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





                    LEGISLATIVE PROPOSALS TO PROMOTE
                 ACCOUNTABILITY AND TRANSPARENCY AT THE
                  CONSUMER FINANCIAL PROTECTION BUREAU

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

                                HEARING

                               BEFORE THE

                 SUBCOMMITTEE ON FINANCIAL INSTITUTIONS

                          AND CONSUMER CREDIT

                                 OF THE

                    COMMITTEE ON FINANCIAL SERVICES

                     U.S. HOUSE OF REPRESENTATIVES

                      ONE HUNDRED TWELFTH CONGRESS

                             SECOND SESSION

                               __________

                            FEBRUARY 8, 2012

                               __________

       Printed for the use of the Committee on Financial Services

                           Serial No. 112-99










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                 HOUSE COMMITTEE ON FINANCIAL SERVICES

                   SPENCER BACHUS, Alabama, Chairman

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

           James H. Clinger, Staff Director and Chief Counsel
       Subcommittee on Financial Institutions and Consumer Credit

             SHELLEY MOORE CAPITO, West Virginia, Chairman

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


























                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on:
    February 8, 2012.............................................     1
Appendix:
    February 8, 2012.............................................    45

                               WITNESSES
                      Wednesday, February 8, 2012

Hunter, Michael J., Chief Operating Officer, American Bankers 
  Association (ABA)..............................................     9
Pincus, Andrew, Partner, Mayer Brown LLP, on behalf of the U.S. 
  Chamber of Commerce............................................    11
Stinebert, Chris, President and Chief Executive Officer, American 
  Financial Services Association (AFSA)..........................    13
Wilmarth, Arthur E., Jr., Professor of Law and Executive 
  Director, Center for Law, Economics & Finance, George 
  Washington University Law School...............................    14

                                APPENDIX

Prepared statements:
    Huizenga, Hon. Bill..........................................    46
    Hunter, Michael J............................................    47
    Pincus, Andrew...............................................    54
    Stinebert, Chris.............................................    64
    Wilmarth, Arthur E., Jr......................................    70

              Additional Material Submitted for the Record

Capito, Hon. Shelley Moore:
    Written statement of the Consumer Bankers Association (CBA)..    86
    Letter to Representative Huizenga from Bill Cheney, President 
      & CEO, the Credit Union National Association (CUNA)........    90
Maloney, Hon. Carolyn:
    Written statement of Americans for Financial Reform..........    91

 
                    LEGISLATIVE PROPOSALS TO PROMOTE
                    ACCOUNTABILITY AND TRANSPARENCY
                       AT THE CONSUMER FINANCIAL
                           PROTECTION BUREAU

                              ----------                              


                      Wednesday, February 8, 2012

             U.S. House of Representatives,
             Subcommittee on Financial Institutions
                               and Consumer Credit,
                           Committee on Financial Services,
                                                   Washington, D.C.
    The subcommittee met, pursuant to notice, at 10:01 a.m., in 
room 2128, Rayburn House Office Building, Hon. Shelley Moore 
Capito [chairwoman of the subcommittee] presiding.
    Members present: Representatives Capito, Renacci, Royce, 
Hensarling, McHenry, McCotter, Pearce, Luetkemeyer, Huizenga, 
Duffy, Canseco, Grimm; Maloney, Gutierrez, Hinojosa, Baca, 
Miller of North Carolina, Scott, Velazquez, and Carney.
    Ex officio present: Representative Bachus.
    Also present: Representatives Neugebauer and Green.
    Chairwoman Capito. This hearing will come to order. I would 
like to thank the members of the subcommittee and our witnesses 
for joining us today.
    The title of this morning's hearing is, ``Legislative 
Proposals to Promote Accountability and Transparency at the 
Consumer Financial Protection Bureau,'' which is better known 
to all as the CFPB.
    We will be considering three bills: one, legislation which 
is authored by Mr. Neugebauer; two, legislation which is 
authored by Mr. Renacci--two of these bills address the funding 
of the Bureau and responsibilities of the Bureau's Director; 
and three, legislation introduced by Mr. Huizenga that seeks to 
address an oversight in the Dodd-Frank Act to ensure that 
information shared with the Bureau is protected by the 
attorney/client privilege and work product immunity.
    A little over a month ago, President Obama used his 
executive power to appoint Richard Cordray to be Director of 
the Consumer Financial Protection Bureau using a recess 
appointment. However, it is still unclear whether or not the 
Congress was technically in recess when he made that 
appointment. While this may seem like a technicality to many 
across the Nation, it will undoubtedly lead to significant, I 
think, litigation, further damaging the credibility of this 
Bureau. I stated nearly 6 months ago that I felt that the 
Administration had mishandled the appointment of the Bureau's 
Director from the beginning. The complexities of moving a 
nominee through the United States Senate are not new.
    For an agency that was supposed to be the crown jewel of 
the Dodd-Frank Act, waiting until the last minute to appoint a 
nominee and then subsequently dismissing constitutionally 
mandated procedures for appointment, I think creates an 
uncertainty over the Bureau and its actions until it is 
resolved. The legislative proposals before us today are an 
important step in improving the accountability for this new 
agency. The first measure, H.R. 1355, sponsored by Mr. 
Neugebauer, will remove the Bureau from the Federal Reserve and 
place it within the Department of the Treasury, where the 
Bureau will subsequently be subject to regular authorization, 
budget, and appropriations processes.
    The Bureau's stated goal is to regulate financial products. 
And it is prudent for Members of Congress to have some say over 
the budget of an agency that could decide which financial 
products are appropriate for their constituents.
    The second measure, H.R. 2081, as sponsored by Mr. Renacci, 
moves the Bureau Director off of the FDIC Board and fills the 
vacancy with the Chairman of the Federal Reserve. The primary 
goal of the FDIC is the safety and soundness of the 
institutions that benefit from the Deposit Insurance Fund. And 
it is appropriate to have all of the prudent regulators 
represented on the FDIC Board.
    Finally, I would like to thank Mr. Huizenga for the third 
bill we will consider today, H.R. 3871. We have worked with Mr. 
Huizenga to address an issue of an oversight of the Dodd-Frank 
Act to ensure information that is shared with the Bureau is 
treated as privileged information and cannot be shared with 
third parties.
    It is our intent to move this legislation quickly, 
especially given Mr. Cordray's recent statement that, 
``Congress may want to look at a legislative fix.'' We hope our 
colleagues across the aisle will work--and we have already been 
talking about this--with us on moving this forward without 
delay. I would like to thank the three sponsors of the bills 
before the subcommittee today for their leadership, and I look 
forward to hearing the testimony of the witnesses.
    At this time, I would like to yield to my good friend and 
colleague, Ranking Member Maloney, for the purpose of giving an 
opening statement.
    Mrs. Maloney. I want to thank the gentlelady for yielding 
and I welcome the panel of witnesses. There are three bills 
before us today, which according to the title of this hearing 
will ``promote accountability and transparency.'' However, two 
of these proposed bills are seriously misguided and meant to 
distract from the CFPB's important work to protect the American 
consumer. But I would argue that for the most part, they do 
nothing to further that goal of transparency because the CFPB 
is already the most accountable agency in our government. The 
first bill will ensure that privileged documents used in CFPB 
exams maintain that privileged status.
    I support the goal of this bill, but I want to make sure 
that we are amending the right part of the law. In the Senate, 
Senator Shelby has a bill that does the same thing, but it 
amends the FDI. I believe this is a better way to provide for 
this protection as that is where the OCC, the FDIC and the 
Federal Reserve have this protection. The bill before us amends 
Dodd-Frank. I do not support the other two. The second bill 
takes the CFP Director off the FDIC Board and replaces him with 
the Federal Reserve (Fed) Chairman. The purpose of giving a 
seat to the CFPB Director was to enable him to interact with 
the prudential regulators who conduct exams of financial 
institutions. And this would eliminate the ability of consumer 
and prudential bank regulators to work together for consumers 
and safety and soundness.
    Finally, we have the most blatant attempt to dismantle the 
Bureau, which would move it out of the Fed and put it under the 
Treasury Department, where it would be subject to the political 
and uncertain appropriations process. I oppose this bill and 
this change to the law. To subject a regulatory agency, and the 
CFPB in particular, to appropriations in this Republican-led 
Chamber is to put it on a chopping block. I remind you that all 
of my colleagues on the Republican side voted against this bill 
and this would leave the American people without an effective 
watchdog and put this country back on the path that led to the 
financial crisis. This bill also eliminates the Consumer 
Financial Civil Penalty Fund, which holds the proceeds from 
enforcement actions and directs those funds back to victims.
    Many of my colleagues talked about how we needed to help 
the victims from Madoff and other scandals, but this would 
eliminate that. And if the victims can't be identified, this 
would go to financial literacy and consumer education, a stated 
goal of this committee. But I would note that the CFPB already 
has unprecedented accountability, and since opening its doors, 
the CFPB has issued its semi-annual report justifying its 
budget. It has testified before Congress 14 different times. It 
has provided its financial operating plans to the Office of 
Management and Budget. It has a budget cap, and the Bureau is 
subject to potential vetoes on rulemakings by the Financial 
Stability Oversight Council. And it has already been audited by 
the Comptroller General. This is all in accordance with the 
rules as set forth in Dodd-Frank.
    I fail to understand why my colleagues want to try to 
dismantle the power of the CFPB. I would like to place in the 
record some of their accomplishments, a whole list of them, 
such as opening up an office to help veterans, opening up an 
office to help students, coming out with a one-pager for 
mortgages that people understand, coming out with information 
so that students understand the dangers of financial products 
and how they can go into debt. I have a list here of many, many 
different things that they have done that help our economy, 
help our consumers, and help our country. So, I would ask 
unanimous consent to place it in the record.
    Chairwoman Capito. Without objection, it is so ordered.
    Mrs. Maloney. I yield back.
    Chairwoman Capito. I would like to recognize the chairman 
of the full committee, Mr. Bachus, for 2 minutes for an opening 
statement.
    Chairman Bachus. Thank you, Madam Chairwoman, for holding 
this hearing on three bills that our committee continues to 
advance. We think they are reforms that will bring much needed 
oversight, accountability, and transparency to the Consumer 
Financial Protection Bureau.
    I think all of us agree on the need to protect consumers. 
But I think in honesty, we have to go beyond that and say that 
at times, it was not a priority for the Federal regulators. At 
times, they focused on safety and soundness and they should 
have done that, but I think consumer protection was sacrificed, 
probably particularly as it dealt with non-banking companies.
    There has also been criticism--Professor Wilmarth, you 
discuss this in your written testimony--that they sometimes 
focused on profitability of the banks as opposed to consumer 
protection. I associate myself with your remarks, Professor, 
saying that you can have both and it has to work for both 
parties. And if it doesn't work for the consumer, ultimately it 
won't work for the financial institution. I think that there 
are other witnesses at the table who would agree. What these 
bills do--actually the bill that forms the commission is 
exactly what we passed out of the House; an overwhelming vote 
was for a bipartisan commission.
    And I will say that, because we resisted the formation of 
this board as a group--that I am sure that our colleagues 
express some skepticism now. But I will tell you that I 
actually, in 2005 proposed a subprime lending bill and we 
encountered resistance from the regulators and the 
institutions, and I think there was a push back. I want to 
close by commending Mr. Huizenga and Mr. Renacci and Mr. 
Neugebauer for their strong work on these bills, and hopefully 
we can come to some consensus. I think we have an agency where 
maybe the recess appointment is questionable, and we could have 
lawsuits for years about that. That is not going to benefit 
anyone. But I will acknowledge that we didn't always put 
consumer protection--we didn't elevate it to the level we 
should have. Thank you.
    Chairwoman Capito. Thank you, Mr. Chairman.
    I would like to recognize Mr. Hinojosa for 1 minute for the 
purpose of an opening statement.
    Mr. Hinojosa. Thank you.
    Chairwoman Capito and Ranking Member Maloney, I thank you 
both for holding today's hearing on examining the 
accountability of the new Consumer Financial Protection Bureau.
    I believe we should continually strive to ensure the 
strength, the independence, and the accountability of the 
Bureau, and holding hearings such as this contributes to that 
effort.
    After the financial collapse in 2008, it became apparent 
that consumers were left holding the bag, and that the agencies 
charged with their protection were too fragmented to be 
effective.
    The Consumer Financial Protection Bureau was created in 
response to this fragmentation, to hold the protection of 
American consumers as its sole priority. The American public 
needs to be informed of the House Majority's attempt to cut the 
funding of the CFPB, which can help prevent another financial 
crisis like the one that started at the end of 2007.
    It is our duty to make certain the Bureau follows through 
on its mission. However, subjecting the Bureau's budget to the 
appropriations process in order to reduce its funding, and 
stripping the Director of his membership on the FDIC Board of 
Directors, is counterproductive to the mission of the Bureau 
and will weaken its ability to guard consumers against fraud 
and predatory practices.
    I look forward to hearing today's testimony and our 
distinguished panelists' response to our concerns.
    I yield back the remainder of my time.
    Chairwoman Capito. Thank you
    I recognize Mr. Renacci for 1 minute for the purpose of an 
opening statement.
    Mr. Renacci. Thank you, Madam Chairwoman.
    I would like to begin by emphasizing that I am fully 
committed to consumer protection. I recognize that consumers 
are the driving force behind our economy, and I believe 
consumers depend on a sound financial system.
    Main Street consumers are the ones most impacted by the 
reckless decisions made on Wall Street. As the financial system 
crumbled around them, consumers were the ones who lost their 
jobs, lost their homes, and were unable to access credit.
    It is for this reason that we must enact sound policies of 
protecting the entire financial system and put an end to 
special interest carve-outs that favor one segment of the 
economy over the other.
    Therefore, I offered H.R. 2081, a bill to ensure the safety 
and soundness of our financial system.
    During the creation of the CFPB, the proponents argued for 
an agency whose sole purpose was consumer protection. By 
placing the CFPB Director on the FDIC Board, whose mandate is 
safety and soundness, the bill drafters created a conflict of 
interest when the CFPB Director was making decisions during the 
FDIC Board meeting as to which mandate should he follow.
    The best thing we can do for consumers is to ensure a 
transparent banking system that protects their savings, 
provides access to credit, and creates safe and innovative 
products.
    One of the best things we can do for the CFPB Director is 
to allow him to do his job with no perceived conflict of 
interest.
    I look forward to hearing your comments on all three 
proposals. Again, thank you for your testimony.
    Chairwoman Capito. Thank you.
    Mr. Scott is recognized for 3 minutes for the purpose of 
making an opening statement.
    Mr. Scott. Thank you very much, Madam Chairwoman.
    The American people basically have spoken and have declared 
that we really need consumer protection in this country and 
unfortunately, these three measures before us are, to me, a 
declaration of war on the CFPB, the Consumer Protection Bureau. 
They clearly want to move it out of the Federal Reserve, they 
want to put it into Treasury. They want to revoke the automatic 
and unrenewable annual funding of the agency. They want to 
repeal the establishment of the consumer financial protection 
fund and the consumer financial civil penalty fund. They 
totally weaken the educational effort in this bill. They reduce 
the resources that are available to consumers. They remove some 
of the oversight of the CFPB and its reach for accountability 
and its reach for transparency. They omit fairness and openness 
and totally weaken the entire thrust of this bill, which is to 
provide unfettered protection for consumers.
    We must remember how we got into this situation in the 
first place. It was because of abusive kinds of actions. Now, I 
don't mind us moving on and trying to correct some things and 
certainly, to enable the financial services industry to better 
to do its job, but we cannot re-alter and re-shape this agency 
so that it cannot do its job.
    This agency must be allowed to breathe. These measures 
simply put this agency into a form of a straitjacket so that 
they cannot do it.
    And I understand my friends on the other side have never 
approved of this agency, they don't want this agency, they have 
been trying to kill this agency ever since it has been here.
    But let us be real, our American people deserve protection.
    There is nothing more complex than some of these financial 
instruments, and this is especially true in very tough economic 
times. We have all kinds of financial products and services and 
to be honest, we have some unscrupulous actors in this field. 
Not all, but some. I would hope that we can look at this. I 
would be interested in--not only during my questions--to find 
your opinions about this and some of my comments, but I believe 
firmly that they are true.
    I am one who is willing to work with the financial services 
industry to make sure that they can do their job. But I am also 
one who wants to make sure that this agency lives and breathes 
and is able to do its essential job of protecting the American 
people from financial abuses.
    I yield back, Madam Chairwoman.
    Chairwoman Capito. Thank you.
    I would like to recognize Mr. Royce for 1 minute for the 
purpose of an opening statement.
    Mr. Royce. Thank you.
    The Administration just went to great lengths to usurp 
regular order and recess-appoint the head of the CFPB, and what 
was the Senate asking for in return that elicited such a step 
that many argue violates the Constitution itself? They were 
looking to subject the CFPB's budget to the normal 
appropriations process and to move the agency from a Director 
to a board, and these are the steps, frankly, that were 
originally envisioned by Mrs. Warren and Secretary Geithner.
    The real worry we have in terms of the way that this has 
been done is it is going to undermine safety and soundness. It 
is going to take away the inputs of the prudential regulator.
    So these reforms would reduce the potential abuses that may 
come from this agency, which unlike any other regulator now has 
an independent budget, has broad regulator authority over a 
number of different types of institutions, and is run by a 
single individual. I am encouraged by the bills being discussed 
today which get at what Senate Republicans were trying to 
achieve in the first place, which was to provide added 
transparency to the CFPB and ensure safety and soundness 
regulation remains the chief function of our regulatory 
structure. I would argue that lack of proper safety and 
soundness regulation, the lack of efficient prudential 
regulation, is also what helped bring on the original crisis, 
so it needs to be addressed, and we can't walk down this road 
again with bifurcated regulation as we did with Fannie Mae and 
Freddie Mac without the prudential regulator having the 
necessary authority to protect safety and soundness.
    Thank you, I yield back.
    Chairwoman Capito. Thank you. I will recognize Mr. Green.
    Mr. Green. Thank you, Madam Chairwoman, and I thank you for 
allowing me to become a part of the committee. I would also 
like to thank the witnesses for appearing today.
    I would like to associate myself with the comments made by 
the ranking member, and I would like to say to the persons 
listening, whereever they happen to be, whomever they happen to 
be, I believe the President did the right thing.
    More than 40 Senators indicated that they would approve no 
one until certain things were done that can be done 
legislatively, but there was an understanding that without 
leadership, the organization could not function. There had to 
be leadership for the organization to function.
    Leadership is key to any organization's being efficacious. 
The President did the right thing. He made the appointment. And 
for those who think that the wrong thing was done, the courts 
are available to sort these things out.
    Funding is important to the existence of any organization. 
If you assault leadership and you can circumvent funding, you 
can thwart the efforts of the organization.
    These measures assault leadership and funding. This agency 
is designed to help people, people on Main Street, but also 
people on a third street. We talk about Wall Street and Main 
Street, but there is a street called ``Home Street'' where 
people have their houses that are being foreclosed on. They 
understand the need for the Consumer Financial Protection 
Bureau because they understand what they have gone through, and 
even if their homes are not directly impacted, they are 
indirectly impacted by other homes on their blocks that have 
been foreclosed upon. Leadership and funding are key.
    I thank you for the time, I yield back.
    Chairwoman Capito. Thank you.
    Mr. Huizenga, for 1 minute, for an opening statement.
    Mr. Huizenga. Thank you, Madam Chairwoman, and Ranking 
Member Maloney. I appreciate this important hearing and the 
legislative proposals that will create some piece of mind, I 
think, for our financial institutions.
    CFPB as created under Dodd-Frank has been identified to 
fail the safeguards from proprietary information given to the 
Bureau by financial institutions.
    Let me be clear. We all agree that we need to have 
stringent consumer protections, but these reforms are much-
needed common-sense measures, I believe. Specifically, my bill, 
H.R. 3871, the Proprietary Information and Protection Act, 
immediately closes a loophole created under the CFPB creation.
    Unlike current statutes regarding other Federal agencies 
assessing relevant information, Dodd-Frank failed to provide 
such protections. The simple truth is that the CFPB could 
largely legally share privileged information with third parties 
at this point. Absent specific congressional legislation, the 
courts have permitted this practice in the case of other 
Federal agencies.
    Richard Cordray, Director of the CFPB, appointed by 
President Obama, recently testified that this was an 
``oversight.'' And, that he supports a legislative solution to 
ensure privileged information is not leaked to third parties 
through the CFPB. My bill is that real legislative solution, a 
common-sense fix that would put an end to needless uncertainty 
and legal costs to both the CFPB and to financial institutions.
    I appreciate the opportunity to be here today.
    Chairwoman Capito. Thank you.
    Mr. Canseco, for 1 minute?
    Mr. Canseco. Thank you, Madam Chairwoman.
    Last March, Elizabeth Warren told this committee, with a 
straight face I should add, that the CFPB was the most 
accountable agency in government. And needless to say, there 
has been some disagreement over that assertion. In the past 
year, this committee has led several efforts to bring 
transparency and accountability to the Consumer Financial 
Protection Bureau. And each time, these efforts have been 
rebuffed, either by a crusading President, or by a Democratic 
caucus that for a five-member commission before they were 
against it.
    And so, what we have now is a rogue agency, headed by a 
rogue Director who operates with almost no accountability, and 
whose mandates will be subject to the whims of whomever happens 
to be sitting in the czar's throne--excuse me, the Director's 
chair.
    This is an unacceptable way for a Federal agency to run, 
and I look forward to considering more measures that would 
shine a little more light on the CFPB.
    Thank you.
    Chairwoman Capito. Thank you.
    Mr. Grimm is recognized for 1 minute for the purpose of an 
opening statement.
    Mr. Grimm. Thank you, Madam Chairwoman.
    I appreciate you holding this hearing to examine proposals 
to improve accountability and oversight of the CFPB. The CFPB, 
created under Dodd-Frank, I think is a classic example of an 
ever-expanding Federal bureaucracy. It is given a funding 
stream directly from the budget of the Federal Reserve, which 
removes from Congress one of its most basic and fundamental 
powers, the ability to appropriate funds to a Federal agency as 
it sees fit; and by extension, the ability for the Congress to 
hold that agency accountable for its performance, or for the 
lack thereof.
    Therefore, I welcome the proposal of Chairman Neugebauer to 
place the CFPB under the Department of the Treasury and restore 
Congress' rightful role in determining the funding of this 
agency and its direction going forward.
    I look forward to hearing from the witnesses their thoughts 
on the bills today before us, and I yield back the balance of 
my time.
    Thank you.
    Chairwoman Capito. Thank you.
    Mr. Neugebauer, for 1 minute, for an opening statement.
    Mr. Neugebauer. Thank you very much.
    This hearing is not about consumer protection; it is about 
accountability, accountability that the American people desire. 
Our country was founded on the principles of checks and 
balances. And, we now have an agency that has basically 
unlimited powers, which is being run by a person who has not 
been constitutionally ratified to hold that position. And 
people are expecting us to do something about that.
    For example, this new agency just put out its very first 
rule and it turns out that it is going to take 7.7 million 
manhours to comply with this new regulation. I would remind you 
that it took just over 7 million manhours to build the Empire 
State Building. So the accountability and responsibility is an 
important part of our government. As my good friend, Mr. Scott, 
said, ``automatic funding.''
    The American people are tired of automatic funding. In 
fact, that is kind of how we got into these record deficits is 
automatic funding. And so, moving this agency to the budget, 
going through the normal appropriations process is the right 
thing to do. And I encourage my other colleagues to support 
H.R. 1355.
    Chairwoman Capito. Thank you.
    Our final opening statement is Mr. Duffy for 1 minute.
    Mr. Duffy. Thank you, Madam Chairwoman.
    To echo what has been said before, we all agree that we 
want to have sound consumer protections in place. We want our 
family members, our friends, and our constituents to be dealt 
with fairly when they deal with a financial institution in a 
transparent way.
    But we hear heightened rhetoric in this room. We hear 
comments like, we want to put the CFPB in a straitjacket. We 
hear comments like, we are going to de-fang the CFPB. And I 
guess I would like the panel to talk about, when agencies like 
the SEC, the CFTC, the FTC, the FCC, and the EEOC all are 
agencies that are funded by Congress, how that has put them in 
a straitjacket that doesn't allow them to effectively do their 
jobs?
    We also hear a concern about this agency being run by a 
commission, and then therefore, how the Federal Reserve is 
ineffective because it has a board, or the FDIC is ineffective 
because it has a five-member board. Or the SEC, or the CFTC, 
NACU--all of these agencies run by a board.
    I would like to hear the panel talk about how they are so 
ineffective because they have a board or a panel which runs the 
agency. Or, those panels that receive their money through the 
appropriations process, how they, too, are ineffective.
    I would like to hear the panel talk about that throughout 
the hearing.
    I yield back.
    Chairwoman Capito. Thank you. Thank you, Mr. Duffy.
    That concludes our opening statements, and I would now like 
to introduce our panel of witnesses for the purpose of giving a 
5-minute opening statement. I will introduce you individually 
before you speak.
    First, Mr. Michael G. Hunter, chief operating officer of 
the American Bankers Association. And I would like to remind 
the witnesses that if you can pull the microphones close to 
you, it is easier for us to hear you in this room.
    Thank you. Welcome, Mr. Hunter.

   STATEMENT OF MICHAEL J. HUNTER, CHIEF OPERATING OFFICER, 
               AMERICAN BANKERS ASSOCIATION (ABA)

    Mr. Hunter. Thank you. Chairwoman Capito, Ranking Member 
Maloney, and members of the subcommittee, my name is Michael 
Hunter. I am the chief operating officer of the American 
Bankers Association. I come before this subcommittee not only 
as a representative of the banking industry, but also as 
someone with experience in government at both the State and 
Federal levels. I served in both the Oklahoma House as 
Oklahoma's secretary of state, and was chief of staff to 
Congressman J.C. Watts, a former member of the House Financial 
Services Committee.
    I appreciate the opportunity to present the ABA's views on 
several pieces of legislation that would improve the 
accountability of the Bureau of Consumer Financial Protection. 
Let me first begin by emphasizing that the banking industry 
fully supports effective consumer protection. Americans are 
best served by a financially sound banking industry that 
safeguards customer deposits, lends those deposits responsibly, 
and processes payments efficiently.
    No bank can be successful without treating customers 
fairly. It is no surprise, therefore, that two-thirds of banks 
in this country have been in business for more than 50 years, 
and one-third for more than a century. The Consumer Financial 
Protection Bureau will play a pivotal role in setting new rules 
that will affect access and availability of consumer financial 
products.
    We appreciate the work of Congressmen Renacci and 
Neugebauer to put forward options to address concerns about the 
role of the Bureau and its exercise of power; and to 
Congressman Huizenga for his work in the area of privileged 
information. We strongly support an effective mechanism of 
checks and balances for the Bureau and we applaud congressional 
efforts to achieve this goal.
    Let me comment briefly on each of the three bills. First, 
H.R. 2081 would replace the Bureau Director with the Chairman 
of the Federal Reserve as one of the five members of the FDIC 
Board. Maintaining a safe and sound banking system is at the 
heart of protecting the FDIC insurance fund. Therefore, 
regulators with safety and soundness responsibilities are 
important for directing the FDIC, which is the rationale for 
including the Fed.
    What is missing on the FDIC's Board is representation from 
the banking industry. Banks bear the full cost of the FDIC 
without any taxpayer assistance. Yet, banks have no voice in 
the priorities, policies, and staffing of the agency. We would 
be happy to work with the subcommittee on how this might be 
accomplished.
    The second bill, H.R. 1355, would move the Bureau under 
Treasury, and subject it to the appropriations process. At the 
heart of this bill is the need to ensure accountability for 
Bureau decisions and ensure that the funds used are done so 
effectively.
    On the question of accountability, there are many ways to 
achieve this. The ABA has long advocated the use of a 
commission or a board structure to accomplish this, as 
currently there is too much power vested in one person to 
fundamentally alter the financial choices available to 
consumers. Such a structural change would provide an effective 
check and balance.
    ABA supports H.R. 1121, introduced by Chairman Bachus, 
which created a five-member board for the Bureau. This bill 
passed the subcommittee, the full committee, and later the full 
House as part of H.R. 1315.
    The last bill, H.R. 3871, is intended to clarify for the 
Bureau the protection of confidential information. Banks 
currently have legal protection that allows them to be 
comfortable in voluntarily turning over privileged documents 
upon the request of banking agencies. While the Bureau has 
expressed its willingness to address this issue through 
regulation, the ABA believes it is appropriate to add certainty 
by enacting the same express rules regarding privilege of 
information for the Bureau as those already established for the 
other Federal banking supervisors.
    In testimony before the House and the Senate, we note that 
Richard Cordray has indicated his support for such action. We 
appreciate Representative Huizenga's work on this important 
issue. We would suggest a technical modification to the bill to 
address the privilege issue with respect to the sharing of 
information with other Federal agencies. The bill currently 
only addresses one of the two statutory provisions that would 
put the Bureau on equal footing with the other banking 
agencies.
    We look forward to working with Congressman Huizenga and 
the subcommittee on this very important issue. Thank you for 
the opportunity to testify. I would be happy to answer any 
questions.
    [The prepared statement of Mr. Hunter can be found on page 
47 of the appendix.]
    Chairwoman Capito. Thank you.
    Our second witness is Mr. Andrew Pincus, partner, Mayer 
Brown LLP, on behalf of the United States Chamber of Commerce.
    Welcome.

STATEMENT OF ANDREW PINCUS, PARTNER, MAYER BROWN LLP, ON BEHALF 
                OF THE U.S. CHAMBER OF COMMERCE

    Mr. Pincus. Thank you.
    Chairwoman Capito, Ranking Member Maloney, and members of 
the subcommittee, thank you for the opportunity to testify 
today on behalf of the U.S. Chamber of Commerce and the 
hundreds of businesses that the Chamber represents.
    The Chamber, too, strongly supports consumer protection. At 
the same time, we have to recognize that consumer protection 
regulation must be efficient and focused. Unjustified 
regulatory burdens harm all Americans by diverting the 
resources that are essential to fueling economic growth, and 
perhaps even more importantly in this context, by preventing 
small businesses from obtaining the credit they need to expand 
and create the new jobs that our economy so desperately needs.
    The bills that are the subject of this hearing address 
significant problems confronting the CFPB. Although they 
certainly don't address all of the Chamber's concerns about the 
Bureau, they will resolve several important issues. And I would 
like to talk first about the attorney-client privilege issue.
    As Mr. Hunter has said, the critical issue here is that 
statutory protection that exists in the bank examination 
process, with respect to interactions with the prudential 
Federal regulators in terms of the protection of the attorney-
client privilege, were not extended to the examination 
processes that the Bureau administers, both with respect to 
federally-regulated banks, and with respect to the many other 
non-bank institutions as to which the Bureau can exercise 
examination authority.
    The Bureau has addressed this issue as best it can in a 
July 4th guidance bulletin that was issued, saying that its 
analysis was that the submission of information to it in the 
examination process does constitute the waiver of any attorney-
client or associate privilege But of course, as useful as that 
guidance document is, it does not provide the certainty that a 
statute does. The situation that Congress confronts here is 
very similar to the one it confronted in 2006 with respect to 
the banking regulators. There, the OCC in 1991 had issued an 
opinion letter very similar to the one that the Bureau has 
issued here saying, ``We believe that there is protection 
against a waiver.''
    But Congress in 2006 recognized that providing statutory 
certainty was critical, and therefore enacted the provision, 
Section 1828(x), that provides that certainty. And I think what 
is critical is extending that statutory protection to the 
examination interactions that the Bureau is having with the 
entities that it is examining.
    I think, just being a lawyer for a minute, the reason for 
this is that any general counsel, although comforted by the 
Bureau's opinion, is going to be a little nervous about 
interactions that involve important, critical, privileged 
documents. And it would just be cautious for the company to say 
to the examiners, ``Gee, we would really--can we do this 
another way?''
    And that obviously is going to burden the examination 
process. It is going to take longer and eliminate the flow of 
information back and forth that I think everyone agrees is what 
makes the examination process work. So providing the statutory 
certainty is not only good for businesses; it is going to be 
good to make the examination process work effectively.
    Let me turn next to H.R. 1355, which would subject the 
Bureau's expenditures to the congressional appropriations 
process. I think it is a fundamental principle of American 
government that those who exercise power have to be accountable 
to the people through their elected representatives.
    And for that reason, every government agency that Congress 
has created has historically been subjected to various robust 
checks and balances to ensure their accountability to the 
people and to provide oversight of their fidelity to the law.
    Here, I think it is undisputed that the Bureau Director 
lacks all of these accountability mechanisms. He has sole 
decision-making authority about rulemaking, enforcement, 
hiring, and every other matter. He has policy independence to 
the President, and can only be removed from office for 
``inefficiency, neglect of duty or malfeasance,'' and has the 
ability to spend more than half a billion dollars without 
getting approval of anyone, Congress or the President.
    And there is no regulatory agency that has this same 
combination of features as the Bureau that oversees the private 
sector, and certainly none that has the extraordinarily broad 
oversight, not just of the financial services sector, but of 
large, other segments of the economy that this agency has.
    And it is important to note that one of the important 
constraints in the statute, advice and consent, was eliminated 
by the recess appointment. H.R. 1355 begins to address this by 
addressing the appropriations process. And that is critical 
because, as I note in my testimony, the Appropriations 
Committee noted in its report that it received no information 
from the Bureau about how it plans to spend hundreds of 
millions of dollars in the next fiscal year. Thank you, and I 
would be happy to answer any questions.
    [The prepared statement of Mr. Pincus can be found on page 
54 of the appendix.]
    Chairwoman Capito. Thank you, Mr. Pincus.
    Our next witness is Mr. Chris Stinebert, president and 
chief executive officer, American Financial Services 
Association.
    Welcome.

  STATEMENT OF CHRIS STINEBERT, PRESIDENT AND CHIEF EXECUTIVE 
    OFFICER, AMERICAN FINANCIAL SERVICES ASSOCIATION (AFSA)

    Mr. Stinebert. Good morning, and my appreciation as well to 
the chairwoman and the ranking member for holding these 
important hearings on these important proposals. Like my 
colleagues, AFSA is certainly committed to consumer protection. 
AFSA's members include consumer finance companies, auto finance 
companies, mortgage lenders, and credit card issuers.
    Before the passage of the Dodd-Frank Act, most AFSA members 
had been regulated, licensed, examined, and supervised by the 
State banking agencies. They are funded by putting their own 
capital at risk, not dependent on federally-insured deposits.
    Importantly, this testimony should not be taken as kind of 
a negative comment about the professionalism of the civil 
servants at the CFPB, many of whom have been veterans of many 
administrative agencies.
    Unlike traditional agencies governed by a bipartisan 
commission, the CFPB is directed by a single regulator. Unlike 
the traditional independent agency model, the CFPB is 
guaranteed a percentage of the Federal Reserve Board's budget. 
Therefore, there is no congressional oversight through the 
normal budgetary process.
    We are grateful to the chairwoman for her co-sponsorship of 
H.R. 1121, the Responsible Consumer Financial Protection 
Regulations Act, which replaces the single Director of the CFPB 
with a five-member commission, a structure similar to the FTC.
    The original plans to create a consumer agency--as has been 
pointed out numerous times, including the Administration's 
proposal and the Wall Street Reform Consumer Protection Act of 
2009--all structured the agency as a commission.
    AFSA also supports H.R. 1335, introduced by the Oversight 
and Investigations Subcommittee, which would move the CFPB into 
the Treasury Department in a structure similar to that of the 
Office of the Comptroller of the Currency. Doing so would 
provide congressional oversight and budgetary accountability.
    AFSA members are also concerned about the treatment of 
confidential information collected during the examination 
process. There are certainly precedents for maintaining this 
confidentiality in the long-standing practice by the Federal 
banking agencies and claiming privilege with regard to bank 
examination records. We are pleased that the recent CFPB 
bulletin states that institutions providing privileged 
information in response to a supervisory request will not waive 
any privilege; however, it is unclear whether the CFPB is a 
Federal banking agency under the Federal Deposit Insurance Act, 
which governs the treatment and waiver of privilege for 
depository institutions.
    In a recent CFPB bulletin, the Bureau asserts that it has 
the authority to demand privileged documents from supervised 
institutions without the privilege being waived, despite the 
fact that the CFPB is not a Federal banking agency. It is also 
doubtful whether this body of law extends to the non-depository 
companies that AFSA currently represents.
    We are encouraged that Director Cordray has indicated a 
desire to work with Congress to include CFPB among covered 
agencies for the purpose of maintaining privilege We are also 
pleased to offer enthusiastic support of H.R. 3871. This Act 
would clarify the law to say that the submission of 
confidential information to the CFPB in the course of its 
supervisory process does not waive any privilege to any 
regulated entity.
    The House of Representatives passed H.R. 10, the 
Regulations From the Executive in Need of Scrutiny Act of 2011, 
co-sponsored by the chairman. This bill prevents Federal 
agencies from implementing major regulatory initiatives without 
congressional approval, and ensures that new, major rules that 
impose annual economic costs in excess of $100 million cannot 
take effect unless Congress passes a joint resolution approving 
this regulation.
    And finally, most regulatory agencies promulgate rules 
under the Administrative Procedure Act (APA). Unfortunately, 
the APA provides little for protection when agencies exceed 
their congressional mandates. But there is a model that does 
just that. Perhaps, it would be helpful for the Congress to 
look at the FTC with the Magnus and Moss Warranty Act, which 
imposes procedural safeguards on FTC rulemaking.
    Madam Chairwoman, I yield back the rest of my time. Thank 
you.
    [The prepared statement of Mr. Stinebert can be found on 
page 64 of the appendix.]
    Chairwoman Capito. Thank you. For our final witness, I want 
to welcome back to the committee Mr. Arthur E. Wilmarth, who is 
a professor of law at the George Washington University.
    Welcome.

  STATEMENT OF ARTHUR E. WILMARTH, JR., PROFESSOR OF LAW AND 
EXECUTIVE DIRECTOR, CENTER FOR LAW, ECONOMICS & FINANCE, GEORGE 
                WASHINGTON UNIVERSITY LAW SCHOOL

    Mr. Wilmarth. Chairwoman Capito, Ranking Member Maloney, 
and members of the subcommittee, thank you very much for 
inviting me to participate in this important hearing. For the 
reasons set forth in my written testimony, I strongly oppose 
enactment of H.R. 1355 and H.R. 2081. I do not oppose enactment 
of H.R. 3871.
    Congress created the CFPB because a previous dispersion of 
consumer protection responsibilities among several bank 
regulators produced a systematic failure of the consumer 
protection function during the credit bubble leading up to the 
financial crisis.
    Title X of Dodd-Frank authorizes the CFPB to issue 
regulations, perform investigations, create public education 
programs, and prosecute enforcement proceedings in order to 
protect consumers against unfair, deceptive, abusive, and 
discriminatory financial practices.
    Title X promotes the CFPB's independence from both 
political and industry influence by granting the CFPB autonomy 
in its policymaking, rulemaking, and enforcement functions, and 
by giving the CFPB an assured source of funding from the Fed.
    H.R. 1355 would severely weaken the CFPB in several ways. 
Section 2(1) would repeal the CFPB's status as an independent 
Bureau, and move the CFPB from the Fed to the Treasury. Thus, 
it would transfer the CFPB from an independent agency that is 
relatively insulated from political influence, to an Executive 
Branch agency that is highly susceptible to political 
intervention.
    Section 2(2) would remove critical statutory protections 
that enable the CFPB to function as an autonomous bureau when 
setting policy. However, H.R. 1355 would not make any similar 
changes to the Office of the Comptroller of the Currency, which 
is an autonomous bureau within Treasury.
    Federal statutes prohibit Treasury from preventing or 
delaying the issuance of any OCC regulation. And they also bar 
Treasury from intervening in any matter, including any 
enforcement matter pending before the OCC. If H.R. 1355 deems 
it essential to remove the CFPB's autonomy and to subject the 
CFPB to Treasury's unlimited oversight, why doesn't H.R. 1355 
contain similar provisions removing OCC's policy-making 
independence as well? Can this apparent anomaly be explained by 
the fact that the OCC is widely viewed as the most committed 
and vehement regulatory champion for the interests of major 
banks? Indeed, those same banks have devoted enormous lobbying 
resources to oppose the CFPB's creation and to seek to 
undermine it since it has been created.
    Section 2(3) would seriously impair the CFPB's ability to 
attract qualified employees by requiring the CFPB to pay its 
employees in accordance with the general schedule for civil 
service employees. The CFPB would then become the only Federal 
financial regulator that is not exempted from civil service 
restrictions on pay. And the agency would find it extremely 
difficult, if not impossible, to attract the best, most 
experienced, and most talented employees.
    Section 3 of H.R. 1355 would remove the CFPB's assured 
source of funding from the Fed and make the CFPB's entire 
budget subject to congressional appropriations. Except for the 
CFTC and the SEC, no Federal financial regulator is subject to 
congressional appropriations. Congress has undermined the 
effectiveness of the CFTC and the SEC for more than 2 decades 
by frequently failing to provide those agencies with adequate 
funds.
    At congressional oversight hearings in December, CFTC 
Chairman Gary Gensler and SEC Chairman Mary Schapiro expressed 
great doubts about their agencies' ability to adopt and enforce 
the new Dodd-Frank provisions unless Congress gives them major 
increases in their budgets. Republicans and banks took a very 
different position when they pushed for legislation to create 
the Federal Housing Finance Agency because they wanted a new 
and more powerful and independent regulator for Fannie Mae and 
Freddie Mac.
    Republicans and banks insisted that FHFA must have 
independent, secure funding that was not subject to 
congressional appropriations. They pointed out that Fannie and 
Freddie had often used their political clout to persuade 
Congress to cut the budget of FHFA's predecessor, thereby 
undermining that predecessor's enforcement efforts. When 
Congress created the CFPB, as a Senate committee report 
explains, Congress drew directly on FHFA's secure funding 
model.
    Briefly turning to H.R. 2081, there are two big problems. 
One is that removing the CFPB Director from the FDIC's Board 
will deprive the banking industry and consumers of the 
beneficial interaction between the consumer regulator and the 
safety and soundness regulators. I thought that is what the 
CFPB's opponents wanted. I thought they wanted interaction 
between the safety and soundness function and the consumer 
protection function.
    The other major problem is it is a very bad idea to put the 
Fed Chairman on the FDIC's Board. The Fed already has 
tremendous influence in deciding whether to grant bailouts and 
other support and forbearances to major institutions.
    When the systemic risk exception comes into question, when 
regulators decide whether to bail out uninsured creditors of a 
too-big-to-fail bank, the Fed already gets a vote on that. They 
make their recommendation. It then goes to the FDIC.
    Putting the Fed Chairman on the Board of the FDIC would 
give the Fed two bites at the apple. As my written testimony 
indicates, during the financial crisis, it was the Fed and the 
Treasury that were constantly pushing for more aggressive 
bailouts. And it was the FDIC that was constantly saying, ``We 
don't think this is necessary. We don't think it is a good 
idea.'' We shouldn't undermine the FDIC's independence by 
putting the Fed Chairman on the FDIC's Board, as H.R. 2081 
would do.
    Thank you very much, again.
    [The prepared statement of Professor Wilmarth can be found 
on page 70 of the appendix.]
    Chairwoman Capito. Thank you.
    Thank you all, and I would like to recognize myself for 5 
minutes for questioning. I would like to go to the funding 
issue because in 2012, the CFPB could access 11 percent, or 
over $500 million. In 2013, it goes up to $597 million.
    When we have tried to investigate how much is actually 
drawn down and where this money is being spent, what we have 
found is that they actually drew down in 2011, $161.8 million. 
But I don't know if Members of Congress and the general public 
are aware that after they draw the money down, if the money is 
not spent, it goes into a fund that can then be invested. So 
the money never goes back to the Treasury or to the Federal 
Reserve, where it could be used for paying down the debt and 
other issues.
    To me, this sort of evokes--I don't want to use the term, 
but I will say it anyway--a ``slush-fund'' sort of situation, 
and a lack of accountability on that. Could you all speak to 
the way the mechanism is and how we could get more transparency 
and accountability--when, really, the Bureau doesn't have to 
speak to Congress or ask Congress in any way to justify the 
expenditures that they have over the course of a year?
    Mr. Pincus, I will start with you, because you talked about 
this.
    Mr. Pincus. Thank you, Madam Chairwoman.
    I guess a couple of points--I think what is troubling is 
that there is this lack of accountability, as I say, in all 
directions. Once the Bureau Director is appointed, he is not 
accountable to Congress because the appropriations process has 
been avoided. And he is not accountable even to the President 
because the President can only remove him if there is this very 
tough standard. So just in terms of our constitutional 
structure and accountability to the people, it is very 
troubling.
    I think the way the process works is just as you have 
described. The money is drawn down, it goes into a fund, and 
there is very little transparency.
    And even on a forward-looking basis, as I laid out in my 
testimony, and as I am sure you are familiar with from reading 
the documents, the Appropriations Committee was very concerned 
that a plan to draw down over $300 million was supported by 
about 15 pages, most of which were white space and certainly 
nothing close to the budget justifications that agencies 
ordinarily have to give to justify their appropriations. So, I 
think that it is very troubling.
    And I guess one short-term solution--obviously we believe 
that this kind of statutory accountability is essential and I 
know Mr. Wilmarth talked about political influences.
    But that is just a--sort of a derogatory--about talking 
about the people's influence. It is--this money that comes from 
the Fed is not a gift. If it wasn't spent, any surplus that the 
Fed generates goes into the Treasury and is used, as you say, 
to pay down the debt. So this money is really, in terms of its 
economic effect on the government's finances, indistinguishable 
from money that is appropriated and paid out.
    If it wasn't paid out, the government would have it and 
could use it to reduce the debt. So I think that is critical. 
And I think the other thing that is critical is perhaps a 
threshold step as the statute provides for some reports by the 
Bureau to OMB. It doesn't say that those reports have to be 
provided to the Congress, but one short-term way to get at 
least some transparency might be to ask the Bureau to provide 
those statutory reports to the committee as well.
    Chairwoman Capito. Does anybody else have a comment on 
that?
    We will go to Mr. Stinebert, and then to Mr. Wilmarth.
    Mr. Stinebert. To comment a little bit on what is being 
said here, I have never really understood why putting it under 
appropriations is going to, for example, gut or hurt the Bureau 
or hurt consumers in the long run. I see no evidence of that.
    In the cases where it has been done before, it can actually 
bring efficiency and effectiveness to the program, knowing that 
there is some oversight. We have never done a great job of 
throwing money at a problem and having an unlimited budget and 
that resulting in only good things. I think the accountability 
to Congress would help the Bureau in the long run.
    Chairwoman Capito. Thank you.
    Mr. Wilmarth? I have 30 seconds left.
    Mr. Wilmarth. Yes, certainly.
    The OCC and the FHFA operate in exactly the same way. They 
don't return money to the Treasury, and the FDIC keeps its 
money as well. Now, some of that goes into the FDIC's Deposit 
Insurance Fund, but there is no return of the money to the 
Treasury.
    So as I said, there are only two financial regulators who 
are not given an independent, secure funding source: the SEC; 
and the CFTC. And as I said in my written testimony, I don't 
think anyone can seriously contest that those agencies have 
been greatly weakened and seriously underfunded for a very long 
time.
    I will give a third example. The Consumer Product Safety 
Commission is widely viewed as a very ineffective and weak 
agency because it wasn't given the budget that it needed.
    So I have given you three examples of agencies that have 
been undermined by a lack of secure funding. And in each case, 
there was very strong industry push back against the agency. I 
point out in my testimony that the financial sector has been 
the biggest contributor to political campaigns--congressional 
campaigns since 1990, the biggest lobbyists since 1990--
    Chairwoman Capito. My time has expired.
    Mr. Wilmarth. --but anyone who thinks that they are not 
effective, I--
    Chairwoman Capito. Ranking Member Maloney for 5 minutes?
    Mrs. Maloney. Thank you.
    This bill by my good friend, Mr. Neugebauer, would really 
subject the CFPB to a double standard. No other banking agency 
is subject to the appropriations process, not the OCC, the 
FDIC, or the Federal Reserve, for purposes of independence and 
not being compromised by political pressure.
    As Mr. Wilmarth pointed out, the SEC and the CFTC, although 
they have many more responsibilities, have been seriously 
underfunded. And we have to recognize the reality that the 
Republican Majority voted against Dodd-Frank and financial 
reform. They voted against the CFPB. And they probably wouldn't 
fund it, as they haven't appropriately funded the SEC and the 
CFTC.
    And as my good friend, Mr. Green, pointed out about the 
confirmation process, I have never seen such an abuse of the 
confirmation process, where they literally said they would not 
confirm a Director unless you made changes to the law. So they 
were trying to get through the confirmation process what they 
couldn't achieve in the passage of the law, and literally 
signed letters to that effect.
    Now, many of my colleagues and panelists have said that the 
CFPB is not subject to enough oversight. I would argue that it 
has extensive accountability standards that were put in place 
in the reform bill and I am going to list them for you.
    They have more accountability standards than any other 
agency. The President can remove the Director for cause. The 
Director must appear before Congress biannually and report on, 
among other things, its budget and list of significant rules. 
Not only do we have this requirement, but we can call them any 
time we want. They have been before Congress 14 times.
    The GAO is required to audit the financial services, 
including the CFPB. It is the banking regulator. It is the only 
banking regulator that has a funding cap. The final rules of 
the CFPB are subject to financial judicial review.
    The CFPB is subject to the Regulatory Flexibility Act, the 
Paperwork Reduction Act; the Inspector General of the Federal 
Reserve monitors the CFPB. And the CFPB budget is statutorily 
capped. The Financial Stability Oversight Council can review 
and overturn any CFPB regulation. I don't know of any other 
regulator that has that ability of an oversight board to 
reverse their decisions.
    The CFPB is required to consider the impact of proposed 
rules on banks and credit unions with $10 billion or less in 
assets as well as the impact on consumers in rural areas during 
the rulemaking and issue reports on what they have done in 
these areas.
    The CFPB rules are subject to the Small Business Regulatory 
Enforcement Flexibilities Act, Small Business Panel Review 
process. The CFPB must review potential rules with affected 
small businesses prior to the publication of such proposed 
rules.
    I would say that everyone here has said that consumer 
protection, everyone is for it, but it often was a secondary 
thought or a third thought or wasn't thought about at all.
    So to have one agency working with the safety and soundness 
regulators, which is important that they be on the FDIC is 
something that is helpful.
    I would like to ask Mr. Hunter--of the items that the CFPB 
has done, have you reacted to them--such as your members--the 
efforts to streamline the mortgage-disclosure documents; has 
that been a positive for your industry? What about the shopping 
sheet to compare credit card rates?
    What about the information sheets to know before you owe 
for students who are in school and often get into debt over 
their heads? What has been the reaction of your members to 
these, I would say, improvements really for the financial 
institutions; for our economy as a whole; and certainly for 
consumers? Have these been actions that your members and 
consumers and bankers see as a positive step forward?
    Mr. Hunter. We are working, Congresswoman, in a very 
interactive constructive fashion with the CFPB on almost a 
daily basis.
    We recognize the authority that Congress has chosen to 
repose in the CFPB. Our concern long term is that there is too 
much power and authority reposed in one person and that there 
ought to be more checks and balances with respect to that 
person's decision-making.
    If you are going to repose that much authority and power in 
an entity, it makes more sense to have a commission. I think 
that is a political science proposition that has stood the test 
of time.
    Mrs. Maloney. My time has expired. But I would say the CFPB 
is already one of the most accountable Federal agencies with 
the list that I gave you, the oversight that is there and I 
think they have worked hard, Mr. Stinebert, would you say to 
reach out to--
    Chairwoman Capito. The gentlelady's time has expired.
    Mrs. Maloney. --stakeholders for their influence?
    Mr. Stinebert. Actually, we have been very encouraged by 
the CFPB and how they have reached out to impacted industries 
in a cooperative way.
    In some instances, we have had some field hearings and 
others which, I think all of us have received about a 24-hour 
notice of some hearings that were somewhat disconcerting, but I 
think we have been encouraged by what the Director has said, 
and we are hopeful that will continue.
    But going along with my colleagues--
    Chairwoman Capito. The gentlewoman's time has expired, so I 
am going--
    Mrs. Maloney. Thank you.
    Chairwoman Capito. --to try to keep it moving here.
    Mr. Renacci, for 5 minutes?
    Mr. Renacci. Thank you, Madam Chairwoman.
    I want to kind of zero in on H.R. 2081, and it is 
interesting because as I have listened to my colleagues and 
also the testimony--this bill basically replaces the CFPB 
Director with the Chairman of the Fed on the FDIC Board. And 
that is important, in my opinion, for 3 reasons: expertise; 
potential conflict of mandate; and a potential conflict of 
interest.
    So, it is very simple. It doesn't weaken the CFPB board or 
Director and it potentially strengthens the FDIC Board.
    With that in mind, Mr. Hunter, does the inclusion of the 
CFPB on the FDIC Board jeopardize in any way, in your opinion, 
the FDIC's focus on safety and soundness?
    Mr. Hunter. As our testimony indicates, Congressman, that 
is the principal responsibility of the FDIC Board. We think the 
Fed is better positioned to serve on that commission based on 
its responsibilities.
    There is certainly something to be gained by forcing the 
Director of the CFPB to have frequent dialogue with the 
prudential regulators. It is our preference that a banker serve 
on the FDIC Board, but there is certainly more to be gained by 
someone whose focus is safety and soundness.
    Mr. Renacci. So you would agree that the mandate for the 
CFPB is consumer protection, and the mandate for the FDIC Board 
is safety and soundness of the banking system--two separate 
mandates?
    Mr. Hunter. We think that the two better approaches would 
the Fed or a banker.
    Mr. Renacci. All right.
    Mr. Wilmarth, you indicated at one point that--and it is 
interesting because if there was a perceived or even actual 
conflict of interest--wouldn't you agree that it would be 
better not to have that?
    Mr. Wilmarth. I actually don't think there is a conflict of 
interest. And I agree with a comment that Chairman Bachus made; 
that viewed in the long term, and from the broadest 
perspective, consumer protection and safety and soundness are 
inseparable and completely consistent.
    So actually, I didn't agree with this notion that somehow 
there was this terrible conflict of interest, but for the--
    Mr. Renacci. But if there was conflict of interest--if 
there was, you would agree, even if it is perceived, that it 
would be better not to have the same--
    Mr. Wilmarth. My view is that any perceived conflict is so 
minor as to be greatly overwhelmed by the other problem I 
pointed out, which is that putting the Fed Chairman on the 
FDIC's Board is going to undermine the independence of the 
FDIC, and I can give three very specific examples of how that 
could have really aggravated the financial crisis--if you would 
allow me.
    First, was that in the period leading up to the crisis, the 
FDIC was the only agency fighting for tough capital 
requirements, including leverage requirements. And if you want 
to know the one thing that differentiates--
    Mr. Renacci. I am going to run out of time. I don't mean to 
cut you off, but I am looking at the time running away from me.
    You also talked about not having the ability to 
communicate. Wouldn't you believe on the FSOC Board, there is 
opportunity for the Director of the CFPB to get his influence 
with the other members?
    Mr. Wilmarth. There is some communication there, but I 
think the FDIC deals much more with the type of institutions 
that the CFPB is dealing with on a daily basis and therefore 
there would be much more beneficial interactions on the FDIC 
Board as compared to FSOC, which deals with the financial 
giants of the world.
    Mr. Renacci. Okay.
    Mr. Hunter, I am going to move back to you because I know 
you talked about expertise and you mentioned that several 
members are already there because of their expertise.
    Do you believe there is the requirement today that the 
Director of the CFPB have any experience as a safety and 
soundness regulator or even a requirement that a potential 
Director have any banking experience at all?
    Mr. Hunter. I don't think that requirement is in the Act, 
Congressman.
    Mr. Renacci. All right.
    So with that, you could have someone serving on the FDIC 
Board without the experience that the Chairman of the Fed would 
have by being on that same board?
    Mr. Hunter. That is a hypothetical probability, sir.
    Mr. Renacci. Yes.
    The Federal Reserve as a prudential regulator is keenly 
aware of how regulatory policy can impact the likelihood and 
cost of bank failures. Would the Fed, rather than the Director 
of the CFPB, be able to contribute more meaningfully to the 
FDIC's mission? Wouldn't the Chairman of the Fed?
    Mr. Hunter. As a general proposition, yes.
    Mr. Renacci. Yes.
    Do you feel--I know I you mentioned this earlier--but do 
you feel there is a conflict of interest, even a perceived 
conflict of interest at this point in time?
    Mr. Hunter. I guess if you start with--
    Mr. Renacci. Because of the mandate? I know I am running 
out of time--because of the mandate?
    Mr. Hunter. Quickly, if you start with the statutory 
responsibilities that have been placed with the Director, there 
aren't safety and soundness responsibilities. So it is 
certainly, as I say--it is certainly a situation where he could 
be in conflict with what his legal responsibilities are as 
Director.
    Mr. Renacci. Okay, thank you.
    Chairwoman Capito. Thank you.
    I recognize Mr. Hinojosa for questions.
    Mr. Hinojosa. Thank you.
    My first question is addressed to Professor Wilmarth.
    Some of my colleagues have argued that the Consumer 
Financial Protection Bureau lacks accountability. However, in 
creating this Bureau, this body inserted several measures to 
ensure its accountability while also maintaining it as an 
independent regulator.
    In fact, the Consumer Federation of America contends that 
the CFPB is the subject of more oversight than any banking 
regulator. Some would like to see the Bureau's budget brought 
under the appropriations process, as I mentioned in my opening 
remarks, supposedly to increase accountability, even though no 
other banking regulator has a budget which is subject to 
appropriations.
    I would like to ask you, what are the advantages for the 
banking regulatory system to have regulators such as the FDIC, 
the OCC, the OTS, and now, the CFPB, to have budgets outside 
the appropriations process?
    Mr. Wilmarth. Yes, thank you.
    I would make two comments. One is that I believe the 
President's power to remove the CFPB's Director is actually 
broader than has been indicated because in the Supreme Court 
case of Bowsher v. Synar in 1986, where the statutory language 
concerning an administrative official's removal was very 
similar, the Supreme Court viewed that as a very broad removal 
power. Inefficiency or maladministration provides the President 
with broad discretion to remove the CFPB's Director.
    Moving to the appropriations issue, as you say, no other 
Federal bank regulator is subject to appropriations and we know 
that the three regulators I have mentioned have been greatly 
weakened by industry influence because they do not have secure 
funding.
    We also know that OFHEO before it was replaced by the FHFA 
was greatly weakened by the influence wielded by Fannie and 
Freddie. I pointed out that no one can contest that the 
financial sector has had unbelievable political influence and 
power over the last 20 years and more.
    The statutory drafters for all the other bank regulators 
realized that because these regulators have such a critical 
public interest and because in fact they are trying to properly 
restrain very powerful regulated institutions for the public 
interest, there will inevitably be push back through the 
political system. And if you don't give some meaningful 
insulation and independence to the regulator, they are not 
going to be as successful in doing their job.
    Mr. Hinojosa. I remember in the second term of the Bush 
Administration, when Henry Paulson, the Secretary of the 
Treasury, came to talk to us and asked for $800 billion within 
a week to be able to save the financial system.
    And one of the things that came out at that hearing was the 
fact that we had wanted a smaller government, less involvement 
by the Federal Government. And so, the end result was that we 
didn't have the people to enforce the regulations and we got 
into the mess that we did. This seems to be the wrong route to 
take to improve consumer financial protection.
    I would like to ask my second question to Mr. Michael 
Hunter. In my district in deep south Texas, we have sought to 
protect consumers from predatory payday lending while 
partnering with community banks and credit unions, and also we 
have worked to increase the financial literacy and capability 
of our residents. The Consumer Financial Protection Bureau 
recently held a field hearing to examine pay day lending and 
CFPB is moving forward with its supervision and examination of 
non-bank financial companies.
    How do community banks view the efforts of the CFPB to 
examine these non-bank competitors and level the playing field? 
And the last part of the question, does the ABA anticipate a 
budget cut will affect the ability of this Bureau to monitor 
these non-bank companies such as payday lending companies and 
others?
    Mr. Hunter. The membership of the American Banker's 
Association looks forward to Mr. Stinebert's members joining 
the club of the most highly regulated industry in this country. 
And we applaud the efforts of the CFPB in beginning to impose 
its jurisdiction on non-banks. With regard to the implications 
of a budget cut, as a general proposition--and I used to teach 
political science--I think the democratic process works.
    I think the appropriations process works and the idea that 
we ought to have these independent agencies to protect Congress 
from themselves is just a proposition that I have never been in 
favor of.
    Mr. Hinojosa. You can understand--
    Mr. Hunter. Excuse me, I am--
    Mr. Hinojosa. --you can understand why I am concerned about 
budget cuts to weaken this Bureau. Because we saw it in 2007. 
We saw it in 2008, that we didn't have the regulators to 
enforce the regulations. So, I think my time has expired and 
with that, I yield back.
    Chairwoman Capito. Thank you.
    Mr. Hensarling is recognized for 5 minutes for questions.
    Mr. Hensarling. Thank you, Madam Chairwoman. And I 
certainly thank you for holding this hearing.
    I think one of the lessons that we know from Dodd-Frank is 
that when you essentially give unfettered, unprecedented 
discretionary powers to unelected bureaucrats, they have a 
tendency to use it. That in some respects is the subject of 
this hearing, and a hearing later this afternoon in the Capital 
Markets Subcommittee as well.
    I guess the first question I would want to pose is, 
frankly, the controversy surrounding the appointment of the 
Director of the CFPB. I know back in 2005, then-Senator Barack 
Obama said that recess appointments were ``the wrong thing to 
do.'' He also went on to say that a recess appointment ``is 
somebody who couldn't get through a nomination in the Senate.'' 
And I think that means that we will have less credibility.
    And so the question that I really want to ask, as I am 
concerned about the regulatory uncertainty that we already have 
in this particular process, we have some questioning the 
constitutionality of Mr. Cordray's appointment and Dodd-Frank 
is explicit that the CFPB Director must be ``confirmed by the 
Senate.'' Many legal scholars say a recess appointment is not a 
Senate confirmation and there are further clouds on whether or 
not Congress was in recess.
    As I might also note, for the record, the latest extension 
of the U.I. in payroll was done during a pro forma session. So 
the first question I am--I guess I will pose it to you, Mr. 
Hunter, have the members in your organization concluded 
unequivocally that this is a constitutionally valid 
appointment? Or is there some controversy? And if there is 
controversy, is that uncertainty hindering your membership?
    Mr. Hunter. Congressman, the president and CEO of the ABA, 
Frank Keating, expressed concern after the appointment 
occurred. It is certainly a subject of debate. Until a court of 
original jurisdiction tells us that Mr. Cordray isn't the legal 
authority for the CFPB, our responsibility is to recognize it 
and work in as constructive and cooperative a way as we can.
    Mr. Hensarling. Next question--I have seen a recent 
interview with Mr. Cordray. He was quoted in the Associated 
Press as saying, ``Frankly, there is a lot of fraud that is 
committed in the marketplace that is not, on its face, 
necessarily technically illegal.''
    My question is: If we have a Director of CFPB who may or 
may not be constitutionally appointed who now says that his 
agency essentially has the ability to regulate activities that 
are not necessarily technically illegal, how does this impact 
your members, particularly product development, that they may 
have their profitability, their survivability?
    Mr. Stinebert, I will start with you. Is that a chilling 
comment to you?
    Mr. Stinebert. It was a very interesting statement. As far 
as I know, fraud is technically illegal and I don't know of any 
wiggle room there. It is either fraud or it is not fraud. 
Certainly, we have laws on the books now which protect against 
fraud. So it does cause some concern when we read that 
statement.
    I think that since that time, he has corrected that 
statement to a better understanding. But going along with what 
our colleagues here have stated--and I did not know we were not 
members of the club to begin with--but if being State-regulated 
is entirely different than being federally-regulated, it still 
is being regulated.
    Mr. Hensarling. I will let you gentleman work out that 
disagreement in your own time. In the remaining seconds I have, 
one of the reasons I am a strong supporter of Mr. Neugebauer's 
bill to bring in greater accountability and transparency is the 
unfettered powers that this agency has been given. I am hearing 
from a lot of community financial institutions in the fifth 
district of Texas that I represent, particularly about their 
unfettered powers to essentially ban debit cards, overdraft 
protection, reward checking, and identity-theft products.
    My community bankers are telling me they are at a low-time 
profitability due to monetary policy, due to the interchange 
regulations. And so my question is--without that oversight, 
could the CFPB's ability to essentially ban these products 
impact profitability and the safety and soundness of community 
financial institutions? Mr. Hunter?
    Mr. Hunter. The concern that we have generally speaking, 
Congressman, is that in our membership, there is a very 
troubling ratio that is developing out there and I will be 
quick. And that ratio that is developing that we are seeing in 
our banks is a one-to-one relationship between bank employees 
who are there to serve customers and bank employees whose 
responsibility is compliance.
    I don't think that is good for banks and I certainly don't 
think it is good for customers. And at the end of the day, we 
are hopeful that this can work, this being the CFPB. Again we 
think it is important that if you are going to have an 
independent agency with this kind of power and authority, the 
better approach is to have a commission and have some 
oversight. They should have, as opposed to reporting 
responsibility, accountability to Congress with regard to 
expenditures.
    Chairwoman Capito. The gentleman's time has expired.
    Mr. Gutierrez, for 5 minutes.
    Mr. Gutierrez. Thank you.
    Welcome to you all.
    I just wanted to follow up very quickly because as best as 
I can recall, and I didn't know we were going to go into this 
part of the conversation, Goldman-Sachs and others reorganized 
themselves and some bank holding companies so that they would 
have access to the discount window, not for $1 billion, not for 
$10 billion, but for hundreds of billions of dollars in order 
to acquire liquidity.
    And now, people complain. We can't have it. You can't go to 
the government when you get in trouble, have the government 
bail you out, then continue to reorganize yourself under 
government rules so that you have more access to the government 
and their money, and then expect the American taxpayer and the 
people to say, ``We are going to let you do whatever you 
want.''
    So, I think we should have a little more balance in terms 
of our conversation that we are having in terms of the most 
regulated. You are also one of the greatest beneficiaries of 
the American taxpayers supporting who you are today, or you 
would have simply have died and gone away just like the 
dinosaurs had it not been for the intervention of this Congress 
and specifically Members on this side of the aisle who many 
times have said, ``Okay we are going to do it, but we are going 
to watch carefully.'' So let us remember where we are at 
because there was a crisis; it was 2002.
    I know that everything has changed and it is kind of tough 
because everybody on Wall Street is complaining that it was 
``only $75,000; only $75,000, I am quitting.'' That is the 
bonus, and people are complaining? Tell that to the rest of 
America, that it is only $75,000.
    Having said that, I want to make sure that what we are 
talking about today is the Consumer Financial Protection 
Bureau. And it is just mind-boggling. The Bureau has been fully 
operational for 34 days, yet we have brought them here to speak 
14 times. I think it is interesting that my colleagues on the 
other side of the aisle and representatives of the financial 
industry continue to shout about how the CFPB has insufficient 
oversight.
    Fourteen times in 34 days--do the math--they have been 
brought before the Congress. That seems to me to be pretty 
diligent oversight on our part. The bills before us today are 
really nothing new. Another attempt by the Majority to weaken 
the Bureau so it doesn't look over the shoulder of their 
friends in the banking industry. I get it.
    If you are a payday lender, guess what? If you are a payday 
lender, you are back there saying, ``Thank you.'' If you are 
somebody out there giving people loans that you shouldn't be, 
you are clapping. If you are out there exploiting consumers, 
you are clapping. Those are the only people who are really 
clapping. Let us get that absolutely clear. Those that don't, 
want to follow rules.
    People want less scrutiny of big money companies that do 
business with the average American consumer. One of the bills 
before us today brings the CFPB under the authority of the 
Treasury Department and makes its funding subject to 
congressional appropriations.
    Let us not split hairs here. This isn't about making sure 
that Congress can watch the CFPB even closer than it already 
does--14 hearings in 34 days. This is about making sure that 
the financial industry lobbyists have access to people who make 
the appropriations decisions, i.e., Members of Congress.
    Instead of strengthening the Bureau or making it more 
accountable to Congress, the bill would undermine the Bureau's 
independence and make it more vulnerable to pressure from 
powerful lobbyists. We have seen that.
    Pick up the newspapers. Open them up and you see what the 
lobbyists here in Washington, D.C., do. Abramoff is kind of 
walking around telling everybody, ``I really didn't mean it.'' 
Oh no, he is repentant. It is Washington, D.C. So I would like 
an independent authority, the way we have done it.
    And lastly, let me just say that George Bush was President 
for 8 years. And you know what? He used the system more times 
than President Barack Obama has ever done in terms of 
appointing recess appointments.
    And you know what? Lastly, I think we should make sure that 
we all understand that the Minority Leader in the Senate, the 
gentleman from Kentucky, has stated that his goal is to make 
Barack Obama a one-term President, and that he is going to do 
everything to make sure that he fails and that he is defeated. 
That is not an exaggeration. That is exactly what he said.
    So you know what? They are playing politics over there. 
They won't even give Mr. Cordray or anybody the time to have up 
or down votes. They are obstructionist, and the American people 
have had enough of it. I am happy the President appointed him, 
and I hope he gets to his work and you can have a hearing every 
week, because I know he doesn't care. Thank you.
    Chairwoman Capito. I thank the gentleman.
    I will have to say I am not certain--I would like to see 
the 14--we certainly haven't had 14 meetings in 34 days in this 
committee. And--
    Mr. Gutierrez. --in this committee; in Congress.
    Chairwoman Capito. In Congress--14 meetings in 34 days.
    Ms. Velazquez. Fourteen hearings.
    Chairwoman Capito. Fourteen hearings.
    Mr. Gutierrez. Fourteen hearings.
    Chairwoman Capito. You said in ``34 days?''
    Mr. Gutierrez. Fourteen. They have been in existence for 34 
days.
    Chairwoman Capito. Right.
    Mr. Gutierrez. Fourteen hearings in the last year.
    Chairwoman Capito. Next, we have--
    Mr. Gutierrez. Those are all facts. I can bring them down.
    Chairwoman Capito. You said, ``14 hearings in 34 days.''
    So you are correcting yourself? I am just clarifying.
    No? Just clarifying.
    Mr. Gutierrez. Well, I--
    Chairwoman Capito. For the record. I am sure you want to be 
accurate.
    Mr. Gutierrez. I absolutely do.
    Ms. Velazquez. He is accurate.
    Chairwoman Capito. You said 14 hearings in 1 year?
    Ms. Velazquez. 34 days in existence.
    Mr. Gutierrez. It has been 34 days in--
    Ms. Velazquez. Go to the record and check.
    Mr. Gutierrez. 14 hearings in the last--
    Chairwoman Capito. Right. Not in the last 34 days.
    All right.
    Mr. Gutierrez. We all agree there have been 14 hearings in 
the last year?
    Chairwoman Capito. --question about that--for a year.
    Mr. Gutierrez. You will catch up quickly. I am sure we will 
have more hearings on this.
    Chairwoman Capito. Half a billion dollars--I think we 
should. Your time has expired.
    Mr. Huizenga, for 5 minutes.
    Mr. Huizenga. Thank you, Madam Chairwoman.
    And frankly, I hope there are another 14 hearings because 
this is one of the most expansive steps that government has 
taken. And I am sorry my colleague is leaving.
    It just seems to me--I am not quite sure that I understand 
whether the CFPB is a five-member board versus a single 
individual, how exactly that is going to ensure the President's 
reelection or non-reelection. So I think that we are seeing 
obviously some heated rhetoric.
    And I have seen some positive elements on my bill 
specifically, H.R. 3871. We have had everybody--the Credit 
Union National Association, the Consumer Bankers Association--
just recently both put letters in; appreciate your support--the 
resounding endorsement of Professor Wilmarth. I think that one 
sentence, ``I don't oppose''--I will take that as well.
    And I know that there has been some concern. I think 
somebody earlier had expressed that all three bills really chip 
away at the CFPB. And I just want to make sure that my 
colleagues aren't more concerned about keeping out any 
amendment to Dodd-Frank versus trying to make sure that we make 
it workable and do the right thing, which is exactly what H.R. 
3871 is trying to do.
    And frankly, I am happy to entertain the notion of a belt-
and-suspenders approach to amending both the CFPB Act and the 
FDI Act. But it seems to me that, as I think--I can't remember; 
I am sorry. It was Mr. Stinebert, I think, who noted on page 
four of your testimony--I had it up here at one point, but 
maybe you can comment a little bit on that, sort of the 
background of why we do need to not just do this with FDI and 
the deposit insurance side of things, but why we need to amend 
the CFPB and why maybe we shouldn't be so deathly afraid of 
changing a sentence or a jot or tittle in this.
    It is not holy writ that has come down from the heavens. 
This is the work of very fallible men and women who come in 
here trying to do the right thing, but let us try to make sure 
that it is workable. So, if you care to comment?
    Mr. Stinebert. I think that the oversight that Congress has 
shown about CFPB, I think also highlights the problems that 
some of the industry has with it, and certainly we do. We have 
never had a bill that is quite as large, where the scope is 
basically unlimited, as we do with this piece of legislation.
    They can act right now within the confines, as the ranking 
member has pointed out, initially in a very finite way, which 
might be a good direction. But that doesn't necessarily mean 
that the Act itself as drafted, as written, is basically carte 
blanche to do anything in this area that might impact consumers 
in any way for their financial services.
    So when we look at the Act, we look at trying to put a 
little bit of belts and suspenders around it, a little bit 
somewhat of insurance. When we asked our members at a recent 
meeting if they could rank the biggest concerns they had, it is 
always the uncertainty. And the uncertainty is because not of 
what CFPB has done, but what it could do.
    All of these Acts and the provisions we are talking about 
today really are a way to bring some oversight, to bring some 
accountability, so not because of what they have done, but what 
is so wide open in the future.
    Mr. Huizenga. Sorry. Thank you. And just so we are clear, 
my bill, H.R. 3871, you view as one of those elements to 
provide clarity?
    Mr. Stinebert. Absolutely. Yes. It is an essential element.
    Mr. Huizenga. All right.
    Professor Wilmarth?
    Mr. Wilmarth. I just wanted to point out that I think that 
Mr. Stinebert was probably referring to the so-called UDAAP 
authority. But I have described it at some length, and I can 
describe it if the committee wishes.
    There are very tight limitations and very specific findings 
that have to be made before the Bureau can issue a UDAAP rule. 
And also, a very detailed cost-benefit analysis. They have to 
consult with Federal prudential regulators. FSOC has a 
potential veto. So I don't this authority is nearly as wide 
open as that statement might suggest. Thank you.
    Mr. Huizenga. But you certainly don't see a problem with us 
providing that clarity?
    Mr. Wilmarth. Oh, no. I think the idea about protecting the 
privileged materials so that the privilege is maintained when 
institutions share them with their regulator, that to me seems 
perfectly sensible.
    Mr. Huizenga. I appreciate that. And I think that, to my 
colleagues on both sides of the aisle, I know we are having 
much broader conversations about whether the CFPB should or 
shouldn't exist, whether Dodd-Frank was good or bad, all those 
other things. But the simple fact is there is a hole, in my 
opinion and in the opinion of virtually everybody who deals 
with this, that has to be fixed.
    Let us go do it. Let us go prove to the American people 
that we can set aside bickering and go get something done that 
is going to protect the consumer and protect those who are 
serving the consumer. So, I appreciate that.
    And the last little quick reminder--we are seeing a lot of 
heated rhetoric. And I just want to remind everybody that we 
are in the same boat. Banking lenders, non-banking lenders, you 
name it. There is a lot of stuff that is getting thrown out 
there.
    I just caution everybody to make sure that you realize we 
are trying to all be on the same team here to make sure that we 
are protecting consumers, and also protecting businesspeople, 
men and women who are in this industry who are providing that 
service. So thank you very much, Madam Chairwoman.
    Chairwoman Capito. Thank you.
    Mr. Hinojosa, for 5 minutes.
    Mr. Hinojosa. I have already spoken.
    Chairwoman Capito. Excuse me. Mr. Scott.
    Mr. Scott. Thank you very much.
    I certainly concur with much that has been said. And my 
friends on the other side of the aisle, it is important that we 
all try to work to try to bring some justice and reason and 
fairness and protection to the American people.
    But two of these measures--particularly H.R. 1355--are 
drastic overkill. H.R. 1355 goes right at the core of the 
agency to remove it from the Fed, put it under Treasury, to 
make it subject to lobbyist pressure. It takes away the very 
vital need of independence.
    Now, we talk about accountability. I think it is important 
for us to set the record straight. We have accountability now. 
Our ranking member, Mrs. Maloney, went through in detail with 
many of these areas of accountability.
    But I want to hit a couple of them so that the people will 
know, because some statements have been made that they don't 
report to Congress--they must report to Congress. The Director 
must report to Congress, not once every year, but twice: every 
6 months. And he has to appear before both committees; both 
finance committees in the House and the Senate.
    And at these hearings, he must not just talk. He has to 
submit reports to each of our committees and to the President. 
And not just any reports. These reports must include a 
justification for the CFPB's budget, a list of the rules that 
the CFPB has adopted, and a detailed list of public supervisory 
enforcement actions in which the CFPB has been involved.
    Then, there must be an audit each year. The GAO must audit 
the total finances of the CFPB. It has to have access to all of 
the CFPB's personnel, their data, their records, their papers. 
And this audit must be submitted, and all of the other numerous 
things that have been mentioned.
    The accountability controls are there. So that is why you 
have to be--we must fight. This effort is not designed for 
greater transparency. How much more transparency and 
accountability can we have than what we already have? These 
efforts are here to basically gut the intent and the purpose 
and the effectiveness of this agency.
    And I don't mind those on the other side of the aisle 
having their own opinions in their areas, but the American 
people must be told the truth about this. This is not an effort 
to increase accountability as if there is none there. This 
agency has the most oversight of any agency, as we have just 
gone through.
    Professor Wilmarth, let me just ask you, particularly in 
regards to this audit. As you know, the CFPB is subject to 
annual GAO audits of its financial transactions, its 
statements, and to the private sector, an independent audit of 
its operations and budgets. Are you familiar with these audits?
    Mr. Wilmarth. I am afraid that I am not an expert in that 
area, except to note that they are very extensive.
    Mr. Scott. All right.
    Let me just ask you, in terms of this overall committee, 
just for the record, our effort here is to promote 
accountability and transparency. Do you feel that these bills 
will achieve that goal any more than what we currently have?
    Mr. Wilmarth. As we have discussed, in structuring Federal 
financial regulators, there is a balance that has to be struck 
between accountability and independence. I think that has been 
a consistent theme for all the bank regulators, because we know 
that the banking system is so critical to the success of our 
economy. We also know that banks and politics have been 
entwined since the very beginning of this Nation.
    There is always political pressure involved where banks are 
involved. And so, if regulators can't have a degree of 
independence, that can be fatal.
    Mr. Scott. And if H.R. 1355 were adopted, what would be the 
impact on the consumers?
    Mr. Wilmarth. A very severe one, in my opinion. I think 
some of the provisions we haven't talked about are the direct 
taking away of any policy-making independence. So, if you put 
the CFPB under the Treasury, the Treasury could then veto 
rules, remove officers and officials, reorganize the agency, 
and interfere with enforcement proceedings. It would have none 
of the autonomy that the Office of the Comptroller of the 
Currency has within the Treasury.
    Again, my question is--the Office of the Comptroller of the 
Currency is an enormously powerful agency, headed by one person 
who regulates all of the largest financial institutions in this 
country. Many of them are also among the largest financial 
institutions in the world. And yet, there are detailed 
provisions giving the OCC all types of autonomy. So why are we 
taking away all the autonomy from the CFPB, but preserving all 
of it for the OCC?
    It was interesting that when the Treasury General Counsel 
criticized in a comment letter a proposed rule that the OCC put 
out, Members on the other side of the aisle leaped to the OCC's 
defense, and told Treasury to stop interfering with the OCC. 
The Treasury was strongly criticized for allegedly interfering 
with the OCC's autonomy. So why is there so much solicitude for 
the OCC but none at all for the CFPB?
    Chairwoman Capito. Yes.
    Mr. Scott. Thanks. Thank you.
    Chairwoman Capito. Thank you.
    Mr. Canseco, for 5 minutes?
    Mr. Canseco. Thank you, Madam Chairwoman.
    Today, we are talking about how the CFPB is supposed to be 
an agency that protects consumers. This is an agency that on 
top of so many rules and laws that are already designed to 
protect both State laws and Federal laws to protect our 
consumers. We have to recognize as the politicians sitting up 
here and as the legislators sitting up here, that there is a 
very delicate balance that needs to be maintained.
    And every time that we flip that balance in any direction, 
whether it is in favor of the consumer or in favor of the 
financial servicers, we are always hurting the consumer. 
Because of that, I really need to stress the need for all of us 
as Members of this body that we understand the American economy 
and its financial systems. Because otherwise, we are going to 
trip into bad laws and bad rules.
    So with that said, I want to ask Mr. Hunter, the CFPB has a 
complaint handling process for banks with over $10 billion in 
assets. And this includes the reporting of general trends to 
Congress about complaints they are receiving about financial 
institutions. Given that the CFPB can essentially do whatever 
it wants, what concerns do you have over this complaint 
process? And is there a possibility that the wrong impressions 
could be given to consumers, thereby harming them?
    Mr. Hunter. I am happy to answer that question, 
Congressman. I guess one of the most profound concerns--and as 
we say out West, ``The livestock are out of the barn,'' with 
regard to the delegation of authority to the CFPB in this 
area--but how this authority is exercised is what this hearing 
is about. I would like to confine my remarks to that 
proposition.
    With this much current authority vested in one person, that 
person's style, that person's approach to this job is going to 
be critical. And you could have somebody whose approach would 
be--as opposed to compliance and supervision--enforcement, 
which not to be too melodramatic, could involve scalp-hunting. 
You are punishing people to make an example.
    The tradition in banking is you have a supervisory and 
compliance approach. So as you say, because all this kind of 
authority is reposed in one person, the whim and caprice of 
that individual with regard to how he or she is going to 
approach this job is troubling. And it is something we are 
having a hard time getting our head around, which is why we are 
participating in this hearing, and why we suggest a better 
approach to how that authority is exercised would be a 
commission.
    Mr. Canseco. Thank you.
    So, handling complaints is just one of the services that 
banks provide to their customers. Yet, the CFPB has decided to 
make a public display of all the complaints received from 
banks, and about banks. Are you concerned that publicly, the 
CFPB is only focusing on negative aspects of banks' 
relationships with their customers, and not seeing the whole 
big picture of all the good things and the efforts that they 
do?
    Mr. Hunter. If there is going to be a public inventorying 
of complaints, it ought to be holistic; which is to say, if 
there are complaints that are determined to show that there is 
no fault of a bank, and there is a good story there, there 
ought to be a holistic approach to that. And our concern is it 
is going to be all of the bad and none of the good, 
Congressman.
    Mr. Canseco. So it is going to paint financial institutions 
in a very bad light?
    Mr. Hunter. Sure.
    Mr. Canseco. And complaints are a natural concurrence, are 
they not?
    Mr. Hunter. That is a concern we would have about the 
template that is in place.
    Mr. Canseco. Thank you. Thank you, sir.
    Now, Mr. Pincus, I would like to ask you about the overall 
structure of the Bureau and revisit something this committee 
has been in favor of for a long time. This committee has been 
fighting for almost a year to create a five-member commission 
at the CFPB, only to be rejected by the Senate and the 
President. So I would like to point out some differences 
between the Board of Governors at the Federal Reserve, and the 
CFPB.
    The Fed's Board consists of an academic, a former community 
banker, a State financial regulator, a former Fed District 
President, and a former Clinton Administration official. And by 
contrast, Mr. Cordray has spent his career suing banks and 
other private sector participants. What does this lack of 
diversity at the CFPB mean about the direction this agency will 
take in its relationship with the private sector?
    Mr. Pincus. I think it is a real concern, Congressman. I 
think, given the very broad power that the agency has--and I 
know it has been labeled a bank regulator, but as you know from 
the legislation that is moving through Congress, this agency 
regulates much more than banks or even the financial 
institutions. It regulates really the whole economy, to a large 
extent.
    And so, giving that authority to one person, who by 
definition is going to have limited experience, is a recipe for 
disaster. And I think one interesting analogy--I do a little 
antitrust law. And if you compare the Antitrust Division of the 
Justice Department, which is headed by one person, to the FTC, 
which is of course a commission, most people would say that 
because of the input from multiple people and people from 
different backgrounds, the FTC has charted in the antitrust law 
a much more consistent, measured path, while the Justice 
Department has sort of swung back and forth, depending on 
Administrations.
    And I think that is a real problem here, and it is why 
every agency that you can think of, in which there are these 
restrictions on appointment authority, also have multi-member 
commissions for just that reason.
    Mr. Canseco. Thank you very much.
    My time has expired.
    Mr. Renacci [presiding]. I recognize Ms. Velazquez.
    Ms. Velazquez. Thank you.
    Mr. Pincus, I try to understand the argument as to why the 
budget for the CFPB should be--instead of being by fee 
assessment, it should be appropriated? And when we look at 
those regulators such as the OCC, the FDIC, and the Federal 
Reserve that in some ways have jurisdiction over consumer 
compliance laws, they were not subjected to appropriations. So, 
my question to you is, since Dodd-Frank transferred those 
jurisdiction and responsibilities to the CFPB, should Congress 
now defund all these Federal agencies and make them subject to 
appropriations?
    Mr. Pincus. I think a couple of answers, Congressman. First 
of all, in terms of accountability, which is really--
appropriations is one part, in all those other agencies. There 
are other accountability mechanisms.
    For example, with the OCC, although it is true that it is 
funded outside the appropriations process, there aren't the 
restrictions on the removal of the Comptroller. The President 
has blanket removal authority, the Justice Department has said 
and also the Treasury Secretary has general oversight as well 
as authority over appointing deputies.
    So, there is a control there that doesn't exist in the 
Bureau. And I think the critical problem is, with those 
authorities transferred to the Bureau, it is now an agency that 
has both no appropriations oversight and no policy oversight in 
terms of effective governance.
    And just one last point if I may, this is not any longer 
just a bank regulator. And so, I think the appropriate 
comparison is really other consumer regulators, as you said. 
And if you look across the government, the FTC, the CSPC, the 
Justice Department, all of those entities are subject to the 
appropriations process.
    Ms. Velazquez. As a regulator--the CFPB is a regulator. And 
as long as the National Bank Charter has been in the system--in 
fact, all the way back to 1864 when the OCC was established by 
a Republican, under a Republican President--the budget has been 
funded through assessment, not appropriation. In its wisdom, 
Congress passed the law that way, to give the independence to 
that agency.
    Yes, sir?
    Mr. Wilmarth. It seems to me that the experience of the 
FHFA is also very applicable. Congress determined that we 
needed a strong, independent regulator and a single regulator 
who would be accountable and would be strong enough to take 
effective action against these enormous, government-sponsored 
enterprises. In my view, the largest banks today, which the OCC 
regulates, have many similarities to the government-sponsored 
enterprises. They are widely viewed as being too-big-to-fail.
    And so why is a single-Director model good for the FHFA and 
not for the CFPB? The single-Director model focuses 
accountability and prevents the Director from saying it is 
somebody else's fault if things don't go well.
    Ms. Velazquez. Professor, prior to the Dodd-Frank Act, bank 
regulators often had to choose whether to use limited resources 
to enforce safety and soundness, or consumer protection laws. 
In your opinion, do the proposed bills undermine the advantages 
of having a separate regulator dedicated to each mission?
    Mr. Wilmarth. Yes. Unfortunately, and I think everyone 
seems to have agreed on that point today, the Federal 
prudential regulators gave very short shrift to consumer 
protection; they didn't seem to think it was that important. 
They didn't seem to think it would have systemic effects.
    We now know that a systemic failure to protect consumers 
will eventually have a systemic negative effect on the 
financial system. Congress created this regulator to provide 
accountability and focus for consumer protection, but then if 
you take away the secure budget, you end up with the problems 
the SEC and the CFTC are dealing with.
    Ms. Velazquez. Thank you.
    Mr. Wilmarth. They have an important mandate that they 
can't carry out. They have said so. They can't carry it out 
because they don't have enough money.
    Ms. Velazquez. Under the revised funding provided by H.R. 
1355, non-bank financial institutions like mortgage companies 
and check cashers could escape CFPB oversight if the agency 
lacks sufficient funding to extend oversight to these entities. 
What are the risks to consumers if these entities are not 
brought under Federal supervision in a timely manner?
    Mr. Wilmarth. I would expect the CFPB's Director to focus 
on the largest institutions, for obvious reasons. They have the 
largest overall impact on consumers. But then we would go back 
to the same situation we had before the crisis when to some 
extent, banks were regulated, but there were large groups of 
non-bank providers, such as payday lenders, such as non-bank 
mortgage lenders, that were very lightly regulated and very 
inconsistently regulated.
    And without an annual CFPB budget, I think you will see 
something similar, because the Bureau will be forced to put 
more of its attention on the banks, and it won't be able to put 
enough attention on the non-banks. And that actually won't help 
the banks. It will actually be to their disadvantage.
    Ms. Velazquez. Thank you. I yield back.
    Mr. Renacci. Thank you.
    I recognize Mr. Duffy for 5 minutes.
    Mr. Duffy. I thank the Chair.
    We engaged in this conversation about transparency and 
accountability with the CFPB and my friends across the room 
here keep indicating that the CFPB has been in 14 times over 
the course of the last year. And they hold that up as a great 
example of the accountability that we have over the CFPB.
    But the bottom line is, they are coming in and having a 
congressional conversation. There really is no oversight when 
they come in and speak with us. There is no teeth that we have 
when they come and have a conversation with us. And I think 
that is one of our concerns. Though they come in and share in a 
question-and-answer session, we really can't do anything if we 
have a concern about the activity of the CFPB.
    I think a great example of oversight is with the $350 
million CFPB budget. How long was their disclosure? Seven 
pages--seven pages for $350 million; and we are supposed to 
clap our hands and say, ``This is wonderful oversight, 
transparency, accountability; isn't this great?'' This is a 
perfect example of how we don't have any accountability here. 
There is no oversight. I think that is our concern on our side 
of the aisle. And I know there is a concern that we want to 
keep politics out of this.
    We want to keep it immune from political activity. But 
really what that means is we want it to be immune from 
congressional oversight. This body is made up of the elected 
Representatives in the country, and it is our responsibility to 
make sure we do our job. And if we don't do our job, we are 
held accountable by our constituents.
    Mr. Wilmarth, would you say that you agree that we should 
have a single Director and we should keep the funding outside 
of Congress and just stay with the Fed? You would agree with 
that?
    Mr. Wilmarth. Yes, I have no problem with the current set-
up.
    Mr. Duffy. And your rationale, quickly, on the Director 
side is--versus a commission is what?
    Mr. Wilmarth. In my opinion, a single-Director model 
focuses accountability on the individual who is given the 
mandate. You can tell whether that individual is carrying out 
the mandate or not. When you have a commission, the 
responsibility is diffused. In my longer article that cited--
administrative lawyers have gone back and forth about the 
merits of single directors and multi-member commissions. You 
can find both types of agencies.
    Mr. Duffy. Wonderful.
    And to the rest of the panel, do you think that the Federal 
Reserve Board has been less effective because it is a board? To 
any of the three?
    Mr. Pincus. Congressman, I think that brings great benefit 
in terms of bringing different experiences and different 
perspectives to bear on very important decisions. And just to 
respond for a minute to Mr. Wilmarth's point about 
accountability, the problem is that the Director isn't 
accountable to anyone.
    So, under the current structure, since the President can't 
fire him and neither can Congress and the appropriations are 
protected, it is nice to know who the decision-maker is, but 
there is nothing anyone can do about it. And so in that 
situation, it is even more important to have multiple people 
with input into the decision, which is why all of these 
regulatory agencies that you can think of are structured that 
way.
    Mr. Duffy. And I guess I also haven't heard a lot of 
complaints about the FDIC having a five member commission as 
well; that they are pretty effective as a commission, though 
power is not consolidated in one Director. Mr. Hunter, would 
you disagree with that?
    Mr. Hunter. I think that the current situation really, 
Congressman, underscores the fallacy if you will of placing all 
this responsibility on one person and deciding or arguing that 
that is a good thing because one person is responsible.
    If you are going to have an independent entity like this, 
which I think Congress should do in only exceptional 
circumstances, and this may or may not be one, but if you are 
going to have an independent agency, you ought to have a 
commission so that the power and authority, in this case which 
is virtually unprecedented, is shared between a group of people 
as opposed to one person.
    So that person's--and we are all human beings--
idiosyncrasies, that person's whim and caprice, don't direct 
the administration of his authority and responsibility.
    Mr. Duffy. And I want to--I only have a few seconds left.
    Mr. Wilmarth, did you follow the later Bush years; and did 
George Bush attempt to make some judicial appointments? But was 
he unable to do that because the Senate went into a pro forma 
session?
    Mr. Wilmarth. I am not familiar with that incident, I am 
sorry.
    Mr. Duffy. You are not aware of that?
    Mr. Wilmarth. I am not familiar with it. It may have 
happened; I am not familiar with it.
    Mr. Duffy. Okay.
    Mr. Stinebert. Congressman, I just wanted to point out some 
other advantages to having a commission. One is I am sure there 
would be staggered terms. Continuity is a big issue. Right now, 
you have a single Director whose term is going to end.
    You are going to start completely over again with whomever 
the new Director is. If you have a commission or a panel, you 
are going to ensure some continuity; you are going to have some 
more balance; you are going to have some more thought-provoking 
experience to a commission. And I think that can only be to the 
advantage of this body.
    Mr. Duffy. And one last comment, at some point there will 
be a Republican President who will appoint a commissioner and 
my friends across the aisle may not like that. I think it is 
important to share that power so we don't have this continual 
divide in a very important agency. And I yield back the time I 
don't have.
    Chairwoman Capito. Thank you.
    Mr. Green is recognized for 5 minutes.
    Mr. Green. Thank you, Madam Chairwoman. You are very 
generous with the time.
    Again, I thank the witnesses. I do want to look closely at 
the proposition that the Consumer Protection Financial Bureau 
has no oversight and this is of concern because I believe in 
oversight. I think oversight is of paramount importance. I 
think oversight helps to avoid arbitrary and capricious acts, 
so I stand with those who stand for oversight.
    So, perhaps I am incorrect. And one of the ways I try to 
find out exactly where I am is to pose questions to a panel, 
and I do so as lawyers do when they examine jurors--the process 
known as voir dire or voir dire, depending on where you are 
from. In Texas, it is voir dire. So I am a transplant, and I am 
a now voir dire person.
    So with this and 3 minutes and 50 seconds left, does 
everyone agree that there is an entity known as the Financial 
Stability Oversight Council?
    If there is disagreement, kindly extend your hand into the 
air. I ask that the record reflect that no hand has been 
extended into the air, hence I conclude that all agree that 
there is an institution known as the Financial Stability 
Oversight Council.
    If you agree that the Financial Stability Oversight Council 
has oversight in the sense that it can review and overturn any 
regulation of the CFPB, do you agree that it can review and 
overturn any regulation of the CFPB?
    If someone--
    Mr. Hunter. They would have to prescribe, if I can, 
Congressman--
    Mr. Green. If you would let me have my time--
    Mr. Hunter. Yes.
    Mr. Green. --for just a moment, I may yield to you.
    But I just want you to tell me, as--by the way, as other 
Congresspersons ask their questions and they get answers, I 
would like to have a similar opportunity.
    Do you agree that the Financial Stability Oversight Council 
can overturn any regulation of the CFPB?
    If you differ and say that it cannot, then you should raise 
your hand.
    Let the record reflect that no one differs. The Financial 
Stability Oversight Council can review and overturn regulations 
of the CFPB. I think it is worthy of noting who is on the 
Financial Stability Oversight Council. The Treasury Secretary 
chairs the Financial Oversight Council, and it is composed of: 
the Chairman of the Federal Reserve Board; the Comptroller of 
the Currency; the Chairman of the Federal Deposit Insurance 
Corporation; the Chairman of the Securities and Exchange 
Commission; the Chairman of the Commodities Futures Trading 
Commission; the Director of the Federal Housing Financing 
Agency; the Chairman of the National Credit Union 
Administration; and a Senate-confirmed independent member with 
insurance expertise that will segue into something you and I 
might discuss in just a second, Mr. Hunter, if I have time.
    But these persons, all of whom have great expertise, sit in 
judgment of the Consumer Financial Protection Bureau. And it is 
ironic that the style of the entity that they happen to sit on 
has within it the word ``oversight,'' the Financial Stability 
Oversight Council. That is oversight. I don't know how we can 
conclude that there is no oversight.
    Now, perhaps someone could make the argument that it is not 
enough to have all of these persons with all of this expertise, 
but I find it difficult to make the argument that there is 
none, zero, that is a difficult argument I think to make 
successfully.
    I wish I could go to you, Mr. Wilmarth, but I can't.
    Mr. Hunter, you mentioned that you would like to see a 
banker on a given entity, did you not? Which institute was 
that, please? Someone representing--
    Mr. Hunter. Our preference, Congressman--
    Mr. Green. Yes, sir?
    Mr. Hunter. --is that someone with banking experience--
    Mr. Green. Yes, sir?
    Mr. Hunter. --be added to the FDIC--
    Mr. Green. FDIC?
    Mr. Hunter. --or to the Fed.
    Mr. Green. Okay, listen, I think you and I should have a 
conversation about this. I am not a person who opposes bankers 
having some influence and some opportunity to have their 
position known.
    I support banking. This country needs good banks, but we 
also need good oversight for the purpose of protecting 
consumers. But I would dearly like to visit with you about it 
and perhaps we can find some common ground to stand on.
    And, Madam Chairwoman, thank you for the time.
    Chairwoman Capito. Thank you.
    Mr. Green. I want to yield back to you.
    You have graciously accorded me the time, so I surrender it 
to you. Thank you.
    Chairwoman Capito. Thank you.
    I would like to ask unanimous consent to have the following 
statements placed in the record: the Consumer Bankers' 
Association; and the Credit Union National Association.
    The ranking member also has a unanimous consent request.
    Mrs. Maloney. I ask unanimous consent that the statement of 
Americans for Financial Reform be made a part of the record.
    Chairwoman Capito. Without objection, it is so ordered.
    Mr. Luetkemeyer is recognized for 5 minutes.
    Mr. Luetkemeyer. Thank you, Madam Chairwoman.
    Just to follow up a little bit on Mr. Green's comments, I, 
too, have concerns about the CFPB Director on the FDIC and 
quite frankly, I am not a big fan of the Fed Chairman going on 
there.
    I really like the idea of a banker being on there, and the 
reason is this: We had testimony here last week with regards to 
an ombudsman program and the ability to connect back with the 
regulators. And there is a huge disconnect right now with what 
is going on in the field and what is going on with the 
regulators.
    And I think putting somebody who is more in touch with what 
is going on the ground would certainly enhance the ability of 
the FDIC to understand some of those problems. I am not trying 
to pick a fight here, but I think that it makes sense to have 
somebody who can add that connection; to be somebody who would 
add great value to the Board.
    So, that is just my first comment.
    My second comment would be, Mr. Hunter, can you tell me 
something about--something we haven't talked about really is 
the privacy information that Mr. Huizenga is trying to protect 
here in his bill.
    Can you tell me how the banks have been protected in the 
past up until now; how this is going to impact not only the 
banks but the customers by what is going to be available to the 
public which really is probably some information that they 
really shouldn't see?
    Mr. Hunter. The privileges that attach to information that 
is shared with bank examiners now is important because it 
ensures that there is an orderly, highly facilitated flow of 
information between banks and examiners so that examiners can 
do their jobs and banks can participate in--
    Mr. Luetkemeyer. That information is very specific to the 
individual customer, as well, is it not?
    Mr. Hunter. It can be, very frequently.
    Mr. Luetkemeyer. Yes.
    And that information then would be available to the public 
if this bill doesn't go through? Is that a fair statement?
    Mr. Hunter. We strongly support Congressman Huizenga's 
bill. There does need to be a tweak so that information that is 
shared with other Federal agencies is also provided that 
privilege. But yes, Congressman, we support the bill.
    Mr. Luetkemeyer. So in other words, the average citizen who 
is doing business with an institution, his financial records 
can be open to the public for everybody to see, which is really 
an invasion of his privacy with the way the current law is 
structured for the CFPB, is that correct?
    Mr. Hunter. Conceivably, and that is a great argument for 
why the--
    Mr. Luetkemeyer. Thank you.
    Mr. Hunter. --privilege needs to exist.
    Mr. Luetkemeyer. Thank you.
    Another quick question here with regards to the fines and 
the penalties that are charged, is there any recourse with 
regards to an institution which would be charged a fine by the 
CFPB? Is there any appeals process in place?
    Mr. Hunter. You have opportunities in Federal court in 
certain situations, but existence of an appeals process there--
    Mr. Luetkemeyer. So there is an ombudsman's program in this 
like there is with the Fed and those other groups that were 
talked about the other day?
    Mr. Hunter. I don't believe so. We can check.
    Mr. Luetkemeyer. Very good.
    It is interesting. As we go through this process, some of 
the Members on the other side of the aisle seem to think that 
the entire financial debacle of a few years ago was caused by 
consumer-finance problems.
    And let us be straight about what consumer finance is here. 
Consumer financial products here that we are talking about--
consumer financial problems are not loan quality; are not 
investment-quality problems. They are problems with disclosure, 
and whether an APR is correct or what the fees are for a 
particular loan--it is all of this discloser stuff that we are 
talking about.
    And so, how that is impacting the world of finance and 
causing things to go down is beyond me. I think it is a part of 
Dodd-Frank legislation which was an attempt to try and solve 
some problems.
    But let us be clear. Consumer finance is not going to cause 
the debacle of--or save us from another debacle down the road. 
However, it does impact the banking institutions and the 
lenders at heart.
    And Mr. Pincus, I am sure--you, a minute ago, made the 
comment in your testimony with regards to the regulations and 
how they restrict credit.
    This is another example of some of the stuff here if we 
continue to push this stuff, how difficult it is for 
institutions to continue to lend when their hands are 
hamstrung, why the many things have happened with consumer 
protections, is that not correct?
    Mr. Pincus. Absolutely, Congressman, and it is a special 
concern because as you know, small businesses often rely 
exclusively or certainly principally on consumer lending 
services or products.
    Mr. Luetkemeyer. Have you seen a restriction with your 
members with regards to access to credit as a result of some of 
these consumer finance problems or situations or regulations?
    Mr. Pincus. Absolutely. Small businesses right now are 
having real problems getting access to credit and a lot of it 
is the general tightening up of credit for consumers and they 
are sort of hit in the crossfire because they access consumer 
credit and our real fear is that rules that are focused on 
consumers will have this terrible effect in terms of small 
businesses which, as you know, are the engines of our economy.
    Mr. Luetkemeyer. Very good. Thank you.
    And my time is up.
    Thank you, Madam Chairwoman.
    Mrs. Maloney. Will the gentleman yield for point of 
information or the chairwoman?
    Chairwoman Capito. The gentleman was recognized for--
    Mrs. Maloney. One of my amendments to the Consumer 
Financial Protection Bureau created an ombudsman. So there is 
an ombudsman there and they are in the process of putting that 
in place now in the 34 days they have been in operation.
    Chairwoman Capito. Thank you.
    Mr. McHenry, for 5 minutes?
    Mr. McHenry. Thank you. I thank the Chair.
    And thank you for your testimony.
    I know most of the questions have been asked, but I have 
not asked any questions.
    In my Subcommittee on Oversight and Government Reform, we 
had Mr. Cordray before us and he testified that he certainly 
has a significant amount of additional willingness to be open 
about his process than we have seen from other folks who held 
the temporary position over the last year.
    It is my opinion--but I think most folks can judge his 
testimony before the Senate and before my subcommittee, and 
additional testimony that he is going to give before a 
Financial Services Subcommittee--that he has been willing to 
answer questions. He has been willing to take in ideas. He is 
willing to add additional transparency.
    It still doesn't fix the problem with the CFPB that you 
have one individual with an inordinate amount of power without 
restriction. And the only way that FSOC can overrule anything 
he or she does coming out of there, is if it poses a systemic 
risk across our economy. Basically, you would have to have one 
individual promulgate a rule that will bring a cataclysmic 
event the likes of which we have only seen once--we see once 
every half a century, in essence. So barring that, they are 
pretty safe to act.
    Now, I have asked in terms of transparency for the CFPB to 
put forward their rulemaking agenda for the year. The SEC does 
this. Other regulators do this. And that has gotten a favorable 
response and they have made some action in that regard. The 
additional question is the rulemaking process that they have at 
the CFPB.
    Mr. Pincus, I know you have studied this significantly. In 
terms of how transparent that process is, from your view of 
what the SEC does to promulgate rules versus what the CFPB 
seems to be doing--because I don't think there is much 
clarity--is there a significant difference between that 
process?
    Mr. Pincus. As you say, Congressman, we don't quite know 
yet. And I think there is a little bit of good, but some 
considerable reason for concern in how things are going. And I 
think, just to take an example, I think everybody agrees that 
disclosure around mortgages is a myth and has to be dealt with. 
And one of the things that Dodd-Frank does is it requires it to 
be dealt with.
    So, before starting a formal rulemaking process, the Bureau 
has engaged in lots of consultations, which is a good thing. I 
think the concern is the input that it has received on its sort 
of tentative ideas have not been made public. It has all been 
kept private. It has not, although the statute requires the so-
called soprefa process, the process to protect small business 
as a critical part of rulemaking, it hasn't been activated in 
this preliminary process. It hasn't even been enacted yet, and 
so being sure that small businesses are protected, which 
Congress was concerned about, hasn't happened yet.
    And I think the real concern is that this informal process, 
which doesn't have a lot of protections in it in terms of 
disclosure, could become a substitute for the formal process 
and the real rulemaking process that the statute requires could 
become a rubber stamp. Everyone could have made up their minds, 
and so they have 30 days worth of comment and then they just 
promulgate the proposal that they had at the beginning.
    So, I think there is just a real importance in being sure 
that there is a lot of opportunity for input. The input is 
clear in how it is dealt with and responded to, is part of an 
interactive process. And that ultimately, all people do, as the 
Administrative Procedure Act requires, have an opportunity to 
be in there and participate.
    And just one more point, if I may? We are talking about 
rulemaking. Enforcement, a lot of agencies, consumer protection 
agencies and certainly Mr. Cordray's predecessor in the 
temporary job said that it was her view that she wanted to use 
enforcement to set standards, rather than rulemaking, because 
that was more efficient and easier.
    And so, there is a real risk and we don't know where this 
Bureau will find its balance. But enforcement decisions have 
none of those protections. An agency can bring an enforcement 
action, either get a settlement or get a decision--obviously, 
all legitimate companies--
    Mr. McHenry. It is basically regulation through lawsuit, 
and the Federal Government already has that authority.
    So as the small business panel, I appreciate you touching 
on that. It is highly important that with every major 
rulemaking, you impanel small businesses.
    Mr. Stinebert, harmonization among regulators to make sure 
that when you have a CFPB rule promulgated, that it is uniform 
across institutions and business sets and among the regulators; 
that there is agreement to that--can you touch on that as my 
time has expired?
    Mr. Stinebert. Yes, Congressman, thank you for bringing 
that up. One of our primary concerns is the decades of State 
regulation and the expertise that has been built up at the 
State level.
    We want to make sure that there is cooperation from the 
CFPB with those State regulators and that some of that talent 
and that expertise is utilized and some of that history that 
was with the State regulators. We want to make sure that there 
is a good mix of that going forward.
    We have not had an indication so far of that to a great 
extent. We are very helpful as we go forward we will more of 
that.
    Mr. McHenry. Thank you.
    Thank you, Chairwoman Capito, for holding this hearing.
    Chairwoman Capito. Thank you.
    Mr. McCotter, for 5 minutes?
    Mr. McCotter. Thank you, Madam Chairwoman. And thank you 
for indulging our colleague, Mr. McHenry, in his 5-minute 
question.
    One of the interesting things that we find in politics is 
much like you learn when you grow up. Never judge a book by its 
cover.
    Interestingly, we are seeing the Democratic Party actually 
make a vehement argument in favor of creating an entity that is 
as far from the people and the democratic process as it can be. 
I only note that because I find it very odd. It is odd not only 
because they claim to want popular participation, people 
empowerment over their own decisions.
    It is actually contrary to the wave of the future. And it 
is in keeping with the founding principles of this country for 
us to oppose putting one person in power. After all, the first 
President of the United States stepped down, because he did not 
wish to be a king, because he understood Lord Acton's Dictum 
that ``absolute power corrupts absolutely.''
    And yet, here we find ourselves in the 21st Century saying 
that despite all the changes in our world, despite all the 
changes in our lives, despite all the changes in our economy, 
despite the ability to use the social network to make our own 
decisions to access information, to conduct our own personal 
transactions based upon that information in nanoseconds around 
the world, we continue to say that we need one person to save 
us from ourselves.
    That here in the United States of America, a country built 
upon self-government, in the 21st Century, we are relying on 
18th Century concepts that one individual however enlightened 
and benevolent they may be are necessary for the running of the 
entire American economy, for the running of every American's 
life so they can make financial decisions.
    Now, I would like to point out that having opposed the Wall 
Street bailout as absolutely the wrong precedent to set in the 
first crisis of our globalized economy, in many ways this 
regulatory scheme is the bitter fruits of misdeeds that 
occurred during that crisis and precipitated it. So, I have no 
sympathy necessarily for those who must suffer under the yoke 
of this new entity.
    But I would remind everyone that the central argument that 
we are really having here about this CFPB is whether or not you 
can govern your own life, is what is the proper role of 
government in the 21st Century? How do you match that 
government with an economy that has become flat, that has 
become horizontal, that empowers you every day to extents 
undreamt in human history?
    And unfortunately, the answer continues to be much what we 
heard when President Roosevelt rejected the calls to become a 
short-term dictator because only one person could get the 
American economy out of the Great Depression. We have always 
rejected the concept that it is a person who will save us. And 
instead of worrying about the person who holds it, be it a 
Democratic appointee, be it a Republican appointee, worry about 
the expansion of the powers of the State.
    Now, I know that back in the 1980s and 1990s when the 
Soviet Union was going under, there was a school of thought 
that said Communism would still work if Stalin hadn't ruined 
what Lenin put in place. I only bring this up because it 
continues to reinforce my point.
    What we are concerned about here is the expansion of the 
power of the State. And we know that when you expand the powers 
of the State, regardless of who is going to be in charge of it, 
you are going to have problems somewhere down the road, because 
you have gotten away from the very principles which allow us to 
be a free people and have this debate.
    Now, there are those Members of the Congress who believe 
that having their duly elected Representatives have oversight 
over this entity, because we are so inherently corrupt, I would 
like to ask if they only exclude themselves from that? Or, if 
they are worried about their own temptation to sin and make the 
situation worse?
    I would ask them to go back to their constituents and say, 
those bureaucrats who are always so responsive when you have a 
problem, who always come through? We are going to make them 
even more powerful now, but the good news is there will only be 
one to tell us no or to ignore us, or to ignore you.
    No, the CFPB's problem is that it is based upon an 
outdated, antiquated model of government that will not work, 
especially at a period of time when the wave of the future is 
individual freedom. It is empowerment. And that is going to 
continue whether big vertical government likes it or not. And I 
assure you, regardless of the outcome of this debate or these 
bills, big government is going to get flattened beneath the 
power of the people.
    I yield back. I have no questions.
    Chairwoman Capito. The gentleman yields back. I think our 
final questions have been asked.
    The Chair notes that some Members may have additional 
questions for the panel, which they may wish to submit in 
writing. Without objection, the hearing record will remain open 
for 30 days for Members to submit written questions to these 
witnesses and to place their responses in the record.
    I would like to thank all of you. And I think we have had a 
very productive hearing.
    This hearing is adjourned.
    [Whereupon, at 12:23 p.m., the hearing was adjourned.]









                            A P P E N D I X



                            February 8, 2012








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