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

          OPEN FOR BUSINESS: THE IMPACT OF THE CFPB ON SMALL BUSINESS

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

                                    HEARING

                                   before the

                        SUBCOMMITTEE ON INVESTIGATIONS,
                           OVERSIGHT AND REGULATIONS

                                     of the

                          COMMITTEE ON SMALL BUSINESS
                                 UNITED STATES
                            HOUSE OF REPRESENTATIVES

                          ONE HUNDRED TWELFTH CONGRESS

                                 FIRST SESSION

                                   __________

                                  HEARING HELD
                                 JULY 28, 2011

                                   __________

                Small Business Committee Document Number 112-030
              Available via the GPO Website: http://www.fdsys.gov

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                       HOUSE COMMITTEE ON SMALL BUSINESS

                         SAM GRAVES, Missouri, Chairman
                           ROSCOE BARTLETT, Maryland
                               STEVE CHABOT, Ohio
                                STEVE KING, Iowa
                             MIKE COFFMAN, Colorado
                         MICK MULVANEY, South Carolina
                             SCOTT TIPTON, Colorado
                             JEFF LANDRY, Louisiana
                       JAIME HERRERA BEUTLER, Washington
                              ALLEN WEST, Florida
                         RENEE ELLMERS, North Carolina
                              JOE WALSH, Illinois
                           LOU BARLETTA, Pennsylvania
                            RICHARD HANNA, New York
                   NYDIA VELAZQUEZ, New York, Ranking Member
                             KURT SCHRADER, Oregon
                            MARK CRITZ, Pennsylvania
                          JASON ALTMIRE, Pennsylvania
                            YVETTE CLARKE, New York
                              JUDY CHU, California
                         DAVID CICILLINE, Rhode Island
                           CEDRIC RICHMOND, Louisiana
                             GARY PETERS, Michigan
                              BILL OWENS, New York
                          BILL KEATING, Massachusetts

                           Lori Sally, Staff Director
                        Paul Sass, Deputy Staff Director
                          Barry Pineles, Chief Counsel
                      Michael Day, Minority Staff Director

                                C O N T E N T S

                                  ----------
                                                                       Page

                               OPENING STATEMENTS

    Coffman, Hon. Mike...............................................     1
    Altmire, Hon. Jason..............................................     2

                                   WITNESSES

    Mr. Dan Sokolov, Deputy Associate Director for Research, Markets
      and Regulations Consumer Financial Protection
      Bureau,Washington, DC..........................................     3
    Mr. Jess Sharp, Executive Director, Center for Capital Markets
      Competitiveness, U.S. Chamber of Commerce, Washington, DC......    10
    Mr. Terry Jones, Chairman, Legislative and Regulatory Affairs
      Committee, Colorado Mortgage Lenders Association, Castle Rock,
      CO.............................................................    12
    Mr. Adam J. Levitin, Professor of Law, Georgetown University Law
      Center, Washington, DC.........................................    14
    Mr. Daniel Fleming, President, Fleming Leasing, Alexandria, VA...    16

                                    APPENDIX

    Prepared Statements:
      Mr. Dan Sokolov, Deputy Associate Director for Research,
      Markets and Regulations Consumer Financial Protection
      Bureau,Washington, DC..........................................    25
      Mr. Terry Jones, Chairman, Legislative and Regulatory Affairs
      Committee, Colorado Mortgage Lenders Association, Castle Rock,
      CO.............................................................    30
      Mr. Jess Sharp, Executive Director, Center for Capital Markets
      Competitiveness, U.S. Chamber of Commerce, Washington, DC......    44
      Mr. Daniel Fleming, President, Fleming Leasing, Alexandria, VA.    54
      Mr. Adam J. Levitin, Professor of Law, Georgetown University
      Law Center, Washington, DC.....................................    59
    Statements for the Record:
      Independent Community Bankers of America.......................    66

          OPEN FOR BUSINESS: THE IMPACT OF THE CFPB ON SMALL BUSINESS

                                  ----------

                            THURSDAY, JULY 28, 2011

                      House of Representatives,
        Subcommittee on Investigations, Oversight, and
                                           Regulations,
                                   Committee on Small Business,
                                                        Washington, DC.
        The Subcommittee met, pursuant to call, at 1:35 p.m., in
    room 2360, Rayburn House Office Building, Hon. Mike Coffman
    (chairman of the subcommittee) presiding.
        Present: Representatives Coffman, West, Hanna, and Altmire.
        Chairman Coffman. The Committee is called to order.
        Good afternoon.
        July 21st, 2011, marked the 1-year anniversary since the
    passage of the Dodd-Frank Wall Street Reform and Consumer
    Protection Act. The date also marked the day where the Consumer
    Financial Protection Bureau assumes authority for regulating
    consumer financial products and services.
        While milestones are usually celebrated, this one is marked
    by uncertainty, because the true effect of this bureaucracy
    remains to be seen. The CFPB was given extraordinary broad
    oversight powers to fundamentally change the way both banks and
    nonbanks are regulated. In the rush to establish the CFPB, I
    believe that a fundamental element of regulation was lost--that
    is, a comprehensive review of how rules will affect the
    industry and whether the financial products are meeting the
    needs of consumers.
        All of us in this room today are consumers of goods and
    services. I don't think anyone here wakes up in the morning and
    says, ``I want to be a victim of unfair, deceptive, or abusive
    practices.'' No one here wants to end up in bankruptcy. No
    entrepreneur wakes up in the morning and says, ``I am going to
    start a business, and it will fail.'' Our society is built on
    the optimism of entrepreneurs who will wake up in the morning
    and say, ``I have a great idea for a business.''
        With this optimism about business creation comes the
    responsibility to make the right decisions to best position
    your business for success. What we need to do is create a
    vibrant marketplace. Creating onerous rules and regulations on
    an industry is not the answer and is likely to have an adverse
    effect by driving many providers out of the marketplace.
        A banking relationship is a partnership. A bank that abuses
    its customers might make money in the short term, but they will
    not be in business for very long. We need to find a system that
    goes after those bad actors without impeding the ability of
    good actors to help build their communities.
        I am looking forward to hearing from both the CFPB to see
    how they envision the new bureau operating and learn about what
    provisions they are putting into place to protect small
    businesses from the burdens of overregulation. I am also
    looking forward to hearing from small businesses about how the
    new bureau will affect them and their businesses.
        With unemployment remaining above 9 percent, we need to do
    everything we can to avoid further burdening our job creators
    with regulation that will not add meaningful protections.
        With that, I would like to yield to Ranking Member Altmire
    for his opening statement.
        Mr. Altmire. Thank you, Mr. Chairman.
        It was just over 1 year ago that the Dodd-Frank Wall Street
    Reform and Consumer Protection Act was signed in to law.
    Perhaps no other part of this law has attracted as much
    attention as the creation of the Consumer Financial Protection
    Bureau. Last week, the Bureau officially assumed its duties,
    making this an ideal time to step back and take stock of how
    this law will affect our Nation's small businesses.
        While the authority of this new regulator will primarily
    extend only to financial products that are marketed to
    consumers, its rules will affect small-business owners as well.
    According to the last Federal Reserve survey on small-business
    finance, nearly half of all small firms use personal credit
    cards to finance their enterprise. In another survey, one in
    five entrepreneurs reported using a home equity loan for
    business purposes.
        These findings guarantee that the rules developed by the
    Bureau will inevitably have an impact on access to capital for
    small businesses. It is imperative that, as the agency develops
    these regulations, we bear in mind the needs of small
    businesses and not further worsen the current credit shortage
    for small firms.
        For precisely this reason, significant efforts were made to
    ensure that potentially negative effects on the small-business
    community were mitigated by excluding merchants and retailers,
    as well as businesses that are already subject to insurance or
    securities regulation at the State level. Additionally, some
    entire industries were excluded from the Bureau's authority,
    such as realtors and auto dealers. Clearly, lawmakers recognize
    that small businesses were not the cause of the financial
    crisis and should, therefore, not bear the burden of the new
    regulations.
        An additional safeguard is the Bureau will be subject to
    the Regulatory Flexibility Act and the Small Business
    Regulatory Enforcement Fairness Act. These laws will ensure
    that small businesses have the opportunity to participate in
    the CFPB's rulemaking process. This will help reduce the
    potential impact on small businesses while minimizing
    additional cost for small firms.
        So, Mr. Chairman, since we are approaching a vote, if I
    could just insert the rest of my statement into the record, and
    we could move on with the hearing.
        Chairman Coffman. They have just called votes. Welcome to
    the United States House of Representatives. I think this is
    going to be a long series, so it looks like it is going to be
    about an hour. We are going to recess for an hour. Then we will
    come back immediately after the last vote to resume our
    hearing. I apologize for that, but welcome to representative
    government.
        Let's recess for the vote.
        [Recess.]
        Chairman Coffman. The committee is now in session.
        I would like to take a moment to mention that the
    Subcommittee has received a statement for the record from the
    Independent Community Bankers of America. And, without
    objection, I would like to insert this statement in the record.
        Hearing none, the statement will be inserted into the
    record.
        [The statement of the Independent Community Bankers of
    America follows on p. 66.]
        Chairman Coffman. If Committee members have an opening
    statement prepared, I ask that they be submitted for the
    record.
        I would like to take a moment to explain the timing lights
    for you. You will each have 5 minutes to deliver your
    testimony. The light will start out as green. When you have 1
    minute remaining, the light will turn yellow. Finally, it will
    turn red at the end of your 5 minutes. I ask that you try to
    keep to that time limit, but I will be a little lenient as you
    finish.
        Our first witness today is here representing the Consumer
    Financial Protection Bureau. Dan Sokolov--have I got that
    right?
        Mr. Sokolov. Yes.
        Chairman Coffman. Dan Sokolov is deputy associate director
    for Research, Markets, and Regulations. This division is
    responsible for understanding consumer financial markets and
    evaluating whether there is a need for regulation and the cost
    and benefit of potential or existing regulation.
        Prior to joining the CFPB, Mr. Sokolov held positions with
    the Department of the Treasury and served as an attorney for
    the Federal Reserve.
        Mr. Sokolov, we look forward to your testimony.

        STATEMENT OF DAN SOKOLOV, DEPUTY ASSOCIATE DIRECTOR FOR
         RESEARCH, MARKETS, AND REGULATION, CONSUMER FINANCIAL
                  PROTECTION BUREAU, WASHINGTON, D.C.

        Mr. Sokolov. Thank you, Chairman Coffman and Ranking Member
    Altmire, for inviting me to testify today on the subject of
    small business and the Consumer Financial Protection Bureau.
        The CFPB is the Federal agency accountable for establishing
    clear rules of the road for the consumer financial marketplace.
    And, Mr. Chairman, you mentioned the importance of a vibrant
    marketplace; that is precisely what we are striving for.
        Although the Bureau's jurisdiction is very limited with
    regard to small-business credit, we take our responsibilities
    in this area very seriously. We recognize that small businesses
    are critical to the Nation's economy and that small financial
    services providers are a critical source of products and
    services for millions of consumers.
        Today, I want to provide a brief update on the standup of
    the CFPB, as well as explain our efforts to reduce and avoid
    unwarranted regulatory burdens on small providers and how we at
    the CFPB believe we may be able to assist small-business
    borrowers over time.
        The Bureau opened for business last Thursday, July 21st.
    Inspectors general of the Treasury Department and Federal
    Reserve Board have reported favorably on our efforts to stand
    up this agency. We are already at work strengthening consumer
    financial markets. We are working toward a market where
    consumers can readily see prices and risks and compare products
    so they make the choices that they believe are best for them.
        We have taken input from thousands of individual consumers
    and mortgage lenders and brokers on how to simplify Federal
    mortgage disclosures and make them less burdensome. We are
    launching our program for supervising the largest banks and
    their affiliates. We are taking our first consumer complaints
    about credit cards. And Holly Petraeus has set up a strong
    Office of Servicemember Affairs, reaching out to military
    families and working to address the unique financial challenges
    that they face.
        To fulfill the mandate established by Congress, we have
    hired an expert staff from the private, public, and nonprofit
    sectors. They are striving to build an agency that is smart,
    effective, and balanced.
        At the CFPB, we have been building in to the agency's DNA
    extensive outreach to small financial institutions such as
    community banks and credit unions. We believe in the importance
    of a financial services marketplace where small providers can
    thrive.
        We will work to reduce regulatory burdens on small
    financial service providers wherever possible, and we can take
    as an example disclosure reform. We understand lenders' deep
    frustration with the current mortgage forms required by Federal
    law. They are complicated, sometimes duplicative, and more
    costly to fill out than they need to be. So we have solicited
    feedback from thousands of consumers, lenders, and brokers to
    help us make the disclosure simpler to use and easier to
    complete.
        Minimizing regulatory burden will continue to be a priority
    for us. Often, a regulation is not the best answer to a
    problem. Congress has given us many different tools to address
    problems in consumer financial markets. We will strive to
    address problems as we see them as effectively as we can and
    through the least burdensome means available to us.
        In addition, we will consider the potential benefits,
    costs, and impacts of proposed regulations for consumers and
    covered persons, including small lenders. We will diligently
    comply with the Regulatory Flexibility Act, and we will follow
    the requirements of the Small Business Regulatory Enforcement
    Fairness Act, known as SBREFA.
        Our statutory objectives and statutory authorities do focus
    on financial products and services for consumers. The Bureau
    does not have jurisdiction over business credit, except in
    limited cases where Congress has explicitly and affirmatively
    granted the Bureau such jurisdiction.
        We recognize that a vibrant small-business sector is
    critical to our economy, and we are aware that many small
    businesses today report having difficulty obtaining credit--a
    difficulty rooted in the most severe financial crisis since the
    Great Depression.
        So, although our role with respect to small-business credit
    is quite limited, we hope to help many small-business owners in
    three ways: First, we will implement diligently the Equal
    Credit Opportunity Act. This law prohibits discrimination in
    business lending.
        Second, as required by law, we will provide the public new
    data that may shed new light on the demand for and supply of
    small-business credit. We will move deliberately and we will
    consult widely to attempt to maximize the benefit of these loan
    data for small businesses and to minimize the cost for the
    lenders that will report the data.
        Third, we will work to ensure that consumer credit
    histories are as accurate as possible. More accurate credit
    histories would help startups. New businesses owners frequently
    rely on their personal credit histories to apply for their
    first business loan.
        We believe that a fairer and more transparent consumer
    financial services marketplace will be a boon to financial
    services providers of all sizes, and a more level playing field
    will benefit the smaller ones in particular.
        Thank you, and I look forward to your questions.
        [The statement of Mr. Sokolov follows on p. 25.]
        Chairman Coffman. Thank you, Mr. Sokolov.
        The CFPB recently sent a letter to the CEOs of financial
    institutions informing them that they are now subject to the
    jurisdiction of the Bureau. Twenty-six of these lenders are on
    SBA's list of 100 top SBA lenders. These 26 lenders issued a
    total of 5,334 loans, for approximately $1.5 billion.
        That is just looking at SBA's top 100 lenders and only at
    their SBA-backed loans. Is CFPB considering how actions against
    larger institutions will impact small-business lending?
        Mr. Sokolov. So, the letter you are referring to the CEOs,
    Mr. Chairman, was sort of introducing our program of
    supervision. That is a program that is, by statute, now focused
    on the depositories side. It is focused on insured depositories
    and credit unions with more than $10 billion in assets and
    their affiliates, just to put that in to full context.
        And that process of supervision, which is essentially
    working with the institutions by sending examiners to them and
    understanding how they operate and understanding their
    businesses and understanding where there may be questions about
    their compliance with applicable Federal laws, that process is
    focused on the consumer protections. And, as I said, our
    jurisdiction over business credit is quite limited.
        The main exception is in the area of implementation of the
    Equal Credit Opportunity Act. And, in that area, as we are
    required, we will--you know, that will be an important part of
    our process.
        Chairman Coffman. Okay.
        Federal Reserve Chairman Bernanke recently stated that
    there has been no examination about the impact that the new
    regulatory environment will have on the overall economy.
        Has CFPB done any such study on how the Bureau, fully
    implemented, will affect the economy?
        Mr. Sokolov. Mr. Chairman, could you repeat the question
    again?
        Chairman Coffman. Sure. Federal Reserve Chairman Bernanke
    recently stated that there has been no examination about the
    impact of the new regulatory environment, what it will have on
    the overall economy.
        Has your organization done any studies about its--when you
    are fully implemented, what impact it will have on the economy?
        Mr. Sokolov. Well, we are still the process of, well,
    building out our processes. As I said, we have launched our
    supervision program. We are taking complaints from consumers on
    credit cards.
        We are working diligently to--in the area of regulations,
    our focus is on regulations that Congress has directed us to
    adopt and implement--directed us under the Dodd-Frank Act. And
    so, you know, in cases such as that, we are doing Congress'
    will where Congress has made judgments about the benefits of
    certain policies for the economy.
        Chairman Coffman. One of my concerns about CFPB is that,
    when you have an agency charged with looking for problems, they
    have a tendency to find them, whether they exist or not.
        How will we know when we have a financial system that is
    free of abusive practices? What steps are in place or
    benchmarks exist to know if CFPB has achieved its mission?
        Mr. Sokolov. So, we, indeed, are focused, as part of our
    core mission, on working toward a marketplace that is free of
    unfair, deceptive practices. It can be challenging to identify
    the full range of acts and practices in an economy as large as
    ours. We are going to use all available sources of information,
    though, to see where risks to consumers may lie and where
    compliance risks my lie.
        And our sources of information will include, as I
    mentioned, our examination function, which is one of the
    important tools that Congress has provided us and a tool that
    we can use to try to provide a level playing field between
    institutions that have bank charters and financial services
    providers that compete in the same market but are not banks.
    And we have a research capacity that we are building, as well.
    We have teams that are designed to be expert in particular
    markets, where often we are hiring people who have expertise in
    specific industries.
        So we plan to take in information from a wide variety of
    sources to best understand what is going on, to be responsive
    and to have a smart, balanced, and effective approach.
        Chairman Coffman. Thank you.
        Mr. Altmire.
        Mr. Altmire. Thank you, Mr. Chairman.
        As I mentioned in my opening statement, with one in five
    entrepreneurs reportedly using home equity loans for business
    purposes and nearly half of all small businesses relying on
    personal credit cards for capital, consumer financial products
    provide a critical source of capital for many small firms.
        How will your agency tailor its oversight of these products
    to ensure that small businesses do not find their access to
    credit unduly restricted by the new regulations?
        Mr. Sokolov. Thank you, Mr. Altmire, for that question. And
    we talked a bit about this in our written testimony, as well.
        There is certainly some overlap. There are some small
    businesses that for some periods in the life of the business do
    use personal credit. And we are aware of that, and we want to,
    in fact, as we said, we addressed that in our testimony.
        I think that the amount of overlap varies over time. And
    what we are going to look to, for example, in understanding
    that overlap is, just as an example, to what extent small
    businesses are using credit cards that are designed for
    consumers to make payments and to what extent they are actually
    borrowing on the card. And we bring some data on that point in
    our testimony based on a Federal Reserve study and a survey by
    the National Federation of Independent Businesses.
        And we have already started to reach out to these other
    organizations to make sure that we do understand where this
    overlap might be.
        Mr. Altmire. We on this Committee and back home I, as well,
    continue to hear from small firms who are concerned that they
    will be subject to CFPB oversight for financial transactions
    they provide to other businesses.
        Will your agency attempt to exercise oversight over
    financial products when no consumer is involved?
        Mr. Sokolov. As I mentioned, our jurisdiction over small-
    business credit is quite limited. There are a couple of fairly
    limited provisions in the Truth in Lending Act where Congress
    has extended protections to business credit cards. And then
    there is our obligation to implement the Equal Credit
    Opportunity Act, where we and other agencies are also
    responsible for enforcing it.
        And Equal Credit Opportunity Act prohibits discrimination
    in lending, both in consumer lending and in business lending.
    And, therefore, we have to fulfill, of course, and will fulfill
    diligently the mandate Congress has given us in that area.
        Mr. Altmire. The original bill, the Dodd-Frank Act, created
    new data reporting requirements that are aimed at helping
    regulators understand credit conditions for small, women-owned,
    and minority-owned businesses. Some have said these
    requirements will be burdensome and could raise privacy
    concerns for those types of firms.
        How will you balance these concerns while ensuring
    policymakers have sound and accurate information on small-
    business credit?
        Mr. Sokolov. So, Congressman, you are referring to section
    1071 of the Dodd-Frank Act, which does amend the Equal Credit
    Opportunity Act to add this data collection on small-business
    lending. And this is potentially an important source of data to
    better understand demand conditions and supply conditions in
    the market for small-business lending, where data, to date,
    have tended to be somewhat limited. So we see it as potentially
    a boon to have these data, as a boon both to small-business
    borrowers and to lenders to better understand the market.
        Now, inevitably, with the data collection nothing is free.
    There is some cost involved. Congress has set the parameters
    for this data collection, but, within that, where we have
    discretion about how to do it, we are going to seek to make the
    most of the benefits of these data for the public and only
    impose the burdens that are necessary to achieve those
    benefits. And we intend to make sure that the data have
    integrity and will be useful in the end.
        And the issue of privacy that you mentioned of course is an
    important consideration--a consideration that has arisen in
    other data collections. And those issues are important, and we
    intend to pay attention to them.
        Mr. Altmire. Thank you. No further questions.
        Chairman Coffman. Mr. West.
        Mr. West. Well, thank you, Mr. Chairman, Mr. Ranking
    Member.
        And thank you for being here today.
        One of the things that I continually hear from our district
    down in south Florida is small-business owners and their access
    to credit. Of course, everything worth reacting to can
    sometimes be worth overreacting to, with Dodd-Frank.
        Do you think that we need to have regular review of some of
    these regulations to make sure that they are effective and
    efficient and not constraining, as far as its relationships
    with our community banks and also our small-business owners?
        Mr. Sokolov. That is a good question. And the Dodd-Frank
    Act, to some extent, contemplates this, because it does provide
    that for significant regulations that the Bureau adopts, that
    we should be assessing the regulation within--I think it is
    about 5-years. And so that is a statutory requirement and one
    that we intend to follow diligently.
        Mr. West. Well, I am concerned with that because, with the
    last jobs report that came out, small businesses were saying
    that they are going to freeze hiring for the next year. Seventy
    percent of them said that. So if we are going to wait 5 years
    to go back and do a review, that is really not setting the
    conditions for the growth of our small businesses.
        So can we come back and look at a semiannual review and
    make sure that we include some of the people that this could be
    affecting--community banks or small-business owners--instead of
    waiting 5 years for a review?
        Mr. Sokolov. We have a process, in fact, a statutory
    process, the Small Business Regulatory Enforcement Fairness
    Act, that actually provides small businesses the opportunity to
    provide input before we issue a proposal, in certain
    circumstances.
        Mr. West. Was that part of Dodd-Frank?
        Mr. Sokolov. There were amendments--Dodd-Frank included
    amendments to the Regulatory Flexibility Act and the related
    Small Business--the SBREFA. And those amendments, among other
    things, extended SBREFA obligations to us. We are only the
    third Federal agency to be subject to SBREFA. And that will be
    one way that we get input from small businesses even before we
    have adopted a regulation.
        And I think what we are trying to do is, where we can, go
    beyond the statutory requirements for public comment on
    regulations. And a prime example of that is how we have been
    handling the reform of Federal mortgage disclosures. Long
    before we had put a regulation out there that would implement
    these reforms to the disclosures, we put initial prototype
    forms on our Web site, and we created a channel for consumers
    to respond and a channel for industry to respond. And both
    channels have produced thousands of comments, often quite
    detailed comments. And we have used--the wonders of
    technology--we have used the Internet to make it easy to
    comment and to click on parts of the form and give feedback on
    specific parts.
        And, in addition, we are conducting more controlled
    laboratory testing of these potential disclosures, where we are
    going into a room and we ask individual consumers questions
    about it. And I think maybe for the first time for an agency--
    in any event, we have found it very productive to also include
    in this testing lenders and brokers. So we are asking
    individual lenders and brokers to sit down with us so we can
    test the forms with them.
        And we do round after round of this sort of testing and
    will continue to use the Internet to allow thousands of others
    to be able to give input, so that by the time--and, as I had
    said in my written testimony, we also plan to conduct SBREFA
    panels around these forms--so that, by the time we get to a
    final regulation, it will receive that kind of input.
        And then, under the Dodd-Frank Act, when we get to the
    point of implementing these newly reformed disclosures, we will
    wait an appropriate period of time and come back and review it
    again.
        Mr. West. And so, once again, I come back to the original
    question. You know, what I heard you say was, right now that is
    5 years. In the type of fiscal or economic situation in which
    we find ourselves, where our small businesses are suffering--
    and I applaud you for looking for their input before the
    regulation comes in--but can we have a semiannual or an annual
    review of these regulations so that, once again, we can go back
    and do the checks and balances and make sure that these things
    are working properly?
        Mr. Sokolov. We can certainly consider that. I think an
    important factor is that, when we review--say, for reviewing a
    disclosure--let's say we wanted to go back and test the
    disclosure again and see if it was still working in light of
    whatever changes in the market may have occurred. It is a
    pretty extensive process. It takes many months. And it can
    involve both what we call qualitative testing, where you speak
    to small groups of consumers and lenders, and then more
    extensive quantitative and statistically valid testing,
    something we plan to do after we finish this initial round of
    qualitative testing. And that can take a while to do correctly
    to gather useful data.
        And when we do that, we want to do it in the most careful
    way, and we want to put out the results of our testing and
    research for people to learn from and to comment on and do
    their own research. So the process of doing good analysis on a
    regulation that gives you a meaningful answer can take some
    time.
        Mr. West. Thank you, Mr. Chairman. I yield back.
        Chairman Coffman. With no other questions, Mr. Sokolov,
    thank you so much for your testimony today. I really appreciate
    it.
        Mr. Sokolov. Thank you.
        Chairman Coffman. I want to thank Deputy Associate Director
    Sokolov again for being here today to tell us about the CFPB,
    to see how it is structured, and for answering questions about
    how they are trying to limit the burden of regulations on small
    business.
        I hope that they will continue to think about how small
    businesses will be affected as they begin to exercise their
    regulatory authority. We will continue to closely follow the
    impact of the CFPB on small businesses and want to work with
    you to reduce the regulatory burden on our Nation's job
    creators.
        I also suggest that your staff listen to our second panel
    of witnesses so you can learn about the concerns that small
    businesses have about the CFPB.
        I would like now to call the second panel of witnesses to
    the witness table.
        I would now like to welcome our second panel to the
    hearing.
        For the benefit of the witnesses, I will take a moment to
    again explain the light system that you see before you. You
    will each have 5 minutes to deliver your testimony. The light
    will start out as green. When you have 1 minute remaining, the
    light will turn yellow. Finally, it will turn red at the end of
    your 5 minutes. I ask that you try to keep it to that time
    limit, but I will be a little lenient as you finish.
        Our first witness is Jess Sharp, executive director of the
    U.S. Chamber of Commerce Center for Capital Markets
    Competitiveness. This organization was founded in 2007 with the
    mission of supporting capital markets that are the most fair,
    efficient, and innovative in the world.
        Prior to becoming executive director at the Center, Mr.
    Sharp served as deputy assistant to the President for domestic
    policy and special assistant to the President on the White
    House Domestic Policy Council.
        Welcome, Mr. Sharp. You have 5 minutes to present your
    testimony.

       STATEMENTS OF JESS SHARP, EXECUTIVE DIRECTOR, CENTER FOR
      CAPITAL MARKETS COMPETITIVENESS, U.S. CHAMBER OF COMMERCE,
      WASHINGTON, D.C.; TERRY K. JONES, CHAIRMAN, LEGISLATIVE AND
        REGULATORY AFFAIRS COMMITTEE, COLORADO MORTGAGE LENDERS
    ASSOCIATION, CASTLE ROCK, COLORADO; ADAM J. LEVITIN, PROFESSOR
    OF LAW, GEORGETOWN UNIVERSITY LAW CENTER, WASHINGTON, D.C.; AND
        DANIEL FLEMING, PRESIDENT, FLEMING LEASING, ALEXANDRIA,
         VIRGINIA, ON BEHALF OF THE TRUCK RENTING AND LEASING
                              ASSOCIATION

                        STATEMENT OF JESS SHARP

        Mr. Sharp. Thank you very much, Mr. Chairman, Ranking
    Member Altmire, and distinguished members of the Subcommittee.
        My name is Jess Sharp. I am the executive director of what
    we call CCMC, the capital markets shop at the U.S. Chamber of
    Commerce. I appreciate the opportunity to testify today on
    behalf of the hundreds of thousands of Main Street businesses
    that the Chamber represents.
        The Chamber firmly supports sound consumer protection
    regulation that weeds out fraudulent and predatory actors and
    ensures consumers receive clear and concise disclosures about
    financial products. But we want to ensure that the Bureau takes
    a targeted approach to regulation and enforcement, without
    making sweeping policies that would impose duplicative
    regulatory burdens on small businesses and, perhaps even more
    importantly, that would prevent small businesses from obtaining
    the credit they need to expand and create the jobs we need so
    desperately in this country.
        So I am going to lay out some of our concerns in, sort of,
    two general baskets.
        First, you know, we have concerns that small businesses may
    be subject to the CFPB's regulation and other oversight because
    they engage in 1 of the 10 broadly described activities laid
    out in the law. So they could be directly supervised or
    regulated by the Bureau. Virtually all of these businesses are
    already subject to oversight by the FTC. I think it is
    important to point out that these are not businesses that have
    been heretofore unregulated. The Chamber fears that overlap and
    duplication will be inevitable as the Federal agencies sort out
    lines of jurisdiction and responsibility.
        Second, and as has been raised here already today, CFPB
    regulation may decrease the availability or increase the cost
    of forms of consumer credit that small businesses use. We have
    talked about credit cards, I think home equity loans as well,
    auto title loans. There is a slew of, sort of, nontraditional
    commercial bank lending instruments that small businesses do
    rely on.
        And this is, of course, particularly troubling given the
    already challenging lending environment. According to a June
    30th story in the Wall Street Journal, quote, ``In the past 6
    months, only 17 percent of loan-seeking business with less than
    $5 million in revenue landed bank financing.'' It is a tough
    environment out there, and we are concerned about any tools
    being taken off the table.
        Last week, the House approved an important piece of
    legislation that would make changes to the Bureau's structure
    and operations to increase its accountability to Congress and
    to ensure that the Bureau's decisions are based on diverse
    inputs. H.R. 1315 would replace the Bureau's current single
    director position with a bipartisan multimember leadership
    team, giving the agency more stability and balance over the
    long term, and would give small community credit unions and
    banks a voice in the process that allows the Financial
    Stability Oversight Council, or FSOC, to override Bureau
    regulations that harm safety and soundness.
        The risks of agency tunnel vision, overreach, and
    politicization are real for any government regulator, including
    the Bureau. If these risks are not properly addressed at a
    structural level, agencies inevitably will, over time, abandon
    sound regulatory principles.
        I want to speak next about SBREFA. That has also been
    mentioned here this morning, and it is a very important point.
    As has already been mentioned, the Bureau is included on the
    list now of agencies that must follow SBREFA, in addition to
    the EPA and OSHA. And it is a very important requirement--it is
    a very important requirement for the Bureau to follow in order
    to get small-business input up front.
        However, the panel process is not a perfect mechanism, and
    it is not necessarily enough to ensure an independent check on
    the Bureau's activity that affects small businesses. And so,
    this Committee's role is incredibly important in overseeing the
    Bureau's work and its implementation of SBREFA.
        Just to mention a few of the concerns we have about how
    this process could play out: First, the Bureau itself is
    responsible for the threshold determination, that a proposed
    regulation is expected to significantly impact a substantial
    number of small entities. And the terms ``significant'' and
    ``substantial'' are basically subject to the CFPB's discretion
    to define.
        Second, the Bureau does not have to adopt the panel's
    recommendations, which are advisory, and need only supply a
    reasoned explanation for adopting or rejecting them.
        Third, SBREFA covers only the rulemaking process. And I
    think you heard the first witness, Mr. Sokolov, describe that
    regulation isn't always the best way to go about doing things.
    They can use compliance assistance, they can supervision, they
    can use enforcement actions to essentially dictate broader
    policies. And, of course, none of those are subject to SBREFA
    or to any sort of formal process whereby small-businesses input
    is taken.
        And just to, again, put a fine point on it, I mean, actions
    do speak louder than words. And, as has mentioned here this
    afternoon, the Bureau already does have rulemakings essentially
    in progress, if not technically: one to merge these two
    mortgage forms; another to define the types of businesses that
    the Bureau will supervise in the nonbank space. And in neither
    case has a SBREFA panel been put together. Now, technically, I
    guess it is not required at any particular stage. But, you
    know, if we want to get this right from the beginning, we would
    encourage the Bureau to begin that process as soon as possible.
        So, with that, I thank you all for having me here, and I am
    happy to answer questions.
        [The statement of Mr. Sharp follows on p. 44.]
        Chairman Coffman. I would now like to introduce our next
    witness, who came here all the way from my home State of
    Colorado, Mr. Terry Jones.
        Mr. Jones is from the city of Castle Pines, Colorado, where
    he resides with his wife Carol. Terry Jones has over 40 years
    of experience working in the mortgage banking industry.
        Terry is testifying on behalf of the Colorado Mortgage
    Lenders Association, where he serves as chairman of their
    Legislative and Regulatory Affairs Committee.
        I am pleased that Terry Jones could be here today, and I
    look forward to your testimony.
        Mr. Jones.

                      STATEMENT OF TERRY K. JONES

        Mr. Jones. Good afternoon, Chairman Coffman, Ranking Member
    Altmire, and distinguished members of the Subcommittee.
        The Colorado Mortgage Lenders Association is a 56-year-old
    organization made up of over 100 companies, employing over
    2,500 individuals. Over 75-percent of our members are small
    businesses that employ less than 25 people.
        In my 42-year career in mortgage lending, I have been a
    loan originator, a manager, an entrepreneur, and a small-
    business owner. I have always been proud to be part of an
    industry that helps people and families reach their dreams of
    homeownership.
        I have seen many people in the business start as loan
    originators and then go on to start their own small mortgage
    lending businesses. These people have lived their own American
    dream and, in doing so, have served the real estate markets and
    the buyers and borrowers of their local communities.
        The Dodd-Frank Act creates a super-regulator for the
    mortgage lending industry in the CFPB. This is in addition to
    the oversight already in place by the States, FHA, the VA,
    Fannie Mae, and Freddie Mac.
        The CFPB is tasked with issuing more than 100 mortgage
    lending rules over the course of the next 18-months. It will be
    difficult for small mortgage lending businesses to keep up with
    so many new rules in such a short timeframe. So it is essential
    for the CFPB to develop an orderly process for its rulemaking
    initiatives, not only to ensure meaningful input from industry,
    small business, and other stakeholders, but to develop well-
    conceived and clear rules that are neither duplicative nor in
    conflict with those of the States and other agencies.
        The CFPB must also develop a process for providing timely,
    reliable guidance to the industry and to the State regulators
    well prior to the implementation of new rules.
        We believe that the CFPB has a historic opportunity to set
    the tone for the future regulation of the mortgage lending
    industry in finalizing the ability-to-repay rule and defining
    the qualified mortgage as a safe harbor characterized by
    traditional, well-underwritten, and properly documented loans.
        By pursuing such a course, the CFPB can help to preserve
    the best practices and products of the industry, yet still curb
    the abuses of the early 2000s. If the CFPB takes this approach,
    it will be of great benefit to small mortgage lenders because
    it will create a clear safe harbor that they can rely on when
    making loans. If the CFPB chooses to adopt the qualified
    mortgage as a rebuttable presumption, we believe that the
    increased levels of litigation will force many small lenders
    out of business.
        The CMLA believes a qualified-mortgage safe harbor will
    define the arena in which most loans will be made. The risk to
    smaller businesses, in particular, will be too great for most
    of them to venture outside the qualified-mortgage parameters.
    Consumers in Colorado and across the country need a viable
    small-business mortgage lending industry to provide a
    competitive local alternative to the large national lenders
    that dominate the marketplace today.
        The CFPB is also responsible for enforcement of the SAFE
    Act, which requires loan officers for nonbank firms to meet
    education, testing, and financial standards, while bank loan
    officers need only be registered. This creates an unlevel
    playing field and additional costs for small, nonbank lenders
    and creates unequal protection for consumers.
        In addition, licensed originators can move freely to
    depository lenders from licensed originators, but the reverse
    is not true. A loan originator working for a bank will have to
    go through the entire licensing process in order to be able to
    be employed by a small-business lender. We ask that the CFPB
    undertake rulemaking as soon as possible to create a
    transitional license to allow registered loan originators to
    move from depository institutions to nonbank lenders for a
    limited time while they complete their licensing requirements.
        Finally, it is important for the CFPB to address the loan
    officer compensation rule under the Truth in Lending Act and
    reconsider some of the rigid requirements that were recently
    imposed by the Fed on the ability of a small business to pay
    its employees in a manner consistent with the profitability of
    the loan products they produce.
        Confusing standards and lack of official guidance from the
    Fed has created some unusual outcomes. For example, the current
    rule severely impacts revenue bond programs that serve low- to
    moderate-income and rural borrowers. These programs typically
    limit fees that can be charged to the borrower, yet the loan
    officer compensation rule specifies that the loan officer must
    be paid exactly the same on these loans as any other. This can
    easily cause losses on these loans, and many lenders will be
    unable to offer these affordable loan programs. We urge the
    Bureau to clarify this and other problematic issues with the
    compensation rule.
        We respectfully urge Congress and this Subcommittee to
    carefully monitor all of these new rules to be certain that
    they do not unwittingly harm American families, small business,
    the mortgage market, the housing recovery, or the Nation's
    economic recovery.
        I thank you very much for the opportunity to testify before
    you today.
        [The statement of Mr. Jones follows on p. 30.]
        Chairman Coffman. Thank you, Mr. Jones.
        I would now like to recognize Ranking Member Altmire from
    Pennsylvania, who is going to introduce our next witness.
        Mr. Altmire. Thank you, Mr. Chairman.
        And it is my pleasure to introduce Adam Levitin.
        Mr. Levitin is professor at the Georgetown University Law
    Center in Washington, D.C., where he teaches courses in
    bankruptcy, commercial law, and consumer finance. He has
    previously served as a scholar in residence at the American
    Bankruptcy Institute and as special counsel to the
    congressional oversight panel supervising TARP.
        Before joining the Georgetown faculty, Professor Levitin
    practiced law and served as a law clerk for the U.S. Court of
    Appeals for the Third Circuit. Professor Levitin holds a JD
    from Harvard Law School and degrees from Columbia University
    and Harvard College.
        Welcome, Professor Levitin.

                      STATEMENT OF ADAM J. LEVITIN

        Mr. Levitin. Mr. Chairman Coffman, Ranking Member Altmire,
    and members of the Committee, good afternoon. My name is Adam
    Levitin. I am a professor of law at Georgetown University Law
    Center. My research and teaching focuses on consumer finance
    and financial regulation. I am also a small-business owner.
        The Consumer Financial Protection Bureau has only limited
    and generally indirect connections to small-business finance.
    With three very limited exceptions, the CFPB's jurisdiction is
    restricted to consumer financial products.
        While many small businesses use consumer financial
    products, like personal credit cards and home equity lines of
    credit, for business transactions, small-businesses owners
    need, deserve, and want the same protections on their financial
    products whether they are using them for personal or business
    use. Thus, the National Small Business Association has
    advocated for extending Truth in Lending Act protections to
    small-business credit cards.
        Now, there are only two ways the CFPB might directly affect
    small-business lending.
        First, the Dodd-Frank Act requires the CFPB to collect data
    on small-business lending under the Equal Credit Opportunity
    Act. This is to ensure against discriminatory lending in the
    small-business space. The ECOA data collection requirement will
    impose some limited costs on lenders, but it will also provide
    an important protection for small businesses, particularly
    those owned by women and people of color.
        More generally, though, the CFPB has regulatory authority
    over almost all consumer financial service providers, large and
    small. The CFPB regulations could affect the cost or
    availability of business credit, but I want to emphasize, it is
    simply premature to judge the CFPB's impact on financial
    service providers or the impact of the CFPB on small-business
    credit costs and availability. Instead, individual rules will
    need to be evaluated on their own merits when and if they are
    proposed.
        The Dodd-Frank Act imposes numerous safeguards on CFPB
    rulemaking to ensure against unnecessary regulatory burdens.
    CFPB rulemaking and adjudication is subject to the
    Administrative Procedures Act. It is also subject to the
    Regulatory Flexibility Act. The CFPB is one of only three
    agencies required to have regulatory flexibility review panels
    under the Small Business Regulatory Enforcement Fairness Act.
        The CFPB is also required to consult with prudential
    regulators on its rulemakings and to reevaluate those
    rulemakings within 5-years. Additionally, the CFPB is subject
    to Financial Stability Oversight Council review for its
    rulemakings, which is unlike any other bank regulator.
        Finally, small banks and all but three credit unions are
    exempt from CFPB supervision and enforcement. Their supervision
    and enforcement remains with their existing prudential
    regulators. Now, I want to emphasize that this is a battery of
    safeguards that does not apply to any other bank regulator.
        It is also important to note that the CFPB is likely to
    help small businesses. The CFPB can help improve competition in
    small-business lending by ensuring that consumer financial
    products which are used by small businesses are fair and
    transparently priced. Small businesses want to use fair and
    transparent products.
        Second, the CFPB can help small businesses by helping
    small-business customers. When consumers feel confident that
    they won't get caught by financial-product tricks and traps,
    they are going to have greater willingness to make purchases,
    including from small businesses. And the CFPB can help protect
    against consumer asset bubbles and, thus, smooth the volatility
    of consumer spending. That means a more stable business
    environment, which benefits small businesses.
        In short, the CFPB has limited jurisdiction over small
    businesses. It is subject to numerous safeguards to ensure
    against excessive regulatory burdens on small business, and it
    may be able to help increase the efficiency of small-business
    lending by increasing consumer confidence and spending
    stability.
        Thank you very much.
        [The statement of Mr. Levitin follows on p. 59.]
        Chairman Coffman. Thank you, Mr. Levitin.
        Our final witness to testify here this afternoon is Daniel
    Fleming, president of Fleming Leasing, a truck-renting and -
    leasing business located in Springfield, Virginia. Fleming
    Leasing is a family-owned business founded in 1903, when the
    transportation services they were providing consisted of a
    horse and buggy.
        Mr. Fleming is testifying on behalf of the Truck Renting
    and Leasing Association.
        Mr. Fleming, you have 5 minutes to present your testimony.

                      STATEMENT OF DANIEL FLEMING

        Mr. Fleming. Thank you, Mr. Chairman. Thank you, Mr.
    Altmire.
        As you said, my name is Dan Fleming. I am president of
    Fleming NationaLease in Springfield, Virginia. And our company
    is a member of the Truck Renting and Leasing Association, or
    TRALA.
        I am testifying today on a troubling aspect of the Dodd-
    Frank Act, namely section 1071, the small-business loan data
    collection provision.
        Fleming NationaLease is a family-owned business with 18
    permanent employees with locations in Springfield, Virginia,
    and Landover, Maryland. We are a proud member of TRALA, an
    association comprised of about 550 companies, employing 100,000
    people, and operating out of 24,000 locations throughout the
    United States.
        Not only are nearly all of TRALA's 550 members small
    businesses themselves, but the vast majority of the customers
    that we deal with are also small businesses in search of
    vehicles and equipment offered for rent or lease at a
    reasonable price.
        Part of the process in acquiring rented or leased vehicles
    is to fill out an application of credit. As written, section
    1071 adds extensive new application requirements to the ECOA.
    These requirements would be offered by and monitored through
    the CFPB. While I certainly do not operate a bank, under the
    definitions listed within this new law I am considered a
    financial institution because I have an application for credit
    for my customers.
        In my opinion, the small-business data collection provision
    is counterproductive, contradictory, costly, and confusing.
        The provision is counterproductive in that the CFPB was
    created with the intention of giving consumers protection from
    the predatory lenders and allowing them to find more options
    for information in obtaining a loan, but instead is now
    intended to regulate commercial loans and lenders.
        Section 1071 is contradictory in that the statutory
    language conflicts with existing language already on the books.
    My understanding is that section 202.5 of Regulation B under
    the ECOA explicitly says, ``A creditor shall not inquire about
    the race, color, religion, national origin, or sex of an
    applicant.'' The personal information should have no basis in
    determining whether or not someone receives a truck from
    Fleming NationaLease.
        In terms of cost, this could cause a real strain on my
    bottom line. According to section 1071, after a lender inquires
    whether an applicant for a loan is a minority, woman-owned, or
    small business, no one involved in the credit decision can have
    access to this information. This would require me, the so-
    called lender under this definition, to completely alter my
    application process, which would be expensive. If we were to
    comply with this new regulation, I estimate that we would have
    to, at a minimum, hire a new part-time employee. That could
    cost our company somewhere between $10,000 and $20,000
    annually. And while that doesn't seem much in the scheme of
    things, for me it is money that could be spent hiring another
    mechanic or purchasing a new vehicle, both of which, in turn,
    makes my company more profitable, but instead would be spent on
    more administrative burdens.
        Lastly, section 1071 is extremely confusing and leaves many
    questions unanswered regarding what information I am to collect
    and what definitions will be used to ensure compliance. There
    also remains a concern over whether or not the CFPB and the
    Federal Reserve will work jointly to rectify issues that could
    remain from any exemptions that exist.
        Just to touch on this final point, since section 1071
    amended the ECOA, both the CFPB and the Federal Reserve now
    have jurisdiction over entities such as auto dealers. I believe
    it is imperative that if this new law was to be enacted and
    enforced, regulators must coordinate their implementation of
    these new requirements. If not, financial companies might
    receive different data from the dealers than that which they
    are required to file with the CFPB and open an entirely new
    problem.
        While I recognize the fact that the CFPB has now decided it
    will issue a formal rule that hopefully will address and answer
    some of the confusing qualities within the law, ultimately I
    remain unconvinced that there is even a reason to have such a
    rule implemented for businesses like my own. I am not a banker.
    I lease trucks. To be placed in the same category with a
    multibillion-dollar financial giant makes absolutely no sense
    to me. In my opinion, making a truck-leasing company or any
    small business comply with section 1071 is a mistake.
        Thank you for allowing me to issue my testimony today.
        [The statement of Mr. Fleming follows on p. 54.]
        Chairman Coffman. Thank you, Mr. Fleming.
        Questions. I will start with Mr. Jones.
        On a scale of 1 to 10, how would you rate the CFPB's
    outreach on the mortgage disclosure forms that they are
    currently in the process of revising?
        Mr. Jones. Thank you, Chairman Coffman.
        I would rate them at a 6 or a 7, especially compared to
    previous regulatory form changes. I think they really have
    reached out and provided an opportunity for our members and
    members of the mortgage lending community to comment on those
    forms.
        Chairman Coffman. Thank you.
        With your 40 years of mortgage lending experience, can you
    tell me what happens if an entity is seen by its customers as
    being abusive?
        Mr. Jones. I think that if an entity is seen by its
    customers as abusive, basically, they stop using the lender. I
    think good businesses in our business and in any business have
    to be close to their customers. And that, I think, is one of
    the real benefits of being a small business, being located with
    your customers in the same towns, going to the same meetings,
    the same social functions, and the same churches. It is
    critical that you have good customer relationships.
        Chairman Coffman. Mr. Sharp, we hear frequently that there
    is a fight between Main Street and Wall Street. However, our
    economy is interconnected, and we must make sure both are
    healthy if we want to grow our economy.
        Can you tell me about the impact that financial regulations
    will have for Main Street small businesses?
        Mr. Sharp. Yes, Mr. Chairman. Thanks for the question.
        As I said in my testimony, I mean, it is hard to know
    exactly what the impact will be. And I think we heard that from
    the first panel, as well. But, again, our concern is that, you
    know, small businesses have the hardest time and the most
    expensive time, really, complying with new regulations. And, as
    you know, there are a flood of regulations headed their way.
        In this case in particular, again, our concern is that some
    companies may be directly regulated who didn't expect to be
    regulated, as my fellow panelist, Mr. Fleming, has mentioned,
    and others may find that access to credit lines or to credit
    instruments that they rely on are either more expensive or
    unavailable.
        So there is no way to know for sure what the impact is
    going to be, but those are the two areas where we are hopeful
    that there won't be an adverse impact.
        Chairman Coffman. Can you tell me how small businesses use
    the equity in their home to finance small businesses,
    particularly in the early stages of development?
        Mr. Sharp. Sure. I think it is pretty widely accepted that
    particularly the very smallest businesses, sort of, you know,
    the two guys in a garage, kind of, you know, very earliest
    stage of a small business. And I think, you know, if you look
    at Google or some of the real tech giants these days, you can
    trace almost all of them back to, again, a couple guys in a
    garage with either a personal credit card or someone borrowing
    against their house or borrowing against their car.
        Now, of course you grow out of that phase at some point
    and, you know, you have access to the capital markets. But each
    of those tools, which are not, you know, designed to be for
    commercial lending, have become critical lifelines for small
    businesses.
        Chairman Coffman. Right.
        Based on your experience in government and observing the
    CFPB, do you think they are prepared to assume authority, or do
    you feel that they have been rushed?
        Mr. Sharp. Well, you know, a year sounds like a lot of
    time, but it is really not, to stand up a brand-new agency,
    particularly when you have a responsibility to sort of gather
    up bits of law, I think, in seven other agencies. I think it is
    19 statutes that they are consolidating under one roof.
        So we do have a concern that they are moving awfully fast.
    You know, I think on the transfer date they began to issue--
    they, the CFPB--began to issue interim final rules, which
    essentially says, ``This is the final rule, but we are going to
    take comments and adjust as needed.'' And in some cases, that
    is probably good; in some cases, you know, we may have
    concerns. We are trying to keep up, as well.
        But I don't think a year is enough time for this bureau to
    have gone active, particularly without a confirmed director. I
    think that also creates serious challenges for them.
        Chairman Coffman. Mr. Fleming, you mentioned compliance
    costs in your testimony, but can you reiterate how much will it
    cost for your business to comply with the new data collection
    requirements?
        Mr. Fleming. Well, again, Mr. Chairman, I am estimating
    that we could potentially have to add at least a part-time
    clerk, which, for us, as such a small business that is so flat,
    that is really a significant investment for us for, really, a
    position that doesn't add to the bottom line.
        I would prefer to spend those funds on, as I said, a
    mechanic or some equipment that adds to revenue for our
    customer. You know, we are constantly looking for good,
    qualified diesel technicians to fix our trucks, to keep them
    out on the road, to help produce revenue for our company.
        So while, again, I said one part-time position seems small,
    that really would be better used in a revenue-generating-type
    position rather than just an administrative burden to comply
    with potentially new Federal regulations.
        Chairman Coffman. Do you feel taken advantage of by the
    banks that you work with? If so, I mean, do you just switch
    banks or providers?
        Mr. Fleming. Actually, we did switch our banking
    relationship. I wouldn't say felt taken advantage of, but just
    didn't feel that it was working for us. And we had a
    relationship with banks out in Ohio and changed those banking
    relationships.
        I think, as other members of the panel said, it is a free
    market, and there are certainly plenty of other opportunities
    for us. And we took advantage of other opportunities when they
    presented themselves.
        Chairman Coffman. Thank you.
        Mr. Levitin, according to the SBA Office of Advocacy, small
    businesses create 7 out of every 10 jobs in America. Yet, in a
    recent article, you claimed that small businesses' contribution
    to long-term, stable employment is limited.
        Do you disagree about the importance of small businesses in
    helping our country recover from 9-percent unemployment?
        Mr. Levitin. No, I do not disagree with that. I would
    actually point out that what I said is entirely consistent with
    the Small Business Administration's Office of the Advocate,
    that small businesses create a tremendous number of jobs every
    year, but the general story of small business is,
    unfortunately, failure. Most small businesses don't last for
    more than a couple years. So, instead, you just get churning,
    rather than stable, long-term employment.
        Chairman Coffman. Okay.
        As a professor, I would assume that you see the value of
    lawyers drafting contracts and committing agreements to
    writing; this creates certainty. How can plain language
    increase certainty in contracts? I can see the value in getting
    rid of some legalese, but don't contracts require some specific
    language that cannot always be made into, quote/unquote,
    ``plain language''?
        Mr. Levitin. It really depends on the specifics here. So I
    think where your question is going, if I understand it
    correctly, is, how is the CFPB going to help make markets more
    efficient? And getting rid of unnecessary legalese is certainly
    something I think everyone at this table would think is a
    wonderful thing. That is move one.
        But, as you point out, not everything can be boiled down to
    legalese. The second part is simply ensuring that, when a
    business goes out, or a consumer, actually--well, really, a
    consumer goes out and compares financial products, they can
    compare them on an apples-to-apples basis. That is actually
    very difficult to do right now with many financial products. It
    is not like going to a grocery store, where there is unit
    pricing and you can see the cost for an ounce of orange juice
    of brand 1 and an ounce of orange juice of brand 2. Instead,
    many financial products are designed in a way that they are too
    complex to compare on an apples-to-apples basis, knowing what
    the all-in cost will be.
        The CFPB may be able to improve that by encouraging
    standardization of financial products to the things that
    consumers really want.
        Chairman Coffman. Thank you.
        Mr. Altmire.
        Mr. Altmire. Thanks, Mr. Chairman.
        Mr. Levitin, I wanted to follow up on a question I asked to
    the earlier panel regarding the fact that many entrepreneurs
    use personal credit cards and home equity loans to finance new
    business ventures.
        Many of you mentioned that in your testimony.
        How should, in your opinion, the CFPB account for these
    small-business owners when drafting regulations specifically
    for credit cards and home mortgage products?
        Mr. Levitin. Well, as someone who actually uses a small-
    business credit card for some purchases, I think it is
    important to note that many small businesses use the same
    credit card for both their business transactions and personal
    transactions.
        And so, say you are going and filling up your car with a
    tank of gas and you use that car partially for business use and
    partially for your personal use. You want to make sure that
    you--I think you would want the same protections on that
    transaction, because you don't know whether that gas you are
    putting in the tank is going to be used for when you are
    driving your kids to the soccer game or whether you are using
    it for work. You don't know, at that point, whether you are
    doing a business transaction or not, ultimately.
        And in situations like that, small-business owners should
    have the same protections that they have when they are
    consumers.
        Mr. Altmire. For Mr. Jones, over the past 3 years, we have,
    unfortunately, learned that bad mortgages are costly to
    everybody. And to be successful, your business, in particular,
    has had to make loans that borrowers can repay.
        Is there, in your opinion, a potential benefit to the
    mortgage industry if the CFPB's ability-to-repay rules are
    structured appropriately?
        Mr. Jones. Thank you, Mr. Altmire, for the question.
        Yes, I think so. The ability-to-pay rule, again, if it is
    characterized as a safe harbor, will provide a bright line,
    especially for small lenders that don't have the ability to
    hire compliance staff. If you have a 25-person business and you
    need to hire an attorney to help you interpret the rules and
    regulations, it becomes a very costly endeavor.
        So it is important, if they do characterize it as a safe
    harbor that is clearly interpretable by small businesses. I
    think it will be a vast boon to our industry and to the
    consumers of America, as well.
        Mr. Altmire. Thank you.
        For Mr. Sharp, many in the banking industry have expressed
    concern that the Dodd-Frank Act will stifle lending to small
    businesses, another point many of you brought up.
        Hasn't the small-business community been struggling to get
    credit from banks since well before the financial reform was
    enacted? And is there something that could be done, perhaps
    outside of this law, or something different, to help correct
    for that?
        Mr. Sharp. Well, thank you, Mr. Altmire.
        First of all, I mean, to answer the first part of your
    question, yes. I mean, the challenges that small businesses
    face in the credit markets right now are not unique to 2011 or
    2010. I mean, they have been around for several years now, and
    they are sort of--and it is stagnant. It is not improving, and
    that is a real concern.
        You know, honestly, at this point, I think part of what
    everybody is hearing is, ``Let's not do anything to make it
    worse.'' It is not exactly clear what it is that is gumming up
    the works, but what we know for sure, that, again, the
    commercial lending markets are not frozen, but, you know, they
    are not in good shape. Sort of, our message and the message we
    are hearing from our small-business and Main Street members is,
    ``Let's certainly not take away some of these tools that do
    seem to be working well now. We can still use our credit cards.
    We can still borrow money against our car title or our home.''
    Even those markets are functioning fairly well.
        So their message to us is, ``Do no harm,'' essentially. And
    that means working closely with the CFPB to make sure they
    understand the knock-on effects, you know, to the small-
    business lending world in the actions they are taking.
        Mr. Altmire. Thank you, Mr. Chairman.
        Chairman Coffman. Mr. West.
        Mr. West. Thank you, Mr. Chairman and Mr. Ranking Member.
        And thanks to the panel for being here today.
        Mr. Sharp, I will ask the first question to you, and others
    from the panel can chime in.
        What do you really see, in your assessment, the purpose of
    the CFPB to be?
        Mr. Sharp. I believe the purpose of the CFPB is to find
    fraudsters in the consumer products market and put them out of
    business or, you know, clamp down on their fraudulent
    practices. Protect consumers against bad actors in the market.
        Mr. West. Okay.
        Anyone else?
        Mr. Levitin. I would say that is part of CFPB's mission,
    and that is an important part, but it is broader. CFPB's
    mission is to ensure that we have fair, transparent, and
    competitive consumer finance markets. And that is not just
    getting rid of fraud; that is also ensuring that disclosures
    are clear, that we can have good price competition in the
    market.
        Mr. West. Have we had, prior to this, any other government
    agency or someone else that was doing this? I mean, do we see
    this as a redundancy, or do we see this as some type of a
    duplication of effort out there from the government?
        Mr. Levitin. Prior to the Dodd-Frank Act, some parts of the
    consumer finance space were regulated, by a laundry list of
    Federal agencies. And this was one of the problems, that you
    had a regulatory market that was splintered. So you had the
    Federal Reserve, the FDIC, the Office of Comptroller of the
    Currency, Office of Thrift Supervision, even the Department of
    Defense and HUD each having little spaces in the market. And
    many things fell between the cracks.
        And, also, those missions--the consumer protection mission
    given those agencies was typically a secondary and subordinate
    mission to other missions, particularly to bank safety and
    soundness, which is just a fancy term for bank profitability.
        So, abusive lending practices, the only reason to do them
    is that they are profitable. Banks don't do them for fun; they
    do them because they are profitable. But if you are the
    Comptroller of the Currency and you see your primary mission as
    ensuring that banks are profitable, that puts you in a bit of a
    bind, where you are going to be tempted to turn a blind eye to
    abusive practices because they are profitable. And that is what
    we saw. That is what led up to the housing bubble.
        Mr. West. Okay.
        So, in your assessment--for the panel--this was something
    that we needed to institute. This was an agency, a bureau, or a
    government program, whatever you want to call it, that we
    needed to institute.
        Mr. Levitin. Without a doubt. The financial crisis in 2008
    came out of consumer financial products, out of mortgage
    products. That was the root of it. And if we want to ensure
    that doesn't happen again, we need to have better consumer
    financial protection.
        Mr. Sharp. I will just say that, you know, it is no secret
    that the Chamber didn't support the creation of the Consumer
    Protection Bureau. And, at this point, you know, our focus is
    on--you know, it is there, it is up and running, it is no
    longer an idea on paper. And, you know, our concern now is, as
    it is beginning, as the gears begin to turn and it begins to
    issue regulations and begins do its work, our concern is that
    it not become a sort of duplicator of other agencies' work.
        And there are some cases, at least one very obvious one
    with the Federal Trade Commission, where the Bureau's
    jurisdiction and the Federal Trade Commission's jurisdictions
    overlap. And that was intentional, to some degree. And the law
    requires the two agencies to prevent, you know, sort of,
    stepping on each other's toes, you know, to prevent situations
    where they are duplicating or conflicting with one another. But
    we do have concern, sort of a general concern, that that will
    be very difficult to avoid.
        Mr. West. Mr. Jones and Mr. Fleming, do you believe that
    the CFPB will enhance free-market competitiveness and
    entrepreneurial spirit or not?
        Mr. Jones. Mr. West, thank you for the question.
        We were happy to see the CFPB's move toward consolidating
    the Truth-in-Lending and the Good-Faith-Estimate disclosures,
    two forms that have been a challenge for the industry, being
    administered formerly by two separate Federal agencies that did
    not always see eye to eye in terms of what should be done. So
    we do think there is real benefit there.
        Another benefit to our industry could be that--our industry
    is very heavily involved in automation, in order to comply with
    the multiplicity of rules and regulations that we have. To that
    extent, I was very encouraged today to hear that the CFPB will
    be doing an economic cost-benefit analysis to really determine
    whether or not there will be an economic benefit to their
    proposed rules and to the extent that that is what we do, then
    I think it can be a boon, not only to the industry to help to
    lower some costs, but it also will be a boon to consumers, who
    hopefully will have less confusing and clearer disclosures.
        So there definitely are some benefits.
        Mr. Fleming. Mr. West, since I am a trucker and not a
    banker, I would be hard-pressed to express an overall opinion
    of the CFPB. What I am primarily concerned about is just, you
    know, any new regulations that seem to me, as someone sitting
    down in Springfield, Virginia, shouldn't really apply to me all
    of a sudden coming down and creating new regulatory
    requirements.
        So, from that perspective, I am concerned about that
    section. But, overall, I am certainly not in a position to
    register an opinion on the group as a whole. So, thank you.
        Mr. West. Very well.
        Mr. Chairman, I yield back.
        Chairman Coffman. Thank you, Mr. West.
        To each of the panelists, if you could identify just one
    top issue that bothers you about CFPB, just the top issue that
    you think ought to be changed or improved to improve it, what
    would that be?
        Mr. Jones.
        Mr. Jones. Thank you, Mr. Chairman.
        I think our top issue with the CFPB will be the clarity of
    the issues--or the clarity of the rules and regulations that
    are issued, and the ability to receive and respond to industry
    input prior to those regulations being implemented.
        Chairman Coffman. Mr. Sharp.
        Mr. Sharp. Mr. Chairman, our primary--the changes that we
    are pushing for primarily are structural. You know, it is very
    difficult, as I think we have all discussed today, to know
    exactly what problems may arise and when and what type, in what
    sector. So what we are advocating for is replacing the single
    director with the panel and ensuring that safety and soundness
    isn't compromised through a more effective check by the
    prudential regulators.
        So, at this point, we think that, sort of, the best long-
    term hedge against, you know, poor policymaking by this agency
    or any other independent agency is, sort of, collaborative
    decision-making at the top with input from diverse, you know,
    sectors, bipartisan input. So that is our top priority.
        Chairman Coffman. Thank you.
        Mr. Fleming.
        Mr. Fleming. Mr. Chairman, I think I would just ask the
    organization to take in to consideration unintended
    consequences, such as, you know, these data collection
    requirements that maybe in theory would be of interest and be
    helpful to the organization, however be burdensome for us small
    businesses that would have to comply with these new regulations
    to provide the data.
        Chairman Coffman. Mr. Levitin.
        Mr. Levitin. As you might have guessed, I am going to give
    a rather different answer.
        I think the two most important things with the CFPB are,
    number one, that the Senate should confirm a director; and,
    number two, if you really wanted to start changing the scope of
    CFPB regulation, I would strongly urge subjecting auto dealers
    and realtors to CFPB regulation. There is not a very good
    principled argument for exempting them.
        Chairman Coffman. Thank you.
        Mr. Altmire, any----
        Mr. Altmire. No further questions.
        Chairman Coffman. Thank you.
        Panelists, I just want to thank you all so much for taking
    the time and coming down to Capitol Hill and testifying today
    on this very important matter.
        With that, the Committee is adjourned.