will do its own 
audit. The Financial Stability Oversight Council will review 
all CFPB regulations and can overturn them with a two-thirds 
vote, an unprecedented power.
    The Administrative Procedures Act allows for Federal courts 
to review agency decisions. And Congress, as the majority party 
in the House is attempting to do right now, can overturn 
regulations.
    Elizabeth Warren has made it clear that she favors free 
market solutions, but like the vast majority of Americans she 
is opposed to the use of deceptive, predatory, or 
anticompetitive practices. I would like to end by quoting from 
her recent address to the Consumer Union: ``We want to see 
innovation, lots of innovation, but innovations need to be 
around real product differences that consumers can see and 
understand, not around misleading advertising and new tricks 
buried in the fine print. Our goal is simple. We want the 
credit markets to work better for consumers, for responsible 
providers, and for the whole economy.''
    Thank you, and I reserve my time in the event that others 
have opening statements.
    Chairwoman Capito. Thank you.
    I would like to recognize the chairman of the full 
committee, Mr. Bachus, for 1 minute for an opening statement.
    Chairman Bachus. Thank you. What you just heard from the 
gentlelady from New York is sort of what I think the press has 
also said. That is their message, and their message is that 
this is all about politics; we don't like consumer protection.
    Nothing could be further from the truth. In fact, my bill 
is for a commission, which is what this House passed. This is 
what we passed in Dodd-Frank. It was changed in conference to 
allow one person to run the agency with total discretion. What 
we are advancing is not politics, it is the way government has 
always functioned, and that is not one person with unbridled 
authority.
    And let me say this: Professor Warren has done a great job 
of really fooling the national media into thinking, oh, this 
can easily be appealed. Nothing could be further from the 
truth. Sean Duffy has introduced a bill which is as important 
as the bill I am introducing, which tells you that you can't 
even appeal a ruling unless the ruling would bring down the 
whole financial system of the United States.
    Now, how absurd is that? Someone has to file within 10 days 
of the Consumer Protection Bureau issuing something. Ten days. 
That is absurd. It is unheard of. And it is a supermajority, 
not even two-thirds. It is 70 percent.
    And I tell you what, no one has gone past this crazy story 
about how we are just attacking Ms. Warren or that we don't 
want consumer protection. I think the American people and I 
know this Congress are too sophisticated to believe that, and 
if they are able to hoodwink the American people, they pulled a 
real sham here.
    I am advancing the same language that everyone in this 
House thought was the appropriate solution. It is what has been 
discussed for years about pulling everything into one agency 
and it being a commission. But someone in the dead of night 
decided they could just do whatever they wanted to, whenever 
they wanted to, and that the press would not tell the American 
people. This is not about Elizabeth Warren. This is about 
giving one person total unbridled authority and power.
    Chairwoman Capito. Thank you.
    I would like to recognize Mr. Scott for 2 minutes.
    Mr. Scott. Thank you very much, Madam Chairwoman, and 
welcome, panelists. This is indeed a very timely and a very 
important hearing. I think there are essentially 2 basic points 
that we have to explore today and make sure we get our hands 
on.
    One is, how do we adequately put forward the machinery that 
will effectively do two things: protect the American consumer; 
and make sure in the process of doing that, that consumer does 
not lose valuable access to credit. Those are the two things we 
have to do. And we have to explore, we have to really respond 
to some of the fears that are out there and make sure that we 
answer them before we move forward; that this effort does or 
does not clamp down unfairly on the financial services industry 
that has to both help consumers, while surely at the same time 
make sure that access to credit is there. So I want to get some 
answers to that.
    I want to get some answers to these concerns, because we 
can't do it without the financial services industry and we have 
to make sure that they are not going to tighten up on credit if 
such prompt procedures are in place.
    And I think in so doing, we will do the American people a 
great service.
    Now, my friend, Chairman Bachus has an interesting bill. 
Can we do this by committee? Can we do it by commission? If so, 
what will be the political makeup of that commission? If it is 
three, and you have two political parties, somebody is not 
going to have a fairly good chair when the music stops in terms 
of balance. I think that we have to be very thoughtful as we 
move forward.
    And again, Madam Chairwoman, I know my time is about up, 
but the major point again I want to impress is what I am after 
here is making sure we indeed protect the consumer, educate the 
consumer against predatory practices, against abuses that have 
caused so much of the problem that we are in today, while, at 
the same time, ensuring that he does not lose that valuable 
access to credit.
    Chairwoman Capito. Thank you.
    I would like to recognize Mr. Royce for an opening 
statement.
    Mr. Royce. Thank you, Madam Chairwoman. The July 21st 
deadline is quickly approaching here. And assuming a director 
is eventually appointed, we will soon be left with an agency 
unlike any other, given the way this was written. For the first 
time, there will be a director who serves a set term, has sole 
authority over the agency and its actions, and has access to 
hundreds of millions of dollars outside of the appropriations 
process. So it is a bad precedent. It would fundamentally 
weaken our regulatory structure by moving safety and soundness 
regulation to the back seat.
    What I had offered earlier during the markup when this bill 
became law was something that the prudential regulators wanted. 
They have seen what happened with the oversight over the GSEs. 
They thought it was a bad idea to move safety and soundness 
regulation to the back seat. And frankly, this bill takes a 
critical step by empowering the safety and soundness regulators 
to have a greater say in the CFPB by lowering the threshold for 
a rule to be struck down.
    And I would also add, Mr. Scott raised the concerns about 
access to credit, which I think is something we need to be 
worried about. I think beyond that, this worry about tying the 
hands of the regulators on this is a road we have been down 
before, where Congress did this with respect to Fannie and 
Freddie, and we had a very bad consequence out of it. So let us 
give the prudential regulators a greater say in this process. 
Thank you, Madam Chairwoman.
    Chairwoman Capito. Thank you.
    I would like to recognize Mr. Miller for 2 minutes for the 
purpose of an opening statement.
    Mr. Miller of North Carolina. Thank you, Madam Chairwoman. 
Yes, the CFPB is an agency unlike any another. It probably has 
more checks on its authority, more accountability than any 
other agency of the government. It certainly is not unique in 
that it is not subject to the usual budget process. Every 
regulator of the financial industry is funded separately, 
rather than to have to come back to Congress, hat in hand, to 
be turned away by the influence of the financial industry to 
restrict their ability to do their job. In that way, they are 
certainly not at all different from anybody else, except that 
they have a cap on theirs that nobody else--none of the other 
regulators have.
    They are certainly not unique in that they have a single 
director. The OCC, for instance, has a single director, and 
that has made that a very powerful agency, which has worked 
greatly to the benefit of the banking interest and greatly to 
the disadvantage of consumers. So it is certainly not in that 
respect at all unusual.
    When the industry talks about safety and soundness, the 
need to keep safety and soundness together, Congress did limit 
the authority of the CFPB. The CFPB cannot require any bank to 
offer any product. They can only prohibit practices that they 
determine to be abusive of consumers. So when a bank says they 
want to consider safety and soundness, what they are saying is, 
in order to stay in business, they have to do things, they have 
to do things the CFPB has determined cheat consumers, or the 
language of the statute, I think, are unfair, deceptive or 
abusive. They say that they have to be unfair, deceptive, or 
abusive to stay in business. Maybe that bank needs to go out of 
business.
    Chairwoman Capito. Thank you.
    I would like to recognize Mr. McHenry for 1 minute for the 
purpose of an opening statement.
    Mr. McHenry. Thank you, Madam Chairwoman. This legislation 
today we are looking at, it will go a long way to providing the 
necessary oversight of the Consumer Financial Protection Bureau 
in order to ensure that consumer protection rules can be 
implemented without risking the safety and soundness of our 
Nation's financial system.
    Last November, the voters sent a clear message to 
Washington. Massive new regulations are creating uncertainty 
and crippling job creation. With that in mind, I believe the 
legislation before us today is extremely necessary in order to 
protect consumers, while also making certain that small 
businesses and individuals aren't limited from accessing the 
credit that they need.
    While our economy is still fragile, this legislation will 
remedy a flaw passed in the final Dodd-Frank piece of 
legislation.
    I would say to my colleagues on the other side of the 
aisle, this idea that they created a very limited regulator, 
while having 59 votes in the Senate and 60 percent of the House 
of Representatives and a Democrat President, is absolutely 
absurd. They were bragging about how powerful this regulator 
was until after the election. We are trying to fix this problem 
and go back to a more balanced approach at the CFPB.
    Chairwoman Capito. Thank you.
    I would like to recognize Mr. Pearce for 1 minute for the 
purpose of an opening statement.
    Mr. Pearce. Thank you, Madam Chairwoman. I just wanted to 
address some of the comments coming from our friends on the 
other side of the aisle that innovations need to be somehow 
controlled, those dangerous innovations. And I think back to 
growing up in a family where the innovations, those scary 
innovations in the phone industry, were stopped for decades, so 
we grew up with this one black phone, a big heavy thing. As 
soon as that was deregulated, those scary changes began to come 
on to the market, and they call them cell phones and now iPods, 
iPads, whatever.
    And so as I think about choking down the financial sector, 
it is going to do exactly what one of my other friends from the 
other side said. It is going to limit access to consumers.
    For the situations where someone does cheat or take money 
away from someone, there is a remedy. Stick them in jail. When 
people cheat somebody else, have an outcome. But we don't need 
to choke down the entire financial services market in the name 
of safety. I yield back the balance of my time.
    Chairwoman Capito. Thank you.
    I would like to recognize Mr. Huizenga for 1 minute for the 
purpose of an opening statement.
    Mr. Huizenga. Thank you, Madam Chairwoman. I appreciate you 
doing this today.
    We are here today to discuss legislative proposals that 
will create more transparency and accountability for what some 
have labeled an independent agency--some of us would maybe 
characterize it as a rogue agency--that Congress created last 
year. And under this, Dodd-Frank, the CFPB, the Consumer 
Financial Protection Bureau, will have extensive authority to 
issue all new Federal and financial regulations that affect 
businesses and individuals, but with very little 
accountability. To me, that is unacceptable.
    If I am doing a bad job, I have to answer to the 
constituents of the Second District in Michigan. If the 
President is not effective, he has to go answer to people in an 
election situation.
    Who does the head of the CFPB report to? No one. That is 
part of the problem.
    And as a newly elected Member of this 112th Congress, and a 
member of this important committee, I am here to work for that 
change.
    Madam Chairwoman, I again appreciate your willingness to 
hold this hearing on this important issue. So thank you.
    Chairwoman Capito. Thank you.
    I would like to recognize now Mr. Dold for 1 minute for the 
purpose of giving an opening statement.
    Mr. Dold. Thank you, Madam Chairwoman. And I want to thank 
the witnesses for your time today.
    Both before and after legislation is passed, Congress has 
an obligation to identify and correct unintended negative 
consequences that frequently arise from what many would say is 
well-intended legislation.
    What I would like is do is I would like to fast-forward, 
because what we do today is going to have implications for many 
years to come. So let us go forward 5 and 10 years. Let us say 
the Administration is vastly different. We are empowering one 
individual who has, I would say, an enormous amount of power. 
What the legislation does today broadens that out. Instead of 
one, we want to have five. This seems to me to be commonsense 
legislation. Instead of vesting the power so much in one 
individual, we are investing it in a board.
    And then when it talks about veto authority, it is going to 
be a simple majority, as opposed to two-thirds, which is a very 
high standard to jump over.
    So I look forward to your comments in terms of trying to 
convince me on how this is not a good idea, why we need to 
invest so much power in an individual. Given the consumer 
credit industry's importance to our economic prosperity, the 
CFPB broad regulatory mandate should exist within a structural 
framework that improves transparency and accountability.
    I thank you, Madam Chairwoman, for giving me the time.
    Chairwoman Capito. Thank you.
    I would like to recognize Mr. Canseco for 1 minute for the 
purpose of giving an opening statement.
    Mr. Canseco. Thank you, Madam Chairwoman.
    Out of all the provisions included in the 2,300-page Dodd-
Frank bill, perhaps the biggest and most important question 
surrounds the creation of the Consumer Protection Bureau. For 
the first time, we have an agency whose primary mission is 
supposed to be consumer protection, although it is unclear 
exactly what the distinction is between consumer protection and 
safety and soundness.
    Aside from the agency's puzzling mission, there is a great 
concern over its structure. Ignoring the precedents for 
financial regulatory agencies, the Bureau is structured so that 
it has a single director who will have great influence. This 
means that one person can essentially determine what types of 
mortgage products or credit cards Americans can have access to.
    In its current state, it is also extremely difficult to 
overturn a potentially damaging rule proposed by the Bureau. It 
is also worth noting that the funding of this agency has been 
carved completely out of the normal appropriations process. The 
powers given to this agency seem to go out against the 
traditions of accountability and openness, and it moves us 
towards creating an American credit czar.
    Thank you.
    Chairwoman Capito. Thank you.
    Finally, I would like to recognize Mr. Duffy for 1 minute 
for the purpose of giving an opening statement.
    Mr. Duffy. Thank you, Madam Chairwoman.
    Quickly, I think all of us here on the panel and this 
committee agree that we want to protect consumers. I just think 
we have a disagreement that this bill is actually going to 
accomplish that goal. We have an incredibly high standard to 
overturn a CFPB rule. Basically, what has to happen here is the 
CFPB has to create a rule that is going to bring down the whole 
financial system. And if that is the case, we need to go to 
FSOC and get three-quarters of the vote, three-quarters of 10 
votes on FSOC to overturn it.
    The way the rule is written, or the law is written right 
now, the director of the CFPB sits on FSOC. This is a super, 
super, supermajority. It makes it incredibly difficult to 
overturn a rule that comes from the CFPB that is going to be 
damaging to the financial system.
    I think my bill addresses this. It puts some perspective 
back into oversight of the CFPB and brings some sanity to the 
legislation.
    Thank you, Madam Chairwoman.
    Chairwoman Capito. Thank you.
    That concludes our opening statements. I would like to 
welcome our witnesses. We have your full written testimony, and 
you will be given 5 minutes to sort of summarize your 
testimony. And we have a lot of eager questioners here, so we 
would like to try to stick to the 5 minutes.
    First of all, I would like to welcome Ms. Leslie Andersen, 
president and chief executive officer of the Bank of 
Bennington, on behalf of the American Bankers Association, for 
5 minutes.

STATEMENT OF LESLIE R. ANDERSEN, PRESIDENT AND CHIEF EXECUTIVE 
OFFICER, BANK OF BENNINGTON, ON BEHALF OF THE AMERICAN BANKERS 
                       ASSOCIATION (ABA)

    Ms. Andersen. Thank you, Chairwoman Capito, Ranking Member 
Maloney, and members of the subcommittee for the opportunity to 
testify today. ABA appreciates the chance to share ways to 
improve the accountability of the new Bureau of Consumer 
Financial Protection.
    The banking industry fully supports effective consumer 
protection. At the Bank of Bennington, we are proud of our 8 
decades of service to our customers. No bank can be successful 
without a long-term perspective like ours and without treating 
customers fairly.
    The new Bureau will certainly impose new obligations on all 
banks, large and small, banks that had nothing to do with the 
financial crisis and already have a long history of serving 
consumers fairly in a competitive environment.
    There are several features of the Bureau that make improved 
accountability imperative. These include the problems brought 
about by the extensive new powers of the agency, the unfettered 
authority of the director to impose new rules, the separation 
of consumer protection from bank safety and soundness, the gaps 
in regulating non-banks, and the expanded and unaccountable 
enforcement authority of prudential regulators and State 
attorneys general.
    We believe the bills that are the subject of this hearing 
today are a start in the right direction, but certainly more 
needs to be done. We have detailed recommendations to improve 
the Bureau's accountability in our written testimony, but let 
me highlight just a few.
    ABA supports H.R. 1121, which would create a commission 
responsible for the Bureau's actions. A board or a commission 
structure is far better than giving the head of the Bureau sole 
authority to make decisions that could fundamentally alter the 
financial choices available for customers. It also provides the 
needed balance and appropriate checks in the exercise of the 
Bureau's significant authority.
    ABA recommends that the commission include members with 
consumer finance business experience and direct safety and 
soundness regulatory expertise. Such expertise would provide an 
important perspective as standards are set and enforcement 
activities undertaken.
    ABA also supports H.R. 1315, which would require a simple 
majority vote of the Financial Stability Oversight Council to 
set aside a Bureau rule. If a majority of the Nation's top 
regulators believe a Bureau rule will have an adverse impact on 
the banking system, that rule should not go forward.
    Moreover, ABA also believes that a finding of systemic risk 
is too narrow. The review standards should be recalibrated to 
account for adverse consequences of Bureau actions that do not 
rise to the level of systemic risk.
    In addition to further accountability, we believe the 
Bureau should direct its resources to the most glaring gap in 
regulatory oversight: a failure to supervise and impose 
enforcement actions on non-bank lenders committing consumer 
protection violations. One simple suggestion is to mandate 
transparency on the Bureau's non-bank expenditures.
    We also strongly urge the Congress to eliminate the term 
``abusive'' from the Bureau's prohibitions. This is the most 
effective method of keeping the Bureau focused on the task of 
reforming the authorities it has inherited from its predecessor 
regulators. Then, the Bureau can shape those more-than-adequate 
authorities into simpler, more effective, and less burdensome 
consumer protections.
    Finally, the Dodd-Frank Act gives license to pile on 
additional State law requirements. It gives additional 
authority to State attorneys general and prudential regulators 
to interpret and enforce Bureau statutory authorities and the 
rules as they see fit. If we are to hold the Bureau 
accountable, we must also hold accountable all those who derive 
authority from its existence. To do otherwise, by allowing new 
rules to be written or applying new interpretations each time a 
State border is crossed, would completely undermine the 
reliance of all citizens on the Bureau's rules.
    Chairwoman Capito, banks across this country will continue 
to treat our customers right and do whatever we can to make 
sure that they understand the terms of the loans they are 
taking on and their obligations to us. Our task is made more 
difficult by the many new hurdles that we will have to jump 
over to serve our customers' most basic financial needs.
    With only 22 employees, I worry about how my bank will 
handle all the new compliance obligations that will flow from 
the Bureau and from all other Dodd-Frank requirements. More 
importantly, I worry about the added cost, time, and hassle for 
my customers that these new rules will inevitably create. Thank 
you.
    [The prepared statement of Ms. Andersen can be found on 
page 60 of the appendix.]
    Chairwoman Capito. Thank you very much.
    I would like to welcome and introduce our second witness, 
Ms. Lynette W. Smith, president and chief executive officer of 
the Washington Gas Light Federal Credit Union, on behalf of the 
National Association of Federal Credit Unions. Welcome.

 STATEMENT OF LYNETTE W. SMITH, PRESIDENT AND CHIEF EXECUTIVE 
 OFFICER, WASHINGTON GAS LIGHT FEDERAL CREDIT UNION, ON BEHALF 
  OF THE NATIONAL ASSOCIATION OF FEDERAL CREDIT UNIONS (NAFCU)

    Ms. Smith. Good morning, Chairwoman Capito, Ranking Member 
Maloney, and members of the subcommittee. My name is Lynette 
Smith and I am testifying this morning on behalf of NAFCU. I 
serve as the president and CEO of Washington Gas Light Federal 
Credit Union in Springfield, Virginia.
    Washington Gas has more than 6,800 members and over $80 
million in assets. NAFCU is the only national organization 
exclusively representing the interests of our Nation's Federal 
credit unions, and we appreciate the opportunity to participate 
in this hearing today concerning proposals to improve the 
structure of the Consumer Financial Protection Bureau.
    Credit unions were not the cause of this financial crisis, 
and yet we are still substantially affected by a number of 
provisions contained in the Dodd-Frank Act. For example, all 
credit unions are subject to the rulemaking authority of the 
new CFPB. The requirements in Dodd-Frank will create a number 
of new and unnecessary compliance burdens for small credit 
unions like mine.
    It is with that in mind that NAFCU has long opposed the 
CFPB's authority over credit unions. We believe that CFPB's 
singular focus should be on regulating the unregulated entities 
that contributed to the financial crisis.
    Indications are that some of the first areas that the CFPB 
may tackle include mortgage lending and credit card practices, 
areas where we have already seen a number of changes in the 
recent years. Although the debit interchange price cap remains 
NAFCU's number one concern with the Dodd-Frank Act, I will 
focus my concerns on the new CFPB.
    First, NAFCU will urge the subcommittee to return authority 
for rulemaking, examination, and enforcement of all credit 
unions to the National Credit Union Administration.
    Second, while we were pleased to see the Financial 
Stability Oversight Council granted veto authority over some 
proposed CFPB rules, we believe the current veto authority does 
not go far enough. NAFCU supports legislation to modify the 
threshold needed to veto a proposed rule.
    Third, NAFCU supports H.R. 1121, legislation introduced by 
Chairman Bachus and others, which would create a five-person 
commission to govern the CFPB. We believe a Board has benefits 
over one single director. At a minimum, NAFCU believes that the 
CFPB must have a Senate-confirmed director before it becomes an 
official, stand-alone Federal agency. We would support 
legislation to delay the transfer date until a director is 
confirmed.
    Fourth, only three credit unions are above the current $10 
billion threshold and would be subject to the examination and 
enforcement authority of the CFPB. We believe it is a waste of 
taxpayers' dollars for the CFPB to have credit union 
examination teams for only three institutions, when NCUA has 
been handling examining these institutions for decades. 
Congress should transfer that authority back to NCUA.
    Finally, there are a number of other areas where the CFPB 
could be improved, and I have outlined those in my written 
testimony.
    In conclusion, I remain at a loss as to why my credit union 
has been placed under a new regulatory regime. That being said, 
we welcome a dialogue with Congress on possible changes to the 
structure, governance, and authorities of the new CFPB.
    I thank you for my opportunity to appear before you today 
on behalf of NAFCU, and I would welcome any questions that you 
may have.
    [The prepared statement of Ms. Smith can be found on page 
106 of the appendix.]
    Chairwoman Capito. Thank you.
    Our next witness is Mr. Jess Sharp, executive director of 
the Center for Capital Markets Competitiveness, the United 
States Chamber of Commerce. Welcome.

STATEMENT OF JESS SHARP, EXECUTIVE DIRECTOR, CENTER FOR CAPITAL 
       MARKETS COMPETITIVENESS, U.S. CHAMBER OF COMMERCE

    Mr. Sharp. Thank you. Good morning, Chairwoman Capito, 
Ranking Member Maloney, and distinguished members of the 
subcommittee. I am Jess Sharp, the executive director for what 
we call the CCMC--it is kind of a mouthful--at the Chamber of 
Commerce. Thank you for the opportunity to testify this morning 
on behalf of the millions of companies and businesses that the 
Chamber represents.
    The Chamber firmly supports sound consumer protection 
regulation that deters and punishes financial fraud and 
predation and ensures that consumers receive clear, concise, 
and accurate disclosures about financial products.
    However, the ability of a regulatory agency to carry out 
its mission successfully is influenced by, among other things, 
organizational structure, coordination with other agencies, and 
the ability to maintain over the long term a consistent, 
effective approach. The unprecedented structure and authority 
of the CFPB fails these longstanding commonsense tests.
    The proposals that the subcommitee is considering today 
provide an opportunity to address structural issues essential 
to the success of the Bureau's mission.
    I will start with Chairman Bachus' bill, H.R. 1121, which 
would restructure the CFPB so that it is governed by a five-
member bipartisan commission rather than by a single director.
    For four reasons, we strongly support this reform. First, 
far from singling out the Bureau for special treatment, the 
Bachus bill would conform the Bureau to other independent 
Federal agencies, including those responsible for consumer 
protection, like the FTC, for example. Today, almost all 
independent agencies follow this model. Moreover, the decision 
to place a single director in charge of the Bureau, far from 
being essential to the original conception of this agency, as 
Chairman Bachus pointed out in his opening statement, actually 
was made quite late in the legislative game. The President's 
original draft bill proposing a Consumer Protection Agency 
included a commission, as did the bill that passed this House 
in 2009.
    Second, the Chamber believes that a commission will ensure 
better impartial decision-making. We believe that collaborative 
deliberation among a commission with diverse views, expertise, 
and backgrounds will lead to better policy outcomes. By 
contrast, leadership by an individual director is more likely 
to lead to extreme swings in approach over the years.
    The CFPB has a tough balancing act to perform as a 
substantive matter. More stringent rules and stricter 
enforcement will protect some credit users from fraud, as has 
been pointed out, and we certainly agree with that. As has also 
been pointed out, it could also lead to higher prices and 
reduced access to credit with potentially significant adverse 
implications for consumer well-being and economic growth. So 
smart, evidence-based decision-making in this complex area 
depends on full consideration of a diversity of inputs and 
views.
    The third point is that we believe that a commission 
approach would minimize the risk of regulatory capture. In the 
2008 Law Review article entitled, ``Making Credit Safer'' that 
Professor Warren co-authored, she observed that a major 
challenge in establishing a unified Federal regulator of 
consumer credit products is the challenge of minimizing risk of 
capture. The Chamber agrees and believes, again, that a multi-
member commission is the best way to address this risk.
    Fourth and finally, on H.R. 1121, we just think that a 
commission approach will ensure continuity and stability in a 
way that a single director would not. A multi-member 
commission, with staggered terms, ensures the continuous 
presence of a significant number of experienced members at all 
times and prevents any gaps in agency effectiveness. It would 
also prevent significant policy shifts based on the political 
wins.
    Moving quickly to Mr. Duffy's bill, the Chamber supports 
H.R. 1315 because it would enhance the FSOC's ability to serve 
as the critical check on Bureau rulemaking that threatens the 
financial system. If every prudential regulator opposed the 
proposed CFPB regulation, then that regulation shouldn't stand. 
And a majority requirement based on the vote of nine of FSOC's 
members, because we are taking the Bureau out of the FSOC for 
purposes of this provision, would permit that result.
    I would like to just quickly also address the discussion 
drafts that are before the committee before concluding. The 
discussion drafts would do a couple of things, both in terms of 
delaying--the first would delay the transfer of consumer 
protection functions to the Bureau until a director has been 
confirmed, and would remove the current authorization for 
prudential regulators to include Bureau examiners in 
examinations of large financial institutions prior to the 
transfer date.
    With respect to the first proposal, the Chamber agrees that 
consumer protection functions should remain with their existing 
agency until the leadership of the Bureau has been confirmed.
    As for the second proposal, we also agree that it raises 
concerns for the Bureau examiners to participate in 
examinations of large financial institutions prior to the 
transfer date and, accordingly, we would support legislation 
along those lines as well.
    So thank you again for the opportunity to testify. I am 
happy to answer any questions you may have.
    [The prepared statement of Mr. Sharp can be found on page 
90 of the appendix.]
    Chairwoman Capito. Thank you, Mr. Sharp.
    I would like to welcome Mr. Hilary Shelton as our final 
witness on this panel. He is the director of the NAACP, 
Washington Bureau, and senior vice president for advocacy and 
policy. Welcome.

  STATEMENT OF HILARY O. SHELTON, DIRECTOR, NAACP WASHINGTON 
  BUREAU, AND SENIOR VICE PRESIDENT FOR ADVOCACY AND POLICY, 
                             NAACP

    Mr. Shelton. Thank you very much. And good morning, 
Chairwoman Capito, Ranking Member Maloney, and so many of my 
good friends who are here on this subcommittee.
    It is a pleasure and an honor to be here to share in your 
discussion about improving the strength of the Consumer 
Financial Protection Bureau, the CFPB. We at the NAACP feel 
very strongly that this nascent agency needs as much support as 
possible so that it can reach its greatest potential to protect 
the American public in ways that it has never been protected 
before.
    The NAACP feels strongly that a robust CFPB is not only 
necessary for our Nation today; it is absolutely crucial. For 
too long, too many consumers, disproportionately racial and 
ethnic minority Americans, have been underserved and even 
targeted by unfair and downright unscrupulous predatory 
financial services. The result has dramatically diminished 
opportunities for an ability to build wealth or, in too many 
cases, to continue to own our homes, or even buy a car.
    More than 4 years ago, I testified before the Senate 
Banking Committee about predatory lending in the home mortgage 
and refinancing market and the racial disparities that existed. 
At that time I stated, ``Predatory lending is unequivocally a 
major civil rights issue.'' As study after study conclusively 
demonstrated, predatory lenders target African Americans, 
Latinos, Asians and Pacific Islanders, Native Americans, the 
elderly, and women at such a disproportionate rate that the 
effect is devastating to not only individuals and families, but 
whole communities as well. Predatory lending stymies families' 
attempts at wealth-building and ruins people's lives.
    Sadly, since that time, my words have been reinforced by 
more studies and, more importantly and more tragically, there 
have been catastrophic consequences for families, 
neighborhoods, and whole communities as the foreclosure rate 
among racial and ethnic minorities has disproportionately 
skyrocketed.
    In almost every other facet of financial services like home 
mortgages, racial and ethnic minorities are targeted by 
exploitive and unscrupulous lenders, and we continue to be 
treated unfairly. My written testimony gives you two more 
examples of this, payday lenders and credit scoring. But for 
the sake of brevity, I will not elaborate on them right here 
and now.
    Madam Chairwoman, distinguished members of the 
subcommittee, I could go on and on with examples and studies 
which demonstrate undeniably that racial and ethnic minority 
Americans are still treated disparately in a world of financial 
services. As a result, racial and ethnic minority Americans are 
faced with dramatically diminished opportunities to fulfill the 
American dream and build any sort of wealth for the future. It 
is because of this continuing disparity in treatment and the 
blatant targeting of racial and ethnic minority communities by 
exploitive financial services that the NAACP joined many other 
national civil rights organizations, among others, in 
applauding the creation of the CFPB under last year's Dodd-
Frank Act. As a matter of fact, many civil rights 
organizations, including the NAACP, testified before this very 
committee on the need for a single, robust, independent agency 
charged with protecting consumers and ensuring that all 
Americans have the same access to credit.
    Under the old system, at least five Federal agencies played 
a role in monitoring how financial institutions complied with 
consumer and civil rights laws, while three Federal agencies 
provided additional enforcement authority. There was not a 
single entity charged with investigating or charged with 
ensuring that all consumers were treated equally and fairly.
    Under the new and improved system, as mandated by Dodd-
Frank for many financial institutions, consumers' financial 
protection will now be the sole focus of a single agency, the 
CFPB. Once fully operational, the CFPB will have a broad 
authority to write rules, supervise a wide variety of financial 
institutions, and enforce Federal fair lending and consumer 
protection laws.
    Most important to the NAACP, fair lending is explicitly 
built in the CFPB's mission, structure, and research mandates. 
Dodd-Frank clearly states that the CFPB is tasked with the 
responsibilities to ``seek to implement and, where applicable, 
enforce Federal consumer financial protection law consistently 
for the purposes of ensuring that all consumers have access to 
markets where consumer financial products and services, and the 
markets that consumers financial products and services are 
fair, transparent, and competitive.'' In short, a robust 
function of CFPB will work through rulemaking, enforcement, and 
research to ensure a more fair and equitable financial playing 
field.
    The NAACP is particularly pleased to note that the CFPB 
will be looking at almost every aspect of financial services, 
including mortgage lending, credit cards, overdraft fees, and 
payday loans.
    Madam Chairwoman, I recognize that the subject of this 
hearing is four particular pieces of legislation intended to, 
as the committee contends, strengthen the CFPB. I am very 
interested in hearing the analysis of these four bills because 
I would like to state unequivocally for the record that the 
NAACP staunchly opposes any rules which may make weaken or 
undermine the CFPB or otherwise impede it from reaching its 
full potential.
    Any proposals which would weaken the mission of the CFPB 
would mean fewer protections for American consumers in general, 
and racial and ethnic minorities in particular, as they attempt 
to manage the often confusing world of finances, mortgages, and 
credit. Emasculating the CFPB, before it even gets off the 
ground, will result in a return to a system of inadequate 
financial supervision that failed taxpayers, depositors, 
investors, homeowners, and other consumers. Allowing continued 
predatory lending to consumers and the targeting of particular 
groups will once again allow greater risk to our financial 
system. Thank you so much.
    [The prepared statement of Mr. Shelton can be found on page 
101 of the appendix.]
    Chairwoman Capito. Thank you, Mr. Shelton.
    I would like to begin the questioning. I have a question 
for Ms. Smith. We have heard reports that CFPB personnel have 
already been accompanying prudential regulatory staff on 
examinations. The issue here for me is, as we know, the 
statutory date to begin the full implementation of the CFPB is 
not until July. And I think for institutions' safety and 
soundness and protection of financial data of their clients and 
their customers, this could be problematic if you have 
somebody, personnel accompanying who don't really have any kind 
of regulatory authority or any enforcement authority. Do you 
have a comment on that? And are you aware that this is 
occurring?
    Ms. Smith. Yes, I am aware. And we call it the ride-along 
examination. So that would be detrimental, in my opinion, to 
any credit union, regardless of size. The resources of a credit 
union really need to be better served than doing double 
examinations. So, for that reason, I feel that it would be a 
problem. And I can speak for myself and what I experience when 
a NCUA examines our credit union once a year. It was 18 months. 
Now, it is once a year.
    And also, I have to have a year-end audit examination by a 
certified public accountant. Both take approximately 30 days to 
complete, and take a lot of resources away from my credit 
union, resources that I could use to better serve my members. 
That needs to be our focus. That has been the credit union's 
focus all along.
    While smaller credit unions are supposed to be exempt from 
this bill, as it is written in the testimony, we just feel that 
this would be very problematic to the credit union industry as 
a whole.
    Chairwoman Capito. Yes. I think it presents a problem 
whether it is a ride-along or whether it begins issues of 
privacy issues with financial data and other issues of that 
magnitude. And I appreciate the statement that you made that 
when you get into the heavy regulatory burden, you are really 
undermining what Mr. Shelton addressed in his statement, which 
is how you get the consumer products and credits to the folks 
who most desperately need it and who have been shut out 
previously from greater access to credit.
    Ms. Smith. And please keep in mind that in the last 2 or 3 
years, I have been able to still continue to lend to members. 
When this financial crisis hit, my doors were open and we were 
lending every day.
    Chairwoman Capito. I appreciate that.
    I would like to ask Ms. Andersen, the carve-out for 
community banks, you have 22 employees, I can see from your 
statement, and it is of great concern to me as well that the 
carve-out really doesn't exist for a banking institution of any 
size, whether you are in the larger part that maybe fall under 
the CFPB. But still, the rules and regulations are going to 
influence your institution.
    You have already talked about the resources. Have you had 
to hire somebody? Do you anticipate that you are going to have 
to hire somebody to meet all of the demands that would then 
take, of course, resources from your bank that could be again 
more adequately placed in seeking credit and helping your 
communities? Could you address that issue?
    Ms. Andersen. Yes. We have actually hired outside counsel 
who is helping us look at the issues coming at us to try to be 
prepared, so that has taken additional resources. We also don't 
really have any one person in charge of compliance. Being a 
small institution, with 21 employees, everybody has to wear a 
compliance hat to serve our customers, and the more time and 
effort that is expended on new regulations--we already have a 
boatload--more regulations on top of what we have already takes 
time away from our consumers and our customers and also our 
ability to just be active in our communities.
    Chairwoman Capito. On the issue of a commission as opposed 
to an individual, to me, this just makes good common sense. 
Obviously, we passed it in the House. When it was passed in the 
House--and it was, as Mr. Sharp mentioned in his statement, it 
was a change made towards the end of the completion of the 
bill. And I think that we have seen now, with no statutory 
person in place, no Presidential appointment at this point who 
has to go through the confirmation procedure, I think it is 
just problematic if we have no director; what are we going to 
do, which is the point of one of my pieces of legislation. And 
so I think we could solve this a lot easier if we would, 
instead of having a singular person to head and have all the 
power concentrated in that one person, if we spread it out over 
a commission.
    But my time is up, and I am going to ask the ranking member 
if she would like to begin questioning.
    Mrs. Maloney. I most certainly would. First of all, I would 
like to thank the panelists for your thoughtful presentations. 
And I would like to clarify for the record that the House-
passed bill started with the director and only became a 
commission 2 years after the designated transfer date. The 
House conferees rejected an amendment that would have 
restructured the CFPB into a commission.
    And I would like to place in the record the debate that was 
very extensive around supporting the need for a strong consumer 
protection regulator. Without objection, I will place that in 
the record.
    This is the model that we have now in government for 
regulators. The Comptroller of the Currency, the head of the 
Fed, the CFTC, OTC, all of them have a single regulator, not 
commissions.
    I would like to respond really to Ms. Smith's concern about 
the shadow banking system, and that is what we pulled into the 
CFPB to be reviewed. The commission would only lead to 
gridlock, and, in my opinion, inaction that would only make it 
more difficult to react to the regulatory disparity between 
banks, credit unions, and the less regulated competitors. And I 
agree, the regulated credit unions and the regulated banks did 
not cause the problem. It was these unregulated areas.
    And I would like to say that my colleagues on the other 
side of the aisle say they want to reduce the size of 
government, yet they want to change a single-director Bureau 
into a five-member commission. President Obama is having 
difficulty finding a director that he can get confirmed by the 
Senate. One Senator can hold up a confirmation. If you had 
five, you would have more difficulty in moving forward.
    But my question, and I would like to begin with you, Mr. 
Shelton, you stated that predatory lending was, in your 
opinion, a civil rights issue. And it is believed by many that 
the old system reacted too slowly during the subprime mortgage 
boom, and that helped bring the economy to near collapse, which 
is why the CFPB was included in the overall Dodd-Frank 
financial reforms.
    Too often, consumer concerns were not thought about as a 
second thought, or a third thought, or they weren't thought 
about at all. And it is believed by me and others that if we 
had an agency such as the CFPB, they would have reacted more 
quickly to the screams and cries for help that were coming in 
from the communities across America.
    So I would like to ask every member of the panel if you 
think that the subprime mortgage boom that helped bring the 
economy to near collapse, would the CFPB help to have prevented 
that? The old system did not work, and we need to move forward 
in a system that will prevent financial collapse in the future.
    So first, Mr. Shelton, and then Mr. Sharp, and all the way 
down to Ms. Andersen. Thank you.
    Mr. Shelton. Thank you, Congresswoman. You are absolutely 
correct. I am deeply concerned about a lot of the argument 
being made here to withstall the implementation of the CFPB. 
Quite frankly, the NAACP has done reports and testified before 
this committee as well as the Senate Banking Committee on 
numerous occasions. We have sat down with the heads of the 
Comptroller of the Currency, the Fed, sat down with a number of 
government agencies responsible for this particular oversight.
    We did a report in 2007 to show you the slow movement of 
the existing system and why it is the literal definition of 
insanity to continue with the existing policy. Quite frankly, 
we spoke in 2007--and I will leave the names of the very high-
ranking officials out of this so as not to embarrass them in 
this particular case--we went to them and said we were 
predicting in 2007 that African Americans who received subprime 
loans in 2005 would go into foreclosure by the end of 2009. And 
needless to say, we were underestimating the devastation that 
was created by this lack of oversight and regulatory oversight 
of our financial services programs. Indeed, more than 52 
percent of subprime borrowers who were African American went 
into foreclosure by the end of 2009. That is outrageous. We 
need a process and a system that actually provides the kind of 
protection that consumers need.
    What we got at every step of the way is, when we asked them 
what do you intend on doing, when we asked them to simply do 
things like a moratorium on foreclosures, we were told that, 
``We will allow the market to work it out. We have no plans 
whatsoever, even though we see the concerns you are having are 
2 years down the line.''
    We need a nimble, effective process to provide that kind of 
oversight and enforcement to protect the consumers first. If 
you are protecting consumers, then we are not going to have the 
kind of meltdown we are experiencing.
    Mrs. Maloney. Madam Chairwoman, my time has expired, but I 
would like to request that everyone place in writing their 
response on whether or not the CFPB would have helped prevent 
and protect consumers during the subprime crisis, comparing 
that to what happened with the old system. Thank you very much, 
and I yield back.
    Chairwoman Capito. Thank you. I would like to say in terms 
of growing government, I would remind the committee that the 
CFPB will have over 1,000 employees. I would say that is a 
large growth in government, some of them coming from existing 
agencies, but many still remaining in their original agencies. 
And the FDIC has recently announced that they are going to be 
creating a new compliance division, there again growing 
government further.
    Mr. Royce for 5 minutes.
    Mr. Royce. Thank you. I think we have gotten it exactly 
backwards. The bifurcated regulation that we have here with the 
CFPB is exactly like the bifurcated regulation that we had with 
respect to the GSEs. So if we had Congress coming in and 
muscling the market and basically saying with the GSE Act that 
you could overleverage, and here you had the safety and 
soundness regulators, the prudential regulators who said no, 
no, that is a mistake; 100 to one leverage. The goal is forcing 
people to buy junk like Countrywide and holding that on the 
books. You are going to do that just so that everybody can own 
a house, whether they can make a payment or not? You are going 
to put that kind of leverage into the system? You are going to 
muscle those kind of goals to create a market for junk like 
Countrywide out there?
    That is the insanity. That is the insanity of duplicating 
that kind of system and trumping the prudential regulator, yet 
again, who wanted to regulate the GSEs for systemic risk. So 
now here we have created, and I will ask this question of Mr. 
Sharp, we have created a situation where we have made it 
harder, even harder for the prudential regulator to have the 
kind of say over safety and soundness they should have had. And 
here what we have done under the FSOC, is they can only block 
the CFPB regulations if two-thirds of its membership, which 
includes the CFPB director, concludes that the regulation or 
provision would put the safety and soundness of the United 
States banking system or the stability of the financial system 
of the United States at risk.
    Mr. Sharp, do you think this standard is too broad and the 
number of required votes needed to overturn too high to 
effectively protect the financial system from onerous and 
overreaching activism by the CFPB?
    Mr. Sharp. Yes. The Chamber definitely believes the bar is 
set too high. I think the critical point here is it seems like 
Congress recognized that there was a potential for a problem 
here. That is why this provision is in the bill. But the way it 
was set up, it is a bar that it is not clear that any rule 
could ever clear. Even if you have all 5 prudential regulators, 
5 of the 10 members of the FSOC make a decision that a rule 
could undermine safety and soundness, that is not enough. You 
still have to convince everybody else. So if this is a safety 
and soundness question, it seems like if you have unanimity 
among the safety and soundness regulators, then that should 
control.
    Mr. Royce. And this is the aspect that concerns me, because 
I have talked to all the prudential regulators and heard their 
concerns, both during the markup of this bill and during the 
conference on this legislation. Let me just ask you, how would 
you improve upon this language, Mr. Sharp, if you might make 
some suggestions?
    Mr. Sharp. Sure. The language in the bill before us today?
    Mr. Royce. Yes. How would you address this issue; in the 
way Mr. Duffy addresses it with his bill, or how would you--
    Mr. Sharp. Yes, I think the Duffy bill is a very good 
solution. The only thing I would say, in addition to what is 
before us here in the legislation, is the authority to review 
and override CFPB actions, as I understand it, only applies to 
regulations. We have heard from Professor Warren that her 
inclination, at least at this point--and she is not obviously 
the director--but at this point, speaking on behalf of the 
Bureau, is not to regulate through regulations and to use 
enforcement actions to sort of push for compliance.
    Now, that is fine and that is one way of doing things, and 
it wouldn't be the first time an agency did that. But if that 
is the case, if that is the primary means of pushing for 
compliance and for shaping the landscape, then those types of 
actions should be, at least some of those actions, could be 
broad and sweeping enough to have safety and soundness 
implications, and it is probably a good idea for FSOC to have 
the authority to review those as well.
    Mr. Royce. Thank you, Mr. Sharp.
    I am going to ask Mr. Wilcox, in your testimony you express 
support for Mr. Duffy's bill to strengthen the review of CFPB 
rules, and you mentioned that the ICBA has proposed language to 
take his bill a step further by allowing the FSOC to veto a 
bill that would adversely impact a subset of the industry in a 
disproportionate way. I would just ask you if you would want to 
elaborate on your concerns there.
    Mr. Wilcox is not on this panel, so I will ask that 
question of Ms. Andersen.
    Ms. Andersen. I cannot speak on behalf of the Independent 
Community Bankers, so I am not quite sure how to answer your 
question.
    Mr. Royce. In that case, my time has almost expired, and I 
will yield back.
    Chairwoman Capito. Thank you. I would like to recognize 
Mrs. McCarthy for 5 minutes for questioning.
    Mrs. McCarthy of New York. Thank you. Thank you very much 
for having this hearing. And I find it very interesting. I keep 
seeing every week the numbers in foreclosures. I keep seeing 
the numbers of people losing their homes, many of them becoming 
homeless. And I know then when we had all these hearings, going 
back when we were working to see what we could do to protect 
the consumers in the future, and here is something that we have 
in place that hasn't really gone into place yet.
    And I know there were concerns with the credit unions and 
some of the banks, but we also know that Elizabeth Warren 
stated in her testimony in March, and a few other times before 
that, that the CFPB must consider the impact of proposed rules 
on community banks and smaller credit unions, as well as 
consult with Federal banking regulators, consider the written 
objections raised during the consulting process.
    We are forgetting why we are putting this together. 
Everybody forgot about the consumer. And everybody can blame 
everybody else, but nobody was there to protect the consumer. 
No one.
    So there are specific--and my question is to everybody. 
There are specific requirements that the CFPB must adhere to in 
carrying out their regulatory activities. Shouldn't Congress 
allow the CFPB to become implemented before we start making 
changes?
    We have done this before. It is called technical changes as 
we go down the road. Basically, almost every bill that passes 
this House comes back for technical changes.
    And then if there was a commission structure in place, what 
would have happened if there wasn't agreement on how to respond 
to a consumer threat or move forward on a proposed rule? 
Wouldn't the consumer end up being disadvantaged from the 
gridlock?
    And that is what we were trying to prevent in the 
beginning, gridlock. Because around here, everybody knows it, 
Republican and Democrat, it takes forever to get something 
done. And in the case of what happened for consumers across 
this Nation, they are the ones who paid. They are the ones who 
paid. They paid by losing their homes. They paid by losing 
their jobs.
    And what are we doing for them? In my opinion, we did 
something for them, and we are doing nothing now.
    Mr. Shelton, why don't you start?
    Mr. Shelton. Thank you so much. And again, I am in full 
agreement that to delay the implementation of these long-needed 
protections of the American consumer is something that we have 
to remember throughout this process.
    The CFPB needs to have an opportunity to be fully 
implemented to become fully operational. We need to move very 
quickly. The NAACP sent a letter very recently to the President 
asking for a nominee to serve as director of the CFPB. We think 
that is extremely important. But slowing down this process 
again brinks on the terms of insanity.
    The revisionist history that we continue to hear, about why 
it was so important to put this program in place in the 
beginning, is something we must go back and look at. We 
testified before and it stands today that we had people being 
offered products they could not sustain.
    The issue for us is twofold: one, the sustainability of 
access to credit; and two, protecting consumers from the 
predatory nature of some of these financial services 
institutions. We need to move very quickly and decisively to 
make sure both of those particular provisions are in place. We 
see this as something that has been well debated, well 
discussed, it has been legislated. The President has signed it 
into law. Let us now implement this program and let the 
American people enjoy the protections that the Bureau offers.
    Mrs. McCarthy of New York. Thank you. Anyone else? Ms. 
Smith?
    Ms. Smith. Thank you very much. We appreciate Elizabeth 
Warren's statement, and would urge Congress to make sure the 
concerns of small institutions like credit unions are taken 
into account as the CFPB goes forward. Compliance burdens would 
still be inevitable. Credit unions have a board regulator, 
NCUA, and we are not the cause of the problem. So a board could 
work.
    And if I could just give you a personal testimony of what I 
have experienced. When the predatory lenders were out there 
doing 40-year mortgages, interest-only mortgages, my 
examiners--before the regulation got out on NCUA in black and 
white--were calling us on the phone and saying, ``Don't do it. 
Don't do it.''
    I just had another example last week, and it doesn't have 
to do with lending. But NCUA is a source for our members to 
complain. I had one member who complained about a $40 
withdrawal from an ATM and she did not get the money. She wrote 
the letter to NCUA and we--before I got the letter from NCUA, I 
had already resolved it. But then I had to turn around and 
respond back to NCUA. And this was in less than a week's time. 
So I think NCUA does a good job at really keeping us on the 
right track.
    Mrs. McCarthy of New York. Let me just interject. I agree 
with the credit unions and I also agree with our community 
bankers. We tried to do whatever we could, many of us, as 
during the regulation part, to protect them because we know 
they did nothing wrong. But unfortunately, at times, everybody 
is pulled in, and that is why we want to try to make sure that 
we make it right for those who had nothing to do with the 
economical failure.
    Chairwoman Capito. Thank you. I would like to recognize Mr. 
Renacci for 5 minutes for questioning.
    Mr. Renacci. Thank you, Madam Chairwoman.
    I thank all of you for your testimony today. One thing I 
heard consistent with all four of you was that you all support 
sound and effective consumer protection. You said it in 
different ways, but you all said that.
    My question comes down--and I am going to ask all four of 
you. The four pieces of legislation that we are talking about, 
would any of you tell me how that weakens the ability for the 
CFPB to have effective oversight on sound consumer protection? 
Because you all talked about how the four pieces of legislation 
were okay.
    I want to know if there is anyone who could tell me how any 
one of these four pieces of legislation weaken the ability. We 
can start with--
    Ms. Andersen. I don't think they do weaken consumer 
protection. Consumers and small businesses are the lifeblood of 
traditional banks. We take care of them. If we don't take care 
of them, we don't survive. What these changes will do will 
expand our ability to continue to take care of our customers.
    A commission is far better than having one single person 
have the authority over deciding what products I should be 
delivering to my customers in Bennington, Nebraska. I have a 
hard time believing that somebody in Washington, D.C., one 
person, one single person, understands the needs of my 
community.
    Mr. Renacci. And again, I understand your--you guys have 
all indicated your thoughts on how these help. I want to hear 
if any of you can tell me where it has weakened any one of 
these pieces of legislation.
    Mr. Shelton. I would certainly argue that it slows the 
process. One of the things we also experienced were products 
that were being offered very quickly, and not being able to 
respond quickly enough to be able to address the damages that 
were created by many of the predatory lending packages we ended 
up fighting.
    If you end up, quite frankly, with the arguments to be made 
that having a commissioner, an oversight along those lines, and 
not allowing one person to actually provide the leadership in 
this particular case, also understand there are checks and 
balances for that one person that could very well slow the 
necessary oversight and enforcement that this agency must be 
responsible for.
    Quite frankly, when you look at these pieces of 
legislation, all I am seeing are things that will slow down the 
process and not add value to the process of oversight and 
protection.
    Mr. Renacci. If it slows it down and it gets it right, we 
are still in the right place, as long as it protects.
    Mr. Shelton. If you can establish it somehow did it right; 
but, quite frankly, what we have seen so far does not establish 
that.
    Mr. Renacci. Ms. Smith, when it comes to credit unions, and 
I have had a number of credit unions come visit me in my 
district, credit unions do provide services to low- and 
moderate-income families and households, correct?
    Ms. Smith. That is correct.
    Mr. Renacci. Do you see a director--one of my concerns 
about having one director who maybe doesn't like credit unions 
or maybe doesn't like the way credit unions are going, that it 
may affect the ability to service low- and moderate-income 
families.
    Ms. Smith. Absolutely. In answering your first question, we 
do think that it would strengthen, so we are in favor of it. 
But in answer to your second question--could you repeat it 
again, please?
    Mr. Renacci. I said if you had a director, one of the 
problems with having a single director is they may say that 
credit unions don't provide service. My biggest concern is that 
credit unions do provide service to low- and moderate-income 
families. The question was, if you saw a director who was 
taking this agency in a direction that would hurt your credit 
unions, would you be able to provide services to low- and 
moderate-income families?
    Ms. Smith. No. It would really put a damper on the services 
that I could provide. So I am very concerned. I don't feel that 
one person--I am in favor of five. I think you will have a 
broader array. I think there would be some confusion, too, to 
having an examination, a dual examination, so to speak. I think 
there would be confusion at my board of directors level, staff 
management. We wouldn't know who we really ultimately reported 
to.
    Mr. Renacci. And, Ms. Andersen, moving on, you had some 
interesting comments in your testimony about some of the other 
overreaching things that the States could provide. Could you go 
into a little more detail on that? You talked about statutory 
language prohibiting States from imposing additional consumer 
protection.
    I would just like to hear a little more about that.
    Ms. Andersen. I think it is imperative that we have common 
regulation. We can't have different regulation in one State 
over another, because most all of us do business in more than 
one State. I am located in Nebraska, relatively close to Iowa. 
I have farmers that I do business with who own land in both 
States. We have customers who have vacation homes in Florida, 
and we need to have one common regulatory guide so we 
understand the rules of the road clear across the country.
    Mr. Renacci. Thank you. I yield back.
    Chairwoman Capito. The gentleman's time has expired.
    Mr. Miller for 5 minutes for questions.
    Mr. Miller of North Carolina. Thank you.
    Critics of the OCC, including me, think that the OCC has 
been the most captured of the regulators, the most permissive 
of the regulators, and the OCC's permissiveness to the banks 
that they regulated contributed greatly to the financial crisis 
of a few years ago, just 2\1/2\ years ago. And a big part of 
that was their assertion of preemption; that banks that were 
subject to the OCC, regulated by the OCC, would not be subject 
to State laws. And there are a lot of States who saw what was 
going on right under their eyes. State legislators saw it, 
tried to pass laws prohibiting it, and the OCC kept them from 
applying their laws, particularly with respect to mortgages and 
predatory subprime mortgages. The failure of States to be able 
to act contributed greatly to the subprime crisis and the 
financial crisis.
    Mr. Sharp, should the OCC's assertion of preemption be 
subject to review by the FSOC, and, if not, why not?
    Mr. Sharp. I am not here to testify today about the OCC.
    Mr. Miller of North Carolina. It is obviously parallel. Why 
not the same rule? If it affects the safety and soundness of 
the system, why should that not be subject to review by the 
FSOC?
    Mr. Sharp. They are a safety and soundness regulator, 
whereas the CFPB is not. That is why the concern is greater in 
the CFPB context, because they exist outside safety and 
soundness.
    Mr. Miller of North Carolina. How about just subject to the 
APA, the notice and comment periods for assertions of 
preemption? If CFPB is going to be subject to the APA, why 
should OCC not be subject to the APA?
    Mr. Sharp. I don't have a good answer for you, but I would 
be happy to provide one in writing, if you prefer.
    Mr. Miller of North Carolina. The Dodd-Frank Act, the CFPB 
statute as initially proposed by the Obama Administration, 
would have required plain vanilla products be offered side-by-
side. There was an uproar in the financial sector. It was awful 
to think that they would be required to sell something they 
didn't want to sell, and the truth was the consumer advocates 
didn't love it all that much either, so it got dropped fairly 
quickly.
    To make the point clear, Republicans offered an amendment 
in committee, and Democrats accepted it, that said clearly the 
CFPB would not have the authority to require any financial 
institution to offer any given practice. They could not 
require, they could only forbid. They could forbid practices 
that were abusive to consumers or deceptive or unfair. They 
could not require them to do something that was good for 
consumers. And further, it is clear that the CFPB does not have 
any authority to set interest rates, so you can price products 
however you want to. If they are a greater risk, you can price 
them accordingly.
    Can you give me an example, Ms. Andersen, of a consumer 
practice that you have to do, that you are afraid that the CFPB 
might forbid as abusive or deceptive or unfair, that you have 
to do to stay in business?
    Ms. Andersen. To stay in business, I have to serve my 
community, and in serving my community, I can develop products 
for the consumers in my community that are helpful. One great 
example of this is we have a large Burmese refugee community in 
our area, and we worked with our regulator and developed a 
product for them that allows them to buy homes. They couldn't 
qualify--generally speaking, they can't qualify for a 
traditional secondary market loan because they haven't lived in 
the United States for 2 years, and don't have 2 years of tax 
returns, so that kicks them out of traditional secondary market 
lending.
    We developed a program of financial education and a loan 
program for them to purchase a house, they have downpayment 
money, and move forward.
    Mr. Miller of North Carolina. Leaving aside the 
unlikelihood that the CFPB would forbid that, because it sounds 
very wholesome, do you have to do that to stay in business?
    Ms. Andersen. I have to serve my community to stay in 
business, and I need to serve the needs of my community. And I 
don't believe that one person in Washington can understand the 
needs of my community and the services that I need to provide 
for them.
    Mr. Miller of North Carolina. Mr. Sharp, can you give me an 
example of a consumer practice that you are afraid the CFPB 
might strike down as abusive and say you can't do that, but a 
financial institution would have to do that to stay in 
business?
    Mr. Sharp. I can't give you an instance of a particular 
product. Again, the uncertainty is what is so concerning. We 
don't know what ``abusive'' means. We don't know if unfair, 
deceptive, and abusive is sort of an escalation, if you can 
fully disclose the characteristics of a product and still be 
considered abusive. These are the things--it is a term without 
much definition, more than was given in the statute, and we 
don't know what it means, so--
    Chairwoman Capito. The gentleman's time has expired. Thank 
you.
    Mr. McHenry for 5 minutes.
    Mr. McHenry. Thank you, Madam Chairwoman.
    Now, to Ms. Andersen and Ms. Smith, with the passage of 
Dodd-Frank and with the CFPB, for instance, do these additional 
regulatory burdens add to the cost of compliance?
    Ms. Smith. If I could speak first, 2 years ago, because of 
the unemployment rate, I was able to hire an attorney, a lawyer 
who just got out of law school, and I started her off at a 
salary of $40,000 and I had her do policies. But, lo and 
behold, 2 years later, she is my compliance officer and it 
takes up a lot of her time; she spends 90 percent of her time 
just doing compliance for the credit union.
    So what has happened now, and I could speak from the heart, 
is I don't know how long I am going to keep her, because 
compliance is becoming larger--compliance is becoming such a 
big deal of importance to the credit union industry and to 
financial institutions that I can't compete with the larger 
credit unions in salary. So, yes, I do have financial costs 
that I have had to incur.
    In addition to that, because of the recent credit card 
changes and the real estate changes, I have had to spend over 
$10,000 in the last 2 years just to update forms to keep up.
    Mr. McHenry. How large is your credit union?
    Ms. Smith. $80 million.
    Mr. McHenry. Ms. Andersen?
    Ms. Andersen. We have had significant increased costs. We 
have had significant increased costs just over the past few 
years of changes in regulations totally separate from Dodd-
Frank and from the CFPB. Those regulations aren't in place yet, 
but we are getting ready for them. We see them coming. We know 
that the costs are going to be there and be a lot more 
expensive. We have to figure out a way to pay for them, and we 
are a $60 million bank, much smaller.
    Mr. McHenry. Do you think these regulations, to both of 
you, do you think that these regulations will affect smaller 
institutions at a greater, I guess, cost basis per dollar that 
you have in your institution, as opposed to the large 
institutions?
    Ms. Smith. Yes, they will. When I came into the credit 
union industry over 20 years ago, there were over 12,000 credit 
unions. Now, there are roughly under 8,000. I think we will see 
that number go down. I am really concerned about the credit 
union industry and its survival, because we have always been 
the lender of last resort. I can speak to that personally on 
what I am doing at Washington Gas Light Federal Credit Union.
    Mr. McHenry. Ms. Andersen?
    Ms. Andersen. Yes, I would agree completely. As I said, we 
don't have one person in charge of compliance. We may be having 
to move that way, hire yet an additional person, or take more 
time away from my community, which I really don't want to do.
    Mr. McHenry. How many employees do you have, Ms. Andersen?
    Ms. Andersen. Twenty-two.
    Mr. McHenry. So you are talking about adding a full-time 
compliance person with what you see coming down the road?
    Ms. Andersen. Yes.
    Ms. Smith. I have 17, and that does include one compliance 
person.
    Mr. McHenry. Oh, Lord. So if I can just ask a general yes-
or-or-no question here--first Ms. Andersen and then you, Ms. 
Smith--did these regulations increase access to credit and 
reduce the cost of credit? Yes or no?
    Ms. Andersen. No.
    Ms. Smith. I would say no.
    Mr. McHenry. Mr. Sharp?
    Mr. Sharp. I would agree. No.
    Mr. McHenry. Mr. Shelton?
    Mr. Shelton. I would say yes.
    Mr. McHenry. How so? We have two market participants who 
say no and then--
    Mr. Shelton. I am sorry, Congressman. What I am hearing is 
an argument over having to comply with these regulations, with 
having someone who is responsible for making sure the 
regulations provide the protection the American people need. 
And, quite frankly, what we saw under the lack of regulation 
was the American people were left hanging.
    Mr. McHenry. To reclaim my time, my time is about to 
expire, this idea that there is a lack of regulation is 
absolutely absurd. These financial institutions--Ms. Andersen, 
did you lack regulations 5 years ago?
    Ms. Andersen. No, sir.
    Mr. McHenry. Ms. Smith?
    Ms. Smith. No, sir.
    Mr. McHenry. Interesting. Because the argument here--if I 
may finish--the argument here is that somehow there were no 
regulations, right?
    Ms. Andersen, so did you cause the crisis that we just 
faced?
    Ms. Andersen. No, sir, I did not.
    Mr. McHenry. Wow, that is interesting. You are a regulated 
entity. How many regulators do you have as a small financial 
institution?
    Ms. Andersen. I am regulated by the State of Nebraska and 
the Federal Reserve.
    Mr. McHenry. In addition to what you see coming down the 
line in Washington, you will see further regulations. Okay.
    Ms. Andersen. Yes.
    Mr. McHenry. Thank you for your testimony. I certainly 
appreciate your making the point that this drives up the cost 
of lending and reduces access to credit. Thank you.
    Chairwoman Capito. Mr. Scott for 5 minutes for questioning.
    Mr. Scott. Yes, thank you very much, Madam Chairwoman.
    Let me start with you, Ms. Andersen, and Ms. Smith. Can you 
give me some examples of how the Consumer Financial Protection 
Bureau and its function will dry up access to credit? This is a 
major concern that many of you in the financial services 
industry have raised, that if we do this, it will dry up 
credit. Could you tell us how?
    Ms. Andersen. I believe that it will stifle innovation and 
it will make banks concerned about how they are going to deal 
with their consumers and go forward, and that it will dry up 
credit.
    Ms. Smith. I will have to put more resources into 
compliance, and if you are 17 employees strong, lending could 
suffer as a result of that.
    Mr. Scott. But you would agree that there is some question 
here of a fear of the unknown. There is an uncertainty here. We 
do not know; is that a fair assumption? I think we really, 
really need to, in order to wade through this in a fair way, 
fair to the financial services industry, is to have concrete 
examples, if you could give them, on how putting forward these 
protection agents for consumer protection would dry up access 
for credit to the very people we are trying to protect. I think 
that is the real core of the issue.
    Ms. Andersen. Speaking from experience, and, granted, we 
don't know exactly what the new Bureau will do, but speaking 
from experience, I can give you an example.
    The Federal Reserve has recently issued new rules on 
overdraft protection. Those rules require significant resources 
from a bank the size of mine. We had an overdraft protection 
program in place to serve our customers prior to the issuance 
of those new rules. We have discontinued that program, so our 
customers have suffered. But we have discontinued that program 
because we are too small to absorb the costs involved with the 
new rulemaking.
    Mr. Scott. Okay.
    Ms. Andersen. And our customers now are paying overdraft 
fees, because we are bouncing more checks, and they are paying 
fees at the merchant because we bounced the check, and they are 
having their names posted behind the checkout stand saying, 
``Don't take a check from this person.'' So our customers are 
suffering.
    Mr. Scott. Okay. Yes, Ms. Smith?
    Ms. Smith. I cannot say that there is not an unknown. Of 
course there is an unknown. But the CFPB has said, ``credit 
cards and mortgages,'' and they are two areas where my credit 
union has had to dedicate significant resources in the past 2 
years. And I guess my concern is, it is working. We have made 
revisions to the mortgages and to the credit cards in the last 
2 years. To have it redone does not help. In my opinion, it is 
a waste of time.
    Mr. Scott. We gnawed on this for quite a bit of time last 
year when we were working on this bill. We went through this 
entire process and this issue. I think it is one that we will 
continue to move forward on, because that is the issue.
    But I would like to get a word in, Mr. Shelton. I, too, 
have some concerns about this commission, because as you know, 
I represent Atlanta and Georgia, and we have had a series of 
problems in terms of predatory lending. And I know my friend in 
the banking community said she doesn't like to use the word 
``abusive'' and would like to get that out. I can understand 
that. But in fact, these were very abusive practices of 
predatory lending, fleet finance, going all the way back to 
that. So I share that.
    My concern with the commission is that the very nature of 
the reason we got so deep into this problem in the downturn of 
the economy was what happened in the housing bubble falling was 
we could not act to move to correct these situations quickly 
enough.
    My fear is that a commission would only detour that. It 
would only add to the slowing down of the process. So I think 
we still have to work on this issue here some more.
    Thank you, Madam Chairwoman.
    Chairwoman Capito. I would like to recognize Mr. Pearce for 
5 minutes for questioning.
    Mr. Pearce. Thank you, Madam Chairwoman.
    Ms. Andersen, in the previous questions, the question was: 
Do you know of anything that would dry up credit to real 
people? Now, I heard you talking about the Burmese. Don't they 
qualify as ``real people?''
    Ms. Andersen. I certainly think so.
    Mr. Pearce. And wouldn't the rules dry up credit to those 
real people?
    Ms. Andersen. They absolutely would.
    Mr. Pearce. Okay.
    Ms. Smith, do you all charge a different amount, different 
rates of interest to any of your consumers? Let us say you have 
350 people who have 30-year mortgages for houses. And maybe you 
don't lend money for houses, but let us say you did. Do you 
have different interest rates for any of your customers?
    Ms. Smith. No, we do not.
    Mr. Pearce. So everybody gets one interest rate?
    Ms. Smith. Everybody gets one interest rate on a mortgage 
loan. We offer second mortgage loans.
    Mr. Pearce. If they have not paid their bills in the past, 
you are going to try to lean out and give them a little credit; 
you don't add just a little bit?
    Ms. Smith. If it is an unsecured or an automobile loan, it 
is risk-rated.
    Mr. Pearce. So some people pay a little bit higher?
    Ms. Smith. Yes, they do.
    Mr. Pearce. Now, Mr. Shelton, in your testimony when you 
said you wanted the same access to credit, is this then what 
you are saying; people are going to have different amounts of 
mortgage payments, different amounts of interest rate? Does 
that qualify in your books as the same access to credit?
    Mr. Shelton. Certainly. As we are talking about interest 
rates, we know that there are some aspects of the market that 
are high risk. I understand the importance of the prime market, 
quite frankly.
    Mr. Pearce. But you basically don't disagree with the idea 
that risk should be related; just that when they are picking 
out people out of the community and targeting them with fast 
talk and fancy products and stuff like that. But your objection 
is not to a market which differentiates between people who are 
bad risks? That is my question.
    Mr. Shelton. Not bad risks, no, sir.
    Mr. Pearce. You don't mind them paying more interest. That 
is not in your objections, right?
    Mr. Shelton. Certainly, risk assessments have to be made. 
Risk assessments have to be balanced and fair.
    Mr. Pearce. That is fine. What I would like to really 
concentrate on was my friend from North Carolina began to 
change the concept about what the CFPB is going to do, and that 
is where the great alarm is.
    You noticed that most people in the testimony, in the 
hearing statements here, say that the idea of the CFPB is to 
protect the American people, to protect the consumer. And yet 
we suddenly eased the argument over: Do you have to do this to 
stay in business?
    Now, that is significantly different than protecting the 
consumer. Yet, I think Mr. Miller is giving us a heads-up as to 
where this thing is really going. Do you really need that to 
stay in business? And if you can't answer it to the 
affirmative, I think you are going to be disavowed from 
creating those products that really do deal with your 
communities, like Ms. Andersen suggested, that we have a very 
unusual circumstance that is never going to come to the 
attention of a Federal regulator. There are 50 States. There 
are thousands and hundreds of thousands of communities, and the 
chance of them looking at this one little deal are not great. 
It is this we are going to only consider what you have to do to 
stay in business, and you don't have to do that and we are not 
going to approve it.
    We see that every day in the Federal Government. They don't 
give approvals that are required. Right now, we are killing 
jobs off the coast of Florida, off the coast of Louisiana, by 
not giving permits that are required. There is no law that 
keeps them from doing it. We just didn't give those permits, so 
about 100,000 people are now out of a job; 33 $5 billion 
platforms are beginning to steam away at 4 knots per hour, 
which means they have to really have a serious desire to move 
to Africa and South America. Those were simply not allowing 
them to proceed ahead.
    So as we visualize this protection of our consumers, I will 
tell you where the real access to credit is going to be denied, 
that my friend Mr. Scott was asking about. What is going to 
happen is that a product is not going to be approved because it 
maybe can't differentiate between whether or not it is race-
based. The product is simply going to be disallowed and the 
people who desperately need access to that credit are not going 
to have it. I can see that circumstance arising.
    Mr. Shelton, do you have a comment? Go ahead.
    Mr. Shelton. I would just say that I think the real issue 
here is whether or not these would be abusive products. I know 
the term ``abusive'' becomes problematic. However, when you 
look at some of the products that the Financial Protection 
Bureau was set up to address in the first place, we are talking 
about products like exploding ARMs. You are talking about 
trying to prevent people being charged an interest rate under 
another name at rates of 465 percent and higher. Indeed, we are 
talking about an oversight to provide some protection of 
American consumers from the kind of predatory nature of many of 
these products that we are trying to prevent.
    Mr. Pearce. I understand that. It is just that we do have 
regulator agencies that were supposed to be doing that, but 
they did not do it.
    Mr. Shelton. But they didn't.
    Mr. Pearce. This next regulatory agency won't--my time is 
gone.
    Chairwoman Capito. Mr. Carney for 5 minutes for 
questioning.
    Mr. Carney. Thank you, Madam Chairwoman.
    I would like to pick up on this discussion about the effect 
of putting together the Bureau here on your bank practices, and 
in particular the testimony which you gave earlier that the 
Dodd-Frank bill itself would impose new hurdles and difficult 
conditions in the operation of your facilities. I would like to 
know if you can be more specific about that.
    I am not as concerned about one director or a five-person 
board, all that kind of stuff, in setting up this regulatory 
agency. I am more concerned about some of the testimony that 
you gave about provisions that would--if you could be specific, 
everybody agrees that there ought to be consumer protections, 
it sounds like. At least that is what everybody prefaced their 
remarks with. They were very concerned about some of the 
predatory and abusive practices that we know occur in the 
marketplace.
    So there are two things that really caught my attention. 
One was the specific reference to specific things in Dodd-Frank 
that are new requirements that would impact your businesses; 
and the second was gaps that exist for nonbank lenders.
    If you could, either Ms. Smith or Ms. Andersen, just detail 
those things for me, please?
    Ms. Andersen. The legislation looks like we are going to 
have about 252 new regulations; roughly, by estimates, 5,000 
new pages of regulations to deal with. Again, I have 22 
employees. That is a lot of pages of regulation for us to 
understand, implement, and comply with.
    Specifics, I can--I am happy to get you that answer later. 
But I do have one specific thing.
    Mr. Carney. If there are specifics beyond just the fear of 
the unknown, which we have talked about, if there are some 
specifics, I would like to know those. Some of the specifics 
aren't known because there is still rulemaking going on.
    Ms. Andersen. Requiring the registration at the SEC of 
municipal advisers is one of those potential issues. I think 
the final rules aren't written on that yet, but the way it 
looks at the moment, anybody who has any contact with 
municipalities, so it could be a teller. The town clerk comes 
into my bank and has money to deposit and the teller says, 
``You know, if you put it over in this account, you might earn 
a little more interest than if you put it in this account,'' 
would qualify as a municipal adviser, and that person would 
then be required to register with the SEC and be regulated by 
the SEC.
    Anybody who serves on those boards, if they are not elected 
and they are providing advice, in small communities, the people 
who provide financial advice to the schools and to the 
foundations are very often the banker, and the banker would 
have to then be registered with the SEC.
    Mr. Carney. Anything else?
    Ms. Andersen. That is the one that comes to mind right now. 
I can get others for you. And the second part of your 
question--
    Mr. Carney. That doesn't sound very onerous. It just sounds 
kind of ridiculous.
    Ms. Andersen. It is onerous to have another regulator 
involved. That means the SEC can then come into my bank and 
regulate me. The annual fees to register are excessive. It is 
just one more layer of regulation.
    Mr. Carney. Thank you.
    Ms. Smith. One regulation that comes to mind is the 
interchange price fee cap. I think my credit union will 
definitely be devastated by the loss of the revenue from the 
Fed's proposed debit interchange fee rule. Although we fall 
under the so-called exemptions, because we are a lot less than 
$10 billion, I believe that forces as a result of this 
provision will drive--
    Mr. Carney. If I can cut you off, because we have been 
running out of time, we have had a lengthy discussion about 
interchange. There are lots of things going on there.
    Ms. Smith. Okay. But we can submit more information to you 
at a later date.
    [The additional information referenced can be found on page 
140 of the appendix.]
    Mr. Carney. Mr. Shelton, is there anything else you would 
like to add to the discussion about some of the concerns? I 
appreciate the concerns that you have talked about and I share 
those concerns. I am just wondering, the balance here that we 
are trying to strike between appropriate regulation and 
addressing the abusive practices, the predatory lending that 
concerns you and your organization.
    Mr. Shelton. Certainly, through the thorough investigation 
done by this committee, by the full committee, by the Senate 
Banking Committee, on the challenges and the problems of the 
lack of regulation, prompt us to make sure that these new 
regulations are put in place. Again, we are trying to avoid the 
insanity issue here. We need to do things differently because 
what we did before did not work. What we are seeing here are 
things where it is clear it will improve the process and add to 
the protection, and hopefully the access to capital where 
American people did not receive very much.
    Mr. Carney. Thank you. We are out of time.
    Chairwoman Capito. Mr. Westmoreland for 5 minutes.
    Mr. Westmoreland. Thank you, Madam Chairwoman.
    Mr. Shelton, in your testimony you quoted a spring of 2000 
article that suggested that--I believe it says you asked the 
gentleman who wrote the article if credit scoring resulted in 
higher rejection rates for certain racial and ethnic minorities 
than for Whites, and his response was simply, ``yes.''
    Are you saying that the credit bureaus are being unfair 
because of race and ethnicities, or are you saying that banks 
and credit unions have different scores for different 
categories of people?
    Mr. Shelton. No. Actually what I was referring to was the 
companies that actually do this credit scoring process, the 
FICOs and other organizations along those lines, had pretty 
much what we call a ``black box.'' That black box is one that 
takes into consideration certain issues and concerns about the 
person who is applying for the credit and assigns a score 
accordingly.
    What we argued was that, however, there were some racial 
and actually ethnic disparities in how they actually come to 
those scorings, and they won't tell us exactly what that is. In 
essence, you put it in the hands of so many Americans, a 
process which is considered proprietary. They argue that they 
don't have to tell us exactly how they come to the score 
because that would otherwise affect their business. That is 
what we were talking about.
    Mr. Westmoreland. So you are not saying that Ms. Andersen 
or Ms. Smith or any of those are taking somebody who has a 650 
credit score and rejecting them based on their race or 
ethnicity rather than the credit score?
    Mr. Shelton. What we saw was a different standard being 
applied for racial and ethnic minorities than for White 
Americans. Quite frankly, those who were in the same income 
class, at the same risk factors, those at the same level of 
property and so forth, and the same level of education, were 
actually being steered into subprime loans, if you were African 
American or otherwise a person of color, than were actually 
eligible for a prime loan. That is what we were talking about 
at that point.
    Mr. Westmoreland. With the same credit score?
    Mr. Shelton. In some cases, with the same credit score as 
well.
    Mr. Westmoreland. Ms. Smith, is that true?
    Ms. Smith. That is not. At my credit union, that is not 
true.
    Mr. Westmoreland. Ms. Andersen, is that true?
    Ms. Andersen. No, that is not true at my bank either.
    Mr. Shelton. I would be delighted to offer for the record a 
copy of the report with a full analysis. I can't say their 
particular small--
    Mr. Westmoreland. I don't really want to see a 2000 report. 
This is 2011.
    Mr. Shelton. We will give you an updated copy.
    Mr. Westmoreland. Do you think the CFPB is going to help 
get everybody equal credit scores?
    Mr. Shelton. It will help make sure that everyone is scored 
fairly. And that is the issue here, making sure the same issues 
are taken into consideration and preventing the kind of 
misdirection of those who should have gotten a better interest 
rate, fees, and so forth.
    Mr. Westmoreland. Do you have some specifics of the 
accusations that you are making against some of the credit 
scoring folks?
    Mr. Shelton. We do.
    Mr. Westmoreland. I would like to see that, too.
    Mr. Shelton. We will send it to you.
    Mr. Westmoreland. The next thing you mention, in the next 
paragraph actually, is you are talking about how even after the 
Fair Housing Act, after the Equal Credit Opportunity Act, after 
the Mortgage Disclosure Act, after the Community Reinvestment 
Act, that racial and ethnic minorities are still treated 
disproportionately in the world of financial services. So you 
think the CFPB or Dodd-Frank is going to straighten that out?
    Mr. Shelton. It is certainly our hope.
    Mr. Westmoreland. Okay. Could you give me an example of 
what it would take for them to do to straighten it out?
    Mr. Shelton. It is clearly the increase of oversight. What 
we experienced before, again, we were convinced the chief 
regulatory agency--
    Mr. Westmoreland. What type of oversight? Are they going to 
be doing--because I know to get a certain loan now, you have to 
do consumer financing, education, how to buy a house. So I want 
a specific from you about how this is going to help.
    Mr. Shelton. It should outlaw--
    Mr. Westmoreland. Other than oversight.
    Mr. Shelton. It should outlaw exploding ARMs. We knew that 
there were Americans who were being sent into financial 
packages they couldn't sustain. Anytime you have a product that 
would give you a mortgage that you couldn't support in the 
first place, but at the introductory rate, what we had was 
people being given mortgages at 4 percent for the first 2 
years, increasing that by 2 percent every year for the next 5 
years, and then dropping the escrow so people couldn't afford 
to sustain them.
    Mr. Westmoreland. I was in the construction business, but 
that was not because of somebody's ethnicity or anything else. 
They made those stupid loans to a lot of people.
    Mr. Shelton. Yes, they did; but for some reason, they 
targeted--
    Mr. Westmoreland. And that was due, a lot of it, to the 
Community Reinvestment Act.
    Mr. Shelton. I disagree with that.
    Mr. Westmoreland. I appreciate all of you being here. I 
yield back.
    Chairwoman Capito. Mr. Green for 5 minutes.
    Mr. Green. Thank you, Madam Chairwoman, and thank you for 
the unanimous consent that I might participate.
    I think that we should talk about legitimate concerns. I 
believe that the interchange fee is a legitimate concern. I 
think we have to do something about it. I think that 
flexibility with products is a legitimate concern. We will have 
to do something about it. I believe that personnel issues for 
small lenders, this is a legitimate concern. We have to do 
something about it.
    But there are also other legitimate concerns that we have 
to do something about--3/27s, 3 years of a teaser rate that you 
qualify for, the adjusted rate that you do not qualify for, or 
27 years of a rate that might move up or down--2/28s, the same 
thing. A little bit more onerous. Yield spread premium. Qualify 
for a prime rate, given a rate higher than the prime rate, 
never told that you qualified for the prime rate. Pushed into 
the subprime market. We need to do something about it. Teaser 
rates that coincide with prepayment penalty. Legitimate issues. 
We need to do something about them.
    Naked shorts. I don't mean to sound X-rated, but for those 
of you who understand these things, people playing the market 
and not having the ability to cover.
    Credit default swaps in an insidious way. There are some 
ways to have credit default swaps that are meaningful. But when 
you take it to the level of doing what we used to call 
participating in the numbers racket, where a number runner--
many of you don't know about this. I am a little bit older than 
most of you, but we used to have these guys come through the 
neighborhood. They would sell something called numbers. And the 
number runner, if he had a big hit on one number, meaning a lot 
of people bought that number, he would go to a fellow bookie 
and say, ``Listen, I have a big run on number 7 this week. I 
will give you $10,000 and if number 7 hits, you split the loss 
with me. If it doesn't hit, you keep the $10,000.'' They 
literally found a way to legitimize that kind of behavior in an 
insidious way.
    We have to do something about it. So we have all of these 
issues that are legitimate and we have to do something about 
them. And because time is of the essence, I will ask but one 
question, perhaps a follow-up, but one question.
    Are any of you contending that we need to do away with the 
CFPB, the Consumer Protection Financial Bureau? Are any of you 
contending we need to end it?
    Mr. Shelton, are you contending that we need to do away 
with it?
    Mr. Shelton. Absolutely not, sir.
    Mr. Green. Let the record reflect that he says ``no.''
    Yes, sir?
    Mr. Sharp. No, sir, we are not.
    Mr. Green. Ma'am?
    Ms. Smith. No, sir.
    Ms. Andersen. No, sir.
    Mr. Green. Since we are not going to end it, and I think 
most people in this room agree--and, by the the way, I plan to 
work with my friends on the other side. I think they will 
attest to the fact that even though sometimes it is difficult 
for them to do it, we still work together, we try as best as we 
can. I plan to work with them. I plan to work with people who 
are seated at the table and behind the table to try to get some 
of these things resolved.
    That is what this really is about: How can we mend it? 
Because as was indicated by the ranking member, I believe, all 
major legislation faces challenges. The only piece of major 
legislation that we will ever pass that will not face a 
challenge, that will be perfect, is the one that I will draft.
    So now, given that I am not drafting all of this 
legislation, it will all have to be mended. And that is the 
challenge. We have to find a way to mend it, rather than end 
it, so that all of these legitimate issues can be addressed.
    Madam Chairwoman, thank you for the time. I yield back and 
beg that I be excused because I am late for another meeting.
    Chairwoman Capito. Thank you.
    Mr. Luetkemeyer for 5 minutes.
    Mr. Luetkemeyer. Thank you, Madam Chairwoman.
    Mr. Sharp, in your testimony, your written testimony, you 
talk about some discussion that Professor Warren had in some of 
her documents and some of her writings with regards to her 
opinion of a commission versus a board. And I think that is 
what Chairman Bachus' bill is all about, is we are looking at 
trying to go from a single person to a commission here.
    In your discussion, you talk about about a 2007 article, 
that Professor Warren believes that it probably clearly shows a 
Consumer Product Safety Agency is a cost-effective way to set 
up an agency. Another comment you made is in a 2008 Law Review 
article, that she indicates that a major challenge in 
establishing a Federal regulator, like what she is trying to do 
or they are trying to do, is minimizing the risk of capture, 
which means that only one person can have the total control 
over a thing and capture all of what is going on.
    Can you elaborate just a little bit on that, since that is 
really the focus of what this committee should be talking about 
today?
    Mr. Sharp. Certainly. For more than 100 years, there has 
been a strong preference for regulatory agencies, particularly 
independent regulatory agencies; that there be bipartisan 
representation; that there be multi-member leadership. In fact, 
I am glad actually that Mr. Green asked the question, is 
anybody on the panel here asking or proposing that the CFPB go 
away; and the answer unanimously was no, it is important. Also, 
there were a number of questions about what in particular are 
we concerned about in the credit markets. Unfortunately, the 
answer for the most part is, we don't know.
    So what is the best way to prevent serious unintended 
consequences down the road as this new agency begins to put out 
regulations? In our view, the best way to mitigate that at the 
top, early on here, before we begin to create problems, is to 
establish a structure, a framework, a way of doing business at 
this new agency that incorporates a diversity of views. Again, 
it appears that Ms. Warren in previous positions has agreed 
that structure is sound.
    Mr. Luetkemeyer. I think that is important from the 
standpoint that she, quite frankly, is probably the leading 
candidate, and she agrees with what we are trying to do here 
today, and I think that is an important point to make.
    The second point I want to make is the the other day when 
she was here, I asked her about the cost/benefit of the 
regulations that are proposed by all the different groups, as 
well as something her testimony was suggesting we should take a 
look at, the cost/benefit of the regulations that she is 
overseeing. I asked her the question, I said, ``Okay, give me 
an example of when the cost is too much for a regulation.'' I 
never got an answer.
    We talked about cost quite a bit today with Ms. Andersen 
and Ms. Smith, and I think it is important to know--can you 
tell me right off the top of your head, or just a ballpark 
figure, what the cost of compliance is and how much it has 
increased in the last couple of years and what you anticipate 
with this new bill--just the percentage of your income?
    Ms. Smith. If I can go first, I do have a full-time 
employee. So it probably is costing me about $80,000.
    Mr. Luetkemeyer. Okay, so 1 out of 17. So you are probably 
looking at, what, a 6 percent increase; 6 percent of your cost 
increase is a result of compliance, fair, roughly?
    Ms. Smith. Approximately.
    Mr. Luetkemeyer. Probably similar to Ms. Andersen?
    Ms. Andersen. Very similar. I would estimate we have about 
1\1/2\ people committed to compliance.
    Mr. Luetkemeyer. I think it is important to understand, 
Congressman McHenry a while ago made a great point with regard 
to small institutions like yourselves make it difficult when 
you have to spread that much cost over all of your income and 
all of the products you have, because you don't have quite the 
portfolio that the large institutions do to spread those costs 
out.
    As a result, it makes it more difficult for you to be in 
business. And I think it is important to understand that by 
increasing these costs, it also increases the danger of--you 
need to continue to be viable, especially when you have to look 
at 5,000 new pages of regulations. You may have to hire an 
attorney to actually go through and make sure that you are 
complying with all of this.
    I think this is where this leads to, is this game of 
``gotcha'' with the examination forces. They come in with all 
these new rules and regulations. And I think you, Ms. Andersen, 
made the comment about the small banks being endangered, or I 
think something like that with regard to these compliance 
costs. I think that this is--this goes back again to answering 
one of the other questions I think that somebody asked earlier 
with regards to access to credit. I think part of this is not 
only it hurts in several respects, number one, it is the fear 
of compliance. Because if you are going to get fined by not 
complying with something, I think you will hesitate to make 
those loans and provide those services. I think just the cost 
of compliance increases in general hurt, overall, the access to 
credit.
    I am out of time. Thank you, Madam Chairwoman.
    Chairwoman Capito. Thank you. The gentleman's time has 
expired.
    At this time, I would like to excuse Ms. Andersen from the 
panel. She has a flight, I believe, that she needs to catch. So 
we have a couple more questioners we are going to go through, 
but I wanted to thank you for your testimony. When you need to 
leave, just go ahead and make your exit. But I wanted to be 
sure and thank you.
    Ms. Andersen. Thank you very much, Madam Chairwoman.
    Chairwoman Capito. Mr. Huizenga for 5 minutes for 
questions?
    Mr. Huizenga. Thank you, Madam Chairwoman. I actually don't 
plan on taking that much time.
    I had been in real estate and developing back a number of 
years ago. My family is still involved in the construction 
industry, what little there is in Michigan these days, 
unfortunately. But one of the questions that I had was when I 
was in real estate, I was taught people are not black, they are 
not white, they are not red, they are not yellow; they are 
green. And they are green because, can they afford things?
    That really to me I think is the crux of this as we we are 
talking about this. We are talking about whether people can 
afford to purchase the homes that they have. We talk about what 
has happened in the market. I have watched it very, very 
closely, and no State has been hit harder than Michigan in 
this.
    Some of it may be generational. I am 42, and I think I am 
on my fourth house now. Mom and Dad are in their second house 
and they had half of their downpayment saved up when they 
bought it. Natalie and I weren't quite that far along.
    You are all smiling, you are all nodding your heads, 
because I think it is a familiar story.
    In so many ways, we have just sort of overextended 
ourselves as we have been pursuing what we thought was the 
American dream. It is the American dream to own your little 
piece of America, and so often that is in a home.
    We have seen that destroyed in many ways, because, whether 
it is greed or what we thought was a necessity, I am very 
concerned about that. I am concerned about those stories. And I 
too want to hear those stories, whether we can point to 
specific instances of people being pushed into products that 
they should not have been. That is very concerning to me.
    But I think we are at a watershed here. How do we make sure 
that we get people products that they can use? Because I also 
know that it used to not work very well, because there were so 
many artificial limits on people's ability to go own a home. We 
had thresholds that were very difficult to achieve in many 
ways. So I think we have both a cultural as well as a 
regulatory structural problem as we are trying to go forward on 
that.
    What I am curious about is whether you think the 
structure--you all have said you believe that the Consumer 
Financial Protection Bureau is something that shouldn't go 
away. Maybe the follow-up question to that is the structure, 
because that is really what we are talking about here with Mr. 
Duffy and others' proposals here. You believe that the 
structure of that particular program or Bureau needs to be that 
one person.
    Now, we have had the leading contender, Mrs. Warren, 
Professor Warren, here. According to news reports this morning, 
coming out of Michigan, my former Governor, Governor Granholm, 
is also being apparently looked at for that position. Having 
worked with her for 6 years, she is a wonderful lady. Very 
smart. I want to make sure that we have a Bureau on that, 
whether it is her or whether it is Professor Warren or somebody 
else.
    But I am curious. Can you answer as to whether you believe 
that somehow the structure of this would be impacted, whether 
it be a three-person or a five-person board versus this one 
particular person?
    Ms. Andersen, I don't know if you would care to answer 
that?
    Ms. Andersen. I think that the structure, restructuring and 
having a board or a commission, makes a lot more sense. You are 
able to have a broader view, broader representation, especially 
assuming that board consists of people who have safety and 
soundness regulation experience as well as consumer advocacy 
experience.
    Mr. Huizenga. Thank you.
    Ms. Smith?
    Ms. Smith. Yes, I agree. We do want to see a five-member 
board in place. I don't feel that one person should run that 
organization.
    Mr. Huizenga. Thank you.
    Mr. Sharp?
    Mr. Sharp. We definitely agree. A commission is superior to 
just having a single director.
    Mr. Huizenga. Mr. Shelton, do you care to answer that?
    Mr. Shelton. Yes, sir. What we see in this particular case 
is this person actually has the authority to convene smaller 
groups of advisors to address the concerns that are before 
them. We see no problem with having one director in this 
particular case with the authority to convene the kinds of 
groups to help provide support for the initiatives the agency 
is going to be responsible for implementing.
    Mr. Huizenga. Do you believe it is superior having that one 
person versus having a three-person commission?
    Mr. Shelton. At this particular time, I think having one 
person gives you that dexterity, that flexibility to move very 
quickly. One of the things that has also been very clear to us 
is that many of these products end up popping up almost like a 
whack-a-mole, and we have to be prepared to knock them down as 
quickly as we can. And having one person at the head means 
there is one person being held accountable for the agency.
    Chairwoman Capito. The time of the gentleman is up. I think 
we are edging up towards a vote, so I want to make sure I get 
the panel and all the questioning.
    So, Mr. Duffy.
    Mr. Duffy. Thank you. To kind of follow up on that, Mr. 
Shelton, then would you say that with the FDIC, that should 
also be just a one-person director; maybe the National Credit 
Union Administration, that should also be a one-person 
director? The SEC--one person--director?
    Mr. Shelton. Those particular agencies, quite frankly, have 
more than one person and have been ineffective.
    Mr. Duffy. So you would advocate that we should have a one-
person director?
    Mr. Shelton. I am advocating having someone who can 
actually carry out the responsibilities of protecting the 
American people.
    Mr. Duffy. If we look outside of banking, we can look to 
the Federal Trade Commission and the U.S. Consumer Product 
Safety Commission, both consumer protection agencies that use 
commissions as well. Are they also ineffective?
    Mr. Shelton. Let me just say that, very well, if you wanted 
to address those agencies, we would be happy to come back and 
and testify.
    Mr. Duffy. But they are ineffective. So you think we should 
restructure the government so these agencies have one director?
    Mr. Shelton. We believe it would be a major improvement 
over the system we have right now.
    Mr. Duffy. Ms. Smith, was your credit union one of the 
contributing factors to the financial crisis?
    Ms. Smith. No, we were not.
    Mr. Duffy. You heard a lot about predatory lending today. 
Were you engaged in predatory lending?
    Ms. Smith. No, I was not.
    Mr. Duffy. I guess I was going to ask Ms. Andersen the same 
question. I assume her answer would have been the same. But as 
we have gone through these Dodd-Frank regulations, is it fair 
to say that the regulations on your credit union have increased 
dramatically?
    Ms. Smith. Yes, they have.
    Mr. Duffy. And with the new regulations that are going to 
come from the CFPB, they will also continue to increase with 
regulation, right?
    Ms. Smith. Yes, they will.
    Mr. Duffy. And you are not opposed to smart regulations in 
banking, are you?
    Ms. Smith. No, I am not. I just feel the unregulated should 
be regulated.
    Mr. Duffy. But overburdensome regulation increases costs, 
doesn't it?
    Ms. Smith. Correct.
    Mr. Duffy. And if you look at economies of scale, it makes 
it more difficult for a small bank or a credit union to compete 
against the big banks, doesn't it?
    Ms. Smith. Yes, it does.
    Mr. Duffy. You don't have the economies of scale, right?
    Ms. Smith. Right.
    Mr. Duffy. And in the end it drives up costs for your 
consumers, right? And you didn't have anything to do with the 
financial crisis or anything to do with predatory lending?
    Ms. Smith. No, sir.
    Mr. Duffy. But your consumers are paying the price for it?
    Ms. Smith. Yes, they are.
    Mr. Duffy. In regard to what we are talking about with 
regard to predatory lending, Mr. Shelton, I agree with you, it 
is atrocious what happened in the marketplace. You and I are on 
the same page with that and it has to be addressed, and you 
will find no argument from me with regard to that.
    I want to talk about how the CFPB has been set up, however. 
I look at the review process. To have a situation where 
basically the only way FSOC can review a rule from the CFPB is 
if we have a systemic risk in the marketplace, in the financial 
system. The burden is incredibly high, isn't it? Would you 
agree with that?
    Mr. Shelton. I am still not seeing a problem.
    Mr. Duffy. So you are okay with that, an incredibly high 
burden, where the only way to review it is with systemic risk 
to the system.
    Mr. Shelton. I would love to hear the argument as to why 
that is problematic.
    Mr. Duffy. I guess I would say, shouldn't we say at some 
point if consumer protection is an affront to safety and 
soundness, shouldn't we have the FSOC then review those 
situations as well, even though it doesn't create a systemic 
risk in the whole financial industry?
    Mr. Shelton. Perhaps.
    Mr. Duffy. Okay, good. We are on the same page then.
    Mr. Shelton. Perhaps.
    Mr. Duffy. Okay. And if you look at the review process, the 
FSOC is a 10-person board. Ms. Warren or the director of the 
CFPB is one of the ten. Do you think the director of the Bureau 
should be one of the 10 who votes on the FSOC?
    Mr. Shelton. I see no problem with that. The continuity, I 
think, would be extremely important to any deliberations by 
that body.
    Mr. Duffy. Do you think they are going to be impartial? Do 
you think the director is going to be impartial on that board?
    Mr. Shelton. I think more importantly they will be 
informed, and that is extremely important in a situation like 
this.
    Mr. Duffy. You can be informed without having a vote, 
right? You can still present your case, but not be a voting 
member, right?
    Mr. Shelton. But even this body doesn't do an assessment of 
how a government agency is performing its responsibilities 
without bringing the heads of that agency before it. Quite 
frankly, you want that intervention, you want that involvement 
in making your deliberations.
    Mr. Duffy. And you can do that without giving the director 
a vote. And this is my concern.
    Mr. Shelton. But it is only one out of how many?
    Mr. Duffy. Ten.
    Mr. Shelton. One out of ten.
    Mr. Duffy. One out of ten. And we need a two-thirds 
majority to pass it. And with that two-thirds majority, one of 
the voting members is the director of the Bureau. So this is a 
supermajority. Doesn't it make sense to say if--and we are all 
on the same page, we want consumer protection.
    Mr. Shelton. Yes, we do.
    Mr. Duffy. And we also have a concern for safety and 
soundness. And if there is an affront to safety and soundness, 
why don't we go to FSOC, take the Bureau director out of play 
of FSOC, and have a 5-4 majority to overrule the ruling from 
the CFPB?
    Mr. Shelton. That has been their overview, that has been 
their responsibility, and, quite frankly, they haven't carried 
it out.
    Chairwoman Capito. Mr. Canseco for 5 minutes.
    Mr. Canseco. Thank you, Madam Chairwoman. I am sorry that 
Ms. Andersen from the Bennington Bank is not here to answer 
some questions that I have. But I think that I can start out by 
saying that I feel that there is a strong impact that the CFPB 
regulatory authority could have on banks' ability to assess and 
to adjust credit risk on an ongoing basis, because badly 
implemented consumer financial protection regulations could 
hinder a bank's ability to maintain prudent credit underwriting 
standards.
    But with that said, Ms. Smith, in your industry do you feel 
that is true with regards to maintaining your credit risk and 
the balance on your credit?
    Ms. Smith. Yes, I do.
    Mr. Canseco. Mr. Sharp, in my district in San Antonio, 
Texas, we have an enormous number of start-up companies, 
whether it is biotech or tech or other technology firms, and a 
lot of them as start-up companies find that their sources of 
credit are sometimes a little bit diminished, so they go to 
their own personal credit to obtain that primary financing. I 
noticed that the U.S. Chamber of Commerce has estimated that 47 
percent of small business owners use personal and not business 
lines of credit in order to grow their businesses and create 
jobs.
    Because the CFPB essentially extracts consumer protection 
guidelines from other agencies and makes consumer protection 
its primary objective, do you feel there is a risk that small 
businesses and small business owners who are looking to create 
jobs and to build their businesses will be viewed as 
overextended consumers and be denied that credit?
    Mr. Sharp. Yes, sir, we do have that concern. In fact, I 
believe that figure is even a Small Business Administration 
figure as well, not an internal Chamber number. I believe this 
is the number that comes from the government.
    But, yes, that is a very big concern of ours. It is not 
just individual access to credit that could be harmed through 
this process. Again, there is a very delicate balance that 
needs to be struck. But, as you point out, so many small 
businesses, particularly in their infancy, rely on consumer 
products to get their businesses off the ground. And if 
individual credit is harmed or constrained or limited, there is 
a knock-on effect on the small business world, and that is a 
concern for us.
    Mr. Canseco. Do you feel there is a strong distinction to 
be made between consumer protection and safety and soundness?
    Mr. Sharp. Yes. You can't have one without the other, for 
sure.
    Mr. Canseco. Ms. Smith?
    Ms. Smith. I do concur.
    Mr. Canseco. Thank you. I yield back.
    Chairwoman Capito. All right, the gentleman yields back.
    I would like to thank the panel for their testimony and 
their response to questions. I appreciate your participation. I 
want to dismiss the first panel.
    I am going to ask the second panel to assemble. We are 
going to run over and make our vote, but Mr. Renacci may come 
back and assume the chair so we can go ahead and move the 
testimony forward.
    Thank you all very much.
    [recess]
    Mr. Renacci. [presiding] The hearing will resume. I would 
like to introduce our second panel of witnesses.
    First, we will hear from Mr. Noah Wilcox for 5 minutes.

  STATEMENT OF NOAH H. WILCOX, PRESIDENT AND CHIEF EXECUTIVE 
OFFICER, GRAND RAPIDS STATE BANK, ON BEHALF OF THE INDEPENDENT 
              COMMUNITY BANKERS OF AMERICA (ICBA)

    Mr. Wilcox. Thank you. Chairwoman Capito, Ranking Member 
Maloney, and members of the subcommittee, my name is Noah 
Wilcox, and I am a fourth-generation banker. I am president and 
CEO of Grand Rapids State Bank and a member of the executive 
committee of the Independent Community Bankers of America. 
Grand Rapids State Bank is a State-chartered bank with $236 
million in assets, located in Grand Rapids, Minnesota. I am 
pleased to represent community bankers and ICBA's nearly 5,000 
members at this important hearing today.
    Community bankers are deeply rooted in the communities they 
serve. Because we cannot compete with megabanks on margins or 
economies of scale, we focus instead on the individualized 
needs of our customers. We practice relationship banking, not 
one-off transactional banking. Our customers are our friends 
and neighbors, and any given loan or other service is part of a 
long-term relationship. Our reputations in our communities are 
paramount and are a condition of our success.
    Community bankers have an overriding incentive to treat 
each customer well and earn their trust. The Dodd-Frank Act 
exempts community banks with less than $10 million in assets 
from primary examination by the CFPB. Because we will be 
subject to CFPB rules and to examination on a sampling basis, 
we have a keen interest in improving the structure and the 
procedures of the Bureau and the quality of the rules that they 
issue.
    We support Chairman Bachus' recently introduced bill, H.R. 
1121, which would restructure the CFPB so that it is governed 
by a five-member commission rather than a single director. 
Commission governance would allow for a variety of views and 
expertise on issues before the Bureau, and thus build in a 
system of checks and balances that a single director form of 
governance simply cannot match. The commission model, which has 
worked well for the FDIC, the SEC, and the FTC, would help 
ensure that the actions of the CFPB are measured, nonpartisan, 
and result in balanced high-quality rules and effective 
consumer protection.
    Consistent with our support for a commission structure, 
ICBA supports efforts to strengthen prudential regulatory 
review of CFPB rules, which is extremely limited under the 
Dodd-Frank Act. ICBA supports Congressman Duffy's bill, H.R. 
1315, which would change the voting requirement for an FSOC 
veto from a two-thirds vote to a simple majority, excluding the 
CFPB director.
    The proposal would also change the standard to allow for a 
veto of a rule that is inconsistent with the safe and sound 
operations of the United States financial institutions. The 
current rule standard puts at risk the safety and soundness of 
the banking system or stability of the financial system as a 
whole. This is nearly impossible to meet, and would let stand 
rules that are extraordinarily harmful to banks and consumers.
    While this change would improve CFPB rulemaking, ICBA has 
proposed language that would further broaden the standard to 
allow FSOC to veto a rule that could adversely impact a subset 
of the industry in a disproportionate way. We believe this 
standard would give prudential regulators a more meaningful 
role in CFPB rule writing.
    The CFPB's far-reaching impact over the financial sector, 
consumers, and the economy should be matched by the highest 
standard of accountability. Ultimately, accountability for the 
actions of the CFPB resides with its director, appointed by the 
President and confirmed by the Senate. This basic mechanism of 
good governance would be undermined if the CFPB were to be 
operative before its director is confirmed by the Senate. For 
this reason, ICBA supports Chairwoman Capito's discussion draft 
that would postpone transfer of functions to the CFPB until its 
director is confirmed.
    The final discussion draft on which I will comment would 
prevent the CFPB from participating in the examination of large 
banks on a sampling basis before the transfer of functions to 
the CFPB. We appreciate your caution about CFPB exams. Though 
this legislation would not affect community banks such as mine, 
we agree that sampling exams are not an innocuous exercise, and 
have requested relief from sampling exams of banks with less 
than $10 billion in assets after the transfer of functions. The 
so-called ``ride-along'' provision allows the CFPB, at their 
discretion, to have input into every aspect of a small bank 
exam. Eliminating this authority would allow the CFPB to focus 
its resources on the examination of entities that pose a 
greater risk to consumers.
    Thank you again for the opportunity to testify today. ICBA 
is fully committed to developing effective and practical 
consumer protection for our customers, for customers of our 
competitors, and for the safety and soundness of the financial 
system. Thank you.
    [The prepared statement of Mr. Wilcox can be found on page 
130 of the appendix.]
    Mr. Renacci. Thank you, Mr. Wilcox.
    Our next witness, Mr. Rod Staatz, president and chief 
executive officer, SECU of Maryland, on behalf of the Credit 
Union National Association, is recognized for the purpose of 
making a 5-minute opening statement.

STATEMENT OF ROD STAATZ, PRESIDENT AND CHIEF EXECUTIVE OFFICER, 
   SECU OF MARYLAND, ON BEHALF OF THE CREDIT UNION NATIONAL 
                       ASSOCIATION (CUNA)

    Mr. Staatz. Thank you for the opportunity to testify today. 
I am Rod Staatz, president and CEO of SECU of Maryland, and a 
member of CUNA's board of directors.
    Credit unions are the best way for consumers to conduct 
their financial services. However, credit unions are facing 
tremendous regulatory burdens that will only get worse as Dodd-
Frank is implemented. Relieving credit unions' regulatory 
burdens so that they are able to serve their members in a safe 
and sound manner is our objective.
    CUNA has consistently stated that consumers of financial 
products, especially those provided by unregulated entities, 
need greater protections. We believe that a consumer financial 
protection agency could be an effective way to achieve that 
protection, provided the agency does not impose unnecessary 
regulatory burdens on credit unions and takes an active role in 
improving disclosures for customers.
    In order for such an agency to work, consumer protection 
legislation must be consolidated and streamlined. It should not 
add to the burdens of credit unions that have been regulated 
for decades and performed very well.
    The subcommittee has given consideration to several of our 
concerns regarding Dodd-Frank, specifically, debit interchange 
regulations. We appreciate the opportunity to testify today 
regarding the structure of the Consumer Financial Protection 
Bureau. We have had a number of conversations with the staff at 
Treasury, which is working to establish the Bureau. We are 
encouraged by the staff's outreach, and especially by the 
establishment of the Office of Community Banks and Credit 
Unions.
    Still, credit unions remain concerned that regulatory 
change could work to the detriment of our members. We have been 
asked to present our views on H.R. 1121. This legislation would 
replace the director with a five-person commission. If Congress 
decides to pursue this legislation, we would encourage the size 
of the commission be expanded to include appropriate industry 
and regulator representation, including a seat specifically for 
a person with experience related to credit unions. This would 
enhance the quality of regulations promulgated by the Bureau by 
ensuring that both the consumer and industry perspectives are 
represented.
    CUNA supports the intent of H.R. 1315 to achieve rules that 
balance consumer protection with safety and soundness. More 
specifically, we support the provision that would reduce, from 
two-thirds to a majority, the threshold for the FSOC to take 
action to set aside a Bureau rule.
    H.R. 1315 also makes changes to the conditions under which 
the council can stay or set-aside Bureau regulations. What is 
missing from that statute is the ability of the financial 
regulators to review Bureau regulation in the context of 
overall regulatory burden. We could support legislation to 
allow a rule to be set aside if the council determines it would 
be unreasonably burdensome for financial institutions and that 
burden to financial institutions outweighs the benefit to 
consumers.
    We have been asked to present our views on two discussion 
drafts related to the Bureau's authorities prior to the 
appointment of a director. We believe that much more important 
than details of how and when the Bureau ramps up is how it will 
function once fully operational. We believe the Bureau should 
conduct its consumer protection mission in a manner that 
minimizes regulatory burden on financial institutions. Credit 
unions have not been the subject of widespread consumer 
complaints, and credit unions have prudential regulators at the 
State and Federal level that are in a position to enforce 
consumer protection laws.
    We ask that Congress permit and encourage the Bureau to 
assign the examination of larger institutions which have not 
had a history of consumer abuses to their prudential 
regulators.
    We would like to recommend improvements to other areas of 
Title 10. We ask Congress to index the examination threshold 
for inflation. Without indexing these thresholds, significant 
erosion of the exemptions will occur in a relatively short 
period of time.
    We ask Congress to require the Bureau to report to Congress 
annually on steps they have taken to reduce regulatory burden, 
and hold a hearing to review the report and consider whether 
further action is needed.
    We also urge the subcommittee to work with the Bureau to 
establish a meaningful exemption process for credit unions 
under Section 1022.
    Let me be clear. We are not advocating for the elimination 
of consumer protection regulation. Rather, we seek a regulatory 
approach in which consumer protection is maximized and 
regulatory burden is minimized.
    On behalf of America's credit unions and 93 million 
members, thank you very much for the opportunity to testify. 
And I am pleased to answer any questions.
    [The prepared statement of Mr. Staatz can be found on page 
119 of the appendix.]
    Mr. Renacci. Thank you, Mr. Staatz.
    The next witness, Mr. Richard Hunt, president of the 
Consumer Banker's Association, is recognized for the purpose of 
making a 5-minute opening statement.

    STATEMENT OF RICHARD HUNT, PRESIDENT, CONSUMER BANKERS 
                       ASSOCIATION (CBA)

    Mr. Hunt. Hi, and a very good afternoon. Chairwoman Capito, 
Ranking Member Maloney, and members of the subcommittee. My 
name is Richard Hunt, and I am serving as president of the 
Consumer Bankers Association.
    CBA is the national trade association for retail banking, 
fulfilling the financial needs of American consumers and small 
businesses. Retail banking is where the CFPB will now focus its 
broad authorities. We have had a long history of supporting 
improved consumer protection. It is no secret we opposed the 
creation of the CFPB. We believe the benefits are outweighed by 
the problems that arise in separating the agency from 
prudential banking regulators.
    Nevertheless, CBA is focused on helping our members prepare 
for this new agency which will be their primary regulator, and 
we have met on numerous occasions with those setting up the 
Bureau.
    We also acknowledge the Bureau will provide some benefits, 
such as providing the first real opportunity to level the 
playing field and have comprehensive Federal oversight of tens 
of thousands of underregulated, nondepository financial 
providers.
    We also support the simplification of TILA and RESPA 
disclosures. If there is a theme to our comments, it is 
uncertainty. Uncertainty creates risk, limits innovation, and 
does not promote competition, which, in the end, hurts 
consumers and small businesses alike. This current transition 
period, the absence of a confirmed director, and the power of 
this new Bureau has created a time of great uncertainty for 
retail banking.
    Though the Bureau is required to coordinate with other 
agencies to promote consistent regulatory treatment, this 
concept is ill-defined. If another agency objects to a rule for 
any reason, the Bureau is charged only with noting the 
objection and its final issuance. In short, there is nothing in 
Dodd-Frank requiring the director of the Bureau to defer to the 
views of the prudential regulator, and there is virtually 
nothing to stop rules from being enacted that might cause 
serious harm to banks or even small businesses or consumers.
    To minimize concern that a single powerful director might 
adapt rules with harmful and unintended consequences, we would 
support a commission-led model. A commission provides an 
opportunity for alternative prospectives to be discussed and 
has been effective at a number of Federal agencies, including 
the Federal Reserve, the FTC, the FDIC, and the SEC.
    I will point out, Madam Chairwoman, even the Consumer 
Product Safety Commission, which was the model for the CFPB, is 
headed by a commission. Now, some have said the Bureau is 
checked by the veto authority of the Financial Stability 
Oversight Council, FSOC. That is factually correct, but not 
realistic.
    There are two main concerns: first, the supermajority 
needed to overturn a rule; and second, the threshold for making 
such a decision. Currently, 7 out of the 10 FSOC members must 
vote for a stay or a veto. Since one of the 10 members is the 
actual director of the CFPB, which would certainly not vote 
against itself, 7 of the remaining 9 would have to vote for a 
stay in order to set aside a rule. That is nearly impossible.
    Also, would it be prudent for the CFTC, who has no 
expertise in consumer retail banking regulation, having to 
decide rules regarding deposit products?
    In all due respect, that would be like my telling someone 
how to comb their hair, both out of their league.
    As for the threshold, the so-called veto is really more of 
a catastrophic insurance policy to protect only against a rule 
that would threaten the safety and soundness of the U.S. 
banking industry or the stability of a financial system as a 
whole.
    While it is good to also have a backstop against draconian 
rules, it does not address routine safety and soundness risk 
for a financial institution. It would only come into play in 
the most extreme situations. This threshold should be broadened 
to include a substantial impact on individual financial 
institutions.
    We also believe the authority to supervise large financial 
institutions and to issue regulations should not be transferred 
to the Bureau until a director has been confirmed by the 
Senate.
    In closing, yes, we support a commission-led CFPB, but in 
the absence of any structural changes, and because the CFPB 
will not have any authority to regulate nondepository 
institutions until a director is in place, which, of course, 
leaves us with the current unlevel and unfair playing field, we 
would urge the appointment and confirmation of a director who 
possesses a strong, comprehensive understanding of the banking 
industry and the management skills needed to lead a $500 
million-plus agency.
    CBA will continue to work with Members of Congress and the 
Bureau on these issues, and I look forward to answering any 
questions you may have. Thank you for the opportunity.
    [The prepared statement of Mr. Hunt can be found on page 71 
of the appendix.]
    Chairwoman Capito. Thank you.
    Our final witness is Professor Adam J. Levitin, Georgetown 
University Law Center. And you are being recognized for 5 
minutes.

STATEMENT OF ADAM J. LEVITIN, PROFESSOR, GEORGETOWN UNIVERSITY 
                           LAW CENTER

    Mr. Levitin. Madam Chairwoman, Ranking Member Maloney, and 
members of the subcommittee, my name is Adam Levitin. I am a 
professor of law at Georgetown University. I am here today as 
an expert on consumer finance and as a scholar whose work is 
deeply concerned with the financial security of American 
families.
    The bills being considered at this hearing would appear to 
be legislative tweaks to the structure of the Consumer 
Financial Protection Bureau. But let us not mistake what this 
hearing is really about.
    The issue presented by this hearing is whether Congress 
cares more about increasing the profits of banks or protecting 
the financial security of American families. Which is more 
important? Banks or families? That is the question.
    The new CFPB has not yet had a chance to get up and 
running, yet already we are seeing attempts to strangle the new 
agency in its crib. If you want to understand what this hearing 
is about, look at who is here at this witness table. There are 
three bankers and me. On the previous panel, there were three 
bankers and Mr. Shelton from the NAACP. Ask yourself who here 
likes the CFPB and who does not. The banks are opposed to the 
CFPB and want to see it hobbled, if not eliminated.
    But it is families, Main Street, and the real economy who 
like the CFPB and want someone looking out for them, making 
sure that banks don't run wild like they did in the run-up to 
the financial crisis, because the other bank regulators, the 
prudential regulators, failed us and we were stuck with the 
bill.
    Again, does the subcommittee care more about the interest 
of banks or about American families? Now, I am aware that 
members of the committee are concerned that the CFPB will 
exercise its authority capriciously. This concern is misplaced.
    Despite what you will hear from the banks in the Chamber, 
the CFPB is more accountable than any other agency in the 
Federal Government, period. No other Federal agency has as many 
limitations on its powers as the CFPB. The CFPB is subject to 
the Administrative Procedures Act, notice and comment 
rulemaking, and hearing adjudication provisions. The CFPB's 
actions are subject to judicial review. The CFPB is one of only 
three Federal agencies that are subject to OIRA small business 
flexibility review, which would cover some of the concerns of 
small financial institutions.
    The CFPB has numerous statutory limitations on its 
rulemaking power and must make detailed findings if it wishes 
to exercise the power to declare certain acts or practices 
unfair, deceptive, or abusive. The CFPB is prohibited from 
imposing usury caps or from regulating nonfinancial businesses.
    The CFPB is the only Federal bank regulator subject to a 
budgetary cap. Every other Federal bank regulator is not going 
through appropriations and does not have a cap. The CFPB has a 
cap.
    Now, the banks in the Chamber may think that this cap is 
too high because they will enable the CFPB to be too effective; 
but I have never heard them complain about the lack of 
budgetary controls on the Fed, on the OCC, on the OTS or the 
FDIC. They only seem concerned about budgetary independence 
when it involves an agency tasked with prioritizing American 
families, not banks.
    The CFPB is the only Federal bank regulator whose actions 
are subject to a veto by the Financial Stability Oversight 
Council, a veto that is frankly of dubious constitutionality. 
Curiously, I have not heard any calls to subject the Fed or the 
OCC to similar vetos. And perhaps most crucially, the CFPD is 
subject to oversight by Congress. As this subcommittee's 
actions have already shown, that is no small matter. No matter 
how the banks spin it, there is no escaping the fact that no 
other Federal regulator is subject to comparable oversight and 
limitations on its action.
    Now, turning to the bills at hand, Representative Bachus' 
bill would replace the single CFPB director with a five-person 
commission. Put differently, the Bachus bill proposes paying 
five people to do one person's job, and then giving each of 
those five a staff, and paying for office space for all of 
them. This is classic big government bloat and waste. What is 
more, by having five people doing one person's job, 
accountability, which seems to be the overriding concern about 
the CPFB, will be diminished and leadership will become less 
effective. There is no reason to adopt a five-person 
commission. If a single director is good enough for the OCC, it 
is good enough for the CFPB.
    Representative Duffy's bill would lower the threshold for 
the Financial Stability Oversight Council to veto CFPB 
rulemaking. It is frankly astonishing that anyone would propose 
to strengthen the FCC or the FSOC's veto. The bank regulators 
given the veto are the very ones who failed to ensure both bank 
safety and soundness and consumer protection. In the private 
sector, these regulators would be out of a job. They would not 
be rewarded with a veto.
    The Duffy bill would require a veto if the CPFB rulemaking 
were inconsistent with bank safety and soundness. Now, bank 
safety and soundness is a technical term. Let me explain it to 
the committee. It means profitability. At its core, it is 
nothing more than profitability, and it is axiomatic that a 
bank can only be safe and sound if it is profitable.
    But consumer protection is sometimes at loggerheads with 
bank profits. The only reason to engage in predatory lending, 
for example, is because it is profitable. Banks don't do it out 
of spite. What this means is that any CFPB rulemaking that 
affected bank profitability would be inconsistent with safety 
and soundness and thus subject to a veto. Thus, under the Duffy 
bill, the Credit Card Act of 2009 and Title 14 of Dodd-Frank, 
which reforms the mortgage lending industry, could not be 
implemented because they would both affect bank profitability 
and be inconsistent with safety and soundness.
    In conclusion, the bills before this committee today seek 
to improve the CFPB by destroying it, by rendering it 
ineffective and incapable of performing the mission which 
Congress tasked it with: protecting American families by 
ensuring they get the information necessary to make informed 
decisions about their finances, and that financial products 
help consumers rather than induce financial distress. I urge 
you not to delay or diminish the CFPB's effectiveness.
    [The prepared statement of Professor Levitin can be found 
on page 79 of the appendix.]
    Chairwoman Capito. Thank you.
    I want to thank all the witnesses, and I would like to 
begin the questioning. I would like to pivot off of Professor 
Levitin's initial--it kind of shocked me a little bit to say 
that the choices here are between banks and families.
    We heard Ms. Andersen in the first panel state 
unequivocally that her customers, service to her customers is 
the lifeblood of her institution, and she provides--and she 
gave us I think some very good examples of targeted help. She 
talked about the Burmese refugees and other folks that they 
have been been able to target in their own community. So I 
would dispute that the choice is between banks or families.
    But I would like to give Mr. Wilcox a chance to weigh in on 
that statement as a banker.
    Mr. Wilcox. Sure. Thank you, Chairwoman Capito. I 
appreciate that opportunity.
    I would like to start by suggesting that there is a 
difference between banks and community banks. My bank is a $236 
million community bank and, as I noted in my opening testimony, 
our success is dependent on the people that we take care of. 
You will not find community banks around this country that have 
taken advantage of the people that they see at the grocery 
store, go to church with, and otherwise see around town. That 
is simply not the case. Our success is dependent upon the 
success of the people that we serve, and the vibrancy of the 
community that we operate in. And so that stewardship of the 
community is paramount to the success of community bankers from 
coast to coast.
    Chairwoman Capito. Thank you. I would like to ask Mr. Hunt 
to respond. I will say this about you, Professor, you changed 
my whole line of questioning when you made your statement.
    I would like to ask, on this question, that profitability 
equals safety and soundness, what does safety and soundness 
mean to you?
    Mr. Hunt. Making sure that the bank is healthy to provide 
the needed financial services to their consumers. They are not 
exclusive. You must have safety and soundness and you must have 
consumer protection. We have never advocated less consumer 
protection whatsoever. I am from Louisiana and we have a saying 
in Louisiana, ``If Mama's not happy, nobody's happy.''
    Chairwoman Capito. I like it.
    Mr. Hunt. Thank you. If the customer is not happy, the bank 
does not survive. Period. If we do not protect consumers 
getting loans, then they are going to go to another bank. There 
are 7,100 banks in the United States. It is pure competition 
out there. We know they can virtually go across the street, so 
it is imperative that we have an agency that is worried about 
safety and soundness and consumer protection.
    Chairwoman Capito. Mr. Staatz, do you have a comment on 
that in terms of the credit union in terms of the profitability 
equals safety and soundness or banks--I suppose that could be 
slash, credit unions, if the choice is banks, credit unions or 
families? Because credit unions are families. We know they are 
members. If you would like to make a statement.
    Mr. Staatz. Absolutely. We exist for those members. They 
own us. We have to perform for them each and every day. At the 
end of the day, there has to be a little profit to make sure 
that we are safe and we are sound, but we examine for them. And 
just like our banker friends here, you have to perform for 
them. We are in the community and we are directly responsible 
to them.
    Chairwoman Capito. Thank you. I would like to also respond, 
one of the bills is expanding--and I am on this bill--expanding 
from one to five in a commission. And I think we have plenty of 
testimony that shows that works for other government agencies, 
and there are some instances where there is a singular director 
at the top at the helm.
    But to say that creating a commission contributes to 
bloated waste, when this bill creates 1,000 people in a new 
consumer financial protection agency--and as we are finding and 
I would like to dig deeper on this, the way Professor Warren 
has laid it out for us is that she has gone to all these 
different agencies and said, okay, all the consumer protection 
is now going to be under this same organization within the Fed; 
but what we are finding is yes, there is another thousand 
people there, some of them are coming from these agencies, but 
the agencies are still keeping parts of their consumer 
protection and consumer investigative parts within that agency, 
duplicative government, and then the FDIC is going to create 
their own oversight to make sure that Mr. Wilcox's bank is, 
whatever rules and regulations the CFPB put forward, that they 
can answer for that.
    So I am not sure that the lines that were drawn, 
supposedly, in this bill are going to exist if the behavior of 
the regulators that are in place now--the consumer protection 
is in place in different agencies now, are still existing 
there, a new agency here, and then another new oversight within 
the FDIC or at least someone watching over there. So with that, 
I will let Mrs. Maloney begin her questioning.
    Mrs. Maloney. I want to thank all of the panelists for 
being here. Professor Levitin, some of my colleagues have 
indicated their concern, if you heard the testimonies earlier, 
that the CFPB will be an agency with unprecedented authority 
and reach. And in your statement, you said that it has more 
limitations on its power than any other Federal agency. So can 
you expand on these limitations?
    I listened to my colleagues all day long about how it has 
unprecedented reach. Yet, you say there are more limitations. 
Would you clarify for us, please?
    Mr. Levitin. With pleasure. We can compare the CFPB both to 
Federal agencies in general and to other bank regulators in 
particular. We tend to structure bank regulators differently 
than other agencies. One thing we do with other bank regulators 
is we take their budgets and we take them out of the 
appropriations process. And the reason we are concerned about 
that is we don't want political influence over safety and 
soundness issues. The thinking with the CFPB's budget was, 
similarly, we don't want political influence over consumer 
protection. It is too important to make it exposed to the 
political process within the election cycle.
    The CFPB, unlike any of the other Federal bank regulators, 
has a cap on its budget. The OCC, if the OCC wants to increase 
its budget, it just increases assessments that it charges on 
banks. The OCC doesn't come to Congress for a budget.
    Similarly, the Federal Reserve, if it wants to increase its 
budget, just warms up the printing press. The CFPB, though, is 
capped at a percentage of the Federal Reserve's operating 
budget and has no ability to set what that operating budget is. 
It sinks and swims with the Fed. And I think that is actually a 
very good structure because it says that we are going to make 
sure the consumer protection is at least going to be ``X'' 
percent of bank regulation.
    Now, compared with other Federal regulatory agencies, the 
CFPB is the only agency around where there is a veto over its 
authority. Congress tried to structure a similar thing with the 
Public Company Accounting Oversight Board, PCAOB, with giving 
the SEC a veto. And within the last year actually the Supreme 
Court said that the PCAOB structure was unconstitutional. That 
was really not specifically on the veto but on some other 
aspects of the structure, but it certainly raises questions 
about the constitutionality of the veto.
    There is no other agency that is subject to a veto. No one 
can veto the OCC's actions. Actually, by statute, the Treasury 
Secretary is forbidden from telling the OCC to take action or 
not to take action. If you want to find the rogue regulator, it 
is the OCC; it is not going to be the CFPB. And on top of this, 
we have a whole range of regular safeguards on administrative 
agencies. And a lot of the complaints I am hearing from the 
committee are complaints about the administrative state in 
general, not about the CFPB.
    There are reasons to be uncomfortable about delegation of 
authority to unelected officials. But we do this all the time. 
And we have things like the Administrative Procedures Act, 
which has notice and comment rulemaking provisions so that 
everyone has a chance to be heard about rulemaking. And we have 
a judicial review making sure that agencies do not exceed the 
scope of their statutory authority.
    We have these features and they apply to the CFPB just like 
they apply to any other agency. So when you look at the sum 
picture there, the CFPB really is subject to more restrictions 
than any other Federal regulatory agency.
    Mrs. Maloney. As you know, there are four bills under 
consideration today and under debate. What do you believe the 
aggregate effect of these proposals would be on the CFPB?
    Mr. Levitin. If these bills were passed it would delay the 
implementation of the CFPB and render the CFPB significantly 
less effective and less accountable.
    Mrs. Maloney. And Mr. Hunt, I was voting, so I didn't hear 
his testimony, but I read it. And he, in his testimony, wrote 
that the FSOC veto system, as designed under current law, a 
veto would be nearly an impossible hurdle to meet. Do you 
agree? Mr. Levitin?
    Mr. Hunt. I do.
    Mr. Levitin. The current FSOC veto standard is a high 
threshold, without a doubt. But it is worth considering what 
the alternative that is being proposed is. And then also the 
further alternative being suggested I think, by--I can't 
remember which of the community banking lobbies is proposing 
it, but there is a further extension of it that is being 
proposed.
    The current threshold is undoubtedly a high threshold to 
meet, and I think that is actually the right threshold; that we 
want to make sure that there is not, that we are not seeing 
regulations that cause systemic risk. But a threshold that 
simply says ``safety'' and ``affect safety and soundness'' is 
such a low threshold that pretty much every CFPB rulemaking 
will be subject to challenge.
    Let me give you an example. In August 2008, the Comptroller 
of the Currency, John Dugan, wrote a letter to the Federal 
Reserve objecting to certain proposed Federal Reserve 
regulations that would have restricted credit card rate-
jacking, a topic that I know was of particular concern to you. 
Among the complaints--
    Chairwoman Capito. If you could kind of make it quick--
    Mrs. Maloney. I request a few extra seconds so he may 
complete his statement.
    Mr. Levitin. Among the concerns that Comptroller Dugan 
raised was that it would be inconsistent with safety and 
soundness. A couple of months later, Congress went ahead and 
passed the Credit Card Act of 2009 which took those Federal 
Reserve regulations and raised them a notch. So basically, the 
bank regulators are likely to call anything inconsistent with 
safety and soundness to the extent that it negatively impacts 
the profitability of banks by raising compliance costs, etc.
    I think that the current threshold is probably the right 
place, and we certainly should not think about extending it to 
where, what the community bank is arguing because, given the 
economies of scale in the banking industry, every regulation 
has a disproportionate impact on small banks. That is the 
nature of the business, to be big; and being big gives 
advantages.
    Chairwoman Capito. Thank you.
    Mr. Renacci.
    Mr. Renacci. Thank you, Madam Chairwoman.
    Professor Levitin, you actually did change my direction of 
questioning, too. You talked about bank profitability and you 
said--I think one of your comments was that is what this is all 
about, bank profitability versus safety and soundness. Do you 
believe that a bank losing money is better off going forward 
and providing safety and soundness to its customers?
    Mr. Levitin. I apologize if you misunderstood my comments. 
What I said is bank safety and soundness means profitability; 
therefore, that a bank that is not profitable is not safe and 
sound. But a bank that is less profitable, but still 
profitable, is safe and sound. If a bank is only earning $1 
billion a year, not a billion and a half, it is still 
profitable and it is still safe and sound. I think it is 
important to make that distinction, that less profitable as 
opposed to unprofitable. The exact level of the bank profits I 
don't think should be a concern at all of the government as 
long as banks are profitable. But the exact levels, they should 
not be a concern for any of us. That is the marketplace.
    Mr. Renacci. You do agree, though, that some of the Dodd-
Frank provisions will take away some of the profitability of 
the banks?
    Mr. Levitin. Without a doubt, to the extent that predatory 
lending practices have been very profitable for banks, and 
Dodd-Frank is going to curtail those, probably quite rightly. 
And you know to that extent, yes, it affects safety and 
soundness if you say that it is affecting profitability. But a 
bank that is not able to lend on a fair and on a nondeceptive 
basis shouldn't be in business.
    And I don't think any of the banks here at this table are 
doing that. And I want to emphasize that, that the issue really 
here is not about community banks and credit unions. There are 
some bad actors in both of those spaces, but generally they are 
the salt of the Earth. The problem is the large banks, and we 
don't have any of the large banks on the panel today. And it 
worries me sometimes to see small banks toeing the line for the 
large banks.
    Mr. Renacci. That is interesting.
    Mr. Wilcox, would you agree that some of these regulations 
will reduce your profitability and also reduce your ability to 
create jobs?
    Mr. Wilcox. I would say without any question it will. It 
has already. We are still feeling the fallout of the Gramm-
Leach-Bliley Act. This Dodd-Frank thing is just getting started 
and we are seeing the first bits of that come out. And 
certainly to the extent that there is an exemption in the 
regulatory process, some of those things filter down and become 
interpreted and are used in the regulatory process, certainly 
will challenge earnings and very well could create an issue 
with how do you continue to grow jobs and operate in a safe and 
sound and profitable manner.
    Mr. Renacci. Mr. Staatz, wouldn't you agree that some of 
this profitability that you are losing will be also a reduction 
of potential jobs?
    Mr. Staatz. Without question.
    Mr. Renacci. Mr. Hunt?
    Mr. Hunt. Sure. Absolutely, it will. The cost of compliance 
will go up. It will be a tremendous burden. We are already 
heavily regulated to begin with. Going forward, if you don't 
mind just going back to the veto question, the only way a veto 
can be sustained is if it threatens the safety and soundness of 
the banking system or the entire United States economy.
    Now, who is going to determine that threshold? What will 
determine the safety and soundness of a bank or the entire 
financial economy going forward?
    And I know I mentioned earlier in my testimony about the 
CFTC, but also the SEC, the CFTC, and the Federal Housing 
Agency has a seat at the table to determine retail banking. 
They have nothing to do with retail banking, no expertise 
whatsoever. That is why we would like to see 5 out of 9, not 7 
out of 10 when it comes to a veto.
    Mr. Renacci. Thank you.
    Mr. Levitin, you said that you felt pretty strongly about a 
single director. Does it make sense, then, to consolidate all 
the Federal consumer financial protection powers at the Bureau 
on the designated transfer date if there is no director?
    Mr. Levitin. Actually, subtitle (f) of Title 11 of the 
Dodd-Frank Act, the Consumer Financial Protection Bureau Act, 
does say that if there is no director who has been appointed by 
the President on the designated transfer date, the powers go to 
the Treasury Secretary as director. So we would have a Treasury 
Secretary who has been confirmed by the Senate, exercising the 
powers, at least under subtitle (f).
    Mr. Renacci. Madam Chairwoman, I yield back.
    Chairwoman Capito. Thank you. I would have to say that if 
that does in fact happen, and the responsibilities go to the 
Secretary of the Treasury, I would question, is that not 
postponing, delaying, throwing the whole thing into a more 
chaotic position? Which is why I believe we ought to, and part 
of my discussion draft, this is something that concerned me 
because of the length of time it takes to confirm anybody into 
one of these positions.
    Mr. Manzullo?
    Mr. Manzullo. Thank you, Madam Chairwoman.
    Professor, since you have made the statement that none of 
the people at the table, the credit unions and the community 
bankers, are responsible for this meltdown and crisis we have 
in banking, I would take it then that you would agree that they 
should be exempt from the Consumer Financial Protection Bureau.
    Mr. Levitin. No, quite to the contrary. First, I was making 
a specific estimate about the members at this table. There are 
bad eggs in the community banker space and the credit union 
space. And we should also note that there have have a lot of 
community banks and credit unions that failed. And that is 
not--
    Mr. Manzullo. I understand that. And I want to reclaim my 
time because it wasn't until October 1, 2010, that the Federal 
Reserve published its final rule that said--are you ready for 
this, guys?--``If you make a mortgage application, you must 
have written proof of your income.'' To me, that is just so 
amazing, so elementary.
    Mr. Staatz, Mr. Hunt, Mr. Wilcox, you have always had that 
provision; isn't that correct? Whenever you made a loan on 
anything?
    Mr. Staatz. In practice, absolutely.
    Mr. Manzullo. Absolutely. And so here we have the Fed, 
which has jurisdiction over most of the banks, by the time you 
figure out what they do, that had the authority all along, that 
could have stopped this stupid blunder in real estate. They had 
the authority to do that all along and they didn't do it. Why 
should we trust yet another organization with 1,000 new 
employees, untested, untried, in theory?
    Mr. Levitin. Here is why. The CFPB has a single mission and 
it will be judged on whether it succeeds in protecting 
consumers. The Fed has multiple missions and they conflict.
    Mr. Manzullo. But the CFPB would never be judged by the 
people elected in this country, and those are the Members of 
Congress. And I find your statement to be absolutely 
astounding, especially in light of the fact that you were 
Special Counsel on the TARP, where you said that you find it 
offensive that this agency would be subjected to the 
appropriation process and therefore politicized.
    For goodness sakes, Article 1 of the Constitution gives the 
power of the purse to the United States Congress. We are 
directly elected by people who want to see oversight on behalf 
of these agencies, and yet you make the statement that, thank 
goodness we have the Consumer Financial Protection Bureau that 
is immune from this process. I am just shocked at that. But I 
want to go on.
    Mr. Levitin. If you are shocked, I would note that 
unfortunately there are--there is a vigorous lobbying process 
which is present in this room.
    Mr. Manzullo. Oh, come on. You know what? These are little 
guys.
    Mr. Levitin. There are big guys, too, who are not in the 
room here.
    Mr. Manzullo. I have been through a thousand real estate 
transactions and I practiced law just before RESPA came in. And 
I would charge sometimes $75 to $100 to close a real estate 
transaction, and I could close it in 20 minutes. Along came 
RESPA, and there are 7 full-time employees at HUD who continue 
to work on RESPA and screw it up. And now you go there, and you 
have disclosure like this--one agency on top of the other, and 
all one had to do to stop the meltdown was to say, you can't 
give a loan unless you have written proof of your earnings.
    Government doesn't work in these situations. RESPA hasn't 
helped one individual, it hasn't saved anything, because 
ultimately all people want to know is, how much does it cost me 
a month? And you are going to have more regulations, more 
rules, and you don't look to the practitioners, people who have 
been through this thing from little bitty houses all the way 
through shopping centers, people who have worked in towns with 
credit unions and community bankers like these little guys 
here. And is there something wrong with the fact that they 
belong to an association, that they have a lobby? They are not 
entitled to be represented in Washington?
    Mr. Levitin. No one has made that argument.
    Mr. Manzullo. Sir, that is what you were saying.
    Mr. Levitin. No, I beg your pardon, sir. That is not the 
argument I am making. The argument that I am making is that the 
democratic process does have, sometimes, influence by campaign 
contributions, and that we may want to be concerned about 
ensuring that consumer protection is insulated from financial 
interests.
    Mr. Manzullo. Sir, there isn't anything in this town that 
is insulated from anything. And the people who try to insulate 
themselves are the ones who isolate themselves and go beyond 
the reach of what Americans want to do. This whole argument, if 
I could finish--
    Chairwoman Capito. You can finish.
    Mr. Manzullo. Because I have been waiting a long time.
    Chairwoman Capito. You have.
    Mr. Manzullo. This whole argument that somehow the Consumer 
Finance Protection Bureau is above and beyond, has this great 
halo that is better than all these organizations, these people 
here, seated to your right, on a daily basis, do several 
things. The first thing they do is they always check to make 
sure that the people with whom they have a financial 
transaction can afford it. They don't need government to do 
that. They sit down and look at income tax returns. They look 
at what their earnings are and they give them advice on what to 
do.
    And somewhere out there you have some people who really 
took advantage of the system, who allowed people to buy homes 
when they couldn't make the first downpayment, people who were 
allowed to--they even called them ``cheater loans'' where that 
practice went on, and the Fed winked at it. They could have 
stopped it. Where an existing government agency that was 
insulated from politics, and that is the Fed, had the authority 
to stop all of this, and they didn't do anything, and you 
expect us to believe the Consumer Financial Protection Bureau 
is going to do anything better than what the Fed could have 
done. That is not going to happen.
    Mr. Levitin. I think in light of that, giving the Fed 
partial veto authority over the CFPB makes absolutely no sense. 
But I think it is important to note that the Fed, one of the 
reasons the Fed failed to act was it had conflicting missions. 
It was told to do safety and soundness and to do--
    Mr. Manzullo. There was no conflicting mission. The mission 
there was was to keep the government from collapsing. And they 
failed, just as the CFPB will also fail.
    Chairwoman Capito. The gentleman's time has expired. Mr. 
Canseco, do you have questions?
    Mr. Canseco. Yes, ma'am.
    Mr. Hunt, in your testimony you noted that the requirement 
for the Bureau to promote consistent regulatory treatment is 
ill-defined. Could you explain why you feel this is ill-
defined?
    Mr. Hunt. I think I was referring to the ``UDAAP'' 
provision, where they create the new ``A'' in ``UDAP,'' and 
that is abusive. We don't know if abusive means when they 
charge a checking account now at a bank, or if that means the 
interchange fee. We think it is totally inconsistent.
    And yes, I will admit to you a lot of it is fear, and that 
is why we have all the little mouse prints that people have 
said, mouse traps, trips, and everything else, because we have 
fear of litigation and fear of being fined by our regulators. 
We do everything we can to promote products that are beneficial 
to the consumer, to the customer, but at the same time we have 
one eye looking at our regulator and at civil lawsuits going 
forward. So we have to make sure that the UDAAP provision is 
used correctly, since it is a new addition to the entire Dodd-
Frank bill, an addition to unfair and deceptive.
    Mr. Canseco. Are you concerned that your small banks and 
other financial institutions will eventually find themselves 
caught in a trap with one Federal agency trying to restrict 
their profits on certain products and another agency telling 
them to increase their capital base?
    Mr. Hunt. Oh, absolutely. We have about three coming up 
here real soon. That is going to take effect in a couple of 
years. Quite frankly, sir, we are concerned about everything 
these days. For instance, look at overdraft. You had the FDIC 
come out with their guidelines. You had the Fed come out with 
their guidelines. And what is to prohibit the CFPB from coming 
out with their new guidelines as well? It is very important 
that we have the ability to continue to give consistent 
products to our customers without fear of retribution from the 
regulators.
    Mr. Canseco. Thank you. And Mr. Staatz, in your testimony 
you advocate for replacing the CFPB director with a commission 
larger than what has been proposed. You envisioned this 
commission to have seats on the board that are designated for 
industry representatives, including a seat specifically for an 
individual with experience related to credit unions. Would you 
mind elaborating on your suggestion and underlying concerns?
    Mr. Staatz. First of all, as I said in the oral testimony 
that I gave today as well, one of our bigger concerns is undue 
burdensome regulation. Earlier today, I heard about all the 
horrors that went on during the past few years. Obviously, we 
as credit unions are not part of that. We are involved in it, 
have to help clean it up, but weren't part of that. And I would 
think that any of the structures that were talked about today, 
under any of these structures we could move very quickly to ban 
those sorts of products, those that were truly abusive.
    But I guess our problem is, when does it move from abusive 
into some bureaucrat's idea of what may or may not be right for 
the consumer? And so we would like somebody with industry 
experience to kind of buffer, when it starts to cross the line 
from is it abusive to just somebody's idea of a better way of 
doing business. And we think that is why somebody from the 
industry should be part of oversight in that manner.
    Mr. Canseco. What criteria from the industry would you 
suggest that person or those individuals have? Should they be a 
bank president? Should they be a small bank president? Should 
they be credit union presidents? Should they be payday lender 
presidents?
    Mr. Staatz. To the latter, absolutely not payday lenders. I 
would suggest that obviously from our viewpoint, we believe 
that credit unions should be represented. Why? Because of who 
we are and who we represent. As a matter of fact, maybe the 
CFPB could learn a few more things by spending more time with 
credit unions and figuring out how we serve members and maybe 
that could be the model. But again, that sort of expertise 
might help all of us.
    Mr. Canseco. Thank you, sir. I yield back, Madam 
Chairwoman.
    Chairwoman Capito. The gentleman has yielded back. And that 
concludes the testimony from this panel. I thank you for your 
testimony and for your responses to our questions.
    The Chair notes that some members may have additional 
questions for this panel 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 those 
witnesses and to place their responses in the record.
    With that, the hearing is adjourned.
    [Whereupon, at 1:34 p.m., the hearing was adjourned.]


                            A P P E N D I X



                             April 6, 2011


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