[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




                  U.S. GOVERNMENT PRINTING OFFICE
68-063                    WASHINGTON : 2011
-----------------------------------------------------------------------
For sale by the Superintendent of Documents, U.S. Government Printing 
Office Internet: bookstore.gpo.gov Phone: toll free (866) 512-1800; DC 
area (202) 512-1800 Fax: (202) 512-2104  Mail: Stop IDCC, Washington, DC 
20402-0001







                   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.



