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




 
   WHO'S WATCHING THE WATCHMEN? OVERSIGHT OF THE CONSUMER FINANCIAL 
                           PROTECTION BUREAU

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

                                HEARING

                               before the

                SUBCOMMITTEE ON TARP, FINANCIAL SERVICES
              AND BAILOUTS OF PUBLIC AND PRIVATE PROGRAMS

                                 of the

                         COMMITTEE ON OVERSIGHT
                         AND GOVERNMENT REFORM

                        HOUSE OF REPRESENTATIVES

                      ONE HUNDRED TWELFTH CONGRESS

                             FIRST SESSION

                               __________

                              MAY 24, 2011

                               __________

                           Serial No. 112-76

                               __________

Printed for the use of the Committee on Oversight and Government Reform


         Available via the World Wide Web: http://www.fdsys.gov
                      http://www.house.gov/reform




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              COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM

                 DARRELL E. ISSA, California, Chairman
DAN BURTON, Indiana                  ELIJAH E. CUMMINGS, Maryland, 
JOHN L. MICA, Florida                    Ranking Minority Member
TODD RUSSELL PLATTS, Pennsylvania    EDOLPHUS TOWNS, New York
MICHAEL R. TURNER, Ohio              CAROLYN B. MALONEY, New York
PATRICK T. McHENRY, North Carolina   ELEANOR HOLMES NORTON, District of 
JIM JORDAN, Ohio                         Columbia
JASON CHAFFETZ, Utah                 DENNIS J. KUCINICH, Ohio
CONNIE MACK, Florida                 JOHN F. TIERNEY, Massachusetts
TIM WALBERG, Michigan                WM. LACY CLAY, Missouri
JAMES LANKFORD, Oklahoma             STEPHEN F. LYNCH, Massachusetts
JUSTIN AMASH, Michigan               JIM COOPER, Tennessee
ANN MARIE BUERKLE, New York          GERALD E. CONNOLLY, Virginia
PAUL A. GOSAR, Arizona               MIKE QUIGLEY, Illinois
RAUL R. LABRADOR, Idaho              DANNY K. DAVIS, Illinois
PATRICK MEEHAN, Pennsylvania         BRUCE L. BRALEY, Iowa
SCOTT DesJARLAIS, Tennessee          PETER WELCH, Vermont
JOE WALSH, Illinois                  JOHN A. YARMUTH, Kentucky
TREY GOWDY, South Carolina           CHRISTOPHER S. MURPHY, Connecticut
DENNIS A. ROSS, Florida              JACKIE SPEIER, California
FRANK C. GUINTA, New Hampshire
BLAKE FARENTHOLD, Texas
MIKE KELLY, Pennsylvania

                   Lawrence J. Brady, Staff Director
                John D. Cuaderes, Deputy Staff Director
                     Robert Borden, General Counsel
                       Linda A. Good, Chief Clerk
                 David Rapallo, Minority Staff Director

  Subcommittee on TARP, Financial Services and Bailouts of Public and 
                            Private Programs

              PATRICK T. McHENRY, North Carolina, Chairman
FRANK C. GUINTA, New Hampshire,      MIKE QUIGLEY, Illinois, Ranking 
    Vice Chairman                        Minority Member
ANN MARIE BUERKLE, New York          CAROLYN B. MALONEY, New York
JUSTIN AMASH, Michigan               PETER WELCH, Vermont
PATRICK MEEHAN, Pennsylvania         JOHN A. YARMUTH, Kentucky
JOE WALSH, Illinois                  JACKIE SPEIER, California
TREY GOWDY, South Carolina           JIM COOPER, Tennessee
DENNIS A. ROSS, Florida


                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on May 26, 2011.....................................     1
Statement of:
    Warren, Elizabeth, Special Adviser to the Secretary of the 
      Treasury for the Consumer Financial Protection Bureau, U.S. 
      Department of the Treasury.................................    10
    Zywicki, Todd, foundation professor of law, George Mason 
      University; David S. Evans, chairman, Global Economics 
      Group, lecturer, University of Chicago Law School; Adam J. 
      Levitin, associate professor of law, Georgetown University 
      Law Center; and Andrew Pincus, partner, Mayer Brown Rowe & 
      Maw LLP....................................................    41
        Evans, David S...........................................    50
        Levitin, Adam J..........................................    63
        Pincus, Andrew...........................................    77
        Zywicki, Todd............................................    41
Letters, statements, etc., submitted for the record by:
    Evans, David S., chairman, Global Economics Group, lecturer, 
      University of Chicago Law School, prepared statement of....    52
    Levitin, Adam J., associate professor of law, Georgetown 
      University Law Center, prepared statement of...............    65
    McHenry, Hon. Patrick T., a Representative in Congress from 
      the State of North Carolina, prepared statement of.........     4
    Pincus, Andrew, partner, Mayer Brown Rowe & Maw LLP, prepared 
      statement of...............................................    79
    Quigley, Hon. Mike, a Representative in Congress from the 
      State of Illinois, letter dated May 19, 2011...............     7
    Warren, Elizabeth, Special Adviser to the Secretary of the 
      Treasury for the Consumer Financial Protection Bureau, U.S. 
      Department of the Treasury, prepared statement of..........    13
    Zywicki, Todd, foundation professor of law, George Mason 
      University, prepared statement of..........................    43


   WHO'S WATCHING THE WATCHMEN? OVERSIGHT OF THE CONSUMER FINANCIAL 
                           PROTECTION BUREAU

                              ----------                              


                         TUESDAY, MAY 24, 2011

                  House of Representatives,
      Subcommittee on TARP, Financial Services and 
           Bailouts of Public and Private Programs,
              Committee on Oversight and Government Reform,
                                                    Washington, DC.
    The subcommittee met, pursuant to notice, at 1:16 p.m., in 
room 2247, Rayburn House Office Building, Hon. Patrick T. 
McHenry (chairman of the subcommittee) presiding.
    Present: Representatives McHenry, Guinta, Buerkle, Amash, 
Gowdy, Issa (Ex Officio), Quigley, Maloney, Yarmuth, Speier, 
Cooper, and Cummings (Ex Officio).
    Staff present: Robert Borden, general counsel; Katelyn E. 
Christ, research analyst; Benjamin Stroud Cole, policy advisor 
and investigative analyst; Drew Colliatie, staff assistant; 
John Cuaderes, deputy staff director; Adam P. Fromm, director 
of Member services and committee operations; Linda Good, chief 
clerk; Tyler Grimm and Ryan M. Hambleton, professional staff 
members; Peter Haller, senior counsel; Christopher Hixon, 
deputy chief counsel, oversight; Hudson T. Hollister, counsel; 
Jaron Bourke, minority director of administration; Jason Powell 
and Steven Rangel, minority senior counsels; Brian Quinn and 
Davida Walsh, minority counsels; Dave Rapallo, minority staff 
director; and Cecelia Thomas, minority counsel/deputy clerk.
    Mr. McHenry. The committee will come to order.
    The hearing today is Who's Watching the Watchmen? Oversight 
of the Consumer Financial Protection Bureau.
    The committee is now in order. We make it a policy here on 
the Oversight and Government Reform Committee to read our 
mission statement.
    We exist to secure two fundamental principles. First, 
Americans have a right to know that the money Washington takes 
from them is well spent; and, second, Americans deserve an 
efficient, effective government that works for them.
    Our duty on the Oversight and Government Reform Committee 
is to protect these rights. Our solemn responsibility is to 
hold government accountable to taxpayers, because taxpayers 
have a right to know what they get from their government. We 
will work tirelessly in partnership with citizen watchdogs to 
deliver the facts to the American people and bring genuine 
reform to the Federal bureaucracy.
    This is the mission of the Oversight and Government Reform 
Committee.
    I now recognize myself for 4 minutes for an opening 
statement.
    Today's Oversight hearing underscores the role of the U.S. 
Congress to scrutinize the implementation and enforcement of 
key provisions of the Dodd-Frank Act. The Consumer Financial 
Protection Bureau, which is the brainchild of today's first 
witness, has been hailed by some as a much-needed regulatory 
authority to limit the risk of financial fraud. Yet others, 
myself included, are skeptical that the Bureau's creation, 
structure, and broad discretionary powers are warranted.
    Nevertheless, Dodd-Frank is now the law of the land; and in 
a few short weeks the Bureau will become a powerful instrument 
in the hands of progressive regulators. Once fully operational, 
the Bureau will possess virtually unchecked discretion to 
identify financial products and services that the director 
determines to be ``unfair, deceptive, or abusive.''
    To fund and execute this mandate, the law has granted the 
Bureau an unparalleled budgetary authority, free from 
congressional authorization and an unacceptable degree of 
autonomy, hidden from congressional oversight.
    While we have yet to hit the date of transfer of authority 
to the Bureau, Congress has a responsibility to assess and the 
American people have a right to know the designs that Professor 
Warren has implemented in its creation. What controls are being 
created to protect the American people from abusive government 
power? We demand internal controls of companies. What internal 
controls govern the Bureau? What limits are being set to guard 
them from administrative overreach? In the absence of the 
normal checks and balances established by the Constitution, 
what guarantees do the American people have that the Bureau 
will behave responsibly, spend wisely, and regulate fairly?
    Furthermore, in earlier testimony before the Financial 
Services Committee here in the House, Professor Warren asserted 
that the Bureau is ``the most constrained and the most 
accountable agency in government.'' Yet the lofty promise of 
restraint and accountability seems to be backed by the highest 
appeal threshold in regulatory history.
    In that same appearance, Professor Warren testified that 
the Bureau's role in ongoing mortgage settlement negotiations 
was limited to ``advice.'' Furthermore, one of her staffers 
then e-mailed the press and defines the role and the quote of 
advice defined by Miriam Webster.
    Since her testimony, however, Congress received evidence 
that Professor Warren and the Bureau were deeply involved in 
the negotiations. The emergence of the Bureau's ``Settlement 
Presentation'' and the fact that Professor Warren has been in 
dozens of meetings with Federal and State officials about these 
settlements raise concerns about the veracity of her earlier 
testimony.
    This hearing, however, is not about a confirmation hearing 
for Professor Warren or a potential Senate race. This hearing 
is about the mission, policy, and structure that affect the 
creation and implementation of the Bureau. It is also the need 
for critical oversight of an agency which has so vast oversight 
authority over large portions of the American economy. Simply 
stated, who is watching the watchmen?
    The Constitution creates a government that protects the 
freedoms of the American people, not one that provides for 
them. It empowers the people through their elected officials, 
who are directly accountable to them, not a super-class of 
administrative elite. Protecting American consumers from 
abusive institutions and unaccountable authorities is the first 
priority of this committee and the U.S. Congress. Today, we 
will examine whether the key provisions of the Dodd-Frank Act 
serve this purpose.
    With that, I yield 4 minutes to the ranking member, Mr. 
Quigley of Illinois.
    [The prepared statement of Hon. Patrick T. McHenry 
follows:]

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[GRAPHIC] [TIFF OMITTED] T1821.002

    Mr. Quigley. Thank you, Mr. Chairman.
    Like any government agency, this new agency needs vigilant 
oversight from Congress and this committee, but we should not 
obstruct it from carrying out the intent of the Dodd-Frank Act.
    Millions of Americans are still suffering the consequences 
of the housing and financial crisis. This crisis was caused in 
large part by weak or nonexistent regulation. These regulatory 
failures allowed dangerous consumer financial products and 
toxic financial instruments to infiltrate the marketplace.
    Before Dodd-Frank, consumer financial protection 
responsibilities were scattered across seven different 
agencies. Unscrupulous lenders were able to take advantage of 
consumers by selling them faulty, fraudulent, and deceptive 
financial products. This reckless lending poisoned the 
financial system and directly contributed to the mortgage 
meltdown.
    While today we may have the benefit of hindsight, some 
sounded the alarm well in advance of the crisis. In 2007, 
before the onset of the crisis, Professor Elizabeth Warren 
recognized that there was a serious problem. ``Nearly every 
product sold in America has passed basic safety regulations 
well in advance of reaching store shelves,'' she observed. 
``But credit products, by comparison, are regulated by a 
tattered patchwork of State and Federal laws that have failed 
to adapt to changing markets.''
    This new agency was explicitly designed to address these 
regulatory shortcomings. Just like the Consumer Products Safety 
Commission protects consumers against exploding toasters, the 
new agency will protect consumers against faulty mortgages. One 
of the CFPB'S strengths is its accountability. The CFPB has a 
capped budget, its action are subject to a veto by the 
Financial Stability Oversight Council, and it must follow 
stricter rulemaking procedures than most other agencies.
    Another strength is the CFPB's focus on the ``shadow 
financial services sector'' which has been the most responsible 
for victimizing consumers. These unregulated lenders will, for 
the first time, be held to the same standards as banks and 
credit unions.
    Our number one priority on this committee must be ensuring 
that we never have a repeat of the financial crisis and that 
the CFPB is a strong step in the right direction. The CFPB has 
won early praise, even from financial industry groups that were 
initially hesitant to support it. Both the ICBA and the ABA 
have praised the Bureau for its transparent and accessible 
rulemaking process.
    On that point I ask unanimous consent that the May 19, 
2011, article from the American Banker entitled ``New CFPB 
Mortgage Disclosures Win Praise for Content and Process'' be 
submitted for the record.
    Mr. McHenry. Without objection.
    [The information referred to follows:]

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    Mr. Quigley. This transparency is especially important 
given the CFPB's mandate to increase transparency in the 
consumer lending market. I am confident Ms. Warren and the CFPB 
can continue to build on its early successes and both consumers 
and businesses will be stronger for it. It is critical that the 
CFPB be implemented as set forth in the Dodd-Frank Act.
    Thank you, Mr. Chairman, and I yield back.
    Mr. McHenry. I thank the ranking member.
    Members will have 7 days to submit opening statements and 
extraneous material for the record.
    Pursuant to committee rules, all witnesses will be sworn 
before they testify. If you will stand and raise your right 
hand and repeat after me.
    [Witnesses sworn.]
    Mr. McHenry. The record will indicate that the witness 
answered in the affirmative.
    Our first panel, our sole witness on our fist panel is Ms. 
Elizabeth Warren, who serves as the Assistant to the President 
and Special Adviser to the Secretary of the Treasury for the 
Consumer Financial Protection Bureau at the U.S. Department of 
Treasury.
    Ms. Warren, you are well accustomed to testifying before 
Congress. So we have the system of lights. With 1 minute 
remaining, you will get the yellow light. You will have 5 
minutes to give your opening statement or to summarize your 
opening statement. We will move forward with questions 
thereafter.
    You are now recognized for 5 minutes.

STATEMENT OF ELIZABETH WARREN, SPECIAL ADVISER TO THE SECRETARY 
 OF THE TREASURY FOR THE CONSUMER FINANCIAL PROTECTION BUREAU, 
                U.S. DEPARTMENT OF THE TREASURY

    Ms. Warren. Thank you--let me hit the button.
    Thank you, Chairman McHenry, Ranking Member Quigley, and 
members of the subcommittee for inviting me today to testify 
about the work of the Consumer Financial Protection Bureau.
    Two-and-a-half years ago, I came to Washington to serve 
Congress as chair of the TARP Congressional Oversight Panel. I 
developed a keen appreciation for the important role of 
oversight, and I respect careful oversight work.
    For today's hearing, I have prepared 10 pages of written 
testimony to document our startup efforts, and that supplements 
the 34 pages of testimony I provided for the Subcommittee on 
Financial Institutions and Consumer Credit in March.
    In my testimony, I discuss the Consumer Bureau's 
straightforward mission, to make prices and risks clear and to 
cut down on the fine print so customers can make straight-up 
comparisons among financial products, so they can compare two 
or three or four credit cards or three or four mortgages before 
they actually sign on the dotted line. That is what Congress 
created the consumer agency to do, and that is what we are 
already doing.
    Last week, after months of consultation with borrowers and 
lenders and their representatives, we started testing a 
prototype of the mortgage shopping sheet. Eventually, the 
result of this process will be a simple, streamlined mortgage 
disclosure to replace the longer, more complicated, and more 
burdensome forms that are now required by law.
    Now, in this process we have taken another step, something 
pretty much unprecedented in the regulatory world. We have 
invited everyone in the door early, before the cake is baked. 
We are months away from formal rulemaking, but we believe that 
by opening up our process and getting help from the people who 
are affected by these rules we will be more likely to produce 
something that works right.
    We have posted early versions of the form on our Web site, 
www.consumerfinance.gov--come and see us there--and we have 
asked people to let us know what they think. So far, a lot of 
people have been willing to help. Within hours after our 
posting of the new forms, we had more than 20,000 visits to our 
Web site.
    The reaction to the forms has been almost unanimously 
favorable. The article that Congressman Quigley referred to in 
the American Banker was headlined ``New CFPB Mortgage 
Disclosures Win Praise for Content and Process.'' You know, a 
lot of very different people have been supportive throughout 
this process. The Consumer Federation of America and the 
American Enterprise Institute, U.S. PIRG and the Financial 
Services Roundtable have all been supportive.
    The draft forms are not perfect. We are only at the 
beginning. But the process really matters. It is an example of 
how a new Federal agency can shed some of the old bureaucratic 
attitudes and develop ideas and approaches that serve both 
consumers and businesses.
    Mr. Chairman, the title of this hearing is Who Watches the 
Watchmen. The answer can be found in a single word--everyone. 
At the consumer agency, we aren't just talking about 
transparency and openness, we are living it right now. We are 
building an agency that involves American families, small 
banks, credit unions, and other financial services providers in 
our work from the ground up.
    Recently, there have been many overblown claims about the 
nature of the consumer agency's powers. Critics claim that the 
CFPB is ``the most powerful regulatory agency that has ever 
been put together'' and that it is ``the most powerful agency 
ever created.''
    The consumer agency isn't even the strongest of the banking 
regulators, much less the most powerful agency ever created. 
Those kinds of claims disregard the significant limits on the 
Consumer Bureau's authorities, the long debates over these 
issues more than a year ago, and the very meaningful oversight 
that Congress imposes on the Bureau's functioning. Those claims 
also ignore the intensity with which large and powerful 
interests watch everything we do and make certain that their 
views are carefully considered.
    Most importantly, those claims ignore what we are doing, 
building an agency in plain sight with help from good people 
across this country.
    Together, we can create a fairer system that works for 
families and works for the community banks, for the credit 
unions, and for the other financial institutions that want to 
serve those families honestly and openly.
    Thank you for inviting me here today, and I look forward to 
your questions.
    [The prepared statement of Ms. Warren follows:]

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    Mr. McHenry. Thank you Ms. Warren. Thank you for your 
testimony.
    I recognize myself for 5 minutes.
    Ms. Warren, if the President makes you the CFPB's first 
director through recess appointment, would you accept it? Yes 
or no would be fine.
    Ms. Warren. Congressman, it is----
    Mr. McHenry. Yes or no would be fine.
    Ms. Warren. It is up to the President of the United States 
under Dodd-Frank to make the nomination. It would not be 
appropriate, I think, for anyone to be speculating about that.
    Mr. McHenry. As Assistant to the President for Consumer 
Financial Protection, you are advising the President about the 
nomination for this Bureau, are you not?
    Ms. Warren. Congressman, I have tried to help the President 
in any way I can on the nomination process.
    Mr. McHenry. Have you recommended anyone?
    Ms. Warren. Congressman, I have tried to help the 
President.
    Mr. McHenry. I understand. That is fine. If you don't want 
to answer, that is fine.
    Ms. Warren. I have been doing this for a month.
    Mr. McHenry. I understand. You don't want to answer, and 
that is fine.
    I would call up--if you look at the screen, we have a 
PowerPoint presentation.
    Now, when I last asked you questions, which was before the 
March 16th House Financial Services Committee hearing, I asked 
about your role in the mortgage settlement issue and the CFPB's 
role there. You said, ``We have been asked for advice, and 
wherever we can be helpful we are not only glad to be helpful, 
we are proud to be helpful.''
    Slide one, as you see, this document is dated February 
14th, a month before you answered that question and gave that 
answer. Apparently, it is authored by the CFPB. Are you 
familiar with this document?
    Ms. Warren. Congressman, I believe, although obviously----
    Mr. McHenry. Are you familiar with it? Yes or no.
    Ms. Warren. Congressman, I haven't seen the rest of the 
pages, but I assume what this document is is a document that 
was initially prepared for internal discussions with the 
Secretary of the Treasury.
    Mr. McHenry. Right. At the bottom left corner, if I might 
point out, it says ``draft confidential for AG Miller.'' Are 
you familiar with that?
    Ms. Warren. Thank you very much. Yes, Congressman, I am.
    Mr. McHenry. Second slide. This slide, the second slide, 
indicates that the CFPB is pushing for significant policy 
change.
    The third slide. This quote indicates that the CFPB is 
leading the charge to persuade other regulators to demand 
punitive penalties.
    Fourth slide. If you look at the fourth slide, it is 
apparent that the CFPB is pushing a policy proposal called the 
Principal Reduction Mandate. Is that something that the CFPB 
has been pushing?
    Ms. Warren. Congressman, if you want to ask about our 
participation----
    Mr. McHenry. I am going to get to that. I am asking a 
question. If you could respond to my question, I would 
certainly appreciate that.
    Ms. Warren. Congressman, we have given our advice when we 
have been asked for advice, and we have done so proudly and 
enthusiastically.
    Mr. McHenry. So if you are so proud and enthusiastic about 
your advocacy and advice, why didn't you express that before 
the committee when I asked you your involvement in the 
settlement issue?
    Ms. Warren. Congressman, I thought the quote you quoted 
said exactly that, and I believe it said that I was proud to 
give that advice and I thought there was some word enthusiasm.
    Mr. McHenry. Let me give you the fuller quote here. ``When 
the Treasury came to me and said we would like your advice, I 
was glad to.''
    Ms. Warren. Glad to.
    Mr. McHenry. Right. Okay, AG Miller----
    Ms. Warren. Was there more? I just lost it.
    Mr. McHenry. Who is Attorney General Miller?
    Ms. Warren. I believe Attorney General Miller is the 
Attorney General for the State of Iowa.
    Mr. McHenry. Okay. That is different than advice to the 
Treasury Secretary, which is part of your job title, and advice 
to the President, is it not?
    Ms. Warren. I am sorry, is what different? Is the Attorney 
General different from the Secretary of the Treasury?
    Mr. McHenry. You said you are providing advice to the 
Treasury Secretary in your sworn testimony.
    Ms. Warren. That is right, yes.
    Mr. McHenry. What is apparent is you are providing advice 
to the Attorney General of Iowa in their suit against mortgage 
servicers, is that correct?
    Ms. Warren. Congressman, the Secretary of the Treasury 
asked for advice, and we gave advice. We also gave advice--at 
his instruction, we gave advice to other Federal agencies, and 
we gave advice where asked. I think we tried to make that 
clear.
    Mr. McHenry. In terms of mortgage settlement talks, would 
you disclose the meetings that you have had about those 
mortgage settlement talks?
    Ms. Warren. Congressman, I believe that my calendar is an 
open book, that we have been posting my calendar since last 
October, last November. I actually can't remember.
    Mr. McHenry. So your calendar would entail when you have 
discussions about the mortgage settlements?
    Ms. Warren. I can say my calendar is an open book. We make 
it part of the public record.
    Mr. McHenry. I understand. Reclaiming my time, so it has 
gone beyond your advice to Treasury. You are also providing 
advice to other governmental agencies?
    Ms. Warren. Congressman----
    Mr. McHenry. I understand. You can use the word 
``Congressman'' a number of times, Ms. Warren, but I am simply 
asking a very simple question, who you are providing advice to?
    Ms. Warren. Congressman, there was a question on this from 
Chairman Bachus----
    Mr. McHenry. I know. I am asking you a question.
    Ms. Warren. What I want to do----
    Mr. McHenry. A question different from that, Ms. Warren. If 
you will answer my question, are you giving advice to any 
governmental agency outside of the Treasury and the President? 
Yes or no?
    Ms. Warren. Congressman, let me read the letter that I sent 
almost 2 months ago.
    Mr. McHenry. My time has expired. I am asking you a yes or 
no question.
    Ms. Warren. We have provided advice to Federal and State 
officials regarding a potential settlement--servicing 
settlement. In doing so, we have been an active participant in 
interagency discussions, sharing our analysis and 
recommendations in support of a resolution that would hold 
accountable any servicers that violated the law.
    We sent this letter nearly 2 months ago. We have not heard 
from back from you or from anyone else so far as I know in the 
House of Representatives or in Congress. This is a statement. 
We have given advice when asked.
    Mr. McHenry. I appreciate your statement.
    I have one final question. Have you been in meetings with 
the Department of Justice regarding the mortgage settlement 
issue? Yes or no.
    Ms. Warren. Yes, we have given advice to the Department of 
Justice, when asked, as we say here. We have provided advice to 
Federal and State officials.
    Mr. McHenry. Thank you for your testimony.
    I now recognize Mr. Quigley for 5 minutes.
    Mr. Quigley. Thank you, Mr. Chairman.
    Professor, it is obviously serious when someone accuses 
anyone of lying to Congress, but let's just walk back through 
this.
    First, as was mentioned, the definition of advice somehow 
will magically appear. If not, Random House defines it as an 
opinion or recommendation offered as a guide to action. So, 
Professor, you were asked to provide advice by another agency 
involved in these negotiations, is that correct?
    Ms. Warren. Yes, Congressman, it is.
    Mr. Quigley. Did you provide advice in response?
    Ms. Warren. Yes, Congressman, we did.
    Mr. Quigley. Okay. Did you provide options for how the 
Federal Government might proceed in those negotiations?
    Ms. Warren. Congressman, that is what we have tried to do, 
is give advice, as we said here, shared our analysis and 
recommendation. That is what we are trying to do.
    Mr. Quigley. Did you ever talk directly with the private 
parties to those negotiations?
    Ms. Warren. Congressman, it is not our job to negotiate on 
behalf of the Federal agencies. That undertaking is led by the 
Department of Justice at the Federal level. What we have done 
is tried to be helpful to those regulators who are trying to 
hold those who broke the law accountable for their actions.
    Mr. Quigley. If the Department of Justice ends up taking 
your advice, that would give some qualities or reference to how 
good your advice was, correct?
    Ms. Warren. Congressman, what they ultimately decide I am 
sure will be a mix of many things. I hope we have given good 
advice.
    Let me say this as clearly as I can, Congressman: This is 
our job, and we are trying to do our job, and that is to be 
helpful to other agencies, to work with other agencies in 
trying to hold those who break the law accountable for their 
misdeeds.
    Mr. Quigley. Well, unfortunately, many of these entities 
that you will be regulating as a new agency are mortgage 
servicing companies that have already admitted to breaking the 
law, that they have illegally foreclosed on U.S. service 
members and their families, for example, that they have charged 
inflated fees and they have perpetrated fraud on the courts. 
You are aware of those admissions as well, correct?
    Ms. Warren. Yes, Congressman. I am aware now that the 
Office of the Controller of the Currency, the Office of Thrift 
Supervision, the Federal Deposit Insurance Corporation, and the 
Federal Reserve Bank have all found serious, widespread 
deficiencies. They have found violations of local law, of State 
law, and of Federal law that have damaged families, that have 
damaged mortgage markets, and that have damaged the entire 
economy.
    Mr. Quigley. Sort of a David and Goliath discussion, but it 
flips on its side to an extent. You are being accused of being 
an all-powerful, monolithic-type Goliath, but the reality your 
budget is probably going to be about 1 percent of what these 
agencies have been charging just in credit card penalties and 
overdraft penalties. So I guess the question is, how are you 
going to keep up with them?
    Ms. Warren. Congressman, I think that is a tough question, 
but I believe that the Consumer Financial Protection Agency is 
well-crafted so that we are going to be able to make a 
significant difference, that we are going to be an effective 
cop on the beat. We will have responsibilities in the rule-
writing area, doing research, and, as our new mortgage project 
shows, doing what we can to make sure that our rules are 
streamlined and efficient and effective.
    We will have responsibilities in supervision and in 
enforcement. In fact, about half of our budget will go to 
supervision and enforcement. We will have responsibilities in 
consumer complaints, to hear from Americans around the country 
when they have problems with credit providers; and we will have 
responsibility for financial education.
    We have a lot to do. But the good part is I think those 
things work together, work in concert. We have a real 
opportunity here to make prices clear, to make risks clear, to 
give families the opportunity to compare one product with two 
or three others. And when that happens, markets can start to 
work. They can start to work on behalf of American families.
    Mr. Quigley. In the end, all we have is our good name. Is 
there anything else you would like to say about allegations 
that have been made?
    Ms. Warren. You know, Congressman, all I can say is it is a 
deep honor to be here to try to set up an agency that is 
designed to be a voice for American families. They have been 
shut out of this process for far too long.
    This most recent crisis was the consequence of a 
substantial----
    Mr. McHenry. The gentleman's time has expired. You can 
finish your thoughts, and then we will move to the next 
question.
    Ms. Warren. Thank you. I appreciate that, Mr. Chairman.
    I will just say this most recent crisis started one lousy 
mortgage at a time. If we had had a Consumer Financial 
Protection Bureau in place, we could have avoided a lot of the 
pain that we have gone through in the last 2\1/2\ years.
    Thank you, Mr. Chairman.
    Mr. McHenry. I thank the ranking member.
    With that, Ms. Buerkle of New York is recognized for 5 
minutes.
    Ms. Buerkle. Thank you, Mr. Chairman. Thank you for calling 
this hearing, and thank you to Ms. Warren for being here today. 
Thank you.
    Ms. Warren. Thank you.
    Ms. Buerkle. The Dodd-Frank bill that passed last year 
included sweeping reforms in the regulation and the oversight 
of the financial industry. And while it made many changes, it 
completely ignored--and you just alluded to this in your last 
comment--it completely ignored reforming Fannie Mae and Freddie 
Mac, whose poor big business practices led to massive losses 
and taxpayer bailouts. Instead of addressing the problems 
created by political appointees, Dodd-Frank sought to increase 
the level of government regulation with the creation of a new 
regulatory body, the Consumer Financial Protection Bureau.
    The thing that concerns me about this new regulatory body 
is that the House does not get to approve the director; and, 
even worse, it appears that the administration is going to 
install political appointees using a recess appointment 
process. This takes it away from the Senate and the House and 
an opportunity to question and to do what they should be doing 
as elected representatives.
    My question to you today has to do with the salaries of the 
folks who are going to work in this consumer finance Bureau. A 
quick look at your Web site lists job openings that you are 
seeking to fill in D.C. and three other cities: Chicago, New 
York, and San Francisco. After a close look at these openings, 
I found that the starting salaries with the CFPB are, in most 
cases, 60 to 90 percent higher than the GS equivalent listed on 
the Federal Government's Web site.
    So my first question to you is, given the absolute fiscal 
constraints that this Nation faces, the deficit and the debt 
that this country is trying to grapple with in trying to get 
this country back on a fiscal sanity course, how do you justify 
that kind of a disparity in salaries between a government 
worker versus the folks who are going to be hired by your 
regulatory agency?
    Ms. Warren. You know, Congresswoman, I really appreciate 
your question and your concerns in this area.
    You know, when you talk about the structure--the new 
structure for the Consumer Financial Protection Bureau, I know 
you are aware that this new Bureau was designed to pick up 
consumer laws and consumer responsibilities that have been 
scattered among seven different agencies, none of those 
agencies focusing on consumer practices and consumer products.
    This is important in the context of the most recent 
financial crisis, the reason so many people across this country 
are unemployed, so many millions of families are losing their 
home and others have lost their savings, and that is the 
question of what kind of regulatory structure do we want, 
including what kind of pay structure. And I think you are right 
to raise this.
    Dodd-Frank was very careful and thoughtful in its point, 
and that was to say, in effect, the Office of the Controller of 
the Currency, the principal banking regulator in the country, 
is paid at one level----
    Ms. Buerkle. Excuse me, if I could interrupt, as you know, 
we only have 5 minutes here.
    Ms. Warren. Yes, ma'am.
    Ms. Buerkle. Let me just give you an example. There is 10 
positions, and it is the consumer response policy and procedure 
analyst. The starting salary range for that position is $72,000 
in your regulatory body. The top salary range is $149,000. Now 
the GS equivalent of that is a GS-9. In the Federal Government, 
a GS-9 starts at $41,000 and the top salary is $54,000.
    My question to you is, why are these folks getting paid 
such an exorbitant amount more than someone in the Federal 
Government system? And you are not answering my question. You 
are going around.
    Ms. Warren. I am sorry, Congresswoman. I am trying to give 
it the context about we are following the law set up in Dodd-
Frank. The five banking regulators that exist today, the 
Federal Reserve Bank, the Office of the Controller of the 
Currency, the Office of Thrift Supervision, the FDIC, those 
banking regulators are paid on a different pay scale; and the 
reason they are paid on a different pay scale in part is 
because they are bank regulators and the competition for those 
jobs includes people who are in the financial services 
industry. We will never be able to pay like the financial 
services industry pays. But this was Congress' judgment----
    Ms. Buerkle. Excuse me, this is a government agency. This 
is not the private sector. And we, the Congress, we, the 
government, needs to be accountable to the American people why 
someone can come into this government agency and make starting 
salaries $72,000 with a range of $149,000.
    Mr. McHenry. The gentlelady's time has expired. You can 
finish the thought.
    Ms. Buerkle. It just seems like I think that this 
regulatory body has some questions to answer regarding the huge 
disparity in the Federal jobs versus the job salaries that you 
are offering.
    I yield back. Thank you, Mr. Chairman.
    Mr. McHenry. I thank the Member.
    I now recognize the full committee ranking member, Mr. 
Cummings of Maryland, for 5 minutes.
    Mr. Cummings. Can you start my time? I already have 21 
seconds.
    Mr. McHenry. No, it was the previous time. I will give you 
the full time. We will start over right now. Hold on 1 second. 
We will pause.
    Mr. Cummings. Like a basketball game. All right.
    Ms. Warren, first of all, let me say this: I don't care 
what happens in this hearing today. I don't care what is said. 
I am begging you, I am begging you to keep the fire. I have 
constituents who have lost so much and they don't even know how 
they lost it. And we need you. We really desperately need your 
passion, your concern, and thank you for synchronizing your 
conscience with your conduct. And I just want you to know that.
    Now, you know, one of the things that is so significant, 
one of the things that you are doing for us and part of your 
mission, is to protect consumers from unfair, deceptive, or 
abusive acts or practices and from discrimination. Every single 
Member of Congress has people, whether they know it or not, who 
have suffered and have lost. And, like I said, some of them 
don't even know what they lost and how they lost it. They still 
don't know.
    Professor Warren, Ranking Member Quigley said something 
that I agree with. He said your situation is like David and 
Goliath. Let me ask you about the consumer resources compared 
to the fees generated by banks you are supposed to regulate.
    According to the firm R.K. Hammer, consumers paid more than 
$20 billion--that is our constituents--in credit card penalty 
fees in 2009. The same year, consumers paid more than $38 
billion in overdraft fees, our constituents. So that is about 
$59 billion in 1 year, and that is just some of the fees they 
generated.
    Professor Warren, your budget at the consumer Bureau will 
be capped at about $600 million, is that right?
    Ms. Warren. Yes, sir, it is.
    Mr. Cummings. Let me get this straight. Let me show you a 
chart.
    If my math is correct, the Consumer Bureau's budget is only 
about 1 percent--where is my chart? Get my chart up.
    The Consumer Budget Bureau's budget is only about 1 percent 
of the amount banks generate just from late fees and overdraft 
fees. I have to ask you, how in the world will you be able to 
compete against this Goliath when you are so mismatched?
    Ms. Warren. You know, Congressman, it is a good and fair 
question, but I want to say this: I think in the creation of 
the Consumer Financial Protection Bureau, Congress made some 
very smart moves. And one of the key ones is that we have the 
capacity at the consumer agency to drive toward making the 
price clear, making the risk clear, making it easy, not 111 
pages of documentation and fine print, but making it easy for 
families to compare one product to another.
    I ultimately believe that the real partners for this agency 
will be families all over this country, who, if they have clear 
and simple information in front of them, if they can really 
make apples-to-apples comparisons, will be able to turn this 
market around so that those providers, those community banks, 
those credit unions, those providers who in good faith are 
willing to get out there and compete in the marketplace, they 
are willing to offer the most value at the lowest price, or 
they are willing to offer good customer service that draws 
people in, that those will be the providers who will flourish 
in consumer credit, ultimately serving families. So I believe 
we can do this, sir.
    Mr. Cummings. On Radio One, Cathy Hughes has a slogan; and 
she says, information is power, information is powerful when 
you use it. So I think that summarizes pretty much what you are 
saying. Give them the information and let them run with it and 
make decisions based on sound information.
    Now, some people are saying that you are the Goliath. 
Incredible. They say you are going to overrun the industry with 
overbearing regulations and a complete lack of accountability. 
But isn't it true that your rulemaking power can be vetoed by 
the Financial Stability Oversight Council? Vetoed, is that 
right?
    Ms. Warren. Yes, Congressman, it is.
    Mr. Cummings. Does any other bank regulator have that kind 
of requirement?
    Ms. Warren. No, Congressman, they do not.
    Mr. Cummings. You are not looking too much like a Goliath 
to me so far. And to issue regulations, you have to make 
particularized findings and consult with other banking 
regulators, is that right?
    Ms. Warren. Yes, sir, it is.
    Mr. Cummings. I understand that the banks want to protect 
their fees just like the oil companies in the Gulf want to 
protect their profits. But, as I said this morning--we had a 
hearing this morning on oil--we cannot go back to the era of 
inadequate protection for the American people.
    So I want to thank you for everything you are doing. I want 
to thank your staff for everything they are doing. Again, there 
are people in my district who applaud what you are doing. And 
may God bless you. Stay on the battlefield.
    Ms. Warren. Thank you, sir.
    Mr. McHenry. The gentleman's time has expired.
    I now recognize Mr. Guinta of New Hampshire for 5 minutes.
    Mr. Guinta. Thank you very much, Mr. Chairman.
    Thank you, Ms. Warren, for being here today.
    I wish this wouldn't have to be described as a battlefield. 
Rather than that, I would like to see a more productive manner 
in which we could solve the Nation's problems.
    I do have some questions, though, about the formation of 
this entity and the need for its existence and how it plans to 
operate; and I am sure you could appreciate that some Members 
of Congress do have questions, given the unique nature of this 
entity.
    The first question I want to ask is, can you quickly 
describe how unique this is in comparison to other bank 
regulator organizations in terms of who you have overseeing 
you?
    Ms. Warren. Well, like the OCC, we have a single director. 
Unlike the OCC, any rule that comes out of the Consumer 
Financial Protection Bureau can be overruled by a group of 
other regulators.
    I am trying to think. Like the OCC, we have rulemaking 
authority; we are subject to the Administrative Procedures Act. 
Unlike the OCC, we are also subject to--I think the acronym is 
SBREFA--the small business panels, that we have to bring in 
panels to be able to go through the impact on small businesses. 
We are required to do cost-benefit analyses. We are required to 
consult with the other banking regulators before we issue 
rules.
    I think it is fair to say that our charter is written very 
much in mind with the notion that we are there to be 
cooperative with the other banking regulators, at least to work 
with them. We are--I am trying to think. We have a research 
function that is somewhat different from the other regulators.
    Mr. Guinta. Can you tell me why there is a necessity for a 
5-year fixed term, when I don't believe anyone else in history 
has had that period of time as an appointment?
    Ms. Warren. Congressman, I think many terms are 5-year 
fixed terms. It is my understanding that the head of the Office 
of the Controller of the Currency finished his 5-year term last 
August.
    Mr. Guinta. But I think those entities, I think, are at the 
discretion of Congress. There is an oversight process through 
appropriations. You are excluded from that.
    Ms. Warren. No, Congressman. I am sorry, but that is not 
the rule with the Office of the Controller of the Currency. 
There is no banking regulator who is subject to the political 
process or to appropriations. All banking regulators are funded 
independently; and, indeed, all of the other banking 
regulators, not the consumer agency but all of the other 
banking regulators, are able to set their own funding levels.
    So, for example, if the Office of the Controller of the 
Currency decides they need more money to run exams or they need 
more money to engage in their other activities, they up the 
assessment on banks and simply raise more money. There is no 
oversight from Congress in that process.
    Mr. Guinta. So do you have an idea of what your budget is 
going to be?
    Ms. Warren. The cap on our budget is set at just under $600 
million. The actual budget I actually have brought with me, 
because I knew that you wanted to do oversight on this. Our 
estimates for fiscal year 2011 are $143 million, and our 
estimate for fiscal year 2012 is $329 million. So at least as 
best we can project in the next 2 years we will be 
substantially under the caps that are set by Congress in the 
Dodd-Frank Act.
    Mr. Guinta. Of the seven separate agencies that you are 
going to assume authority over, do you plan on hiring from 
those agencies?
    Ms. Warren. Congressman, we have already begun the process 
of hiring some people. I believe it is the case from each of--I 
think it is the case from each of the Federal agencies. We have 
certainly been in talks with all seven agencies. We have been 
very----
    Mr. McHenry. The gentleman's time has expired. Please 
finish your thoughts.
    Ms. Warren. We have been very lucky to have detailees from 
each of those Federal agencies come and help us in the stand-up 
process, and then we have gone through an interview process--I 
would be glad to describe it in more detail, but I understand I 
am past time.
    Mr. Guinta. I would just state to the chairman the reason I 
am asking that question is earlier the witness had stated that 
if this entity had existed we wouldn't have the financial 
meltdown that we had. So I wonder why we would hire people from 
those other agencies who were doing this oversight in the first 
place.
    Mr. McHenry. Thank you.
    I now recognize Mrs. Maloney of New York for 5 minutes.
    Mrs. Maloney. Thank you. Thank you very much.
    I truly believe the title of this hearing today and really 
the GOP efforts in general should be: Let's pretend the 
financial crisis never happened. Let's forget that 15 million 
families lost household wealth in America, that our financial 
community was brought to its knees and had to be bailed out by 
the American taxpayer.
    And in response to this crisis, with overwhelming support 
from the American people, we created the CFPB, and it is 
carefully constructed, urgently needed, and should be allowed 
to go into operation as planned by the bill that was signed 
into law by President Obama.
    Now, the CFPB fills a gaping hole in our regulatory 
framework. This is a body that will focus completely and 
totally on consumer financial protection. Too often, consumer 
protection was a second thought, a third thought, or not even 
thought about at all, so you came out with abusive and anti-
competitive practices and credit cards, subprime loans that had 
a degree of probability of throwing American families out on 
the street and hurting our financial system. So this was put in 
place to help our overall economy and to help consumers; and 
all of the efforts so far have been to dismantle, disrupt, 
delay, and not allow the agency to go into effect.
    There was an astonishing abuse of power, of confirmation 
power in the Senate. Forty-four Senators signed a letter that 
said we will not allow this agency to go into effect or for you 
to confirm a director unless you pass bills that will destroy 
it, that will make it meaningless, that will make it 
ineffective. That is not what the confirmation process is 
supposed to be. It is literally holding the entire government 
hostage to their demands on dismantling this program.
    I would say that there is a lot of unfounded concern about 
lack of oversight on this agency. I would argue that the 
oversight and balance of power over this agency is greater than 
any other agency in the entire Federal Government, with audits 
and requirements and the unprecedented ability of another 
agency, the Financial Stability Oversight Council, to overrule 
the decisions made by the CFPB. I don't believe any other 
government agency has that ability to overrule another agency.
    Would you comment on that, Dr. Warren?
    Ms. Warren. Yes, Congresswoman.
    So far as I know, there is no agency anywhere in the 
Federal Government whose rulings, once arrived at through the 
full process, through hearings, through fact-finding, all the 
way through, could actually be overruled by a group of other 
agencies. It is unprecedented.
    Mrs. Maloney. So how many other banking regulators can be 
overruled? Can banking regulators be overruled with, say, a 
faulty mortgage product? Can they be overruled?
    Ms. Warren. No, Congresswoman. Right now, there is no 
banking regulator who can be overruled.
    Mrs. Maloney. And could you go through and outline some of 
the oversight and, really, constraints? No other agency has 
their budget capped, I don't believe.
    Ms. Warren. I appreciate your bringing up the question of 
budget, because I think it is so important here, Congresswoman.
    As Congress has known since the middle of the 1800's when 
they made the decision in the establishment of the first bank 
regulator to make the funding for that regulator outside the 
appropriations and political process, we knew that we wanted 
banking regulators that, at a minimum, were not glancing over 
their shoulders as they walked in, now, walked into trillion 
dollar financial institutions to try to do supervision or 
enforcement. They are not glancing over their shoulders 
wondering if something they do or something they say will 
create problems and increase lobbying efforts against the 
agency next time around in the political process.
    This agency--and, as a result, all of the banking 
regulators are set up so they determine their own funding. It 
is not just that they are out of the political process. They 
decide the number of dollars that they get.
    The consumer agency is capped. If we need more money for 
supervision and enforcement, our only option is to come to 
Congress. But we are capped, and there is only a certain amount 
of money that comes to this agency to carry out its functions 
before we would be forced to go into the political process.
    Mrs. Maloney. I want to thank you for your testimony and 
your hard work.
    My time has expired, but I would say those who want to gut 
this agency want to leave consumers prey to unscrupulous 
mortgage efforts and credit card abuses. So I believe this 
agency is important, and we should allow it to go forward and 
be implemented.
    Mr. McHenry. Mr. Gowdy of South Carolina is recognized for 
5 minutes.
    Mr. Gowdy. Thank you, Mr. Chairman.
    Thank you, Ms. Warren.
    The first question I was going to ask you is directly from 
a constituent of mine in South Carolina who is in the business 
of providing financial services. What steps will you take to 
ensure that complaints received by the Bureau are legitimate 
ones and not merely post-contractual gripes against a company 
when the consumer decides they don't want to live with the 
terms?
    Ms. Warren. Congressman, I am glad you asked about the 
complaint system. It is one of the most significant features I 
think of the new consumer agency. And what we are planning to 
do with it is, instead of having sort of a general complaint 
line, we are really trying to develop more effective complaint 
resolution in the consumer agency on a product-by-product 
basis.
    So, for example, we will be starting with credit cards. And 
what we are hoping to do is we are working on setting up a 
hotline and a form online for people who have had problems with 
their credit card issuers and they believe perhaps that there 
have been violations of law and want to get in touch with the 
new consumer agency.
    Mr. Gowdy. Will the complaints be made public? Because I 
think you will agree with me that unfounded, unsubstantiated 
complaints have a deleterious effect on the accused.
    Ms. Warren. So what we will be doing--and I really want to 
give a shout-out here to five of the largest credit card 
companies in the country who are working with us right now on a 
way that, as soon as we receive a complaint, that complaint can 
go directly to the credit card company. They can help us 
understand whether the complaint has merit. They have the 
opportunity to try to resolve it with the customer, keeping us 
in the loop.
    Mr. Gowdy. Is that just for credit card companies or is it 
for all financial service providers?
    Ms. Warren. Here is what I want to make clear. As we build 
this----
    Mr. Gowdy. I only have 5 minutes. I am not trying to cut 
you off.
    Ms. Warren. Fair enough, sir. I am just trying to give you 
a picture of what we are doing.
    Mr. Gowdy. Are the complaints public? Let's try that with a 
yes or no answer.
    Ms. Warren. Congressman, I have tried to describe the 
process for one product. We are trying to get this product 
right, and we have had a lot of cooperation from the credit 
card companies.
    Mr. Gowdy. I am probably not asking my question very 
artfully. Are the complaints public, yes or no?
    Ms. Warren. Congressman, there is no single answer for all 
products in the same way. We are working----
    Mr. Gowdy. Are any of the complaints public?
    Ms. Warren. Congressman, we don't have any complaints yet. 
What we are trying to do is build a system to deal with 
complaints.
    Mr. Gowdy. So you do have the discretion to keep the 
complaints non-public if you like?
    Ms. Warren. What we are trying to do is work with the 
industry to find a complaint system that works for American 
families and works for those who are providing them services. 
We are in the middle of that process. This is part of stand-up. 
And we are glad, Congressman, to hear from you, to hear from 
your constituents, and to hear from everyone else about this 
process. We are an open door on this subject.
    Mr. Gowdy. Well, thank you. I will encourage them to 
participate.
    I want to ask you about some of the definitions. I saw a 
definition for abusive: ``Materially interferes with the 
ability of a consumer to understand a term of condition of a 
consumer financial product or service.'' That suggests to me 
that some interferences are immaterial. Is that what you meant 
by that?
    Ms. Warren. Congressman, I believe the language you are 
quoting is out of the Dodd-Frank Act, and it is Congress' 
intention. I believe, if I am not mistaken--I don't have a copy 
of it with me here.
    Mr. Gowdy. Will you not be the one enforcing that? Will you 
set regulations that define these terms?
    Ms. Warren. Congressman, this is the guidance that Congress 
has given.
    Mr. Gowdy. I am asking you. Are some interferences 
immaterial?
    Ms. Warren. Congressman, we will go through the process of 
interpreting the language that Congress has given us.
    Mr. Gowdy. I don't mean for that to be a trick question. 
Are some interferences immaterial? Because the word 
``material'' modifies ``interference.''
    Ms. Warren. Congressman, I want to be clear about this. It 
is statutory language that you are asking. There is a process 
in place for the Consumer Bureau. You don't want me standing 
here shooting from the hip about how I might want to interpret 
individual language.
    Mr. Gowdy. Let me ask you about the second one. It also 
defines it as an unreasonable advantage or taking unreasonable 
advantage of a consumer's lack of understanding. Are there some 
instances where taking advantage of a consumer's lack of 
understanding are reasonable?
    Ms. Warren. Congressman, this is the language that Congress 
has adopted in the Dodd-Frank Act. Ultimately, it will fall to 
this Bureau through a lengthy process to interpret this on a 
case-by-case basis. I believe it would be irresponsible for me 
to stand here and pop off about how I would interpret 
particular words.
    Mr. Gowdy. Do you believe there is a duty to educate or a 
duty to learn on behalf of the consumer?
    Ms. Warren. I believe that consumers want to learn. I think 
they want to know----
    Mr. Gowdy. Well, that is a different question. I didn't ask 
whether or not they wanted to. Do you believe that there is a 
duty to do it? Since the law itself says consumer's inability 
to protect his own interest, do you agree there is a duty to 
educate yourself?
    Ms. Warren. Congressman, we have, as part of our 
responsibility under the Consumer Financial Protection Bureau 
laws, undertaken consumer financial education, and I embrace 
this. I think it is exactly where this agency should be.
    Mr. Gowdy. Is that a yes? Is that a yes?
    Ms. Warren. We are going to help consumers by giving them 
products where prices are clear, where risks are clear, where 
they can make comparisons.
    Mr. Gowdy. Is there a duty to educate yourself, yes or no?
    Ms. Warren. I believe that an empowered consumer is a 
consumer who can not only protect himself or herself but one 
who can change the market.
    Mr. Gowdy. Mr. Chairman, I give up.
    Mr. McHenry. Thank you.
    We have two votes on the House floor. We have two 
additional Members and not enough time for them to ask 
questions. We're going to recess until the second vote is cast. 
We'll come back over here as quickly as possible and we'll have 
our final Members ask their questions.
    And the committee's in recess until we return.
    Mr. Gowdy. Mr. Chairman, procedurally, let's make sure Ms. 
Warren is still available.
    Mr. McHenry. That was never the pledge. We have two 
additional Members with questions, and originally this hearing 
was at 2. Are you not able to stay for these?
    Ms. Warren. Congressman, when you asked to change the time 
four times in the last 12 hours, including waking people up at 
home last night to change the time again----
    Mr. McHenry. Ms. Warren, let me be direct with you. I never 
made a single phone call about this. So be very clear about 
what you're saying.
    We have two additional Members. We have 8 minutes remaining 
on the floor to vote. If you won't stay around for the 
questions, then we're going to stay around, and we're going to 
finish this out. I never heard that you had to leave at 2:15, 
which is the time----
    Ms. Warren. Then, Congressman, you might want to have a 
conversation with your staff. When they asked us to move the 
hearing, we said the only way we could do this is if I could 
leave here at 2:15 for a meeting that would be at 2:30, and 
your staff agreed.
    Mr. McHenry. All right. Then we're going for questions now. 
Mr. Yarmuth, you're recognized for 5 minutes.
    Mr. Yarmuth. Thank you, Mr. Chairman.
    And I want to say for the record that I apologize to the 
witness, Dr. Warren, for the rude and disrespectful behavior of 
the chair. The snarky comments about a Senate race and the 
questioning of your veracity when there's documented evidence 
that you are being totally truthful indicates to me that this 
hearing is all about impugning you, because people are afraid 
of you and your ability to communicate in very clear terms the 
threats to our consumers, the threats to our constituents, and 
possibly very, very effective ways to combat them.
    So I think in one respect, I congratulate you for 
instilling such fear in the committee on the majority side and 
in some aspects or segments of the business community, because 
they understand how effective you are in getting the message 
out to the American people that there are better ways to do 
things.
    That being said, one of the major questions that's being 
asked here is whether there's a need for your agency or the 
agency that you conceived, in light of the fact that there are 
seven related agencies, all of whom who have some authority in 
this area.
    These seven agencies have been around for some time. During 
the time that those seven agencies have been around, have 
financial products, the disclosure statements and so forth, 
gotten easier to understand? Has the type gotten bigger? Have 
they shrunk? Or, in fact, have they gotten much more 
incomprehensible?
    Ms. Warren. Congressman, during the time these agencies 
have been around I believe that financial products have become 
more complicated and much more heavily laden with fine print 
that effectively make it impossible for consumers to compare 
risks and costs.
    Mr. Yarmuth. In respect to the question that Ms. Buerkle 
asked regarding the comparative salaries, would you be willing 
to speculate on what the average salary is of the people who 
are writing financial agreements, mortgages, and credit card 
agreements for the major corporations, compared to what the 
Consumer Financial Protection Bureau would be paying?
    Ms. Warren. Congressman, I couldn't begin to speculate on 
the difference between the salaries of the government officials 
who will be hired into the new consumer agency to try to 
oversee this market and the salaries of those who are writing 
the financial products, particularly for the Wall Street 
companies. I suspect though, sir, there is a large 
differential.
    Mr. Yarmuth. I suspect you're right. And I'm going to yield 
back the balance of my time in a second so that we can get out 
of here.
    But I just want to say that the question of 
accountability----
    Mr. McHenry. If the gentleman will yield, I will say that 
Mr. Issa went to vote. He's coming back to ask his question. 
Mr. Walsh went to vote. He's coming back to ask his question. 
So we'll give you 20 additional seconds for my interruption. Go 
right ahead.
    Mr. Yarmuth. Thank you. That's quite all right.
    But the title of the hearing involves accountability of 
your agency. I'd just like you to spend a few seconds talking 
about what accountability there has been in terms of the credit 
card companies, mortgage writers, and so forth over the last 
decade or so. Because it seems to me that that's where the real 
accountability issue has been, that the consumers have no way 
to hold those companies accountable for the products that they 
offer.
    Ms. Warren. Congressman, we have seen very little 
accountability among the largest financial services providers 
and among the largely unregulated financial services providers, 
both before the crash of 2008 and after the crash of 2008.
    And I just want to point out that has been really hard on 
American families. It's been hard on them directly when they've 
gotten their feet tangled in credit card agreements and payday 
loans that were deceptive. It's been hard on them when they 
thought they were doing sensible things on mortgages, only to 
learn that they were going to lose their homes.
    But it's also been hard on others in the economy, people 
who did nothing to get involved with financial services but who 
lost their jobs. People who see the companies, the small 
businesses they're working for, their markets have dried up. 
And it has also been hard on community banks, on credit unions 
who work so hard day in and day out to work with their 
customers, to be the relationship lenders, to be there over the 
long haul, and who are getting crushed in a financial 
turnaround that was not their fault. The problems have gone 
everywhere. The problem of lack of accountability is one that 
is squarely on the industry, and this consumer agency is going 
to do its best to help turn that around.
    Mr. Yarmuth. I congratulate on your work and thank you for 
your service.
    Mr. Cummings. Will the gentleman yield?
    Mr. Yarmuth. I will yield to the gentleman.
    Mr. Cummings. Mr. Chairman, my understanding is that your 
staff made an agreement with Professor Warren. The agreement 
was that she would available to this committee for 1 hour. And 
pursuant to that agreement, if she accompanied your late-
breaking request made by your staff at 9 p.m. last night that 
she appear at an earlier time than previously scheduled, you 
would allow her to leave 1 hour after that, at 2:15 p.m., in 
keeping with the agreement. It is 2:15 now. She kept her side 
of the bargain, and now it's time for you to keep yours.
    Mr. Chairman, out of respect for Professor Warren's 
schedule and the flexibility she showed to accommodate your 
request, you should now dismiss this witness and get on with 
the remainder of the hearing. I mean, in fairness. I mean, we 
were here.
    Mr. McHenry. I certainly appreciate it. And in reaction to, 
as the ranking member, the original agreement was that we would 
have a 2 p.m. Hearing in order to accommodate votes which we 
expected to be at 1:30. Knowing that the Professor is very 
busy, we don't want to keep witnesses here while we adjourn to 
go--recess to go vote. And so we changed the time in 
anticipation of the vote we're about to have. So rather than 
gavel in and have opening statements and go to vote and come 
back 30 minutes later and have an hour of questions, rather 
than do that, we tried to work with the witness.
    In exchanging of e-mails, your staffer, your Government 
Affairs staffer talked to Mr. Haller on the committee staff, 
and he asked for confirmation on this. He called you up, the 
Government Relations head, did not respond to your e-mail, 
called you up and said, I'll do my best to get you out of 
there, but we need to accommodate people's questions. And so 
that's where we are today.
    Mr. Cummings, I understand, and I certainly appreciate your 
questions.
    Mr. Cummings. I just want to make it clear. I know you 
sound like you've already decided, but just this one real quick 
thing. Peter Haller, according to my staff, changed the time on 
us a few times. And they bent over backward, moved things 
around and agreed to 1:15 to 2:15. She needed to get out of 
here by 2:15. That has been constant, and Peter McHenry and his 
staff knew this.
    Mr. McHenry. Peter Haller, you said. Because there is no 
Peter McHenry.
    Mr. Cummings. Yeah. I just want to make it clear. I know 
you're going to do what you're going to do, but out of respect 
for Ms. Warren, I mean, she's got her own limitations. She's 
trying to protect our constituents, yours and mine, big time.
    Mr. McHenry. And I would respond to the ranking member. I 
would respond to the ranking member that the date of this 
hearing was chosen by Ms. Warren. We worked with her and her 
staff diligently and gave them a number of options. They came 
back with different options. We accommodated those options in 
context for a hearing room. We're here to have the former 
chairman's unveiling of a picture in the main committee room. 
So that's an accommodation, number one.
    Number two, we accommodated her schedule. That's why it's 
on this date.
    Furthermore, I'm skipping this vote, as are you, to have 
this debate, rather than simply allow for a few additional 
minutes.
    Mr. Cummings. I'm going to get my vote in. But the only 
thing I'm saying is that, at the rate we're going, it looks 
like she'll be here--what--until about 20 of at least.
    Mr. McHenry. Well, actually, I anticipate that the two 
Members will have 5 minutes apiece. And, as the gentleman 
knows, I kept folks to the 5-minute timeframe today.
    So with that, I'm not trying to cause you problems, Ms. 
Warren, but we're trying to accommodate folks. And if you 
wanted to stick around, we're going to have two more Members 
with questions, and then we'll see you off.
    Ms. Warren. Congressman, you are causing problems. We had 
an agreement for a later hearing. Your staff asked us to move 
around so that we had to change everything on my schedule to 
try to accommodate your time.
    Mr. McHenry. And I certainly appreciate that.
    Ms. Warren. But the agreement was that I would be out of 
here at 2:15 because there are other things now scheduled at 
2:30.
    Mr. McHenry. That was a request. But we moved the hearing 
so that you could actually get the questions in.
    Ms. Warren. Congressman, you told us one thing.
    Mr. McHenry. I did not tell you anything.
    Mr. Cummings. We have no one here to ask questions, Mr. 
Chairman. We have no one here to ask questions.
    Ms. Warren. I have other obligations I committed to based 
on the representations of your staff and our effort to try to 
accommodate you and rearrange our schedule to accommodate you.
    Mr. McHenry. Look, Ms. Warren, it was a simple request. 
Your staff had a request. My staff said we're trying to 
accommodate you. We're going to get you out of here in 10 
minutes if you just----
    Ms. Warren. Congressman, we had an agreement.
    Mr. McHenry. You had no agreement.
    Ms. Warren. We had an agreement for the time this hearing 
would occur.
    Mr. McHenry. You're making this up, Ms. Warren. This is not 
the case. This is not the case.
    Mr. Cummings. Mr. Chairman, you just did something that--
I'm trying to be cordial here, but you just accused the lady of 
lying.
    Mr. McHenry. She's accusing me of making an agreement that 
I never made.
    Mr. Cummings. I think you need to clear this up with your 
staff. They have moved this thing around 50 million times, and 
she's got to go to another hearing.
    Ms. Warren. Not to another hearing, to another meeting.
    Congressman, I would be glad to answer questions for the 
record. We can do that on--if you'll just send us questions for 
the record, we're glad to answer them, and they'll be a matter 
of the public record.
    Mr. McHenry. I certainly appreciate that. And I have tried 
to accommodate you. I just want to be very clear and make sure 
that this is on the record. There was no agreement about 
departure time. And I want to just make sure to the ranking 
member that I didn't make those representations. I've confirmed 
with my staff before this thing started. The reason why we 
moved the times is so that she wouldn't have to wait during a 
vote in the middle of the hearing.
    So, with that, I understand your frustration. But just ask 
you to see my side of this thing as well, because we thought we 
had you for more time. I thought I had you for more time.
    Mr. Cummings. Most respectfully----
    Mr. McHenry. So, with that--if the gentleman will simmer. 
You know, I would just say----
    Mr. Cummings. No, I'm cool. I just want to make sure she's 
treated fairly. I mean----
    Mr. McHenry. I understand. We've had more debate than 
actually the questions remaining.
    So, with that, you know, Ms. Warren, I appreciate your 
service to our government. I do. And, you know, I was just 
trying to get on the record a few of these things that we have 
seen counter to my questions of you back in March of this year. 
And it is informative and instructive for this committee on the 
construct of this enormous Bureau that you're constructing. And 
so that's why Congress wants to have this oversight.
    I thank you for your testimony. I'll dismiss you now. And 
I'll ask the two Members that are not being given the 
opportunity to ask questions to submit theirs for the record, 
and I'd ask you to turn around those questions as quickly as 
you possibly could.
    Ms. Warren. Thank you, Congressman.
    Mr. Cummings. Mr. Chairman, thank you very much.
    Mr. McHenry. And we're going to recess for votes and come 
back for the second panel.
    [Recess.]
    Mr. McHenry. The committee will come back to order.
    We'll now recognize the second panel. We have Mr. Todd 
Zywicki, a foundation professor of law at George Mason 
University. Dr. David S. Evans is the chairman of the Global 
Economics Group and lecturer at the University of Chicago Law 
School. Mr. Adam J. Levitin is associate professor of law at 
Georgetown University Law Center. Mr. Andrew Pincus is a 
partner at Mayer Brown Rowe and Maw LLP.
    And, with that, as is pursuant to committee rules, all 
witnesses are sworn before they testify. If you'll stand and 
raise your right hands.
    [Witnesses sworn.]
    Mr. McHenry. The record will reflect that all witnesses 
answered in the affirmative.
    In order to facilitate discussion, if you can--your written 
statement will be admissible to the record, and you can just 
simply summarize, a simple 5 minutes. And at 1 minute you'll 
get the yellow light, which sort of helps you round up. And 
we'd love to hear your testimony.
    Mr. Zywicki, we'll start with you, sir.

STATEMENTS OF TODD ZYWICKI, FOUNDATION PROFESSOR OF LAW, GEORGE 
 MASON UNIVERSITY; DAVID S. EVANS, CHAIRMAN, GLOBAL ECONOMICS 
  GROUP, LECTURER, UNIVERSITY OF CHICAGO LAW SCHOOL; ADAM J. 
LEVITIN, ASSOCIATE PROFESSOR OF LAW, GEORGETOWN UNIVERSITY LAW 
 CENTER; AND ANDREW PINCUS, PARTNER, MAYER BROWN ROWE & MAW LLP

                   STATEMENT OF TODD ZYWICKI

    Mr. Zywicki. Thank you, Mr. Chairman. It's a pleasure to be 
here today.
    I want to say at the outset that I was in favor and remain 
strongly in favor of regulatory reform dealing with consumer 
financial protection and that sort of thing. I think that we've 
been much in need of regulatory reform, streamlining coherence, 
and that sort of thing. And to this day I remain disappointed 
that I think with the CFPB we've squandered a golden 
opportunity to create new, useful safeguards for consumers that 
would promote competition, consumer choice, and consumer 
protection simultaneously.
    Instead, what I think is we've created a monster of an 
agency that is going to reduce access to credit, increase the 
cost of credit, and, ironically, have the unintended 
consequence of probably exposing more consumers to fraud and 
abuse when it comes to lending products.
    The Truth in Lending Act was three pages long. Now it's 
grown to thousands and thousands of pages. We've seen 
duplicative regulatory enactments over time; and, in 
particular, years of class action litigation, heavy-handed 
regulation legislation have larded up the current system with a 
lot of counterproductive regulation; and, unfortunately, this 
isn't going to change that.
    This Bureau is simultaneously the most powerful and 
unaccountable bureaucracy that I've ever been aware of. It is 
an independent agency within another independent agency inside 
the Federal Reserve. It may be the most powerful that's ever 
been considered by most to be constitutional.
    It has the power to reach every single credit card, payday 
loan, mortgage in America. It has the potential to impact small 
businesses that use consumer credit and personal credit in 
their operations. Yet an agency with this kind of power is 
presided over by one person, with no effective external 
oversight, a completely unreviewed and unreviewable budget, and 
really no checks on them except for this loose check by the 
FSOC.
    Now, history tells us what happens when we give bureaucrats 
this much unaccountable power to regulate massive swaths of the 
economy. This super regulator is like something that we haven't 
seen since the Nixon administration; and there's a good reason 
why we haven't seen this since the Nixon administration, is we 
know what happens when we give this sort of unaccountable power 
to bureaucrats to make decisions for consumers as to what kind 
of products they're allowed to have and what the terms of those 
products are going to be.
    It is, as I mentioned, a one-person commission. I think it 
seems obvious that this should be a commission, rather than a 
one person sort of thing.
    I also agree with the proposal to reduce the two-thirds 
super majority oversight to a simple majority rule for 
oversight.
    Failing that, or perhaps in addition to that, I think that 
this should be formally required to undergo some sort of 
external review by OIRA or someone else, rather than what I 
take to be the really toothless cost-benefit analysis that's 
included here.
    And we saw--and the reason we haven't seen this since the 
Nixon administration is we saw what happened when we give this 
kind of unaccountable power to bureaucrats. We saw a generation 
of economic stagnation, stifled innovation, declining American 
competitiveness, and the like. And it's completely predictable 
this is what happens to bureaucracies when they lack the 
feedback and the accountability from outside. You get tunnel 
vision, mission creep, and you get the pet hobbyhorses of 
whoever the person is who happens to be running the 
organization is the one who sets the priorities.
    And what we learned from that experience and the harm to 
the American economy is that we need accountability, oversight, 
and transparency in our processes.
    Why does that matter? Because overregulation by this body 
could inflict huge harm on the American economy. It will raise 
costs and reduce access to credit. I'm not familiar with any 
theory that says that increasing the costs of a business could 
possibly cause prices to go down. And it will increase the 
costs and reduce access to credit. And what we've learned over 
time is that you simply cannot wish away the need for credit. 
That if somebody needs $500 to repair their transmission to get 
to work on Monday, they need $500 to repair their transmission 
to get to work on Monday.
    What should be done? I lay out in my statement which is the 
model here is the Federal Trade Commission, a multi-member 
commission with internal checks and balances. One reason that 
independent agencies typically are not subject to OIRA review 
is precisely because they are commissions that have an internal 
deliberative process. This agency will not be subject to any 
budget oversight. It is not a multi-member commission. It is 
not subject to external review by OIRA or anybody else, and I 
think that this needs to be fundamentally reviewed.
    [The prepared statement of Mr. Zywicki follows:]

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    Mr. McHenry. Thank you for your testimony, Mr. Zywicki.
    And, Dr. Evans, you have 5 minutes.

                  STATEMENT OF DAVID S. EVANS

    Dr. Evans. Chairman McHenry, Ranking Member Quigley, and 
members of the subcommittee, thank you very much for asking me 
to testify on the CFPB.
    Shortly after the U.S. Department of the Treasury proposed 
the CFPA Act, Professor Josh Wright from George Mason and I 
started studying the legislation and the rationales being put 
forward for it. Early last year, we published an extensive 
study on the proposed agency.
    Based on our research, I'm quite concerned that the CFPB 
could make it harder and more expensive for consumers to borrow 
money and for small businesses, who often rely on credit cards 
and other lending products. Just because someone puts the words 
``consumer protection'' in the title of an administrative 
agency doesn't mean that's what it's going to do.
    There are two reasons, in my view, to believe that the CFPB 
could become an anti-lending and borrowing bureau that could 
harm consumers and small businesses and ultimately reduce 
economic growth.
    The first is that there's an anti-borrowing bias built into 
the CFPB. Professor Warren co-authored a long article in the 
University of Pennsylvania Law Review in late 2008 that laid 
out the rationale for the new agency and its agenda in some 
detail. She claimed that consumers aren't rational when it 
comes to borrowing money, that consumers make lots of mistakes, 
and consumers end, up in the end, borrowing too much.
    Professors Barr, Mullainathan, and Shafir wrote an article 
that proposed very intrusive government regulation for 
financial services. That included requiring lenders to offer 
plain vanilla products as the default. Now, while at Treasury, 
Professor Barr was involved in drafting the CFPA, and Professor 
Mullainathan was just appointed to Assistant Director for 
Research at the CFPB.
    Professor Wright and I have reviewed the intellectual 
foundations of the CFPB based on the writings of the people 
behind its creation. The view that people don't really know 
what they're doing when they borrow money and that we need to 
protect consumers from themselves has really become part of the 
genetic code of the CFPB. Unfortunately, at least in the 
writings that have provided the foundation for the new agency, 
there's little recognition of the fact that consumer lending 
has really improved the lives of millions of people and spurred 
job growth in this country.
    Now, the CFPB has the tools to put the highly 
interventionist agenda described in these foundational papers 
into effect, and that's the second reason I'm concerned. This 
new agency can ban, ``abusive lending products.'' What those 
are are pretty much left up to the discretion of the head of 
the CFPB.
    The new agency can also steer financial services companies 
toward offering plain vanilla products designed by the CFPB by 
either banning products that don't conform to the CFPB view or 
by making it legally risky and expensive to deviate too far 
from the products that the CFPB wants. I understand plain 
vanilla was excised from the language, but there's still the 
possibility of, in effect, doing it.
    Through prohibitions, disclosure requirements, and fines, 
the CFPB has the means to place a heavy thumb on consumer 
lending products that consumers and small businesses would 
willingly consume and that financial services companies would 
willingly offer.
    There's no dispute that some lenders act very badly and 
that we need consumer protection. The proponents of the CFPB 
have made some real contribution, I think, to our understanding 
of some of the problems and some of the possible solutions, and 
I have a lot of respect for their passion and their intellect.
    But regulation needs to be based on a balanced view of the 
benefits as well as the costs of lending and borrowing. In 
fact, most consumers and small businesses are responsible, and 
most consumers and small businesses don't get into trouble.
    Over the last several decades, the fraction of consumer 
loan debt that banks have had to write off has varied from 
about 1.5 to 3 percent. Charge-offs for consumer loans rose 
during the recent very deep recession, but they're now coming 
back down to that low level. Most lenders provide products that 
people want and that people benefit from.
    There are serious risks to the economy of restricting 
consumer credit. Let me just focus on one of them.
    Between 1992 and 2005, brand new small businesses generated 
an average of 3 million jobs a year. Access to consumer credit 
can make or break those entrepreneurs. Many of them use 
personal credit cards for financing. In fact, the founders of 
some of our greatest companies, Google, for example, had to max 
out their credit cards to stay afloat in the early days. Over 
time, a heavy regulatory thumb on credit availability could 
therefore pose a significant drag on employment and economic 
growth.
    In closing, I counsel the subcommittee to ensure that the 
CFPB has leadership that's balanced and that recognizes the 
great value that lending products provide for consumers and 
small businesses, as well as the occasional problems. I'd also 
suggest that Congress keep watch over the CFPB to insure that 
it doesn't become the anti-lending and borrowing Bureau and 
harm the very consumers that it was put in power to protect.
    Thank you very much.
    [The prepared statement of Dr. Evans follows:]

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    Mr. McHenry. Thank you, Dr. Evans.
    Mr. Levitin, you're recognized for 5 minutes.

                  STATEMENT OF ADAM J. LEVITIN

    Mr. Levitin. Chairman McHenry, Ranking Member Quigley, 
members of the subcommittee, my name is Adam Levitin. I'm a 
professor of law at Georgetown University. My research focuses 
on consumer finance and financial regulation. I'm not here 
representing any financial interest or to plead the interest of 
banks or trade groups. Instead, I'm here as an expert on 
consumer finance and as a scholar whose work is deeply 
concerned with the financial security of American families.
    I'm happy to discuss the CFPB's regulatory structure and 
how it compares with other Federal bank regulators. I do so in 
detail in my written testimony.
    I'm also happy to address unfounded concerns that the CFPB 
will crimp the availability of sustainable credit. It's frankly 
premature to speculate on this, but I would note that the CFPB 
is required by statute to do a cost-benefit analysis on 
prohibitions of financial products.
    I am also happy to make the case, as I do in my written 
testimony, that the CFPB is more accountable than any other 
Federal bank regulator, period.
    But I think it's important that we all be honest about 
what's going on here. This hearing really isn't about improving 
the CFPB or ensuring that there's sufficient oversight. Those 
would both be laudable goals. But the CFPB hasn't even gotten 
up and running yet. And by all accounts the CFPB transition 
team, led by Professor Warren, is doing an outstanding job. 
There's simply nothing that suggests that there is an oversight 
problem that needs to be addressed.
    Instead, this hearing is part of an attempt to hobble the 
CFPB and render it ineffective because there simply aren't the 
votes to kill it off outright. This is about politics not 
oversight, unfortunately; and there's no clearer proof of this 
than the written testimony of Mr. Pincus here on my left on 
behalf of the Chamber of Commerce.
    Mr. Pincus expresses concerns that the CFPB's structure 
leaves it vulnerable to regulatory capture. Regulatory capture 
is the phenomenon of a regulatory agency advancing the interest 
of the industry it regulates rather than the public interest. 
The typical story of regulatory capture is the oil industry 
capturing the Minerals Management Service or Wall Street 
capturing regulators like the OCC or the Fed. As Representative 
Bachus put it, Washington and the regulators are there to serve 
the banks.
    So this leaves me wondering, who does the Chamber fear will 
capture the CFPB? Is it the multitude of well-financed consumer 
groups that have shown themselves to be the terror of Capitol 
Hill? Is it middle-class citizens? Military families? Seniors? 
I'm really quite perplexed by it.
    And I find it very strange for the Chamber, of all 
entities, to express concerns about capture. Because regulatory 
capture is the Chamber's signature mode of operation. Perhaps 
the Chamber is simply worried that it won't be able to capture 
the CFPB and that the CFPB won't be the lapdog of Wall Street 
but will be a real financial watchdog.
    That the Chamber is sounding the alarm about regulatory 
capture reveals the various CFPB reform proposals for what they 
really are, naked attempts to gut the CFPB and render it 
ineffective because there aren't the votes to kill it outright. 
That's the same reason some members of the subcommittee want to 
put the CFPB under their regular appropriations process. 
Because if you don't have the votes to kill off an agency, you 
can starve it to death via appropriation by playing hostage 
with the Federal budget.
    So let's be frank about what this hearing is about. This is 
about banks versus families. The issue presented by this 
hearing is whether Congress cares more about increasing the 
profits of banks or protecting the financial security of 
American families. Which is more important, bank or families?
    Turning to the so-called reform proposals, one would 
replace the single CFPB director with a five-person commission. 
Put differently, the bill proposes paying five people to do one 
person's job. Where I come from that's called government waste.
    What's more, by having five people do one person's job, 
accountability is diminished and leadership becomes less 
effective. Policy ends up getting set by horse trading among 
the commissioners, rather than by exacting analysis of the 
issue at hand. There's little evidence that a five-person 
commission provides a meaningful check against agency 
overreach, and if a single director is good enough for the OCC 
it's good enough for the CFPB. Put another way, if a single 
director is good enough for an agency that protects large 
banks, then it's good enough for an agency that protects 
American families.
    Another so-called reform proposal would lower the threshold 
for the Financial Stability Oversight Council to veto CFPB 
rulemakings. It would require a veto if a CFPB rulemaking were 
inconsistent with bank safety and soundness.
    Now, bank safety and soundness is a technical term. It 
means profitability. Let me repeat that. Bank safety and 
soundness means bank profitability. It's axiomatic that a bank 
can only be safe and sound if it is profitable. The consumer 
protection is often at loggerheads with bank profits.
    The only reason to engage in predatory lending, for 
example, is because it's profitable. It's not done out of spite 
or malice. What this means is that any CFPB rulemaking that 
affected bank profitability would therefore be inconsistent 
with safety and soundness and thus be subject to a veto.
    Thus, under this proposal, both the Credit Card Act of 2009 
and Title 14 of the Dodd-Frank Act, which reforms the mortgage 
lending industry, could not be implemented because they would 
affect bank profitability and thus be inconsistent with bank 
safety and soundness.
    Congress established the CFPB to protect American families, 
not maximize bank profits. Let's let the CFPB have a chance to 
do its job.
    [The prepared statement of Mr. Levitin follows:]

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    Mr. McHenry. Thank you, Mr. Levitin. Thank you for 
testifying.
    Mr. Pincus, you're recognized for 5 minutes.

                   STATEMENT OF ANDREW PINCUS

    Mr. Pincus. Thank you, Mr. Chairman.
    Mr. Chairman, Ranking Member Quigley, and members of the 
subcommittee, thank you for the opportunity to testify before 
the subcommittee today on behalf of the Chamber of Commerce and 
the hundreds of thousands of businesses that the Chamber 
represents.
    Let me, at the outset, correct Mr. Levitin's apparent 
misperception about what the Chamber's long-held position has 
been on this issue.
    Through the debate over Dodd-Frank, the Chamber made clear 
that it strongly supported sound consumer protection regulation 
and enhanced consumer protection at the Federal level. The 
Chamber businesses, just like consumers, have a strong interest 
in a marketplace that's free of fraud and free of other 
deceptive and exploitative practices so legitimate businesses 
can compete on a level playing field. So businesses, just like 
consumers, don't like predatory practices that hurt consumers.
    At the same time, what is essential is to ensure that 
regulation does not impose duplicative and unjustified burdens 
that have two ill effects.
    First of all, they unjustifiably divert resources that are 
essential to fueling economic growth, to complying with rules 
that are not necessary; and in this context, as Mr. Zywicki has 
mentioned, they prevent small businesses from obtaining the 
credit they need to expand and creating the jobs that our 
economy needs because the well-documented fact is that small 
business credit is often consumer credit. And misguided 
regulation of consumer credit that shrinks its availability 
will shrink the credit that is the lifeblood of small 
businesses in this country.
    So the Chamber actually looks forward to working with the 
Consumer Financial Protection Bureau once it's up and running 
to meet these goals and has already had several productive 
meetings with some of the people that have been designated to 
take roles at the Bureau.
    But the Chamber is concerned that the Bureau's structure 
will make it impossible to achieve the goals that have been set 
out for it.
    First of all, I think it's important to make clear at the 
outset, given some of the earlier testimony, that the plain 
fact is that Dodd-Frank sets up for the Bureau an unprecedented 
structure that consolidates more power in the director than in 
the head of any other agency that regulates private individuals 
and entities. Just want to repeat that again. It concentrates 
more power in a single person than any other Federal agency 
head of an agency that regulates private individuals and 
entities. So let me talk a little bit about why that's so and 
address some of the comparisons that were put on the table 
earlier.
    First of all, I think we're all familiar with the basic 
model of the Federal agency. Like the Federal departments, 
they're headed by a single individual, a Secretary, or the head 
of the FDA, one individual. But there are two important 
characteristics there. It's one individual who serves at the 
pleasure of the President. The President has total power to 
fire that person if he or she disagrees with the President's 
policy views. And, of course, for all those executive agencies, 
the appropriations process is there and Congress reviews their 
appropriations.
    Now, we do have independent agencies. The structure for 
independent agencies virtually uniformly throughout the 
government is that they are headed by a multi-member, 
bipartisan commission whose members serve for fixed terms. So 
there is a built-in compromise there. Yes, it's true the 
President doesn't have the unfettered power to fire a member of 
the FTC or the SEC, but neither does one of those people have 
all the power to run the agency. So you need a majority. And so 
there's a built in check on the power of any one of those 
individuals who have protection against the President's 
discretionary firing.
    Second of all, for most all of those agencies there is 
still the appropriations process oversight to ensure that there 
is a second check on what they're doing through the people's 
elected representatives in this House and in the Senate.
    The Bureau, of course, is headed by a single director who 
serves for a fixed term and with respect to whom the President 
is limited in his ability to fire him, except for cause--him or 
her--except for cause; and there is no appropriations 
oversight.
    So it is those three things coming together--single person, 
limitation on the President's power to fire, except for cause, 
and no appropriations oversight--that makes this different than 
any other agency.
    And I want to address the OCC comparison, because that has 
been floated earlier again in the hearing. The OCC Comptroller 
is someone who is subject to firing at the discretion of the 
President. So, again, critical difference in the checks and 
balances that exist with respect to that agency and the agency 
here.
    And as I detail in my testimony, the Secretary of the 
Treasury also exercises some oversight authority over the 
Comptroller.
    Finally, just two quick additional points.
    First of all, the question of the FSOC review of 
regulations and whether that's unique. I served in the 
executive branch. The OIRA regulatory review process within 
OMB--I'm sorry, Mr. Chairman. I'm running over a little bit. 
The OIRA process brings all the executive agencies around the 
table to reach a compromise about what--a united view about 
what that executive branch agency regulation should be.
    Second of all, I'd be happy to talk more about the 
regulatory capture point that Mr. Levitin made, but suffice it 
to say that the banks are not the only special interests in 
this debate. There are lots of special interests, and the 
question is how do we create a structure that makes sure that 
the resulting rules are the public interest and not the product 
of one special interest or another.
    Thank you, Mr. Chairman.
    [The prepared statement of Mr. Pincus follows:]

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    Mr. McHenry. Thank you, Mr. Pincus. Thank you for your 
testimony, and I thank all of you for waiting and being here 
and understanding that the congressional schedule tends to 
lengthen things.
    Mr. Levitin, you mention in your testimony you mention OCC 
as an apt comparison to the CFPB. In Ms. Warren's testimony, 
she also mentions that as the appropriate comparison. Why do 
you believe that to be the case?
    Mr. Levitin. One of the primary reasons that we separated--
that Congress separated consumer finance from bank safety and 
soundness was that it found that those two did not work well 
together because safety and soundness always took the foremost 
position and consumer protection ended up being subordinated.
    Mr. McHenry. I understand. You're talking about the 
previous Congress' intent on this law, on the structure of 
Dodd-Frank and CFPB in particular. What in particular--why is 
OCC the appropriate comparison?
    Mr. Levitin. Because OCC is the strongest of the Federal 
bank regulators; and if we want to have a bank regulator that 
is able to act efficiently and decisively to protect American 
families, we want a structure that works like OCC. OCC has been 
a very effective structure in furthering banks' interests. We 
want a structure like that that furthers the interest of 
American families.
    Mr. McHenry. You speak that these commissions--the 
commission structure is not ideal. Why?
    Mr. Levitin. When you have a commission structure--there 
are two reasons. First of all, just with any commission 
structure, you end up often having just simply horse trading 
among the commissioners. Commissioners have their pet issues, 
as Professor Zywicki pointed out, and as a result of that 
sometimes commission decisions end up being based on political 
tradeoffs, rather than what is really the right resolution of 
the issue.
    Mr. McHenry. And you're saying this to Congress.
    Mr. Levitin. I'm saying this to Congress, certainly, 
because Congress is a different structure, and Congress is 
meant to be----
    Mr. McHenry. I'm sorry. Your second point. I didn't mean to 
interrupt.
    Mr. Levitin. Oh, no. But I think that's an important 
distinction. The Congress is a political agency and is meant to 
do that. We do not want our regulatory agencies operating that 
way.
    Mr. McHenry. And your second point?
    Mr. Levitin. The second point is that when you're dealing 
with the traditional model of the five-person agency--we don't 
have this always, but in most cases we have the rule that no 
more than three members of that five-person commission can be 
from any one party. The problem is when you apply that partisan 
division to consumer financial protection it doesn't work, 
because consumer financial protection issues do not fall on 
partisan lines.
    Mr. McHenry. Okay. Thank you.
    It is interesting because when you're talking access to 
credit there is a division there.
    Mr. Zywicki, you mentioned in your testimony that the 
comparison to the FTC is the preferable one. Compare that to 
the OCC. I'd like to sort of understand the difference here, if 
there is a difference.
    Mr. Zywicki. Thank you, Mr. Chairman.
    And that's exactly right. The Federal Trade Commission is 
the obvious analogy here. I worked at the Federal Trade 
Commission as the Director of the Office of Policy Planning. 
The Federal Trade Commission for a long time has had authority 
over some pockets of consumer protection. And what we see is 
that the FTC is the model of how this should be done, which is 
that it has an internal deliberative process where they can 
discuss the policy tradeoffs. Too much consumer protection can 
be harmful to consumers.
    Mr. McHenry. Why is that?
    Mr. Zywicki. We could make the foreclosure rate zero if we 
just said you couldn't get a mortgage.
    Mr. McHenry. What would the impact of that be? People would 
keep their homes. So what would the impact of that be?
    Mr. Zywicki. People wouldn't be able to buy homes, because 
they'd have to save up. They'd have to get cash before they 
could buy a home, for instance.
    Mr. McHenry. Because people wouldn't lend to them if they 
could not reclaim their property is what you're saying.
    Mr. Zywicki. Exactly right. Exactly. And so there is a 
tradeoff then. There is a tradeoff between two good things, 
consumer protection and consumer choice, competition and lower 
prices. If you raise prices, then consumers get less access to 
credit.
    Mr. McHenry. Okay. Does the rest of the panel agree, just 
yes or no, that there are tradeoffs in this, just as Mr. 
Zywicki outlined. Dr. Evans? Just yes or no.
    Dr. Evans. Yes.
    Mr. McHenry. Okay. Mr. Levitin.
    Mr. Levitin. Yes, there are tradeoffs.
    Mr. McHenry. Okay.
    Mr. Pincus. Yes.
    Mr. Zywicki. And elaborating on the FTC then, which is that 
what we see is the FTC through the deliberative five-member 
process comes up away with doing this. We also see at the FTC 
that there is an internal check of competition, consumer choice 
on one side of the agency, consumer protection on the other 
side of the agency. And when I think about this--and the FTC, 
nobody has ever said that the FTC is incompetent because 
they've got an agency--I never saw horse trading with respect 
to these sorts of things. What I saw was a deliberative process 
that had internal checks and balances, that weighed all of the 
considerations here.
    And when I think about the CFPB, what I think is that I was 
at the FTC. I know a lot of people who have worked at the FTC. 
And if people had said that consumers would be better off if we 
just took the Consumer Protection Bureau of the FTC and spun it 
off and just let it sue whoever it wanted to, do any 
regulations it wanted to, without any consideration about other 
sorts of things, people would think you had lost your mind. Yet 
that is the model. That is the model for the Consumer Financial 
Protection Bureau, would be the FTC Consumer Protection 
Division standing alone. And that would be a disaster.
    Mr. McHenry. My time has expired.
    Mr. Quigley of Illinois, the ranking member, is recognized 
for 5 minutes.
    Mr. Quigley. Thank you again, Mr. Chairman.
    Mr. Levitin, Professor, obviously, a significant part of 
this new agency's mission is to help level the playing field 
between the larger lenders and smaller lenders such as credit 
unions and the small community banks in my district.
    You published, I believe, this report in December 2009, in 
which you made the point, ``better regulation of the consumer 
marketplace would result in both safer and more affordable 
products.'' Specifically, you mentioned the issue of incomplete 
price competition, which makes it very difficult, if not 
impossible, for consumers to comparison shop for products based 
on total cost.
    Would you explain the concept of incomplete price 
competition and the effect it has on the consumer finance 
market?
    Mr. Levitin. Sure. I want to start by saying that I think 
that the Consumer Financial Protection Bureau could end up 
being a major source for relief, could end up really benefiting 
community banks and credit unions by leveling the competition 
playing field within the financial services space. That within 
financial services there are economies of scale that--
especially in areas of credit cards and debit cards, there is 
simply economies of scale that smaller financial institutions 
cannot match.
    Having the Consumer Financial Protection Bureau encourage 
more transparent products where consumers are able to compare 
apples to apples, where they don't have to try and guess what 
is it going to cost me to use this credit card over the course 
of a year, that they can know if I use this card this will be 
the cost, if I use this card this will be the cost, and I can 
make an informed comparison. Just like I go to the grocery 
store and I can look at unit prices, that I can make an 
informed comparison like that. Then I can make sure that I 
choose the right product.
    And that lets smaller financial institutions that offer 
really good products and really good services be able to 
compete fairly because they don't have to compete with hidden 
price terms. Their price terms are up front and clear and part 
of their price terms are that they have excellent service. And 
often they have to compete with large financial institutions 
that have an incentive to hide the price terms in small print 
and make it hard to figure out what is it going to cost to use 
this product.
    Mr. Quigley. You're talking about improving transparency.
    Mr. Levitin. Very much so, sir.
    Mr. Quigley. And exactly, if you were them, how do you do 
that? What are the steps so the everyday person can find what 
you're talking about?
    Mr. Levitin. I think, first and foremost, you focus on 
disclosure of information. The way we have done consumer 
protection in the United States since the Truth and Lending Act 
has focused primarily on disclosure; and you try and improve 
the disclosure forms, as the CFPB has already started to do 
with reconciling their Real Estate Settlement Procedures Act 
and Truth in Lending Act disclosures for mortgages, started 
doing that with credit cards, trying to boil down, you know, a 
typical 30-page credit cardholder agreement into hopefully what 
will end up being a one-page agreement that you and I can look 
at and read in plain English and that you don't have to be a 
lawyer to understand.
    Mr. Quigley. Is there some other place that you think this 
makes sense to disclose so it's not just in that? Is there some 
on-line possibility?
    Mr. Levitin. That's one of the possibilities. It's not 
clear exactly what the right answer is. Part of the task before 
the CFPB is going to be to figure out what is the optimal way 
to do this. And I expect that the CFPB will consider, among 
other things, whether having--enabling easier on-line 
comparisons just the way you might compare used cars on Carmax 
or something would be an option.
    Mr. Quigley. And your best guess on how the market reacts 
to these requirements?
    Mr. Levitin. Well, you know, if I were a large financial 
institution and I made a lot of money by hiding the price 
terms, I wouldn't like this. I would want to stop this, and I'd 
want to kill off this agency. But if I were a small financial 
institution that, you know, where my calling card was excellent 
customer service and, you know, a straightforward, honest 
product, I would embrace this wholeheartedly.
    Mr. Quigley. I don't fault them for trying to make profits. 
I just think it's something that the market always should 
encourage and that's the competitive aspects that transparency 
allows. So I'd like to think that they'd eventually embrace 
this and see it as a marketing opportunity, as you said, you 
know, like a Carmax. Some people are advertising, hey, we make 
this easy for you to know what you're actually buying when you 
buy this car. So I'd like to think that they'd embrace it at 
some point, recognizing the cost and the competitive qualities 
that it would bring to bear against them in some respects.
    Mr. Levitin. Transparency is the consumer's best friend.
    Mr. Quigley. Thank you, Mr. Chairman. I yield back.
    Mr. McHenry. I recognize myself for 5 minutes.
    Dr. Evans, you mention that your concern is that the CFPB 
would really put in place an anti-credit policy. Can you 
explain why that would be? Why would we have an agency with an 
anti-credit, anti-borrowing, anti-lending policy?
    Dr. Evans. The philosophy of many of the people who are 
behind the Consumer Financial Protection Bureau is really that 
there are some fundamental problems in the financial market. 
There is a belief that consumers really don't know what they're 
doing, that consumers make a lot of mistakes, and what you 
really need is you need a nanny, you need a super nanny, in 
effect, to be telling consumers what they should be doing.
    How does that happen? Well, you basically tell financial 
institutions what kind of products they should design, what 
kind of products they should offer to consumers. If you look at 
the writings of a lot of people involved in the agency, there 
is a tendency on their part to basically believe that borrowing 
money is not a great thing and that consumers get sucked into 
borrowing too much.
    How do you react to that if you're an agency with those 
beliefs? You put policies in place that make it more difficult 
for banks to lend money to consumers, and you put policies in 
place. And one of the things that has been suggested by some of 
the backers of the CFPB is basically what's known as sticky 
opt-out policies, where you basically tell a financial 
institution that they have to tell consumers that this is the 
product that we have to give you and make it very difficult for 
the financial institution to let that consumer take another 
product. That basically makes it difficult for the financial 
institution to lend money to that consumer.
    If I might just elaborate just a little bit and respond to 
Professor Levitin's points, I think history tells us that the 
notion that this regulatory agency is going to lower prices to 
consumers, that this massive regulatory agency is going to 
lower prices to consumers, is going to increase competition I 
think is extraordinarily naive.
    And if you look at the facts, we've had the experiment with 
the CARD Act. What have we seen as a result of the CARD Act? 
One of the effects of the CARD Act in this marketplace is that 
prices have gone up to consumers and it has been more difficult 
for consumers to get credit.
    Why is that? Because one of the things that the CARD Act 
does--and I am not saying the CARD Act doesn't do good things--
but one of the things that the CARD Act does is it makes it 
very, very difficult for financial institutions to price risk.
    It is simply not the case that credit is like a car or is 
like a toaster. The difference is that when a bank extends 
credit to Mr. Zywicki or Mr. Levitin or to me or to Mr. Pincus, 
the chances are each one of us has different risk 
characteristics, and the bank has to figure out a way to price 
that. The CARD Act and that particular regulation made that 
more difficult to do, and one of the consequences of that is 
banks had to basically increase their prices and reduce the 
availability of credit.
    The other example that I've written on recently, of 
course--and we don't know how this is going to play out--is the 
Durbin amendment and debit card interchange fees. Based on the 
work I've done, I think it's pretty clear. I think it's pretty 
clear from how the market has already operated that that is 
going to have a very clear effect on the marketplace. It's 
going increase the price that consumers pay. I simply don't 
think it's plausible that this regulatory agency is going to 
result in lower prices for consumers. I just don't think 
there's a lot of experience in history that's comported with 
that particular view.
    Mr. McHenry. The FSOC--the ability of the FSOC to overrule 
the rules of the CFPB. Ms. Warren says that this basically 
weakens the agency, and it's not a strong regulatory agency 
because you have to get 7 out of 10--really, excluding the 
director of the CFPB, 7 out of 9--members to vote; and the 
limitation on that overruling is that it would provide a 
systemic risk to the American financial system. High hurdle. So 
that means the CFPB could really eliminate particular 
businesses and business lines, and the FSOC wouldn't have the 
authority to overrule it.
    Mr. Pincus, you mentioned this about the FSOC. Why is the 
FSOC not a powerful tool to overrule CFPB rules?
    Mr. Pincus. I think for both of the reasons you mentioned, 
Mr. Chairman. First of all, the supermajority requirement is 
very unlikely to be met. The standard that has to be applied 
threatens the entire U.S. financial system, an incredibly high 
standard.
    Second of all, the process that is employed. Typically the 
way agencies discuss proposed regulations is there is a process 
before the rule is issued. What this says is the Bureau issues 
its rule, and then if somebody doesn't like it, they can start 
what will be a very public process to overrule it, and I think 
there will be obvious reasons why, absent something that is 
almost so cataclysmic it is impossible to think about, nobody 
is going to want to do that.
    Mr. McHenry. Thank you for your testimony.
    With that, I yield to Mr. Cummings for 5 minutes.
    Mr. Cummings. Thank you very much.
    I was sitting here and listening to you, Dr. Evans, and 
you, Mr. Pincus, I could not help but think about a rap group 
that has a song entitled ``Get Rich Or Die Trying.'' And the 
reason why I say that is that I want to do everything in my 
power to protect my constituents who are suffering every day 
and the constituents of Chairman McHenry, by the way, and 
others. And we need to--I don't want us to throw up our hands 
and say we can't protect consumers, because we can do it and we 
can do it effectively and efficiently. And I am sure that is 
what you all are talking about, trying to get to that.
    You may have a disconnect from the people I see every day, 
who pay the high bank fees and who have been messed over over 
and over and over again. And they go to work, they get on the 
early bus at 5:30 a.m. They scrub other people's floors, 
operate the elevators and then pay these high fees. One of the 
reasons is banks won't even locate in their areas. Payday loans 
all throughout the district. People who rent them appliances 
that they could buy.
    That is why we need this protection, CFPB. And we all need 
to work to make it work, because the American people are paying 
for this and they deserve to be protected and they need 
protection.
    Professor Levitin, you published an academic paper in 2009 
entitled ``A Critic of Evidence in Wright's Study of the 
Consumer Financial Protection Agency Act,'' which was a 
critique of a study by David Evans, who is one of our guest 
panelists today, and Joshua Wright, that found among other 
things that the CFPB Act, the section of Dodd-Frank that 
created the Consumer Financial Protection Bureau, could 
increase interest rates and reduce new jobs.
    You explained that their report was just the latest phony, 
and I am going to quote you, I don't want them to think I am 
saying this about them, ``The latest phony lobby statistics to 
come out of the banking industry,'' and pointed out that the 
study was funded by the American Bankers Association. Is that 
correct? Did you do that?
    Mr. Levitin. It is correct, and my particular objection 
with that paper was that it tried to estimate an increase in 
the cost of credit due to the creation of the CFPA and the 
CFPB, and its methodology was this, and you will see it is very 
obvious the flaw in this methodology.
    It said here is another piece of legislation dealing with 
interstate bank regulation, and one study found that resulted 
in an increase of cost of credit of X basis points. Therefore, 
the CFPB will result in an increase in the cost of credit of X 
times some number they pulled out of the air. And it was simply 
that. Just take a multiplier and apply that multiplier to an 
inapposite study and say that is going to be the effect of the 
CFPB.
    I was rather shocked, because Dr. Evans has produced some 
really excellent academic work previously, and this was just 
very surprising for me to see.
    Mr. Cummings. Just let me ask one other question, then I 
will get to you, Dr. Evans--no, you go ahead, because I want to 
be fair to you.
    Dr. Evans. With all due respect, Professor Levitin hasn't 
done any research. He just testified concerning what is going 
to happen to prices based on absolutely nothing. When pressed 
to say what is going to happen to interest rates and so forth, 
the reaction we get, and I will quote from his testimony just 
earlier, it is speculative. We don't really know.
    What Josh and I, Professor Wright and I tried to do, it was 
a study. It was not based on perfect evidence. But the 
particular study that Professor Levitin has pointed to is 
actually an analog. The best analog we could find, not a 
perfect analog, the best analog we could find of something that 
is comparable to the CFPB. It provided a baseline for the 
imposition of credit in the economy. That particular study that 
Professor Levitin just referred to showed that another 
regulatory bill and as a result of state restrictions on 
banking and credit, and so forth, led to an 80 basis point 
increase in interest rates. That is what you typically get with 
regulation.
    We did a comparison to CFPB and made the point that CFPB 
would allow a greater set of regulatory restrictions on lending 
than that. We took that as a----
    Mr. Cummings. I have to cut you off, because I got to give 
Levitin a chance to respond.
    Mr. Levitin. They took that 80 basis points, and what did 
you multiple it by, 2 or 3, or just some number that was yanked 
out of the air, and that is not scholarship. That is simply not 
scholarship, just to yank a number out of the air and say this 
study was 80 basis points, therefore CFPB is going to be 160. 
You can't do that. This one is 80 basis points, and we just 
don't know yet with the CFPB. We have to give it a chance 
before we find out.
    Mr. Cummings. Thank you. I see my time has expired.
    Mr. McHenry. I recognize Mr. Guinta for 5 minutes.
    Mr. Guinta. Thank you, Mr. Chairman.
    Dr. Evans, did you pull a number out of the air?
    Dr. Evans. No. If you read the paper and if you look at our 
response to Professor Levitin, which we can certainly make 
available to you, we used that as a baseline of 80 basis points 
and we couched it in very careful language. We said that this 
isn't accurate. This is the best we can do given the available 
evidence. And we gave the reader an explanation as to why they 
should consider multiples of 80 basis points, twice that or 
three times that, based on a very lengthy analysis that we did 
in the paper, pages and pages explaining why the CFPA, why the 
CFPB, has the power and has the likelihood, particularly the 
earlier version of the legislation, to increase interest rates.
    Again, with all due respect to Professor Levitin, he has 
produced absolutely nothing on this topic. The notion that we 
are engaging in this exercise and creating this massive agency 
and the best we can get is ``we will just have to see,'' for me 
that is not good enough.
    Mr. Guinta. Thank you for that testimony. I would concur 
that it is not good enough for Congress either, or it shouldn't 
be good enough for Congress either. This is not a notion--this 
issue is too important for us to guesstimate how to solve the 
problem. I think all Members of Congress want to solve the 
problem, but I have failed to see yet how this agency will 
correct the actions that led up to what you, Mr. Levitin, had 
talked about that built up to this.
    So the one question I guess I would have for you, I think 
that you had made some statements that if the CFPB had existed 
from 2004 to 2008, this could have been averted. It may not 
have occurred. I heard that testimony earlier in the first 
panel as well.
    So, my question would be even though this entity is 
supposedly going to have some responsibilities of other 
entities that should have prevented this or should have maybe 
suggested this was going to occur and we could have put some 
stopgap measures into place, can you tell me what exactly this 
agency will do, say, in the next 12 months, to ensure that this 
would not happen again?
    Mr. Levitin. Well, Congress already took care of a lot of 
the first steps itself. Title XIV of the Dodd-Frank Act 
undertook a major reform of mortgage lending markets, including 
a requirement that for nonqualified mortgages, which is a term 
that regulators are going to have to define, that lenders will 
have to verify ability to repay. That seems like a pretty 
obvious first step and I am glad Congress took it.
    I think it is very important to note that the major step 
forward with the CFPB is changing the regulatory architecture. 
Previously, when bank safety and soundness was yoked together 
with consumer protection, consumer protection always ended up 
being the subordinated mission and entities like the Office of 
the Comptroller of the Currency would routinely turn a blind 
eye to predatory lending practices because they were profitable 
and they didn't want to stop the music at the party.
    The CFPB does not have that bank profitability mission. It 
is not tasked with maximizing bank profitability, and therefore 
it is an agency that is incentivized to make sure that there is 
good consumer protection.
    Mr. Guinta. Wasn't that, ``consumer protection,'' didn't 
that exist in these other agencies? Their missions were not to 
have bank profitability?
    Mr. Levitin. Sure, they were. They were tasked with bank 
safety and soundness, and a bank that is not profitable is not 
safe and sound.
    Mr. Guinta. So you are saying their sole focus was bank 
profitability. There was nothing, no protections, no concern, 
no issue with respect to the consumer?
    Mr. Levitin. Virtually none, and I can give you some 
examples. The Federal Reserve had the power under the Home 
Owners Equity Protection Act [HOEPA], to pass regulations that 
would have curbed some of the worst abuses of subprime lending. 
It didn't act for over a decade.
    Mr. Guinta. Would Fannie and Freddie fall into this 
category you referred to?
    Mr. Levitin. Fannie and Freddie are a complicated and 
rather sad side story to this. The real problem in the home 
lending market was from the private label securitization area, 
and that then spilled over into Fannie and Freddie. Fannie and 
Freddie were really not government agencies. They weren't 
tasked with consumer protection. And FIFA, or OFHEO, was not 
tasked with consumer protection either.
    Mr. Guinta. I note my time has expired. Thank you, Mr. 
Chairman.
    Mr. McHenry. The ranking member, Mr. Quigley, is recognized 
for 5 minutes.
    Mr. Quigley. Thank you, Mr. Chairman.
    Dr. Evans, Professor Levitin, I actually appreciate the 
disagreements here. Our judicial system is built on zealous 
advocates disagreeing, because from that we like to think we 
move toward the truth. So toward that end, while I recognize we 
are not going to hold hands and sing Kumbaya here, it is good 
to see this warm and fuzzy moment.
    Dr. Evans, the professor's comments about transparency, 
while you may disagree with much of what this agency is about, 
could you talk about how transparency might help this industry 
and if you agree or what parts of transparency might improve 
things from the consumer's point of view without, as you would 
be unhappy with, destroying competition?
    Dr. Evans. Yes, that is a very fair question, and I 
appreciate it. And let me take that and just start out by 
saying that I am certainly not suggesting that there aren't 
problems to be solved. I mean, there are a ton of problems in 
the lending industry, there are certainly lots of problems that 
consumers have faced and I would be the last person to deny 
that there is a set of problems that some agency needs to deal 
with.
    One of the things that is beneficial for consumers, subject 
to qualifications, is transparency. It is not a good thing when 
banks hide the ball. It is not a good thing when consumers are 
tricked into doing things. And it is certainly the case that 
there are some members of the financial services industry that 
have acted badly. And I am the last person to suggest that 
everything is okay and that there are no problems. So I am in 
favor of consumer protection, consumer financial protection. I 
think this agency could do lots of good things.
    The one qualification, I guess the thing that I would 
really like to get across, is that as with many things we have 
to have a perspective on the marketplace, and, by and large, 
this is an industry that does a lot of great things. It helps 
the people in Mr. Cummings' district in lots of ways.
    We just have to have the perspective that while there are 
bad things going on that we need to take care of, it is also an 
industry that does a great deal of good for consumers and small 
businesses, and the regulation that we have for this industry 
needs to be conscious of both the bad things that are going on, 
but it also needs to really recognize that the bad things are 
often exceptions and that there are lots of good things that we 
need to make sure we don't harm.
    Mr. Quigley. So would you suggest that the bad things you 
talked about are in large part undertaken by what was deemed 
the shadow banking industry? I mean, when this bill was being 
discussed, many of the largest financial institutions were 
supportive of--they weren't for this agency, but they were 
certainly for somebody going after the problems from what was 
deemed the shadow banking industry. If you want to use a 
different term, that is fine.
    Dr. Evans. No, I am hesitating here because I think 
probably one of the things that Professor Levitin and I agree 
on is that some of the large financial institutions engaged in 
practices that, you know, probably weren't a great thing for 
consumers. So there were elements of the financial services 
industry, whether it is large, whether it is shadow and so 
forth, you know, there were certainly issues, and those issues 
I think should be appropriately dealt with.
    So I don't want to draw this dividing line between big 
financial institutions and the shadow financial institutions, 
because the shadow financial institutions, while we think of 
them as charging very high prices, in some cases they are also 
meeting a consumer need for people that aren't able to get 
loans from the large financial institutions but actually have a 
need that needs to be served.
    So, again, I don't want to suggest that there aren't 
problems there, but we also need to recognize that just because 
we say payday lender, that not all payday lenders are doing bad 
things and not helping consumers.
    Mr. Quigley. Well, I appreciate your candor, and I would 
suggest to all the witnesses here that kind of candor helps us 
get to the truth in the end because there will be another day 
and another issue and another bill. In the end, what we are all 
trying to do is help all of our constituents. So, Dr. Evans, 
that helps.
    Thank you, and I yield back.
    Mr. McHenry. I now recognize Mr. Guinta for 5 minutes.
    Mr. Guinta. Thank you, Mr. Chairman. I wanted to follow up 
with both Mr. Zywicki and Mr. Pincus on a couple of items.
    First, Mr. Zywicki, look, I understand the notion of 
appropriate consumer protection. I think most of us do. I think 
all of us probably agree that there is either redundancies or 
even in some circumstances additional burdens in some 
regulatory requirements. I think even some of us would agree 
with this philosophy or notion of the CFPB.
    I have great concerns about the structure. I have great 
concerns about the ultimate power that can be provided to this 
one individual and to the individuals within this organization. 
I have serious concerns about the funding of the agency and the 
lack of ability for this agency to be called in front of 
Congress. And I think those are concerns that anybody in 
Congress should have, because ultimately, people in this 
country are going to rely on Congress to make sure that the 
right things are being done.
    So my question to you would be in two parts, I guess. Could 
you talk a little bit about how this agency is structured and 
maybe some of the problems we should consider or see in the 
future; and, second, what alternatives do exist or can exist, 
rather than the structure that has been outlined in Dodd-Frank?
    Mr. Zywicki. Thanks. Again, I think the Federal Trade 
Commission is the obvious model for how this thing should have 
been set up. In fact, I think all of these duties should have 
just been given to the Federal Trade Commission and we could 
have all gone home at that point and they would have done the 
right job. And I think the Federal Trade Commission, where I 
worked from 2003-2004, is a much stronger, capable, effective 
agency precisely because of all of the apparatus that is set up 
around it. A multi-member commission, internal checks and 
balances, congressional oversight, all those sorts of things 
makes that agency much better. An agency that lacks all that is 
prone to tunnel vision and sort of navel gazing and that sort 
of thing and just sort of losing it its way. So I would 
strongly urge this be reformulated along the lines of the FTC.
    Fundamentally, if this is the right thing here, then the 
FTC is wrong, and I don't think anybody thinks the FTC is 
wrong.
    Mr. Guinta. Can you expand a little bit on the commission? 
Why doesn't the CFPB have a commission, and does that suggest 
that the other commissions are not necessary?
    Mr. Zywicki. It seems to suggest that if this is right, 
then all the other ones are wrong, and that just doesn't seem 
plausible to me. If this is how we are supposed to set up 
consumer protection, then I guess you need to wipe out the FTC, 
which has been here since 1914, and replace it with a director 
rather than a commission. The OCC is not analogous at all. The 
OCC is safety and soundness. It basically does accounting. It 
doesn't do broad scale policy analysis of the sort of things we 
have here.
    So let me give an example, if I may. I agree totally with 
Mr. Cummings about his concerns with respect to access to 
credit. But if you think about it, the combination of CFPB, the 
Durbin amendment, the Credit Card Act, that sort of thing, we 
are going to drive because of the Durbin amendment maybe a 
million consumers out of the mainstream banking system. CFPB, 
by increasing the regulatory burdens here, is going to drive 
more consumers out of the mainstream banking system. We are 
going to put them exactly in the hands of the payday lenders 
and the check cashers and everybody else. We have already seen 
this. When you go after the payday lenders, what happens is the 
payday lending migrates online and then you have online payday 
lending. You have payday lending people migrate to pawn shops.
    We are talking about a situation where when you go in with 
good intentions, you end up hurting the people you intend to 
help. And that is what I am concerned is going to happen with 
this.
    Mr. Guinta. Mr. Pincus, to follow up a little bit, I don't 
know that you heard earlier testimony, but I have some concerns 
about OCC versus CFPB. I believe there are clear differences 
between the two. Could you talk a little bit about the 
differences between the OCC and the CFPB in terms of oversight?
    Mr. Pincus. The clearest difference, Congressman, is that 
the Comptroller serves at the pleasure of the President and the 
Director doesn't. The Director can only be dismissed for I 
think the statute says inefficiency, neglect of duty or 
malfeasance. So it is a much more restrictive standard.
    So in terms of the checks of the elected officials, much 
less of a check than on the OCC, than on the Comptroller. And 
within the Treasury Department, the Secretary does also have 
some ability to oversee what the Comptroller does. Again, the 
statute is completely clear. The Federal Reserve has zero role 
with respect to what the Director does. So those are the key 
differences, I think.
    Mr. Guinta. I appreciate that, because that is completely 
different than testimony we heard earlier today. Earlier today 
we had heard that they are similar, if not identical. And I 
would agree with you that that primary function of 
responsibility in how you can be hired and how you can be fired 
is paramount to the job that you are expected to complete.
    I thank the chairman for the time.
    Mr. McHenry. I thank the vice chair. I appreciate that.
    Mr. Cummings is recognized for 5 minutes.
    Mr. Cummings. I am listening to all of this and it is so 
easy to forget how we got here. We can have testimony to paint 
over the past and talk about--my mother used to tell us don't 
concentrate on what you don't have, concentrate on what you do 
have. I have been listening and I am just trying to--thinking 
about $20 billion in credit card penalty fees, talking about 
$38 billion in overdraft fees. I am trying to figure out, where 
do we think this money comes from? It is coming from regular, 
everyday citizens.
    Dr. Evans, I heard what you said about the fact that these 
are people who will rent you a washing machine for $75 a month 
when you could possibly buy one for $350, particularly in this 
kind of economy, that they are doing a service.
    One of the things that Ms. Warren talked about today is 
trying to give people information. And I think information is 
power, I really do, but it is powerful when you use it. In some 
kind of way in this country we have to get to the point where 
we don't let the little guy and lady go down the tubes.
    Some kind of way we got to get there. Because, you know 
what? Because you are going to always have--I live in the 
inner, inner, inner-city of Baltimore, so I see it every day. 
They don't have the big fancy cars. They may have a car that is 
5 or 6 years old. They are making extremely high car payments. 
They are paying extremely high rent for what they are getting. 
They pay the most for food and the food is not very good. And 
they are constantly digging into a hole that gets deeper and 
deeper while the folks, a lot of the folks who get these fees, 
they move out into the suburbs, into the mansions.
    Then these folks who are getting up at 5:30 a.m., paying 
all these fees to these people who you say are doing them a 
great favor, they can't do for their children, they can't take 
care of their children the way they would like to or even 
close, and they find themselves in generational cycles going 
down, down, down, instead of going up, up, up.
    That is why I go to every graduation I can go to and beg 
people to get an education, because you are going to broaden 
the gap between the have's and have-not's, because again, the 
people who don't have pay the most and they are the ones in 
most instances that get royally screwed.
    So, I am just here representing my constituents, trying to 
make sure that we find a way out of this.
    So this organization was not, the CFPB, was not established 
to just be something fancy and to be able to say we did 
something. We wanted to make sure--by the way, I don't think we 
had one Republican vote--we wanted to make sure that we did 
something to take care of all of our constituents. I don't care 
where they live.
    So then the question becomes is how do you take this and 
make it work well so that those people don't keep going in a 
downward cycle; so that because they cannot afford the things 
that they need because they just paid $20 billion in credit 
card penalty fees, if they can get a credit card of course, and 
$30 billion in overdraft fees, so how do we make it work? You 
guys are the geniuses. You are the gurus. What do you say to my 
constituents, if they have a television?
    Dr. Evans. Sir, personally I have a lot of sympathy for 
your constituents and I understand the problems that they face 
and I wish I could tell you I was here today and I could give 
you the solution to all the problems you laid out. I think all 
of us would like to solve them.
    I guess the one thing I would say, maybe to just put a 
little bit of perspective on it, is if you go 20 years ago, 
many of your constituents who now have credit cards probably 
wouldn't have been able to get them. One of the things that has 
happened over the last 20 years is more socially and 
economically disadvantaged people have been able to get credit 
cards, they have been able to get bank accounts, and that has 
actually helped them out.
    One of the areas that I have worked on quite a bit, 
Congressman Cummings, not recently but a long time ago was 
minority businesses. I am sure you have minority businesses.
    Mr. Cummings. A lot of them.
    Dr. Evans. I am sure you have a lot of them. And one of the 
problems they faced 20 years ago is if they wanted to get 
financing on their credit cards, 20 years ago, 15 years ago, 
they would have had great difficulty doing that. They are now 
able to do that now.
    So I am not suggesting your constituents don't have deep 
problems that need to be solved. I guess I would like to maybe 
persuade you a little bit that some of these financial services 
products, whether it is bank accounts and debit cards or credit 
cards, while there may be aspects of it that you see as bad, I 
guess I would like to persuade you that there is an aspect of 
them has actually has been pretty good for your constituents 
and that it is actually getting better over time.
    Finally, I would just point out that my wife is from 
Baltimore and she will be amused when I go home and tell her 
that you compared me to anything involving rap.
    Mr. Cummings. I see my time is up. Thank you, Mr. Chairman.
    Mr. McHenry. We are going to do a final round here. Mr. 
Guinta is recognized for 5 minutes.
    Mr. Guinta. Thank you very much, Mr. Chairman. I happen to 
in the last month or so visit Beach Street School in the inner-
city of Manchester, New Hampshire. Many people of think of New 
Hampshire not as the home to an inner-city, but it has many 
inner-cities, many neighborhoods that are inner-cities. I 
happened to be mayor for 4 years of that city and have great 
compassion for those who are financially and socially 
challenged in this society.
    So I think it is imperative and important for us to make 
sure that we have rules in place that allow a level playing 
field, that will allow any individual if he or she chooses, to 
succeed in life. I am often reminded of some of the kids that 
go to the Boys and Girls Club in my hometown of Manchester, New 
Hampshire, and where they started and where they are today. And 
I am proud to be part of a family of constituents and community 
members who feel very strongly that it is our responsibility as 
Americans to lead by example, to ensure that the American dream 
is alive and well, and that anyone who wants a part of that 
American dream can reach for that American dream.
    So I guess my question would be this to Mr. Zywicki, if 
there was an alternative that you would suggest would enhance 
that type of America that I could cosponsor with the gentleman 
from Baltimore, and I would be happy to do it, because I have 
great respect for him. I have watched him serve with passion 
and compassion and I admire his approach to trying to help his 
constituents, and I want to be part of that solution.
    So if there was a piece of legislation that Congress could 
embrace in a bipartisan way to make that American dream, 
whether it is in Baltimore or Manchester come true, what would 
it be?
    Mr. Zywicki. I certainly think incrementally the things 
that are on the table, I endorse all of those, the multi-member 
commission, that sort of thing.
    But what I would urge this panel to think about going 
forward, because the CFPB will likely turn out to be a failure. 
If it is not, if these accountability issues are not fixed, 
this thing is going to run off the rails and it is going to be 
a job killer and it is going to raise the cost of credit and 
everything else and it is going to hurt the people it is 
specifically intended to help.
    So hopefully that will--that is unfortunate, but I think 
that is entirely predictable. I hope that causes people to 
reexamine this.
    Let me stress again, I think that there is an urgent need 
and a great opportunity for a new approach to consumer 
financial protection. In my testimony I talk about the 
difference between market reinforcing regulation on the one 
hand and market replacing regulation on the other hand. I am 
all for savvy regulation that makes use of technology, 
harnesses the power of competition and consumer choice. A lot 
of the things that this agency might do, like a simplified 
mortgage disclosure form, would be great. Going back and paring 
back some of the mountains of junk that has been attached to 
the Truth in Lending Act would be great.
    My concern is that in order to bring about heightened 
competition and consumer choice, we could do that. Doing things 
like creating vague, open-ended standards of liability, like 
the ability to sue somebody for an abusive product because 
somebody in Washington thinks that somebody out there is too 
stupid to be able to understand the products that they are 
purchasing, not based on anything that I can tell, that is not 
going to help people.
    We know--the concern I have is both for middle class people 
to be able to have choice and competition, and I am concerned 
about lower income people who already have very limited credit 
options. And if we have a regulator that takes away options 
from people that already have limited options, that is not a 
very good way of making those people's lives better off. And we 
know this even just from regulating payday lending. When you 
get rid of payday lending, what happens? Evictions go up, 
bounced checks go up, utility shutoffs all go up in a situation 
like that.
    So I think that the desire for Washington bureaucrats to 
think that they know better about how consumers and people live 
their lives I think is a folly and I would think we would want 
to go in a different direction toward competition and consumer 
choice.
    Mr. Guinta. Thank you. I yield back to the chairman.
    Mr. McHenry. The ranking member is recognized for 5 
minutes.
    Mr. Cummings. I want to thank the gentleman from New 
Hampshire for his kind words, and I really mean that. Thank 
you.
    I am trying to figure out where do we--you were talking, 
Dr. Evans, about helping folks, helping minority contractors. 
One of the things that I have noticed is when we pull together 
minority contractors, and not just minority contractors, others 
too, one of the things they talked about was just in light of 
all the problems we have been experiencing with the economy, 
just being able to get credit. A lot of them had opportunities 
but they couldn't even get a line of credit or the line of 
credit was canceled. And, you know, for some of these small 
firms, a $10,000 line of credit is, as I am sure you well know 
if you have worked with minority contractors, that is like 
worth $1 million just to get from payday to payday and 
whatever.
    I was wondering, Mr. Guinta was talking, I was just 
thinking to myself this other question. You know, there are a 
lot of organizations now that are spending a lot of energy and 
effort in this whole thing of financial literacy, and I am just 
wondering how much that plays in. Mr. Guinta very sincerely 
said he is trying to find solutions, as I am, and I am 
wondering how much value that has. Because I do believe that 
sometimes people don't know how to handle money.
    Some folks, they don't know. They just have never been 
taught. And balancing checkbooks, if you have fees for bouncing 
checks, I remember somebody told me once a banker said 
something to the effect if people stopped bouncing checks, he 
would be out of business. I think he was exaggerating a little 
bit. But that is a lot of money. You know what happens. You 
bounce one, and then because that one bounces, you have a whole 
series of bouncing, and then the next thing you know you have 
bounced all the way around the world.
    So I am just wondering, there is a certain part of it is 
personal responsibility, but as my mom used to say, there is 
nothing like a person who don't know what they don't know. And 
I was just wondering how significant a role do you think that 
plays in trying to help people?
    I know there are some people that may be informed, they 
just don't have the resources. But there are other people that 
maybe if they were taught at an early age that a penny saved is 
a penny--however it goes, you know, if you hold on to it you 
are in good shape.
    So I was just wondering.
    Dr. Evans. So you are asking an economist whether we ought 
to have more economic instruction in the schools?
    Mr. Cummings. Yes, that is right.
    Dr. Evans. Yes. We absolutely should.
    Mr. Cummings. Do you think it helps a lot, if it is done 
right?
    Dr. Evans. I do. I think there is not enough instruction in 
the school systems on how finances work, how the economy works, 
and I think probably that is something that Adam and I probably 
agree on, that getting more of that in society, both in the 
school system and generally in society would be a good thing.
    I know that is one of the things that the CFPB is supposed 
to be doing and I think I would applaud them for doing that. So 
I think that would be helpful. I think it would be helpful for 
your constituents, and I think it would be helpful, frankly, 
for a lot of people.
    If I could just quickly comment on the first part of your 
remarks though concerning the minority contractors, I 
absolutely hear you. I know tons of businesses in the last few 
years that had their lines of credit canceled, and it is a very 
tough time the last few years for small businesses.
    What we need to do in order to fix that problem is we need 
to get money flowing to small businesses to get them moving 
again. And this probably isn't the right opportunity to go into 
all the reasons why they are not getting it, but one problem is 
some of the capital requirements that banks and in particular 
community banks have. As you probably know, community banks are 
one of the major sources of lending for small businesses. So 
there are a multitude of problems that I think minority and 
other small businesses face at this point that we could 
probably give some attention to.
    Mr. Cummings. I will be in contact with you on that. Mr. 
Levitin?
    Mr. Levitin. Briefly. First to address the constriction of 
capital to small businesses, it is important to note that that 
constriction of capital happened before any new Federal 
regulation went into place. That started in really the fall of 
2008 in particular, and that was the result of a lack of 
regulation. That was not caused by regulation. I think we need 
to keep that in mind.
    As far as financial literacy, you know, it is hard to argue 
against it, except the evidence there is really not very 
convincing. There isn't real good evidence that it works. If 
you stop and think about it for a second, of course it doesn't.
    You know, I think I am pretty financially literate, and I 
guarantee you there are a lot of lawyers around at Mr. Pincus' 
firm and other firms that can draft forms that I will not 
understand, and they are paid very well to do it, and I know it 
because I used to be paid to do that.
    Mr. McHenry. The gentleman's time has expired. I recognize 
myself for the final 5 minutes of the day.
    That is by far the most shocking thing that I have heard 
here today, that financial literacy doesn't matter. That is 
insane. With all due respect, I would tell you that if I look 
at a form and I say it is too complex for me to understand, I 
will not sign it. Right? And it is skepticism, that additional 
bit of financial literacy, and I am not trying to attack you. 
But, look, maybe your point is that financial literacy isn't 
going to fix everything. I would accept that.
    Mr. Levitin. Sure. Not everyone is as skeptical as you are. 
I wish that were the case.
    Mr. McHenry. But there are those that are more financially 
literate.
    Mr. Levitin. But skepticism is not financial literacy. It 
is just skepticism.
    Mr. McHenry. Right. Okay. Well, I understand. Maybe we 
should teach skepticism.
    Mr. Levitin. I think that would be a very good thing.
    Mr. McHenry. To a skeptical American public. Look, I do 
want to ask a few questions that I want to better understand.
    There are two--well, the headline of this hearing was 
``Who's Watching the Watchmen.'' Let's get back to that. I 
don't want to lose sight of this kerfuffle with Ms. Warren 
earlier today because she wanted to leave.
    I think the American people have a lot of questions about 
this Bureau. People that are providing credit, those that are 
accessing credit, those that hope to borrow, those that are 
trying to have a business providing some level of lending, 
either short term, long term, whatever it may be, have a lot of 
questions about this Bureau. And it is very clear that Ms. 
Warren is not intent on being very forthright about her ideas 
for this. So, that is why we have an expert panel, to get a 
diversity of views.
    Mr. Zywicki, in terms of inspector generals, would it be 
helpful to have a Special Inspector General for the CFPB?
    Mr. Zywicki. Yes.
    Mr. McHenry. Dr. Evans.
    Dr. Evans. Yes.
    Mr. McHenry. Mr. Levitin.
    Mr. Levitin. I would need to think about that issue 
further. I am happy to submit written comments on it.
    [The information referred to follows:]
    [Note.--The information referred to was not provided to the 
subcommittee.]
    Mr. McHenry. Certainly. I would appreciate that.
    Mr. Pincus.
    Mr. Levitin. I think I would like to think about it. I 
mean, the Fed Inspector General has that job now, and I think 
the question you are asking is should it be a more focused 
focus.
    Mr. McHenry. What would you think of that?
    Mr. Pincus. I think I should talk to my client before I get 
back to you.
    [The information referred to follows:]
    [Note.--The information referred to was not provided to the 
subcommittee.]
    Mr. McHenry. Smart man.
    Cost-benefit analysis, OIRA. So we have an enormous swath 
of our government, the greater portion of our government is 
required to actually do a solid cost-benefit analysis. There is 
a lot of oversight and balance for that. Do you think it would 
be appropriate and helpful that the CFPB be subject to OIRA?
    Mr. Zywicki. Absolutely. Yes.
    Mr. McHenry. Why?
    Mr. Zywicki. Independent agencies typically are not 
subjected to OIRA oversight, but the reason is because they are 
multi-member commissions, so you basically substitute that 
accountability and that internal deliberative process where you 
essentially go through a cost-benefit analysis like we did at 
the Federal Trade Commission.
    This has neither of those, and so if you are not going to 
have at least a multi-member commission, you need to have 
something like OIRA. We have been talking most of the time here 
about the inherent tradeoff between higher costs and consumer 
protection, access to credit, those sorts of things, and a 
serious, rigorous external check and cost-benefit analysis I 
think with be very valuable, unlike the sort of haphazard thing 
that is in there now.
    Mr. McHenry. Dr. Evans, you mention it in your testimony. 
Would you comment?
    Dr. Evans. Well, yes, if it is done seriously.
    Mr. McHenry. What would you point to as a good way of cost-
benefit analysis being done? Is it currently being done in 
government, period?
    Dr. Evans. Yes, this is not an area I am an expert on. Todd 
knows more about it than I do. My impression is that it is not 
currently being done very well anywhere.
    Mr. McHenry. Mr. Levitin.
    Mr. Levitin. I would concur with Dr. Evans that the current 
OIRA process is a bit of a disaster. It ends up being mainly a 
cost analysis, not a cost-benefit analysis.
    Mr. McHenry. Would that be helpful though?
    Mr. Levitin. Well, I would note that the CFPB statute 
requires a cost-benefit analysis, and that if the CFPB's 
analysis is not good, it can be challenged in court. So it 
already has that baked in. I am not sure that OIRA does 
anything except create an obstacle for government action.
    Mr. McHenry. Thank you. Mr. Pincus.
    Mr. Pincus. Well, I think it would be great. I think what 
OIRA does is bring some external rigor both to the cost-benefit 
analysis, but also brings other policy voices to the table. I 
mean, one of the values of the OIRA process is it is not just 
the agency that is proposing the rule, it is the whole 
government that gets a chance to have input, and that is what 
you want in an area where you have such conflicting--not 
necessarily conflicting, but a multitude of policy interests.
    Mr. McHenry. Thank you. To the point of cost-benefit 
analysis, it is currently required for the CFPB for small 
institutions. It is not across-the-board, is my understanding.
    Mr. Levitin. My understanding is that under the CFPB's 
unfair, deceptive and abusive practices, that it is included. 
But, you know, without looking, having the statute before me--
--
    Mr. Zywicki. I believe it is sort of an internal cost-
benefit analysis. OIRA reviews only for the small business 
divisions, I think.
    Mr. Pincus. I was just going to say, Mr. Chairman, one 
problem is all the things we are talking about only apply to 
rules, and what Ms. Warren said and certainly what other 
agencies such as the FTC have done have basically set standards 
through enforcement actions.
    So I think another whole area of important discussion is 
where an enforcement position gets taken, and either through 
settlement or whatever becomes something that is prevailed on, 
what is the check on that as something that then legitimate 
businesses are going to say hey, I better start complying with 
this. Even though it is one enforcement action, I could be 
next.
    Mr. McHenry. That was one of my questions of Ms. Warren, 
was the relationship to the mortgage settlement. It is very 
clear that they were not intent on communicating very much of 
what they are doing, and their agency isn't even up and 
running. So it is a great concern that we have, is that there 
are not internal controls within this agency, whereas a 
balanced approach would have a board oversee it, even like Ms. 
Warren's original proposal, to be quite frank about it, where 
there would be internal debate or wrestling with rulemaking 
rather than one director simply doing it.
    The additional thing that is clear from today is that the 
CFPB will neither increase access to credit nor reduce the cost 
of credit. That is for certain, and I think there is wide 
agreement on that. I would say further that it is also clear 
that the current Special Assistant, the Assistant to the 
President and Assistant to the Treasury Secretary, Ms. Warren, 
has been calling the shots at organizing this Bureau. It has 
been a rather less than transparent operation, if we can be 
very direct about it. Her answers were less than forthcoming 
and they raise more questions than they actually provide 
answers. That is what we have learned over the course of the 
last 3 hours in this committee room.
    I certainly appreciate this panel's testimony. Thank you 
for waiting through the afternoon, and thank you for your 
forthrightness and willingness to sort of engage in this 
discussion, because it is enormously important, not simply to 
policymakers in Washington, not simply to academics or business 
folks, but to the small business person who hopes the small 
person, and in another of my colleague's terms, who wants to 
start a business.
    My dad, who wanted to start a business out of the garage, 
and he started that business on a credit card, something he 
told me to never do, except for that business put five kids 
through college, put a roof over our head and an opportunity.
    So I want to make sure that people have access to credit, 
whether it is a person trying to make it to the next paycheck 
or the person who has an aspirational goal of employing people 
and growing this economy. That is really what it is all about.
    We can have a debate about how you achieve it, but this 
CFPB is not the construct to make that more available, achieve 
greater opportunities for those individuals that we care so 
much about.
    Thank you for your testimony. I certainly appreciate your 
willingness to be here today. This meeting is now adjourned.
    [Whereupon, at 4:20 p.m., the subcommittee was adjourned.]

                                 
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