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




 
                        BUDGET HEARING--CONSUMER
                      FINANCIAL PROTECTION BUREAU

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

                                HEARING

                               BEFORE THE

                            SUBCOMMITTEE ON
                      OVERSIGHT AND INVESTIGATIONS

                                 OF THE

                    COMMITTEE ON FINANCIAL SERVICES

                     U.S. HOUSE OF REPRESENTATIVES

                      ONE HUNDRED TWELFTH CONGRESS

                             SECOND SESSION

                               __________

                           FEBRUARY 15, 2012

                               __________

       Printed for the use of the Committee on Financial Services

                           Serial No. 112-101


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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 Oversight and Investigations

                   RANDY NEUGEBAUER, Texas, Chairman

MICHAEL G. FITZPATRICK,              MICHAEL E. CAPUANO, Massachusetts, 
    Pennsylvania, Vice Chairman          Ranking Member
PETER T. KING, New York              STEPHEN F. LYNCH, Massachusetts
MICHELE BACHMANN, Minnesota          MAXINE WATERS, California
STEVAN PEARCE, New Mexico            JOE BACA, California
BILL POSEY, Florida                  BRAD MILLER, North Carolina
NAN A. S. HAYWORTH, New York         KEITH ELLISON, Minnesota
JAMES B. RENACCI, Ohio               JAMES A. HIMES, Connecticut
FRANCISCO ``QUICO'' CANSECO, Texas   JOHN C. CARNEY, Jr., Delaware
STEPHEN LEE FINCHER, Tennessee


                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on:
    February 15, 2012............................................     1
Appendix:
    February 15, 2012............................................    47

                               WITNESSES
                      Wednesday, February 15, 2012

Cordray, Hon. Richard, Director, the Consumer Financial 
  Protection Bureau..............................................    10

                                APPENDIX

Prepared statements:
    Cordray, Hon. Richard, with attachments......................    48

              Additional Material Submitted for the Record

Grimm, Hon. Michael G.:
    Written responses to questions submitted to Hon. Richard 
      Cordray....................................................   136
Miller, Hon. Brad:
    Office of the Comptroller of the Currency FY 2013 President's 
      Budget Submission..........................................   137


                        BUDGET HEARING--CONSUMER
                      FINANCIAL PROTECTION BUREAU

                              ----------                              


                      Wednesday, February 15, 2012

             U.S. House of Representatives,
                          Subcommittee on Oversight
                                and Investigations,
                           Committee on Financial Services,
                                                   Washington, D.C.
    The subcommittee met, pursuant to notice, at 10:04 a.m., in 
room 2128, Rayburn House Office Building, Hon. Randy Neugebauer 
[chairman of the subcommittee] presiding.
    Members present: Representatives Neugebauer, Fitzpatrick, 
Pearce, Posey, Hayworth, Renacci, Canseco, Fincher; Capuano, 
Lynch, Waters, Baca, Miller of North Carolina, Ellison, Himes, 
and Carney.
    Ex officio present: Representatives Bachus and Frank.
    Also present: Representatives Royce, Green, and Maloney.
    Chairman Neugebauer. Good morning. I will call the hearing 
to order. I would like to remind the Members that we will have 
2 minutes of opening statements on each side. I see that Mr. 
Royce is here, and I think Mr. Grimm will also join us.
    I ask unanimous consent that members of the full Financial 
Services Committee who would like to sit in on this hearing be 
allowed to sit and be a part of our panel this morning.
    One of the primary responsibilities, I believe, of 
government is to make sure there is transparency and 
accountability. And sometimes, those two terms can be mutually 
exclusive.
    This hearing today is about a new entity that was created 
in the Dodd-Frank Act--the Consumer Financial Protection 
Bureau. It was tucked inside the Federal Reserve, some say to 
preserve its independence. Others would say that in trying to 
preserve its independence, it put this entity in a place where 
there is a lack of transparency and accountability. And that we 
give one person a tremendous amount of authority to not only 
make rules and regulations but also to spend money without 
congressional oversight or really accountability to any other 
entities as well.
    So, what we hope to accomplish with this hearing today is 
to determine exactly what types of activities have been going 
on in the Consumer Financial Protection Bureau.
    With this understanding, a reminder to everyone that this 
is budget season; and in the beginning of this week, the 
President of the United States laid out a budget. And in that 
budget, it calls for another trillion dollar deficit.
    So, this will be the fourth trillion dollar plus deficit in 
this term of this President. And this is an unsustainable 
route.
    Somebody asked, ``What does a hearing today on the Consumer 
Financial Protection Bureau have to do with the deficit?''
    This is a reminder to everyone that the Federal Reserve 
(Fed) has gotten a great deal. It borrows through zero and it 
buys bonds and pays interest and creates an arbitrage and 
creates earnings for the Federal Reserve. And the Federal 
Reserve then takes that money and spends some of it for the 
operations of the Fed and then the balance of that money, and, 
by the way, it has been increasing at a pretty substantial rate 
here because the Fed has grown multifold since the beginning of 
the crisis. And so, those revenues come back to the Treasury, 
which is a part of the revenue source.
    If you go through the President's budget, you will see 
where they are expecting the Federal Reserve to send them some 
money to spend which will either go for deficit reduction or 
for operations of this country.
    And so, to the extent that we make sure that the money that 
is being spent by the Consumer Financial Protection Bureau, 
because they get their money from the Federal Reserve, to the 
greatest extent possible is being spent as efficiently and 
effectively as we can is actually a deficit reduction 
opportunity for this Congress.
    I look forward to hearing from our witness today, Mr. 
Cordray, and having a very open and honest discussion about 
that.
    And with that, I yield to my good friend, the ranking 
member of the subcommittee, Mr. Capuano.
    Mr. Capuano. Thank you, Mr. Chairman. Mr. Chairman, thank 
you for having this hearing. Mr. Cordray, welcome. I am looking 
forward to hearing your testimony.
    I am using this hearing personally to kind of catch up on 
where you are. I do want to know more about your budget. I 
think our role as an oversight committee is important to make 
sure that we agree with generally where you are going and what 
you are doing.
    But at the same time, I expect that during this hearing, it 
is a little premature to draw our judgments. As I see it, you 
are kind of just getting started. And I would hope that this 
doesn't become just a rehash of why people didn't like your 
creation in the first place. If they don't like it, repeal you, 
and we will see about that.
    But for me, I just kind of want to know where you are, 
where you are going, and what to expect in the next year or so.
    I will tell you unequivocally that I think the creation of 
the CFPB is a good thing for America. I am hoping that--just 
one little statistic. I am looking at a Pew report that says we 
lost $3.4 trillion in wealth relative to real estate during the 
last financial crisis.
    If we could have saved one tenth of that with the amounts 
of money that we spend in your agency, it would have been well 
worth it for the American people and for the world economy as a 
whole.
    So, as far as I am concerned, I look forward to this CFPB 
becoming a great and wonderful defender of American consumers 
and I am hoping that you are in the right track. I will also 
look forward to hearing your testimony today.
    Thank you.
    Chairman Neugebauer. I thank the gentleman.
    Now, the vice chairman of the committee, Mr. Fitzpatrick, 
is recognized for 2 minutes.
    Mr. Fitzpatrick. Thank you, Mr. Chairman. I appreciate your 
calling this hearing. I know we are all looking forward to the 
hearing in part because there is a lot of talk in this town 
about honest budgeting and transparency in government.
    And as a big believer in these ideals, I look forward to 
discussing them today with Mr. Cordray.
    As this committee has explored for the better part of the 
year, the CFPB is unique among not just regulators, but among 
most government agencies. And that uniqueness is what has drawn 
so much attention.
    Despite not being subject to oversight that comes with the 
normal, usual appropriations process, Congress still has a role 
to play to ensure that taxpayer dollars are being well-spent, 
which is arguably our most important role here in this town.
    I also believe that the taxpayers deserve to know how their 
money is being spent ahead of time rather than after the fact. 
Careful and thorough planning makes a goal much easier to 
achieve. Not only is that good fiscal management but it is also 
common sense.
    So, thanks, again, Mr. Chairman, for calling the hearing. I 
look forward to hearing from the witness.
    Chairman Neugebauer. I now recognize the ranking member of 
the full Financial Services Committee, Ranking Member Frank.
    Mr. Frank. Mr. Chairman, I would take, I guess, 5 minutes 
now; and we can reserve if any other of our Members come 
forward, if that is all right.
    I welcome everybody to what I think is the sixth or seventh 
hearing this year. It is the sixth or seventh oversight hearing 
in which people complain that there is no oversight.
    It makes me wonder. It raises philosophical questions, 
``Are we really here?'' We are told that there is no oversight. 
And we are told repeatedly in meetings of the Oversight 
Subcommittee, in which we are conducting oversight, that there 
is no oversight.
    In fact the notion that this is unique is surprising to me 
coming from people who have been serving on a committee which 
has primary jurisdiction over the Office of the Comptroller of 
the Currency. The Comptroller of the Currency is an independent 
entity appointed by the President, funded not through the 
appropriations process but by fees that office gets.
    And, in fact, the previous Comptroller--an appointee of 
President Clinton--after using his authority, which we tried to 
curtail in the financial reform bill, to cancel all State 
consumer protection laws, then sent out a CD to State-chartered 
banks saying, in effect, ``come be chartered by me and you 
won't be regulated.'' And that, of course, enhanced his 
financial capability.
    That may or may not be right. But I do not remember any 
member of the Republican Party ever complaining about the 
status of the Comptroller of the Currency, which is exactly the 
same as that of the Consumer Bureau.
    And I would say if you look historically and talk to 
bankers about which agency is more important to them, 
particularly community bankers, it is the Comptroller of the 
Currency. The Comptroller of the Currency is a very significant 
figure.
    And while he is housed in the Department of the Treasury, 
he is independent, very analogous to the role of the Consumer 
Bureau in the Federal Reserve.
    As to one individual, not a board, having enormous power, 
once again, I would say that many people I think would believe 
that the Environmental Protection Agency, run by a single 
Administrator, has more authority that will affect the economy 
and people's lives.
    People did not object to the Comptroller of the Currency 
because the Comptroller of the Currency had a very comfortable 
relationship with the banks. And there are people in this 
committee who believe that it is the job of regulators to 
accommodate the banks.
    What we did in the Financial Reform Bill was just say that 
where consumer protection is concerned, it is kind of a 
conflict of interest for the people who are the bank regulators 
to also be the Consumer Bureau. And so, we created a new 
Consumer Bureau.
    Now, by the way, on the budget--and I am going to ask Mr. 
Cordray for these numbers--the gross number for the budget is a 
little bit misleading if it is suggested that is all new 
spending, because one of the things that we did in the Consumer 
Bureau was to transfer legal authority and personnel from 
existing bank-regulating agencies.
    There are personnel who work now in the Consumer Bureau who 
had been at the Federal Reserve, at the Comptroller of the 
Currency and, I believe, at the FDIC. I am told the number is 
about 200 of the 700 and some odd employees. In other words, 
more than 25 percent of the employees now working and charged 
to the CFPB were budgeted for elsewhere. So, that is not a net 
increase.
    Finally, there have been some concerns raised about the 
fact that the charter is statutorily to deal with issues that 
are about fraud, deception or abuse. A number of Republicans 
have complained about abuse. And they have said very 
explicitly, ``But that must mean that something which is not 
inherently dishonest is abusive as applied to some 
individuals.''
    Many of us believe that when 88-year-old semi-literate 
individuals are being pressured into certain bogus terms, that 
could be considered abusive. And, in fact, we recognize that in 
the investment area, where we have the qualified investor. So, 
investments that can be pitched to some people aren't pitched 
to others.
    But there is this question, ``Should the mandate of the 
Bureau, even from people who don't like it, be limited only to 
fraud and deception, or is it legitimate to also give them the 
power to step in when there is a problem where things are 
abusive as applied to the particular individuals?''
    I want to read from a very distinguished economist whom I 
think supports that. He says, ``In those systems that can be 
rationally defended where the States just do nothing, an 
effective competitive system--he a great advocate of 
competition--needs an intelligently designed and continuously 
adjusted legal framework as much as any other.
    ``Even the most essential prerequisite of its proper 
functioning, the prevention of fraud and deception including 
exploitation of ignorance, provides a great and by no means yet 
fully accomplished object of legislative activity.''
    It was written before we did the Bureau. But I want to 
stress, again, this is a very distinguished economist arguing 
that, ``Yes, you want to prevent fraud and deception.'' But he 
includes in that the exploitation of ignorance. And that is the 
strong endorsement of the charter that the Bureau has.
    I yield back.
    Chairman Neugebauer. I thank the gentleman. And I want to 
say that I agree with the gentleman that the EPA Director does 
have too much authority and I would be glad to work with him in 
a bipartisan way to eliminate that position.
    Mr. Frank. Will the gentleman yield?
    Chairman Neugebauer. I will.
    Mr. Frank. Has the gentleman filed legislation, done 
anything before answering me to advance that?
    Chairman Neugebauer. No. But now that I know you--
    Mr. Frank. Oh, okay.
    Chairman Neugebauer. I will.
    Mr. Frank. Conversion is always proper even it is very 
circumstantial in its motivation.
    Chairman Neugebauer. I now yield to the chairman of the 
full Financial Services Committee, Chairman Bachus.
    Chairman Bachus. Thank you.
    Mr. Cordray, welcome to the hearing. I think this is your 
first appearance before this committee.
    In a well-publicized speech 2 months ago in Kansas, the 
President said we should be strengthening oversight and 
accountability. Now, I totally agree with that. There should be 
stronger oversight and accountability of every government 
agency.
    Unfortunately, the CFPB is designed in a way to avoid 
critical oversight and accountability. The ranking member of 
the full committee mentioned the EPA, and I know Mr. Neugebauer 
picked up on that and my antenna went up as well.
    And I think it was appropriate to mention the EPA. The CFPB 
actually has more sweeping authority than the Director of the 
EPA. Title 10 of the Dodd-Frank Act confers virtually 
unfettered discretion on the Director of the CFPB.
    As Mr. Cordray has said many times, ``This is not about 
personalities. It is not about Elizabeth Warren. It is not 
about you.'' But the Director, whoever it is, can identify 
financial products and services that he or she alone finds 
objectionable, ``unfair, deceptive, or abusive'' and ban them 
under a highly subjective standard that has no legally defined 
content.
    Without question, this gives the CFPB Director power that 
far exceeds that of any other financial regulator. We have seen 
the EPA do that, and Chairman Neugebauer, I commend you for 
holding this hearing. We have seen them do some things that the 
American people have said, ``Whoa! Wait just a minute.''
    They are doing that to fire trucks now--volunteer fire 
departments. They put a new regulation that is costing 
volunteer fire departments, some of them, a whole year's budget 
just to put a different restrictor on their exhaust systems and 
it is actually shutting down fire trucks as they go out to 
fires and it has created a real problem.
    Now, will the CFPB do something as we have seen the EPA do 
in overreach? I don't know. But if they do, with the EPA, 
political pressure can be brought on the President. He appoints 
the Director of the EPA as a Cabinet position. He can fire him.
    Mr. Cordray--even the President cannot fire him. The 
difference in this agency--another difference--is that EPA gets 
its appropriation from Congress.
    The CFPB isn't under the appropriation process. If they 
spend $100 million on paper clips, we can't even say, ``Wait a 
minute, you can't do that next year. We are going to cut your 
budget,'' no matter what they spend money on. We have 
absolutely no control.
    And let me tell you, in a time of a budget deficit, 
oversight and accountability on spending is urgently important. 
In this agency, there is no accountability. There is no board 
and they have unfettered discretion to ban products or to 
declare them as unfair.
    And, ``unfair'' or ``fair'' could be a debate that could go 
on forever. But we actually have somebody who can just say, 
``Fair, unfair''--one person, no accountability, not even to 
the President.
    Thank you, Mr. Chairman.
    Chairman Neugebauer. I thank the gentleman.
    And now, Mr. Lynch is recognized for 1\1/2\ minutes.
    Mr. Lynch. Thank you, Mr. Chairman.
    I would also like to thank Director Cordray for joining us 
here today. This is your first of what I expect will be many, 
many appearances before this subcommittee. I have a feeling you 
will be a frequent flyer here.
    We are here today to examine the Consumer Financial 
Protection Bureau's budgetary process, something that was 
debated extensively during the Wall Street reform process in 
the last Congress.
    Before the Dodd-Frank Act was passed, there were seven 
different Federal agencies that had partial responsibility over 
consumer protections in the financial services sector and 
apparently none of them did a very good job at it.
    The Consumer Bureau was created to centralize that 
authority over consumer protection into one agency and to give 
that agency the necessary tools to carry out that mission 
effectively.
    To give the Consumer Bureau real teeth, we removed it from 
the appropriations process and created a funding mechanism 
whereby the Bureau draws the funds it needs from the Federal 
Reserve up to a statutory maximum.
    Still, the Consumer Bureau operates on a budget less than 
that of the OCC, the SEC, the FDIC, and the Federal Reserve. A 
recent report found that the Bureau costs each taxpayer less 
than $2 per year. That same report found that the financial 
crisis cost the American taxpayers $12 trillion in lost wages, 
lost home value, lost stock wealth, and fiscal costs.
    I would that less than $2 per year is a small price to pay 
for the protection that you will provide. The bottom line here 
is that the CFPB's statutory mandate is to implement and 
enforce Federal financial consumer laws consistently for the 
purpose of ensuring that all consumers have access to markets 
for consumer financial products and services, and that those 
markets for consumer financial products and services are fair, 
transparent, and competitive.
    Apparently, that scares the heck out of a lot of people in 
the financial services industry. But I think that is a worthy 
goal. I wish you the best of luck in your duties and I hope 
that I can be a good partner for the Bureau in your work going 
forward.
    Thank you very much, and I yield back the balance of my 
time.
    Chairman Neugebauer. I thank the gentleman.
    And now, the gentleman from Texas, Mr. Canseco, is 
recognized for 1\1/2\ minutes.
    Mr. Canseco. Thank you, Mr. Chairman.
    Mr. Chairman, this is certainly a very important hearing as 
we look into just how the CFPB managed to spend $160 million 
last year and why it feels the need to spend an additional $330 
million this year.
    The CFPB seems to have no concrete plan on how this money 
is going to be spent. But I guess, with this agency, that is 
par for the course. I am reminded too that the crafters of 
Dodd-Frank conveniently allowed the CFPB to spend however much 
it wants without any input from Congress or any other body for 
that matter.
    So, in effect, while today's hearing is important, we as 
Congress sit here powerless and can only listen to Mr. Cordray 
as he lays out his priorities for how to spend money that could 
be used to reduce our national debt, which just crossed $15 
trillion this year.
    And I am also reminded that Mr. Cordray is what is called a 
``recess appointment,'' that occurred while the Senate was in 
session. And it has created even more uncertainty for the 
financial institutions and small businesses who now correctly 
believe that every rule handed down by the CFPB will be subject 
to judicial review.
    What we have is a rogue Director in charge of a runaway 
budget for an agency whose mission is still unclear. Mr. 
Chairman, this is a recipe for disaster that will only hurt our 
economy going forward.
    Thank you, and I yield back.
    Chairman Neugebauer. I thank the gentleman.
    And now, Mr. Ellison is recognized for 1\1/2\ minutes.
    Mr. Ellison. Mr. Chairman, thank you.
    And I want to thank the ranking member.
    Let me a tell you what a recipe for disaster is--allowing 
citizens to be lied to and bilked into subprime predatory 
mortgages, then repackaging those subprime mortgages into a 
mortgage-backed security, then somehow convincing someone to 
rate it AAA and then allowing banks to trade on their own 
accounts to buy those assets in proprietary trading and then, 
having some insurance-like product that would back it all up, 
but of course, they wouldn't have any reserves to cover the 
losses.
    That is a recipe for disaster and that is exactly what 
happened. It is shocking to me that my friends on the other 
side of the aisle act like the financial crisis of 2008, 2009, 
and 2010 didn't even happen. They don't think anything should 
be done to try to rein in people who took advantage of 
consumers and destroyed whole neighborhoods.
    In the zip code of 55411, which is where I live, 48 percent 
of the houses are in foreclosure; not underwater, in 
foreclosure. This is because of the bad behavior that you want 
to protect these people from.
    If your business model is not about bilking consumers, you 
have nothing to worry about from the CFPB; but if your aim and 
your goal is to hook them and crook them and take advantage of 
consumers, of course, you are horrified.
    And all this stuff about: ``Oh, yes; they have too much 
authority. They have taken too much money. We can't talk to 
them. We can't control them''--this is all nonsense. This is 
all just shilling and trying to run alibis and interferences 
for crooked individuals.
    I yield back.
    Chairman Neugebauer. Thank you.
    And now, the gentlewoman from New York, Mrs. Hayworth, is 
recognized for 30 seconds.
    Dr. Hayworth. Thank you, Mr. Chairman.
    Mr. Director, I note that one of the key responsibilities 
of the CFPB is to educate consumers. And I would implore you 
that one key aspect of that financial education should be 
regarding the unintended consequences of Federal intervention 
in the markets, even when well-intentioned.
    I would welcome the opportunity to work with your staff in 
that regard because I do think that is a crucial piece of this 
entire picture, including, as the distinguished Member from 
Minnesota has just mentioned, the 2008 fiscal mortgage industry 
crisis which can certainly be laid at least in part and a major 
part at the feet of Federal intervention.
    Mr. Chairman, I yield back.
    Chairman Neugebauer. I thank the gentlewoman.
    Now, I think the ranking member reserved--and I recognize 
him for 30 seconds.
    Mr. Frank. Thank you, Mr. Chairman.
    Just a couple of points--first of all, this notion that the 
Director cannot be removed is fanciful. It says in the statute 
that, yes, the Director is appointed for a 5-year term, but can 
be removed by the President for insufficiency, neglect of duty, 
or malfeasance.
    No one doubts that if a change in Administration comes, and 
the new President disagrees with the existing Director, he or 
she can be removed. And proving that you were not inefficient, 
the burden of proof being on you, would be overwhelming.
    Secondly, just as we are having an oversight hearing about 
the lack of oversight, we capped the appropriation last year 
and we are now hearing that we can't do that. This is just 
bizarre.
    Last year, in the appropriation in the budget, the amount 
that this agency can spend was limited by Congress and people 
keep arguing it wasn't. Finally, I read a quote--because I know 
it has been controversial as whether or not the Bureau could 
protect people against ignorance, the abusive--I am talking 
about ``unfair,'' and we did say yes, there were some things 
that may be ``fair'' with regards to some people and not 
others.
    I read the quote that said that even the most essential 
prerequisite of the proper function of government, the 
prevention of fraud and deception including exploitation of 
ignorance, provides a great object of legislative activity.
    And I forgot to mention that this endorsement of 
legislative activity to prevent the ignorant from being 
exploited was written, as I said, by a very distinguished 
economist. His name was Friedrich Hayek.
    I am quoting from the edition I have from the Library of 
Congress, ``The Road to Serfdom,'' and it is Mr. Hayek who says 
that he is against central planning but he believes strongly in 
the appropriate regulation including the prevention of 
ignorance. I don't claim that Mr. Hayek, were he still alive, 
would have endorsed this particular wording, but the purpose of 
going beyond this fraud and deception and preventing 
exploitation of ignorance--and I have given out the quote--four 
pages of it because it is very much in context.
    I thank you.
    Chairman Neugebauer. Thank you.
    Now, the gentleman from Florida, Mr. Posey, is recognized 
for 30 seconds.
    Mr. Posey. Thank you very much, Mr. Chairman.
    Mr. Cordray, I hope in your comments, you will address 
Judicial Watch and other public interest organizations that 
investigate and prosecute government corruption, address their 
issues--one thing, such as, let us know why an Associate 
Director of Consumer Education needs to make $251,288 a year 
for the entry-level position.
    Also many of us believe, unlike some on the other side, 
that the only way we are going to stop the crisis and 
corruption and the crony capitalism that we have seen in the 
past and we see going on now is to hold somebody accountable, 
and that means prosecute somebody for their bad deeds, which 
the Justice Department, obviously, has not seen fit to do, at 
least not yet, and I would like to know what your specific 
plans are.
    And if you think, maybe you can even get help from the 
Justice Department that other agencies apparently can't, to 
bring some of these criminals to justice. I think most of us on 
both sides of this aisle want to see done. Thank you.
    Chairman Neugebauer. I thank the gentleman.
    And now, Mr. Royce from California is recognized for 1\1/2\ 
minutes.
    Mr. Royce. Let me agree with Mr. Frank in terms of the 
observations made by Professor Hayek. But when we look at this 
situation, I think what Professor Hayek would also argue is 
that government intervention into regulation in order to 
achieve certain political ends could also create a problem.
    The problem that exists here is that we have sort of a 
bifurcated regulatory structure. At least in the opinion of 
many of us, what we have done with the CFPB is to dilute the 
power of the safety and soundness regulators in this situation.
    The concern we have is that it might morph into the type of 
situation we had with the bifurcated regulation when we had HUD 
on one side and NOFA on the other.
    The regulators wanted more power at that point in order 
to--they wanted it by statute so that they could better 
regulate safety and soundness. HUD, on the other hand, weighed 
in. And so, we ended up with the situation of the overleverage 
that existed with the GSEs of the zero down payment loans and 
so forth.
    Unless this power rests not with the products' regulator, 
but with the prudential safety and soundness regulator, it is 
much more likely that politics, government intervention will 
come into play and who knows, we could end up with the argument 
for the political allocation of credit.
    We could end up with the same kinds of assertions that were 
made over at HUD for zero down payment loans or for a 100 to 1 
leverage through the GSEs. Why? Because we are going to put 
everybody in a home and that was going to be everybody's right 
whether they could afford to pay for it or not.
    So what we are actually talking about is trying to get some 
balance back in this so that the prudential regulator can step 
in and prevent the type of thing that all of us saw happen 
before. And I just wanted to make that point.
    Chairman Neugebauer. I thank the gentleman. I would remind 
all Members that your opening statements will be made a part of 
the record.
    And now, we will hear from our one and only witness, Mr. 
Richard Cordray, Director of the Consumer Financial Protection 
Bureau. You are recognized for 5 minutes. Thank you.

   STATEMENT OF THE HONORABLE RICHARD CORDRAY, DIRECTOR, THE 
              CONSUMER FINANCIAL PROTECTION BUREAU

    Mr. Cordray. Thank you, Chairman Neugebauer, Ranking Member 
Capuano, members of the subcommittee, and those members of the 
full committee who are here, for the opportunity to testify on 
the budget of the Consumer Financial Protection Bureau.
    Before I became Director, I promised Members of Congress in 
both chambers and on both sides of the aisle that I would be 
accountable to you for how the Consumer Bureau carries out the 
laws you have enacted.
    I said that I would always welcome your thoughts about our 
work and I stand by that commitment today. This is the 14th 
time that we have testified before either the House or the 
Senate and my colleagues and I look forward to continuing to 
work with you to provide the kind of oversight that allows you 
to understand the work we are doing and helps us improve our 
performance.
    We are committed to fulfilling our statutory 
responsibilities and delivering value to American consumers. 
This means being accountable and using our resources wisely and 
carefully.
    As you know, the Consumer Bureau is funded through 
transfers from the Federal Reserve. Under the new law, the cap 
on those transfers for Fiscal Year 2011 was 10 percent of the 
Federal Reserve's 2009 operating expenses or $498 million.
    As this was our start-up year, we did not use all of our 
available funds. In fact, we only used $123 million, but we got 
under way and we continue to build toward a steady state that 
will allow us to accomplish the objectives set forth in the 
laws enacted by you, the Congress.
    The Government Accountability Office rendered an 
unqualified clean audit of our financial statements and an 
additional independent third-party audit found that the 
Consumer Bureau addressed all relevant budgeting requirements 
under Dodd-Frank.
    Because we are committed to transparency, we have posted 
our budget justification, our financial statements, the GAO 
audit, and the independent audit on our Web site at 
consumerfinance.gov. We invite you and your staff to look at 
these documents and we will be glad to answer any questions you 
may have about them.
    Now that we have completed our statutory transition period 
and have become a full-fledged independent agency with the 
legal responsibility to protect American consumers in the 
financial marketplace, our expenditures have naturally 
increased.
    As you can see in our budget justification, however, our 
budget estimates remain considerably below our budget cap at 
$356 million for 2012 and $448 million for 2013. At this time, 
we have no plans to ask Congress for any additional funds, as 
we are authorized to do by law.
    While our budget is small relative to the other banking 
agencies, our mission is critical. Our budget is a means to an 
important end: to make life better for American consumers. Much 
is at stake. Consumer finance is a big part of the American 
economy, and it bears heavily on all of our lives.
    Mortgages allow people to buy homes and spread the payments 
over many years. Student loans give young people with talent 
and ambition, as well as those who may not be so young, access 
to an education. Credit cards are a convenient means of 
accessing money to make purchases.
    Products like these undeniably help people achieve their 
dreams. But as we have seen in recent years, they also can 
create dangers and pitfalls if they are misused or 
misunderstood. In State and local government, I was deeply 
engaged in consumer finance issues. I saw good people 
struggling with debt they could not afford. Sometimes, people 
made bad decisions. Sometimes, an unexpected event, like a 
loved one getting sick or a family member losing a job, can 
overwhelm even the most careful planning.
    Still other times, unscrupulous businesses obscured the 
terms of loans or engaged in outright fraud, harming 
unsuspecting consumers and even ruining lives and devastating 
communities. I am sure each of you hears every day from your 
family, friends, neighbors, and constituents who have these 
kinds of stories to tell. They are not looking for special 
favors. They just want a fair shake, and a chance to get back 
on track toward achieving the American Dream.
    They deserve a consumer financial system that actually 
works for consumers. Accomplishing our mission will take time. 
But we are already taking important steps to improve the lives 
of consumers.
    One of our main objectives is to make sure the costs and 
risks of financial products are clear. People make their own 
decisions, and nobody can or should try to do that for them. 
But it is the American way for responsible businesses to be 
straightforward and upfront with their customers, giving them 
all the information they need to make informed decisions. That 
is good for honest businesses and it is good for the overall 
economy.
    So another key objective is making sure banks and nonbanks 
get the evenhanded oversight needed to promote a fair 
marketplace. Our supervisors are going on-site to examine their 
books, ask tough questions, and fix problems we uncover.
    The Consumer Bureau will also make clear that violating the 
law has consequences. We will use all the tools available in 
our effort to ensure everyone follows the rules of the road. 
Where we can cooperate with financial institutions to do that, 
we will. When necessary, we will not hesitate to use 
enforcement actions to uphold the law and right a wrong.
    We are listening closely to consumers and the businesses 
that serve them. We are holding events throughout the country. 
We have been to Philadelphia, Minneapolis, Cleveland, and 
Birmingham. Next week, we are going to be in New York City. We 
hope you will join us at these kinds of events as we come to 
your communities.
    Thank you, Mr. Chairman. I look forward to your questions.
    [The prepared statement of Mr. Cordray can be found on page 
48 of the appendix.]
    Chairman Neugebauer. Thank you, Mr. Cordray. Your full 
written statement will be made a part of the record, and we 
appreciate that you stayed within the 5 minutes.
    We will now have the question-and-answer period for 
Members. I recognize myself for 5 minutes.
    Mr. Cordray, I have been looking through some of the 
requests that you made for advances from the Fed and up on the 
screen and I know it may be hard for Members to see, but it is 
one that was, I think, sent on September 28, 2011, and it 
requests $94,281,564 be transferred and I guess that would be 
for operations for the first quarter of 2012.
    I was just kind of surprised that you can get $94,281,564 
with just a one-page letter. There was no back-up as it was 
sent with that.
    And that is evidently not an estimated number. If I was 
going to get an advance on my budget, I would just say, ``Well, 
send me $94 billion or $94 million.'' Don't you think that when 
you are going to be submitting for these kinds of funds, 
transfers, that there ought to be more documentation than just 
writing a letter?
    Mr. Cordray. Thank you, Mr. Chairman. The process that we 
have is that the Fed--a portion of its budget, a dedicated 
portion that Congress set by law is available to us for 
expenditures and our budgeting purposes.
    There are considerable controls around our budgeting 
process. As noted, we are subject to two outside audits: the 
GAO audit; and we also have an independent audit that you all 
put in to the law that is special to our Bureau, different from 
the other banking agencies.
    We are, of course, subject to congressional oversight. And 
one of the things that I would say is that I believe that the 
oversight that you all are exercising over us is meaningful. It 
is significant--the notion that, as was suggested earlier, we 
would spend $100 million on paperclips.
    And it would matter that we can be brought up here in front 
of you and have to answer for that publicly and embarrass 
ourselves if it turns out we were engaged in frivolous 
expenditures. That is a very meaningful oversight, I believe.
    We also have just put out our budget justification. We have 
put it out for last year. We just put it out for the next year. 
That is on our Web site. All of these materials I have 
described are on our Web site.
    We are also putting out quarterly reports on our 
expenditures on our Web site which is something that the other 
agencies do not do. That is above and beyond for us. So I think 
there is considerable explanation and analysis of what our 
budget is. And I think the Federal Reserve folks have total 
access to all of that as well.
    Chairman Neugebauer. I just would think--when I was in the 
private sector and I asked for an advance, I had to provide 
documentation. I want to go back to--I am glad you mentioned 
your budget justification plan. We did go online and I believe 
this is your--this is a 12-page budget justification plan. Do 
you recognize this? Is that your budget justification?
    Mr. Cordray. Yes. It is from our document.
    Chairman Neugebauer. Yes. So, then we have looked at, for 
example, the CFTC and some of the other agencies, and this is 
the kind of document that they generate for their budget 
justification.
    I think when you are spending that amount of money--while 
you mentioned that those amounts are small relative to other 
agencies, they are still significant amounts of money. And so, 
when I look at what you are producing and what other agencies 
have to produce, it appears to me that you all could use a 
little beefing-up in your budget plan and performance because 
you are hiring a lot of people. You are spending a lot of 
money.
    And it would be hard to measure the performance of your 
agency from a document like this, and I would think it would be 
hard for you, as the Director, to hold accountable these 
various groups if they haven't submitted to you some kind of a 
justification of what they are going to be doing with the money 
that they are asking you to request from the Fed.
    Would you agree that is an area where we should move in and 
get a little clearer plan; because, basically, you all have 
hired nearly 800 people and have requested several hundred 
million dollars? And when we requested from you a plan, you 
said, ``We are developing a plan.'' Generally, everybody else 
has to develop a plan and then they get that plan funded. Would 
you agree that you are behind the curve on that?
    Mr. Cordray. Mr. Chairman, I would agree that the general 
commentary you are providing is a fair concern. Understand 
again, that we are a start-up agency. Our budget justification 
provided last year was nine pages. We were brand new. We had 
just a few handfuls of employees at that time.
    The budget justification we just provided is much more 
fulsome. I think it runs 25 to 28 pages. It is not yet what we 
want it to be and what it will be in future years. So I think 
your comment is well taken. We are going to continue to provide 
more detail, more specificity. But I would refer again--the 
Government Accountability Office did audit our operations and 
they gave us a clean financial audit, and they found that we 
were appropriately handling and documenting our finances, but a 
problem may be in part with the fact that we were new.
    They will continue to audit us every year and render 
opinions on that. We have a separate independent outside audit 
that Congress provided for us, I think to make sure that we 
would be highly accountable. That also was a good audit. But I 
think there is more we can provide, and more we intend to 
provide. We will continue to ramp that up. And I would be glad 
to remain in contact with you as we go forward to see if as we 
develop more detail, we are meeting your expectations.
    Chairman Neugebauer. Just one follow-up--I am over my time. 
But would it be possible and appropriate, in say, 48 hours 
prior to requesting one of these advances, that you publish the 
request for advance and the backup for that? If you are, as you 
said, for transparency and accountability, would you think that 
would be a fair thing to do?
    Mr. Cordray. We will give that some thought. I think the 
key is that--the important thing is what are we spending and 
why; and we provide that in the budget justification. We 
provide it in the quarterly expenditure reports that we are 
posting on our Web site which also are becoming more fulsome.
    The actual letter you are referring to is merely a matter 
of the transfer of funds. That is sort of a ministerial act. 
The important thing is the kind of oversight that we are 
providing in our budget justification, in the audits that are 
being done of us, and the like.
    So we will be glad to go back and consider the point you 
have raised. But I think the mere transfer of funds itself is 
less to the point than the justification for our budget, the 
audits that are being done both forward- and backward-looking 
of our operations. But we will be glad to consider that.
    Chairman Neugebauer. I just want to conclude by saying that 
I think either we are going to have to beef up the budget 
justification and performance, or we are going to need more 
detail on the advances; because this is still--you have doubled 
it from 13 to 25--and it is still, I think, woefully 
inadequate.
    With that, I recognize the ranking member of the 
subcommittee.
    Mr. Capuano. Thank you, Mr. Chairman.
    Thank you, Mr. Director.
    Mr. Director, the statute that created you, is that the 
statute that has capped the amount of money that you can spend?
    Mr. Cordray. That is correct.
    Mr. Capuano. And as I understood, it doesn't matter what 
the amount is at this point in time. But am I correct in 
believing that at no time, have you even come close to reaching 
that cap?
    Mr. Cordray. That is correct. We are in a start-up phase as 
I said, although we are building and moving forward.
    Mr. Capuano. But up until now, you have--the last I heard, 
you are about $150 million below the cap which is, give or 
take, 20 percent, maybe more?
    Mr. Cordray. We remain considerably below the cap. Yes, 
sir.
    Mr. Capuano. Are there any other agencies that you know of 
that are equivalent to you that are capped by statute as to how 
much they can spend?
    Mr. Cordray. I know that there are none.
    Mr. Capuano. There are none?
    Mr. Cordray. Correct.
    Mr. Capuano. You are the only one. So, we don't do direct 
budgeting, but we allowed you to get off budget, which I think 
is a good thing, but we still kept some control over it. We can 
always go back tomorrow, change that statutory authorization, 
and make it any number we choose. Is that correct?
    Mr. Cordray. The Congress ultimately controls that. And 
yes, they require us to live within a specified budget.
    Mr. Capuano. In these audits and oversight via the Fed, 
Inspectors General (IGs) or whatever, have there has been any 
significant findings of deficiencies?
    Mr. Cordray. There have not. As I said, both of those were 
clean audits. We were pleased with that. As I said, we are in a 
start-up phase, and you are always a little concerned as you 
are getting your operations going and getting them organized.
    But there are things, in the give and take of that, that we 
learned from them that are improving our operations. We listen 
very, very closely and take very seriously every audit and team 
of auditors that is working with our agency. The same is true 
of the Inspector General.
    We were under two Inspectors General last year, both the 
Treasury and the Federal Reserve. Going forward, we will be 
subject to the Fed's IG. We have begun having discussions with 
them to make sure we understand their interests, their 
concerns, and that we are providing them with the kind--
    Mr. Capuano. So if we had a hearing tomorrow with your 
auditors and the other two IGs who will be seeing you and asked 
them if there were material deficiencies in your activities or 
your reporting, you would expect them to say no?
    Mr. Cordray. That is as far as I know and as far as we are 
aware. Yes, sir.
    Mr. Capuano. Thank you. Honestly, I was listening to the 
chairman's questions, and paper work for a justification is all 
well and good, but the truth is I don't judge most agencies by 
what they say they want to do. I judge them by what they do, 
the EPA included.
    I have actually voted to cut some EPA funding in the past 
because I don't like some of the things they have done. I like 
most of what they do but not everything, and I expect the day 
will come when I won't like everything you do either and we 
will have that discussion when the time comes.
    At the same time, I think that I am looking forward, as I 
said earlier, I understand that you are in a start-up phase and 
there is really not a whole lot of substance I can ask you at 
this point in time; but this subcommittee spent a lot of time 
this year, and I think rightfully so, on trying to check out 
the MF Global situation.
    I understand that you don't have any authority over that 
situation, but you have no authority over credit unions or 
community banks with less than $10 billion, and I respect that. 
I understand that. I wouldn't expect you to do everything 
overnight, and maybe someday we will revisit all of that, but 
you have to start someplace.
    At the same time, my hope is that your agency is keeping an 
eye on these things, and I am wondering if you are, and if you 
will have either done it or plan on making any comments or 
suggestions either to the appropriate regulatory agencies or to 
this Congress as to some things that you might find in any of 
the areas that you may not have specific authority to act.
    And again, I am not suggesting you broaden your authority, 
but you are the one who is out there dealing with consumers and 
understanding how it all goes together. I would hope that if 
you see things in areas you don't have authority on, that you 
would be proactive in reaching out to other regulators or to 
this committee to make those suggestions.
    I guess I am just wondering, are you keeping an eye as best 
you can, knowing you are in a start-up, knowing your hands are 
full with what you have? I am hoping you are paying at least 
some attention to things you don't have any specific authority 
over. Is that a fair question?
    Mr. Cordray. Thank you, Congressman. I appreciate that 
perspective, and we will take it to heart. We are focused 
primarily and almost exclusively, and certainly we should be, 
on doing our job, the job that Congress has provided for us 
implementing and following the law that we operate under. That 
is what any Federal agency should be doing.
    We also, by law--I sit on the Financial Stability Oversight 
Council. I sit on the FFIEC. These are bodies that were created 
in part to make sure that there is coordination among the 
Federal financial regulators, and that they do share 
perspective with one another.
    I have found those meetings already to be useful and of 
interest to our work, and I think we bring a consumer 
perspective that may help inform the work that others are 
doing. The same is true of the FDIC Board--the law placed us on 
that Board, myself as well as the Comptroller of the Currency, 
to bring our distinct perspectives to that work.
    That, I think, is useful. I think more collaboration by us 
with the other financial regulators is good for them. It is 
good for us. It is good for the American economy. It is good 
for the people we serve. But again, virtually entirely, our 
focus is on the jobs we have ahead of us, the big jobs, the 
important jobs that matter to the public that we both serve.
    Mr. Capuano. My time has expired, but I do want to make one 
last comment on that last point. I think that is great and I 
think that is exactly what you should be doing. But as you are 
getting started, remember that Congress wrote this law kind of 
going forward, too. We didn't necessarily know everything that 
was going to come out of this.
    And as a strong proponent and supporter of the concept, if 
we miss something that we should have given you authority over, 
I would certainly like to know about it.
    The whole reason I supported the creation of this agency is 
that there were too many agencies doing their own little work 
in their own little silo, and too many things that fell in 
between the silos. And for me, I am hoping that doesn't happen 
again ever. People can disagree on what to do about things, but 
at least if we know about them, we can have a debate and 
discussion if we want to do something and, therefore, what to 
do.
    So I am hoping that as you go forward, if you see areas 
particularly that may fall out of your purview that maybe 
should be in your purview, if not you or someone else, that you 
let us know. I certainly don't want to be back in the same 
situation we were in 2008 when everybody was pointing at 
everybody else saying it wasn't me, it was the other guy. And 
that is the whole idea in my mind as to why we created the 
agency in the first place. Thank you, Mr. Director.
    Chairman Neugebauer. I thank the gentleman.
    And now, the vice chairman of the subcommittee, Mr. 
Fitzpatrick, is recognized for 5 minutes.
    Mr. Fitzpatrick. Thank you, Mr. Chairman.
    Mr. Cordray, in your November letter last year, this 
committee asked the CFPB to explain its spending plan for the 
rest of Fiscal Year 2012 because we simply can't do oversight 
by looking through the rearview mirror.
    On behalf of the Bureau, Raj Date refused to provide this 
plan until the President released his budget on the grounds 
that OMB policy bars the advance release of information that 
would be included in the President's upcoming budget
    Mr. Date wrote, and this is a quote: ``We will be happy to 
provide you with this update budget information for Fiscal Year 
2012 at the appropriate time.''
    I have two issues with this. First, I don't see how OMB 
policy can be a bar to the Bureau providing its current year 
spending plan to the Congress. Dodd-Frank specifically exempts 
the Bureau from any requirement that it seek OMB approval for 
its budget, so I don't see that as an objection.
    And the second issue is that the Bureau's promised spending 
plan for Fiscal Year 2012 is so limited as to be frankly almost 
useless. For example, on page 9, there is a table that 
identified something called ``other services'' for $130 million 
with no further explanation. On one other page dedicated to 
providing a justification, 400 employees--no further 
information on a single page.
    We need more than what has been provided currently in order 
for us to do our due diligence. In contrast, we have a detailed 
Treasury spending plan which gives us information on every 
dollar spent and every new hire accomplished. This is the kind 
of information that we are looking for.
    You pledged to ensure transparency at the Bureau, and given 
that pledge, I would like to ask you to make two commitments to 
us today.
    First, can you commit to providing Congress with a better 
forward-looking spending plan for the current fiscal year, can 
you do that now?
    Mr. Cordray. Thank you, Congressman. On that point, one of 
the things that I wanted to point out is when this committee 
had that exchange with Deputy Director Date of the Bureau, we 
were, at that time without a Director, and therefore, we were 
part of Treasury by law. And so, we were subject to all of the 
same constraints that Treasury, as a Cabinet Department, has, 
including the OMB requirements that you note.
    Now, we have a Director, we are an independent agency; we 
are not part of Treasury. It is a different situation for us 
and so we will consider going forward what is the appropriate 
way to handle that situation and perhaps we can be more 
forward-leaning then we were able to be, again, because we were 
legally required to adhere to the President's budget process at 
that time.
    One of the things that we are doing, as I have noted, and 
this is something that the other agencies do not do, the 
appropriating agencies come up to you when they are 
appropriated on an annual basis--each quarter, we are posting 
on our Web site detail about our expenditures for that quarter.
    We are trying to get those up within 30 to 45 days of the 
end of the quarter, and so there is going to be considerable 
information during the year prior coming back to you with that 
process but, look, we are actively considering how we can 
provide more detail, provide it sooner, and frankly satisfy 
what I think are legitimate requests you all have to know what 
we are doing, to know what we are spending, to know why we are 
spending it, and to know that it is consistent with our 
mission, which is the laws that Congress has enacted that we 
are carrying out.
    And so, I think that is a fair line of questioning and 
something that we will attentive to.
    Mr. Fitzpatrick. So for the current fiscal year, can we get 
updated spending projections?
    Mr. Cordray. We have already posted for the first quarter, 
which was the quarter from October 1st to December 31st. That 
is on our Web site. As the second quarter concludes, we will be 
posting. And so, we will be posting all along.
    We have just provided the budget justification, which I 
think was the advance information you all were looking for. We 
did post that on our Web site on Monday, and I know your staffs 
have had access to it, and I believe have been reviewing it. It 
is, as I have said to the chairman, more fulsome disclosure 
than we were able to provide in our first year. It is not as 
full a disclosure as I expect we will be able to provide next 
year.
    We are working towards that and we want it to be 
satisfactory to you and your colleagues.
    Mr. Fitzpatrick. And so, Mr. Cordray, our point--and we 
appreciate these quarterly postings, but they are looking back. 
I am talking about looking forward in the current fiscal year.
    Can you provide that update?
    Mr. Cordray. Yes, we have just provided the budget 
justification for the coming year, and as I have said in the 
exchange with the chairman, although it is more than we were 
able to provide in our first year, it is not yet what we will 
be able to provide next year. It will get fuller. And that is 
the forward-looking justification that I think you are looking 
for.
    Mr. Fitzpatrick. So then on October 1, 2012, which is of 
course the first day of the new fiscal year can we expect a 
revised and updated spending plan?
    Mr. Cordray. Let me say this: I would like to know in more 
detail exactly what you are looking for and when. I would be 
glad to have my staff work with your staff to see if we can 
reach a satisfactory conclusion of that issue.
    Mr. Fitzpatrick. I am sure we can discuss the detail of 
what we are looking for, but essentially, more than one line 
listing ``other services'' for $130 million.
    Mr. Cordray. There is more than that on our Web site about 
our contract services, much of which is going to Treasury, 
because we are building off their IT and HR systems but, yes, 
sir, we will be glad to direct your staff to that so they know 
what is available.
    Mr. Fitzpatrick. Thank you, sir.
    Chairman Neugebauer. Thank you.
    And now, Mr. Lynch is recognized for 5 minutes.
    Mr. Lynch. Thank you, Mr. Chairman, and I appreciate that.
    Thank you, Mr. Cordray, for appearing before the committee 
and helping us with our work. Rather than ask a direct 
question, I just want to push back a little bit on this 
assumption that the funding of the Consumer Financial 
Protection Bureau is somehow diverting money from the Federal 
Reserve.
    I just want to point out that in contrast to the scrutiny 
that we are giving this agency that is assigned to protect 
consumers, the Fed has done oftentimes without the approval of 
Congress and without any oversight hearings.
    I want to point out that since 2008, the Fed has diverted, 
really diverted $868 billion to Barclays, that is a British 
bank, without any hearing, without any oversight on our part. 
It has diverted $541 billion to the Royal Bank of Scotland, 
again, a foreign bank. And think about this, this is funding 
that is supported basically by the good faith and credit of the 
United States Government but backed up by the United States 
taxpayer.
    The Federal Reserve actually did divert $354 billion to 
Deutsche Bank, a German bank, a foreign bank. I don't know how 
the United States taxpayer gets to do that but we never had a 
hearing on the real diversion of the reserve funding to a 
foreign bank in Deutsche Bank; UBSAG--that is a Swiss bank--
$287 billion.
    Did we have a hearing on that like we are having a hearing 
on this--10 percent or 12 percent of the Fed's operating budget 
to protect consumers in this country who actually support that 
system? We never had a hearing on that.
    I am trying to point out the disingenuousness of these 
proceedings to go after Mr. Cordray, who is charged with the 
responsibility of protecting consumers. I will go on. Credit 
Suisse--we had the Fed divert $262 billion to Credit Suisse, a 
Swiss bank; the Bank of Scotland, $181 billion. The Federal 
Reserve diverted U.S. taxpayer money to them. BNP Paribas, a 
French bank, along with Society Generale, also in France--$125 
billion for them; and Paribas, $175 billion. Dexia, a Belgian 
bank--$159 billion diverted from the Federal Reserve Bank.
    Do you think we had a hearing on any of these banks? The 
silence in this room is deafening. We never had a hearing, on a 
total of $3 trillion that the Federal Reserve diverted to 
foreign banks.
    Did this committee ever have a hearing on that to 
scrutinize where every single dollar is going? Zero, silence, 
nada, but here we have an agency that is set up to protect the 
American taxpayer, to protect the American consumer, and my 
colleagues across the aisle are going over every single line to 
make sure where the money is going, but the $3 trillion that 
the Federal Reserve gave to the foreign banks, silence.
    And so, I just want to point out the absurdity and the 
disingenuousness of this process to go after Mr. Cordray, who 
alone is assigned within that Federal Reserve Bank--is assigned 
to watch out for the consumers.
    I thank the gentleman for his time and I yield back.
    Mr. Neugebauer. I thank the gentleman.
    And now, Mr. Renacci is recognized for 5 minutes.
    Mr. Renacci. Thank you, Mr. Chairman.
    And I want to welcome my fellow Buckeye, Mr. Cordray, to 
this hearing. Thank you for being here.
    You have said several times in your testimony that you--and 
by the way, I want to go back to the purpose of the hearing. 
The hearing will be to examine your budget, and so, I am going 
to try and stay within that realm.
    You said you would be accountable to us and the American 
people in your opening statement. One of my colleagues on the 
other side said the statute allowed dollars to be spent and you 
are below the cap. I applaud you for that, but it doesn't 
justify you spending those dollars unwisely or inappropriately, 
would you agree?
    Mr. Cordray. I agree.
    Mr. Renacci. Audits, you said you have audits and the 
audits have come through and said that you are spending dollars 
appropriately and handling your expenditures appropriately but 
you would also agree that audits, outside auditors do not 
confirm that expenditures are justifiable, reasonable, it 
compares in other possible options, is that correct?
    Mr. Cordray. I think that is probably right. You have more 
of a background in accounting than I do, I am aware. There is a 
different issue I supposed, which is--but I think the GAO tried 
to assess this, which is, ``What are our objectives that the 
statute provides? What is the job that Congress has told us we 
have to do? Are expenditures appropriate to doing that job 
rather than doing something else that isn't our job?''
    And I think what they have said is that we are spending 
appropriately in light of our mission, and I think that is an 
important indicator of our responsibility.
    Mr. Renacci. Thank you and not to--but I do think as a CPA, 
as someone who has done audits, that they are probably making 
sure that you are justified in spending within the purpose but 
they are not justifying and that is what this is really about, 
to talk about your expenditures.
    Mr. Cordray. Yes.
    Mr. Renacci. You said in doing your job--does your job 
include appropriately spending your dollars? So you talked 
about what your job is; it is to take those dollars and spend 
them appropriately for the taxpayers.
    Mr. Cordray. It is and again our budget relative to that of 
the other Federal bank regulatory agencies, ours is smaller, 
and so, we have to be careful about how we are allocating our 
limited resources. And we are trying to do that, yes, sir.
    Mr. Renacci. Thank you. So, I am just going to get down to 
a specific concern--one concern I have. Now, it relates to what 
some of my colleagues have also asked, too. Earlier, in 2011, 
the chairman asked the CFPB to give us information related to 
the construction or rehabilitation of its new headquarters.
    At that time, the CFPB refused to give us the information. 
Can you give me a reason why it was not presented to the 
committee?
    Mr. Cordray. I don't know that--I am not aware that we 
refused to give information. I would say that at that time--and 
it still remains true to some degree--the facility's solutions 
for the Bureau's needs were rather unsettled.
    We had been working to try to obtain a lease on a 
particular building. It is the former Office of Thrift 
Supervision building where we could consolidate our employees 
who currently are spread out at several sites because it is 
just difficult when you are a start-up agency.
    This does not involve the construction of any building but 
would potentially involve the renovation of a building that is 
about 40 years old now. And as I understand it, unfortunately, 
some of the electrical and mechanical systems in the building 
have kind of reached their natural life span, and there are 
some code issues of bringing the building up to code.
    So there is some work that will need to be done and we are 
also going to double the prior density of that building to try 
to make it more efficient. It is a work in progress for us, and 
it is a source of some frustration to us and it will be 
probably for the next couple of years.
    Mr. Renacci. It looks like in the President's budget, there 
is $15 million to be spent in 2012, and $40 million in Fiscal 
Year 2013 for land and structures. Will you commit to getting 
us the details of what the $55 million is going to be spent on 
so there is transparency to the American people and to 
Congress?
    Mr. Cordray. Yes, Congressman. I think that is a very fair 
request. We will do that. That is not yet in focus. We do not 
yet have contracts for that. As I said, we are still working to 
procure a lease. We hope to have more progress on that soon. We 
will be glad to update your staff regularly on how that is 
going to make sure that we are acting responsibly.
    Mr. Renacci. Thank you. I would like to also follow up on 
another issue that is a little off topic but I believe is still 
in line with overall transparency. It might provide you an 
opportunity to give an example of how the Bureau is operating.
    Back in November when Raj Date testified before this 
subcommittee, I asked him whether the CFPB intends to provide 
guidance to States seeking to enact transitional licensing laws 
under the SAFE Act.
    Mr. Date seemed to appreciate the issue but was unable to 
answer whether the Bureau would provide guidance. In our home 
State of Ohio, I understand the Senate may soon take up 
legislation that would permit State bank regulators to issue 
transitional licensing.
    Can you please tell me whether States like Ohio should 
expect to hear from the CFPB on whether their efforts will be 
in compliance with the SAFE Act? And if so, what is your timing 
for providing the guidance?
    Mr. Cordray. It is a good question, Congressman. And it is 
something that we are focused on as one of the issues we have 
inherited from other agencies. As I understand it, we are 
working closely with the State regulators and, in some cases, 
as you note, there are State legislatures which are potentially 
active in this area.
    We are glad to consult with them at any time as to whether 
proposed legislation would be in compliance with the SAFE Act. 
That is the purpose of their legislating; they obviously need 
and want to know that. So, I know we have had extensive 
consultation with the States.
    We have now signed a memorandum of understanding with, I 
believe, 46 or 48 of these 50 State banking superintendents and 
regulators who often are overseeing this type of licensing as 
well.
    So if people want to be in touch with us, if you want to 
put constituents in touch with us or legislators to talk back 
and forth about what they are trying to do and whether we are 
going to have some difficulty that they wouldn't want to know 
about later, they would rather know about it now, we are happy 
to do that.
    Mr. Renacci. Thank you, Mr. Cordray.
    I yield back.
    Chairman Neugebauer. I thank the gentleman.
    And now, Ms. Waters is recognized for 5 minutes.
    Ms. Waters. Thank you very much, Mr. Chairman.
    I would first like to thank Director Cordray for being here 
today and tell him how pleased we are that the President took 
the necessary action to fill the vacancy.
    I was a member of the conference committee that established 
the CFPB. And I think it is one of the most important actions 
this Congress has taken in many years and certainly the most 
important action to give some protection to our consumers.
    And so, despite the fact that there are those who have 
tried to interfere with the establishment of this Bureau, I 
want you to know that you have a lot of friends, a lot of 
support not only in this committee and on this side of the 
aisle, but I was at a huge public meeting this past weekend 
where I did a public thank you to the President about your 
appointment and got a standing ovation with people yelling out 
all kinds of things about credit cards and payday loans and 
operations, etc.
    So I am just awfully pleased that you are here. Mr. 
Cordray, I have spent a lot of time learning about servicers. 
As a matter of fact, I went so far as to get the permission of 
some of my constituents who had problems trying to get loan 
modifications to allow me to interact with servicers.
    And during that time, a couple of television stations 
followed my actions in trying to get to a servicer where I 
spent hours being sent on a menu to all kinds of places in one 
of the banks trying to locate the servicer. It took hours and I 
learned a lot.
    I have learned, number one, that many of our constituents 
can reach a servicer and I don't understand how this loss 
mitigation operations are in the banks. They operate in all 
kinds of different ways. In addition, the lost paperwork, the 
over requirements of seniors who were trying to straighten out 
fraud that has taken place, all of this.
    We desperately need you to look at and do something about 
the servicers. Having said all of that, I have a couple of 
pieces of legislation I would like you to take a look at, as it 
relates to servicers. H.R. 1567 is a servicer's reform piece of 
legislation dealing with loss mitigation and single point-of-
contact.
    And talking about a dedicated 1-800 number and, of course, 
I have H.R. 3841 talking about principal reduction. With all 
that you have to do, if you can get a handle on how we regulate 
servicers, how we can create some kind of consistency in how 
they operate so that constituents would know, number one, how 
to get to them and what to expect of them, it would be the 
greatest thing we could do for consumers.
    So I have no questions for you. All that I have for you is 
to say, God bless you. We are so glad that you are here. Your 
work is not going to be easy. There are going to be those who 
are going to picket you and try and talk about your budget and 
try to manage your budget, all of that.
    But I hope that you don't get disgusted with all of this, 
that you will stick with it. It requires some fighting and some 
of us are fighters and we are prepared to fight with you 
because we think that your job is just so extremely important. 
So, welcome, welcome, welcome.
    Chairman Neugebauer. I thank the gentlewoman.
    And now, the gentleman from New Mexico, Mr. Pearce, is 
recognized for 5 minutes.
    Mr. Pearce. Thank you, Mr. Chairman.
    And thanks, Mr. Cordray, for your service, and for being 
here today. I noticed that although you reported a clean audit, 
there were deficiencies. What were the deficiencies?
    Mr. Cordray. There were a number of things as--
    Mr. Pearce. Give us the highlights.
    Mr. Cordray. --come up in any audit where there are 
suggestions for improvement. And, again, that was an audit that 
was done on the Bureau at the very preliminary stage. As I say, 
it was a clean audit but every auditor worth their salt, when 
you look at your operations carefully, they are going to have 
suggestions. They are going to have proposals.
    And if the agency is worth its salt, it will listen 
carefully to those proposals and look to implement--
    Mr. Pearce. Anything to do with internal controls?
    Mr. Cordray. They found that our internal controls were 
appropriate at that time. But I think that my personal view 
is--and we are hard at work on this--that there is much more we 
can and should do in order for me to have confidence that the 
Bureau is both spending money appropriately, which I believe we 
are, but we want more controls on that, and also that we are 
following through on the policies that we have adopted to make 
sure that we are living those policies day in and day out.
    Mr. Pearce. Hold on just a second. Excuse me. I noticed the 
second audit that came from ASR Analytics. On page one, they 
note that some members have ongoing efforts to achieve minimum 
hours of continuing professional education that directly 
relates to government auditing.
    So somebody in the agency hired an audit firm that did not 
have the required internal expertise. Who made that decision?
    Mr. Cordray. I would have a different vantage point on 
that. This was--
    Mr. Pearce. I just want to know who made the decision to 
hire this firm. I can read the report where they say they don't 
have the background. So I don't care about someone's 
interpretation. Who made the decision?
    Mr. Cordray. Okay. I think they have a considerable 
background but I would be glad to--
    Mr. Pearce. No. Sir, if you would just tell me who made the 
decision.
    Mr. Cordray. Yes.
    Mr. Pearce. We will have our differences of whether they do 
or not.
    Mr. Cordray. Sure.
    Mr. Pearce. They are the ones who point out they don't have 
the expertise.
    Mr. Cordray. Yes.
    Mr. Pearce. So, who made the decision?
    Mr. Cordray. They have expertise. But that was done before 
I was Director--
    Mr. Pearce. Would you mind answering the question, sir? 
Just who made the decision? There ought to be a name or a 
position. I don't care which.
    Mr. Cordray. I don't know offhand. That was before I was--
    Mr. Pearce. If you would give me the information on who did 
that, I would really appreciate it. Did you as Director kind of 
find fault with--was there no one in the auditing community in 
the whole Nation with expertise? Did you come back and find 
fault with this or you did not?
    You are just getting your feet on the ground. There are a 
lot of great concerns. Wouldn't you want to check the box that 
said yes, they are qualified, and everybody who comes out here 
has the background, wouldn't you want that to kind of reassure 
people that you are taking troubled waters and you are 
beginning to calm them down?
    Mr. Cordray. Shall I answer? That firm is a very qualified 
firm, that some of their folks are keeping up with their 
continuing education requirements is one thing. But we will 
look again at your request at the firm we will use in the next 
year.
    That was a competitive process and I think it was an 
appropriate process. No one to date, until your question, has 
found any fault with that. But we will be glad to look at it 
and I will get the answer to your staff that you asked of me.
    Mr. Pearce. Thank you.
    On page 16 of the GAO--that is actually page 21 of the GAO 
report--but on page 16 of your pages, it talks about how the 
people that you supervise have larger participation in nonbank 
supervision, especially as it relates to Federal consumer 
financial protection laws compliant with that. So explain to me 
what kind of nonbank groups that you supervise.
    Mr. Cordray. Sure. Congress specified in the law certain 
nonbank--first of all, Congress specified in the law that we 
should regulate financial products and services in the 
marketplace without regard to whether it is a bank or a 
nonbank, recognizing that in a lot of these markets, there are 
nonbank participants who compete directly with banks, but they 
are not subject to the same regulation. So you are regulating 
part of the market and leaving part of the market unregulated. 
That is not a formula that works.
    So Congress specified us to be overseeing nonbank 
participants in the mortgage market which can be mortgage 
originators, mortgage brokers, mortgage servicers. They also 
specified that we would oversee payday lenders. And Congress 
specified that we would oversee private student lenders.
    Mr. Pearce. Do you have anything to do with Fannie Mae and 
Freddie Mac, do you have any oversight?
    Mr. Cordray. That is a good question to the extent that 
they would be servicers. We could have oversight over them, 
yes. Other than that, many other financial industries not 
specified by Congress in which Congress said to us, ``You 
should oversee them as well, but you should first identify who 
are the larger participants in those industries and those are 
the ones that will be subject to direct supervision by you.''
    So that can be other fields such as debt collection, check 
cashing, debt relief and settlement, credit reporting, and a 
number of others.
    But that is something that we have to do by rule. We are in 
the process of getting under way with that. We didn't have any 
of that authority until we had a Director in place. It is 
fairly early days for us.
    The other thing I wanted to mention, sir, and it is 
probably near to your heart, is our Office of Servicemember 
Affairs, which has been working aggressively to bring attention 
to the kinds of financial exploitation of servicemembers, often 
when they are on active duty which is inexcusable--foreclosures 
that were inappropriate on servicemembers, interest rates that 
exceeded the Military Lending Act requirements, and other 
problems.
    Ms. Holly Petraeus has been hard at work on those issues 
and I think is doing a terrific job of bringing those to the 
attention of the Congress and the public at large and other 
regulators, as well as things we can do directly.
    Mr. Pearce. Thank you. It is near and dear to my heart. And 
I hope that you will push that. Also, financial exploitation of 
hog farmers is pretty near and dear to my heart. And so, I hope 
that you will go back and ask the other regulatory agencies 
why--ask the Justice Department why they have never had an 
interview on MF Global. That is near and dear to a lot of 
farmers across the entire United States.
    But I thank you, Mr. Chairman, and I yield back.
    Chairman Neugebauer. I thank the gentleman.
    Now, Mr. Miller is recognized for 5 minutes.
    Mr. Miller of North Carolina. Thank you, Mr. Chairman.
    CFPB is hardly alone in having a dedicated source of 
funding, in fact, all the financial regulators appear to have a 
very similar budget process with a dedicated source of funding 
and then require justification.
    Mr. Cordray, have you had the chance to review the OCC's 
Fiscal Year 2013 budget justification?
    Mr. Cordray. I have not had the opportunity to do that in 
detail. I am generally familiar with the broader outlines of 
their budget.
    Mr. Miller of North Carolina. That document and your budget 
justification were strikingly similar in how they are 
organized. And their budget justification for more than a 
billion dollars in spending is 23 pages long, including the 
cover sheet, and the title and the table of contents. Whereas 
yours, to justify $448 million, less than half of that amount, 
is 25 pages long, including the cover sheet and the table of 
contents. Have you heard any complaints about the lack of 
completeness in the OCC's budget justification?
    Mr. Cordray. I have not heard any to this point. I am not 
sure they would be directed at me, but I have not heard any.
    Mr. Miller of North Carolina. The only financial regulator 
that appeared to be subject to appropriations from Congress, 
that it depends upon Congress for their annual appropriations 
was OFHEO, the late, unlamented regulator of Fannie and 
Freddie.
    And it appears that OFHEO was completely captured by Fannie 
and Freddie. Fannie and Freddie clout really prevented them 
from getting the resources that they needed and OFHEO was 
perhaps the most captured of all the regulatory agencies.
    The OCC sets a high bar for capture, but it appears that 
OFHEO truly was Fannie and Freddie's monkey. They got exactly 
what they wanted from Fannie and Freddie.
    Other oversight, Mr. Cordray--do you have an Inspector 
General?
    Mr. Cordray. Yes. Actually, last year, uniquely, we were 
subject to two Inspectors General because we were both in 
Treasury without a Director, but also within the Fed and by 
statute.
    Going forward, we are subject to the Inspector General of 
the Federal Reserve. We have had meetings with the Inspector 
General, a very capable individual, with a very capable team. 
And they will have full access to information to assess our 
performance.
    Mr. Miller of North Carolina. Did they review your budget 
submissions, your budget submission?
    Mr. Cordray. I am not certain of that, but my staff could 
tell you.
    Mr. Miller of North Carolina. But they certainly can review 
your budget?
    Mr. Cordray. They can review anything they want to review.
    Mr. Miller of North Carolina. All right. Under the IG 
statute, the Inspector General statute, the head of the agency 
is provided all IG reports, but also Congress. Is that correct?
    Mr. Cordray. Correct, yes.
    Mr. Miller of North Carolina. So we will get a copy of any 
IG report?
    Mr. Cordray. Yes, sir.
    Mr. Miller of North Carolina. How about the effect of the 
APA? Are you subject to the APA for rulemaking, the 
Administrative Procedures Act?
    Mr. Cordray. We are and therefore it is subject to review 
by the courts.
    Mr. Miller of North Carolina. Okay. So there is a notice of 
proposed rulemaking, there is a comment period, and there is a 
final rule and comment after that as well?
    Mr. Cordray. I don't know that there is comment after the 
final rule, but we are subject to all those same processes.
    Mr. Miller of North Carolina. And then, there is a judicial 
review after that?
    Mr. Cordray. Yes.
    Mr. Miller of North Carolina. How about for any--there was 
some reference on the other side to sanctions that the CFPB 
might have imposed and it sounded like it was an ``Off with 
your head'' kind of power. But are you subject to contest the 
case procedures under the APA for sanctions, any fines that you 
imposed?
    Mr. Cordray. Sir, everything we do, anything we do that 
constrains anyone is subject to judicial review if they want to 
challenge it in court. And we would be held to all of those 
procedures.
    I should add in response to your question about our 
rulemaking process, we are subject to some special constraints 
as well that are unique to us as a banking agency. No other 
banking agency is subject to SBREFA panels to consider the 
impact on small providers of our rules. There are only two 
other agencies in government subject to that. And so, I think 
that there is considerable oversight of our rulemaking.
    Mr. Miller of North Carolina. Have you heard any problem at 
the Federal Reserve Board or the FDIC or the OCC--that they 
were spending entirely too much on paper clips?
    Mr. Cordray. I have never heard that allegation, and I hope 
I will never hear it about our Bureau as well.
    Mr. Miller of North Carolina. Okay. I yield back.
    Chairman Neugebauer. I thank the gentleman.
    And now the gentleman from Florida, Mr. Posey, is 
recognized for 5 minutes.
    Mr. Posey. Thank you very much, Mr. Chairman.
    Mr. Cordray, you mentioned in your remarks that one way to 
be assured that you would be held accountable is that you were 
going to face a couple of audits. I would hope that you would 
know, as most of us know, that audits will tell you if any 
money was blatantly stolen--in the classic sense of the word, 
if anybody took cash or equipment.
    But they don't generally tell you how efficient an agency 
is or how well taxpayer dollars are spent or if agencies 
plunder the public, the Trust, and the Treasury by overpaying 
employees and giving exorbitant bonuses that aren't necessary 
and aren't earned and things like that. You usually don't see 
those in audits.
    Audits didn't work with the SEC when 20-some investigators 
and 30-some examiners and untold members of management or maybe 
those numbers are reversed, it is not really important, turned 
a blind eye to Bernard Madoff for over a decade after they were 
given an open-and-shut case.
    Audits didn't care about the poor victims of the MF Global 
scandal. And audits have not yet exposed, and there has been no 
prosecution for the crony capitalism of the crooked deals like 
Solyndra that have burdened our taxpayers unnecessarily. And 
so, my question to you is, do you plan to actually prosecute 
any wrongdoers, and if so, how and when?
    Mr. Cordray. Sure. And let me say a couple of things. First 
of all, I didn't mean to misspeak. I don't mean to suggest that 
the two audits here, even though it is more audits than the 
other banking agencies are subject to, are sufficient 
oversight.
    I do think that the active oversight by Congress, as 
exemplified by having me testify here today--and I testified in 
front of the House Oversight Committee a couple of weeks ago--
and I assume we will be here frequently. I think that is 
entirely appropriate. I welcome that. That is an important part 
of the oversight as well.
    In terms of the issue you raised in your opening statement, 
and I think it is an important issue to raise, is what is being 
done to hold people accountable for violations of law in the 
financial marketplace? That is something that our Bureau has 
the authority to do.
    We are under way in our Enforcement Division, which I 
headed up before being appointed as Director. I can say that 
there are a number of investigations we have inherited and they 
are working in a coordinated way with other agencies.
    And a number that we have initiated ourselves, I can't, of 
course, give details on those. But we take very seriously our 
obligation to require people to comply with the law. And when 
they don't, we will take action. It will be strong action. It 
will make sure that consumers as much as possible are 
recompensed for the harm that was done to them by a violation 
of the law.
    And I see that function particularly important as 
supporting all the other responsible businesses in that market 
who themselves are not violating the law, who are very careful 
to comply with the law.
    Often, it costs them money to do that. It means they can't 
cut corners and cut costs in some ways that the violators do. 
It is unfair competition. And so, I think when we enforce the 
law evenhandedly and reasonably, we support all the good 
businesses in that marketplace, and typically, they welcome 
that.
    Mr. Posey. Do you expect and should we expect any subprime 
investigations and prosecutions?
    Mr. Cordray. I want to be careful here because I know I am 
not supposed to talk about ongoing investigations or give any 
details or potentially move the markets by saying something 
that I shouldn't.
    What I would say is if you or your staff have particular 
areas of concern that you want to bring to our attention, we 
are all ears. We are interested in that perspective, not only 
from you all who hear a lot from your constituents that we may 
not hear although we hear a lot from the same people but also 
from the public at large. We have a whistleblower portal on our 
Web site now.
    Mr. Posey. I only have a minute left.
    Mr. Cordray. I am sorry.
    Mr. Posey. Do you plan on overseeing errant regulators? We 
have errant regulators whom I think have gone way beyond the 
scope of their authority and have caused havoc in our community 
banking industry. And there seems to be an inability of the 
agencies to rein them in.
    Mr. Cordray. I would say this, first of all, I think our 
primary responsibility is that we not become some sort of 
errant regulator ourselves, and I think that is important. And 
I want to hear from you if people are bringing to your 
attention ways in which we are erring in that regard.
    We don't have the authority to control other regulators, 
per se, but we work with them, we collaborate with them, and we 
also collaborate and work cooperatively with State regulators 
in a lot of these areas.
    So to the extent we can set an example by working with them 
to make sure that things are being done appropriately, we will. 
Beyond that, I do want us to treat community banks and the 
smaller institutions appropriately, recognizing that their 
different size, their different model, and their community 
roots often make them very different from the largest 
institutions and we want to try to preserve and encourage that 
model.
    Mr. Posey. Thank you. I see my time is up.
    Chairman Neugebauer. Thank you.
    Mr. Ellison is now recognized for 5 minutes.
    Mr. Ellison. Thank you, Mr. Chairman.
    I would like to yield 15 seconds to Congressman Miller.
    Mr. Miller of North Carolina. Thank you, Mr. Ellison.
    I would like to ask unanimous consent to place in the 
record the OCC's justification for Fiscal Year 2013, a 23-page 
document explaining how they expect to spend a little more than 
$1 billion.
    Mr. Fitzpatrick [presiding]. Without objection, it is so 
ordered.
    Mr. Ellison. Thank you.
    Thank you, Mr. Miller.
    Mr. Cordray, could you talk about how consumer protection 
figures into safety and soundness?
    Mr. Cordray. Thank you, Congressman. It is a subject that 
we have all been thinking a lot about at the Bureau because one 
of the premises of Dodd-Frank was that consumer protection in 
the financial marketplace was largely--``ignored'' is maybe too 
strong a word--but it was a lower priority for the existing 
Federal regulatory agencies because their primary focus, 
appropriately so, since this was their mandate, was on safety 
and soundness.
    And so, there were issues that just got missed or didn't 
get enough attention. Mortgage servicing, as was described 
earlier, is a tremendous example. A lot of the practices in the 
mortgage market that in fact, looking back on, led to and 
precipitated the financial crisis, were caused in part by the 
fact that people were not focusing on what was happening with 
the actual consumers.
    To me, safety and soundness and consumer protection go 
together. They go in tandem in the following way: Safety and 
soundness sort of takes a snapshot of an institution at a point 
in time and looks at its books, looks at its capital reserves, 
looks at its ongoing revenues and the like, and looks at the 
risks.
    But you can't really get a good picture of safety and 
soundness if you aren't looking at how that institution treats 
its customers over time, and whether that is a sustainable 
business model or whether it is taking advantage of customers 
in the short term in ways that cannot be sustained in the 
future.
    So, for example, when you give loans to people and you do 
not require any documentation of income and you do not require 
any kind of underwriting standards to be met, you can make that 
loan, and for a moment, it will look okay on your books. But 
over time, that loan is not going to succeed and you will not 
be a safe and sound institution. Why? Because you are 
mistreating your customers in ways that cannot be sustained.
    So, to me, consumer protection is an important part of 
this. As we work to protect consumers, I think we will help 
strengthen the financial system and strengthen the economy. We 
want people to be treated in ways that are sustainable over 
time for them and for the institution. That is good business, 
that is the way most businesses look at how they do their work, 
and that is part of what I think the reforms in Dodd-Frank were 
intended to accomplish.
    Mr. Ellison. Thank you. Also, the chairman, before he left, 
held up two documents: one appears to be your budget 
justification, which looks like some white pieces of paper 
stapled together; and the other one is a thick color-coded 
document.
    If you redirected the resources of your office, could you 
come up with a big, fat, shiny, fancy document that might 
please some people in this committee?
    Mr. Cordray. I--
    Mr. Ellison. You don't have to answer that.
    Mr. Cordray. Yes, it is always a question of how much 
detail and how much presentation do you provide and whether 
that is the best use of your resources.
    Mr. Ellison. What do you think, Mr. Cordray, about 
simplicity? I remember talking about the--in the health care 
debate, a lot of my friends on the other side of the aisle were 
going on and on about how thick it was. And now, we get a thick 
document and they don't like that.
    So, I am just trying to figure it all out and this is not a 
question, just sort of help trying to figure out when is a big, 
fat, thick document a good thing and when is it a bad thing?
    If it helps consumers get simplicity and frugality help for 
something, I don't know. I am just asking a question for all of 
us to ponder. I am sorry.
    Mr. Cordray. I know before your old project, we were trying 
to streamline the mortgage forms, trying to streamline credit 
card agreements, trying to streamline student loan forms so 
that consumers can really understand the most important 
information that they really want to know before making a 
choice. I think simplicity counts. Maybe there are times where 
length counts but we are happy to take guidance on that as we 
go.
    Mr. Ellison. Right. And we you did point out there that 
part of what you are doing is trying to make documents shorter 
and simpler, and this is part of the mandate, that this is an 
important function.
    Let me ask this: If the CFPB funding were subject to 
appropriations and could be significantly cut, what do you 
think the impact would be on our servicemembers, older 
Americans, and consumers generally?
    Mr. Cordray. We will look again. We start from a budget 
that is capped unlike every other Federal banking agency. It is 
capped at a much lower level than the other Federal banking 
agencies. Of course, we have different functions, they have 
different functions.
    But if we were forced to make really tough choices, can we 
protect servicemembers, would we have to choose between them 
and older Americans, would we have to choose between trying to 
fix the problems in the mortgage market or taking a closer look 
at things like payday lending or credit cards or student loans, 
all of which are problems in various ways and pose issues for 
consumers.
    Those will be pretty tough choices to have to make. And we 
will have to make them because we have limited resources as it 
is. But to cut our budget tremendously would really cripple our 
ability to protect consumers and the marketplace.
    Mr. Ellison. I have to yield back, Mr. Cordray. Thank you 
very much, and I am absolutely overjoyed that you are in the 
role you are in.
    Mr. Fitzpatrick. The Chair recognizes the gentleman from 
Delaware, Mr. Carney, for 5 minutes.
    Mr. Carney. Thank you, Mr. Chairman. Thank you for having 
this hearing today.
    Mr. Cordray, it is good to see you again. We met in my 
office some months ago. I am delighted to see you as the 
Director of this new Bureau. I think you were the Chief of 
Enforcement at the time we had a conversation about your 
priorities, and I want to get to that in a minute, but I also 
want to start with some conversation about the budget.
    So, your budget is tied to the Fed's operating budget at 12 
percent. You mentioned that you spent $350 million, or 
thereabouts, in 2012, and something over $400 million in 2013. 
Your cap would have been $597 million, if my numbers are right.
    How do you see yourself budgeting in the future? My 
orientation is State government like yours and I am pleased 
that you bring that experience to the table here.
    How do you see yourself budgeting and staying within the 
budget that you have in the years to come?
    Mr. Cordray. Congressman, it is a great question. It is a 
challenge for us as it is a challenge for any agency. Although 
most are not subject to a budget cap, they may be subject to 
caps imposed by the appropriations process.
    I think we will do it in the same way that I did it when I 
was attorney general in Ohio, when I was a treasurer in Ohio, 
the same way you did it in the different offices you served in, 
in Delaware, where you were subject to oversight by the 
legislature there, which is we have--
    Mr. Carney. And the budget director, the governor's budget 
director.
    Mr. Cordray. Absolutely, and the Secretary of Finance 
perhaps. But we will have to set priorities, we are doing that. 
We have obviously had to do that already. We will look 
carefully at the mission that we are trying to carry out, the 
objectives Congress has set out for us, that is our touchstone, 
what is it that Congress has told us to do because that is the 
law we are obliged to carry out.
    We will look at the progress we are making in different 
areas. Sometimes, things become priorities because you think 
you can achieve something faster. Sometimes, you recognize you 
need to study it, probably know more about it before you go 
folding in.
    We will look at the input that we are getting from you and 
your colleagues. You are hearing from the same people that we 
hear from.
    Mr. Carney. Absolutely.
    Mr. Cordray. You are serving the same people we serve, so 
your insight into whether we are addressing the kinds of 
problems we should be addressing or whether we are missing 
things that will inform us. But it is an iterative process; it 
is something we will learn from as we go.
    Some of the things we start with are mandated for us, so we 
don't really have a choice, although I think that there are 
good choices Congress made. Fixing a number of specific 
problems in the mortgage market is going to take up a lot of 
our rulemaking time over the next year.
    Obviously, examining these institutions to make sure that 
they understand what is expected of them and what the law 
requires and that they are carrying that out is a very 
important function and that encompasses many of our personnel.
    Mr. Carney. Let us talk about a couple of those areas that 
you and I talked about some time ago. One other concern that I 
hear from my constituents is payday lenders, these basically 
high-risk individuals who are trying to get access to loans. 
What is your approach going to be and do those clients of 
lenders--nonbank lenders, if you will--where does that fit in 
your priority and what is your approach going to be?
    Mr. Cordray. It is a key part of our priorities because 
Congress told us that it needs to be. Congress told us that in 
some of these markets, you have banks and nonbanks competing 
directly against one another, but they are under very different 
regulatory regimes. That is not appropriate. And it is part of 
the system that was broken before.
    There are other markers where it is virtually all nonbanks 
and you don't have much in the way of a bank competition. Those 
markets matter a lot to consumers as well.
    So, for example, we conducted our first field hearing in 
Birmingham, Alabama, last month on the topic of payday lending. 
We are looking carefully at how those products work. We 
understand and acknowledge and we heard a lot of testimony that 
there is a strong demand for short-term consumer loans in our 
society, that is a real need people have.
    What we want to make sure is that the products that are 
fulfilling that need are actually helping consumers rather--
    Mr. Carney. So how do you draw that line? We had a hearing 
right here about just that subject.
    Mr. Cordray. Yes.
    Mr. Carney. And there are basically poor people who are 
trying to get from here, from this week, the next week or 
whatever it might be, but the annual rates are off the charts 
even with the pilot program the Treasury has?
    Mr. Cordray. Yes.
    Mr. Carney. How do you strike that balance, I guess, and 
what do you--?
    Mr. Cordray. It is a tough issue in some ways and that is 
part of why we started with the field hearing to try to gather 
a lot of input. We got a balanced input on both sides of the 
question: payday lenders themselves as well as customers who 
like the product; and others who were critical of the product 
and have seen some of the devastating consequences for some 
people of getting trapped in the debt cycle.
    One of the things we think there is a need for is to try to 
foster competition in the small-dollar loan market. Some of the 
banks are providing products. We want to scrutinize those 
carefully.
    But if they are good products, maybe they will help ease 
some of the strain of this. It is something to which frankly, 
we don't have all the answers. That is why we did a field 
hearing. We are going to continue thinking about it. We are 
interested in input from you all and your perspectives to help 
inform us.
    But some of these are not the easiest problems in the world 
to figure out.
    Mr. Carney. Thank you very much for your hard work. You 
have a tough job. We wish you well and hope that your door and 
your phone will remain open to us as we hear from--as you say, 
these are our constituents, and I look forward to working with 
you. It is great to see you today.
    Thank you. I yield back.
    Mr. Fitzpatrick. Thank you. I recognize the gentleman from 
Texas, Mr. Green, for 5 minutes.
    Mr. Green. Thank you, Mr. Chairman, for the recognition. I 
also thank the chairman and the ranking member for the 
opportunity to sit with the subcommittee today, as I am not a 
member of the subcommittee.
    Mr. Director, welcome to the committee and, hopefully, this 
will be one of many visits that you will make.
    The debate today and for some time now has really been 
about how independent the CFPB will be. It is really about 
independence. And in this country, we decide that certain 
agencies--because of the sheer importance that they hold in the 
orderly function, functionality, if you will of the country--we 
decide how independent they will be.
    We decided that we wanted our Judiciary to be exceedingly 
independent; hence, they are appointed for life. Federal judges 
are appointed for life, conditional to good behavior. They can 
be removed, but the appointment is for life. Assuming that they 
behave themselves, they will be there for life, unless they 
choose to do otherwise.
    So, it is not unusual for us to have agencies and offices 
with a great amount of tenure.
    The Comptroller General who heads the GAO is appointed for 
15 years. That is because we want independence.
    This agency, in my opinion, merits a great deal of 
independence given what we went through with the debacle as it 
relates to financial institutions and the crisis from which we 
are still recovering.
    But notwithstanding the independence that I believe you 
have and should have, there is still accountability.
    You are appointed by the President for 5 years, and you can 
be removed for cause. You have to testify before Congress semi-
annually. You have an annual GAO audit. Your enforcement 
measures can be appealed, meaning enforcement against some 
party. That party has a right to take it before the courts and 
have an independent judge make a decision as to whether or not 
what you have done was correct.
    Your actions are subject to judicial review, meaning, if 
you implement some sort of rule, that can be reviewed in the 
judicial system. You have other regulators that can literally 
veto your actions, such as the FSOC. Any member of the FSOC can 
petition to veto an action that you might take.
    No other agency, as I understand it, has other agencies 
that can override the rules and regulations that they 
promulgate.
    Mandatory rulemaking consultation: you can't just decide to 
do something as it might appear based on some of the things 
that we have heard. You are forced to consult with the Federal 
banking agencies before you produce a final product.
    And you have to perform a cost-benefit analysis of your 
rules. You are required to conduct a cost-benefit analysis of 
all proposed rules.
    There seems to be a fair amount of checks and balances in 
the process.
    But in the final analysis, if I don't like the idea of a 
CFPB, then I don't want you to be independent. I want you to 
have to report to me. I want to control your budget. I want to 
determine whether you can have an appointment of 5 years or 
some smaller amount of time.
    On the other hand, if you believe as I do, that 3/27s and 
2/28s didn't help consumers, if you believe that prepayment 
penalties that coincide with teaser rates were abhorrent at 
that time, and if you believe that no-doc loans and certain 
other products that were promoted and produced were 
detrimental, then, you probably want to see someone looking out 
for the consumer, someone whose job it is to put the consumer 
first.
    The prudential regulators had the opportunity to do this. 
They had every opportunity. And this is not to demean them in 
any way. But it is to say that history shows a need for what 
you do and what you are about to do.
    So, I thank you for accepting the challenge. I believe you 
ought to have independence and I look forward to your many 
visits in the future.
    I yield back.
    Chairman Neugebauer. I thank the gentleman from Texas. And 
the gentlewoman from New York, Mrs. Maloney, is recognized.
    Mrs. Maloney. I want to thank the chairman and the ranking 
member for calling this important hearing and for recognizing 
me. I am not a member of this subcommittee, so you are giving 
me a great honor and privilege. Thank you so much.
    First, I would like to welcome Mr. Cordray, and really 
observe that during this entire confirmation process where 
there have been many challenges and obstacles put in place, 
none of the criticism in any way, shape, or form has been 
directed towards your life in public service, your commitment 
to doing the job, or your qualifications. You are really able 
to do the job, and everyone thinks you are great.
    And I would like to add my voice to that, and add my 
concern that for the first time in my lifetime, I have seen the 
confirmation process used as a way not to confirm a person but 
as an attempt to change the underlying bill, in this case, the 
creation of the CFPB.
    A number of my colleagues on the other said of the aisle 
and the Republicans in the Senate have publicly said, and said 
in writing, that if we would change the underlying bill, which 
they were not able to achieve in a vote in Congress or in the 
Conference Committee, then Mr. Cordray would be confirmed.
    I believe it is a severe abuse of a confirmation process. 
The confirmation process should center on the qualifications of 
an individual, not on attempting to change the underlying bill.
    But I would like to return to the subject of today's 
hearing and the budget. As I understand it, the CFPB's budget 
is capped at $557 million for Fiscal Year 2012. Do you 
anticipate using all of that? And do you happen to know what 
the budget cap is or what the budget is for the OCC, the FDIC 
or the FHFA?
    Also, I understand that you are the only regulatory agency 
that does have a budget cap. Could you clarify and comment on 
those questions?
    Mr. Cordray. Sure. Thank you, Congresswoman, for the 
comments and the questions.
    First of all, we do not anticipate spending through our 
budget cap either this year or next year. We are building up, 
as you know, as a start-up agency, building up from really zero 
as of July 2010 when Dodd-Frank was enacted.
    So, it will take us some time to get a steady state.
    We are the only banking agency whose budget is capped on a 
hard cap. It is lower than the budget of the OCC, the FDIC, or 
the Federal Reserve. We are a fraction of the Federal Reserve.
    There are some different functions that agencies perform 
certainly. But there are some different functions we are 
expected to perform such as overseeing and supervising nonbank 
firms in a number of financial fields that are not touched by 
the other regulators at all. And, of course, the consumer 
protection function is one that I happen to believe Congress, 
obviously, believed is incredibly important. It is important to 
protect consumers. I think it is important to protect 
responsible businesses that do compete fairly in these markets.
    And I think that attention will strengthen our economy by 
avoiding the kinds of problems we saw that lead to the 
financial meltdown, the kinds of irregular mortgage practices 
that Congressman Green was just detailing a moment ago that 
should not have happened and, I believe, would not have 
happened or not have metastasized to the point they did had the 
Consumer Bureau been in place 10 years ago.
    Mrs. Maloney. Thank you. I join some of my colleagues in 
really believing that consumer protection is a very, very 
important part of the safety and soundness of our financial 
institutions. And, certainly, we need safety and soundness. We 
need these services for our economy.
    But as you pointed out earlier, the subprime crisis was a 
threat to consumers and also to the overall economy of our 
country.
    So, my question is, what are you doing now or what has the 
agency done to help fix the mortgage industry to promote 
transparency and to help curb servicing abuses?
    Mr. Cordray. Thank you. That is, in some respects, our 
single highest priority, in part, because Congress told us it 
should be; in part, because we can look at the financial crisis 
and see what caused it; and in part, because that is the single 
biggest expenditure many consumers make.
    We are going to be adopting a number of rules that Congress 
has told us to put in place to address some of these abuses, to 
make sure loans are made with ability to repay in mind, to make 
sure that mortgage servicer statements are given periodically 
and that they do disclose the kinds of fees and up-to-date 
status on where your mortgage is. Many people have received 
very little communication in that regard.
    There are other protections we are going to be putting in 
place to address the mortgage servicing problems that have been 
widely documented, very severe problems. GAO has documented 
them. The other banking agencies have recognized now that there 
were abuses going on for years; and that they have hurt 
consumers and hurt the system.
    And, actually, as you say, consumer protection issues that 
became safety and soundness issues because they began to loom 
so large and were so widespread and had been unaddressed for so 
long.
    So, this is a high priority for us.
    We also have examination over both bank and nonbank 
mortgage servicers now going forward. And we have the authority 
to enforce the law, which is a very important thing as well.
    Mrs. Maloney. Thank you. I think that is a tremendous step 
forward. I think all of us can agree on both sides of the 
aisle.
    And just in closing, I have a tremendous amount of respect 
for my colleagues on the other side of the aisle who run for 
office and, certainly, for people who serve in government to 
put your ego, your reputation, and, in many cases, the finances 
of your family to take tremendous hits to serve this country. 
And I really applaud public servants.
    I thank you for what you are doing, Mr. Cordray. And I just 
really appreciate it. It is meaningful and important for the 
overall economy, the safety and soundness of our economy, and 
really the protection of consumers, too.
    So, thank you very much.
    Mr. Cordray. Thank you.
    Chairman Neugebauer. I thank the gentlewoman. We are going 
to do another quick round here.
    Mr. Cordray, I want to go back to kind of something I was 
talking about earlier. I am looking at, I believe this might be 
the current plan, the budget justification for 2013. And, I 
believe, it shows that you estimate that you are going to have 
1,359 employees by the end of 2013, if I am reading that 
correctly. Is that correct?
    Mr. Cordray. Correct.
    Chairman Neugebauer. And so, what do you think the total 
number of employees will be at the Consumer Financial 
Protection Bureau? Were you maxed out at say, 1,400 people? Is 
that where you are headed?
    Mr. Cordray. I am not certain how to answer that question 
at a specific number level. I think we are getting into the 
range by the end of 2013 of what we--first of all, of what we 
can actually do under our budget cap.
    And also, second, I think in having the resources we need 
to perform the responsibilities that Congress has laid out for 
us.
    So, I think that at the end of 2013, we will be getting 
probably pretty close to the limits of our resources. And we 
are going to have to make those stretches and make sure we are 
doing the job we are supposed to do.
    Chairman Neugebauer. And so, I will go back to this 
planning process. If this is your planning document, how did 
you determine that 1,400 is the number?
    Mr. Cordray. We have a detailed and iterative process 
within the Bureau. And, frankly, I would say very candidly that 
we are getting better at this as we go along. Every division is 
required to assess, analyze; look at the work that they have 
ahead of them; put forward their projections in terms of what 
they need in terms of hiring. That is scrutinized by the chief 
operating officer and their team. It is a very experienced 
team, a very capable team.
    We had sort of a staff estimate process that we went 
through in the fall. It took a number of months and there were 
some tough discussions. There were people who wanted things who 
were told ``no.''
    Some of the things that we recognized were important 
weren't immediate priorities for the Bureau, so we had to make 
choices. I think this goes on in any organization, whether 
public sector or private sector, and it goes on for us as well.
    I think the ultimate measure is whether if you match up the 
responsibilities Congress has told us by law we have to carry 
out and match up the way in which we are spending our resources 
and what the employees are actually devoting their time to, 
whether those correspond and I think that is what the GAO said. 
At that stage, they thought that we were doing that very well 
but it is something that is a challenge for us, and obviously 
goes to the responsibility that we are talking about today.
    Chairman Neugebauer. I would love for you to furnish to the 
committee those departmental analyses of how you got to those 
numbers. I think that would maybe help us to better understand 
the objectives, because quite honestly, it is really kind hard 
at this particular point.
    I understand you are new in that position, but a huge 
amount of resources are committed, you are committed, and 
obviously, if you are going to have this many people, you are 
going to have to find space for those people, so I think it 
would be extremely helpful for the committee to have the 
background documents on how you are going to get to those 
numbers, and what those people are going to be doing and what 
level of business expectation that you have for those people.
    In other words if you are hiring people to be in the call 
center or something like that, how many calls that those 
individuals would be expected to have. So I assume you would 
furnish that?
    Mr. Cordray. Yes, and in fact if you look at the budget 
justification that we just put out, which I think is the 
document you are looking at, there is considerably more detail 
there then there was in the first year.
    A lot of it is going into what we are doing to build an 
institution; what we are doing to deliver tangible value, and 
what some of our accomplishments were. It goes through, and 
there are specific descriptions of what is going on in 
supervision and fair lending; what is going on in consumer 
education engagement; what is going on in research-markets 
regulations.
    I do expect that detail to become fuller and even more 
comprehensive as we go along, but in the meantime, if your 
staff wants to work with our staff to make sure that they think 
that they have the kind of insight and information about what 
we are doing and why, I think that is totally appropriate, and 
we will be glad to work with you and provide that.
    Chairman Neugebauer. I want to ask one last question. There 
has been some discussion, and in fact I think the chairman of 
the full committee has introduced a piece of legislation that 
recommends that rather than going from a single Director who 
has very broad authority on rule making and making these 
decisions, that you switch to, say, a CFTC model where you have 
commissioners and that you have more than one person making 
those decisions.
    You have the benefit of multiple people so that when a rule 
or a change in the direction of determining whether a financial 
is predatory or not, one person is not making that decision. 
Would you agree that having a panel or a group of people would 
give some--one, I think could make the system better but 
certainly for those people who are being regulated and for the 
people who are relying on good decisions to come from this 
agency, that the multiple-panel scenario makes sense?
    Mr. Cordray. It is an interesting question, Congressman. I 
understand it was debated, Mr. Chairman, very extensively in 
Dodd-Frank itself; and so there are four main banking agencies 
now in the Federal Government. There is also the NCUA, but of 
those four, two are headed by a single official, our Bureau and 
the Comptroller of the Currency, the same model. Two are headed 
by a Board or a Board of Governors, in the case of the Federal 
Reserve.
    And so, obviously organizations can function differently at 
different models--
    Chairman Neugebauer. I know the history, Mr. Cordray, I 
have to ask, do you support that? Yes or no?
    Mr. Cordray. I actually think that having a single Director 
makes me more accountable to the Congress. If I come up here, I 
am responsible for what we do. I can't say, well, there are 
three others on the commission who feel this way or that way.
    It is a model. When I was a State treasurer and State 
attorney general in Ohio, I was singularly accountable for what 
I did, and so, I see the advantages of that model. There are 
also advantages to the other model. Whatever Congress does, we 
will carry out that law.
    Chairman Neugebauer. So your opinion is that you being in 
charge is a better model?
    Mr. Cordray. It is the same model as the Comptroller of the 
Currency, it is a 100-year-old model and nobody is proposing to 
change that. I don't hear anybody suggesting that here today. 
It seems to work for them and I think it will work for us.
    Chairman Neugebauer. So that is a ``yes,'' correct?
    Mr. Cordray. Again, whatever you all decide to do as to our 
structure, we will carry it out. I will say it is a big job. It 
is a hard job but I have come to see that, and I don't know 
that I fully appreciate it yet.
    We have a team approach at the Bureau. We have a team of 
senior executives who are excellent. I rely on them heavily. I 
think you would be crazy to try to run an organization like 
this if you didn't do it that way. They are all accountable to 
you as well and you can speak to them at any time.
    We have broad experience from the public and private 
sectors there but whatever model you would give us, whatever 
the law is, that is what we will carry out and we will do it 
cheerfully.
    Chairman Neugebauer. I recognize Mr. Fitzpatrick for 5 
minutes.
    Mr. Fitzpatrick. Thank you, Mr. Chairman.
    Mr. Cordray, I also want to thank you for your service both 
in Ohio and now to the country. And I agree with Mrs. Maloney, 
you are making a sacrifice and I am sure you understand that 
our obligation here, not just on this committee but in 
Congress, is to make sure that we are watching the dollars and 
that for every dollar that our residents, our constituents and 
folks back home and taxpayers send here, they get a dollar in 
value in return.
    Are you familiar with the principles and the procedures of 
performance based budgeting?
    Mr. Cordray. I am. I first became familiar with those when 
I was the county treasurer in Franklin County, Ohio, and found 
that when we went into our budget process, it was something 
that I had not known before because I had not been an executive 
before. We found it very useful. It turned out when I was in 
the State office that was being used, and the legislature was 
holding us accountable for that. More and more I understand it 
has now been a Federal Government model for at least a decade 
or more.
    Mr. Fitzpatrick. In Fiscal Year 2011, before you ran the 
agency, was the agency engaged in the use of performance based 
budgeting?
    Mr. Cordray. In a manner of speaking, that is what we were 
working toward when we were in our very first year. It was 
difficult to implement that in a meaningful way because 
obviously, the year before we didn't exist at all, and so, we 
didn't have any objectives so then trying to measure us against 
non-existing objectives doesn't make a lot of sense.
    I would say that within 3 and 4 years here, as we are 
building out and becoming more familiar and rendering a more 
comprehensive budget justification and like we want you to be 
able us to that and hold ourselves to that but it is for us it 
is a start-up process. That is my only cautionary note.
    Mr. Fitzpatrick. So in Fiscal Year 2011, when your agency, 
in excess of $160 million, for instance, was there a strategic 
plan in place? I just wanted the basics of performance based 
budgeting.
    Mr. Cordray. There was in a sense, in a rudimentary sense. 
It is not the kind of strategic plan that you should rightfully 
expect from us and that we are putting together now and it is 
something that we have been working on over the last several 
months and we will be providing you. And I think that is a fair 
expectation of us going forward.
    Again, what I would simply say is put all this, please, in 
context of the fact that we started from nothing in July of 
2010. We were an information team, not even an agency until 
July of 2011. We did not have a Director until January of this 
year which meant that quite a bit of what we are supposed to do 
under the law we could not under the interpretations in place 
at that time. So be patient with us but that is what we intend 
to do and I think it is fair for you to hold us accountable for 
doing that.
    Mr. Fitzpatrick. Looking back at 1 and 1\1/2\ years, do you 
have any comment on the agency's drawing on the reserve, I 
think it was an extra $28 million. We are about 28 percent over 
what was estimated. And how would the existence of a strategic 
plan have changed that? Would you have blown though that budget 
estimate with the strategic plan in place and how would that 
change going forward?
    Mr. Cordray. There were some things that came up that were 
not anticipated and maybe couldn't have been anticipated. And 
so, for example, it was mentioned earlier that we ended up 
with--I think, in the end, at this current count, it is 232 
transfer employees from other Federal agencies, including 
predominantly the Federal banking agencies.
    The Federal Reserve contacted us and indicated that for 
those folks to transition into the Federal Reserve's pension 
system, there was going to have to be a negotiation and an 
adjustment made which would result in a payment by us to them 
that was in the eight figures and that was part of what led to 
the revision of the budget at that time.
    There were also some IT needs. We have, as I said, been 
contracting with Treasury, that is the bulk of our expenses to 
provide IT and HR at a time when we really didn't have them in 
place. We will be transitioning off of those. Some of those 
expenses were not fully understood or estimated at the outset 
when we were just getting started, and so, there was some of 
that in the first year.
    That is diminishing. I wouldn't expect that to be true 
going forward, but I think that any time you see any kind of 
adjustment or difference it is highly appropriate for you and 
your staffs to call us in and talk to about it, and exert that 
oversight. And frankly, that will give me confidence that if 
you are satisfied with what we are doing, then I can be 
satisfied with--
    Mr. Fitzpatrick. There have been a number of comparisons 
between the Bureau today and the OCC and the FDIC, but the 
difference is the OCC and the FDIC can't go and demand money 
within a day and receive it as the Bureau can, is that right?
    Mr. Cordray. I actually don't know how the FDIC and the OCC 
effectuate the transfer of funds and spend within their budget. 
I don't know whether that is something they can do quickly or 
not. Once you--
    Mr. Fitzpatrick. One of the other distinctions--
    Chairman Neugebauer. Just very quickly because we don't 
have--
    Mr. Fitzpatrick. Maybe that the dollars don't affect the 
annual operating deficit of the Federal Government. I am 
looking at the Fiscal Year 2013 budget that was delivered by 
the President this week. General fund receipts is a line item 
in the budget deposited by the Federal Reserve System, their 
earnings that paid down the debt or go against the annual 
operating deficit estimated this year to be about $81 billion, 
estimated for Fiscal Year 2013 to be $80 billion. And so, it 
goes down by $1 billion.
    Is it fair to say that for every dollar your Bureau spends 
from the Federal Reserve, that is $1 less that will be returned 
to the Federal Treasury? So for every $100 million your agency 
spends, that is $100 million less that will go to pay down the 
annual budget deficit?
    Mr. Cordray. I don't know if that is the full picture or 
not. I know the Federal Reserve is unique because they conduct 
open market operations, they have assets, they make earnings on 
assets and the like and money comes back to Treasury.
    I don't know if that is true of the OCC or the FDIC--
    Mr. Fitzpatrick. But is it true of the Bureau that for 
every dollar that you spend from the Federal Reserve, it is $1 
in their earnings that will not be returned to the Federal 
Treasury?
    Mr. Cordray. What I know is, for example, our expenditures 
have not approached our budget cap, and so, we have not made 
the full demands that we could upon the Fed for funding. I 
don't happen to know exactly what the Fed then does with money 
that is not spent or whether it is returned to the Treasury or 
whether they hold it in and then use it in the next quarter or 
just what.
    I am not as familiar with the Fed's--the details of their 
expenditures as I am with the Bureau.
    Mr. Fitzpatrick. I appreciate you being here. According to 
the President's own budget, it is returned in earnings to the 
Federal Treasury.
    Mr. Cordray. Yes.
    Mr. Fitzpatrick. So the dollars your Bureau spends are 
dollars not returned to the taxpayers. We just need to make 
certain that every dollar is accounted for and that every 
dollar is wisely spent. That is our obligation.
    Mr. Cordray. Agreed.
    Mr. Fitzpatrick. Thanks for being here.
    Mr. Cordray. Agreed. Thank you.
    Chairman Neugebauer. Thanks, gentlemen.
    And I now recognize the gentlewoman from New York, Mrs. 
Maloney.
    Mrs. Maloney. One of the proposals that my good friends on 
the other side of the aisle are working very hard on is to make 
the CFPB subject to the appropriations process.
    And this is very troubling to me, because the other 
regulators--the Fed, the FHFA, the FDIC, the SEC--are not 
subject to the appropriations process. And the appropriations 
process oftentimes can become very political and it could be 
that it could result in significant cuts to your ability to 
help people.
    So I would like to ask you, what do you think the impact 
would be on your programs to service the Office of 
Servicemember Affairs, the Office of Older Americans, and for 
consumers generally? What is the impact on how you would be 
able to service them if the CFPB did not have the capped 
budget--was subject to the yearly, daily appropriations spites 
that we are involved in?
    Mr. Cordray. It is a good question, Congresswoman. I would 
go back to, I say, two things.
    First, I would go back to the debate over the original 
Dodd-Frank Act, and I know that this was extensively discussed 
and debated and the determination was made that the Consumer 
Financial Protection Bureau, as a bank regulatory agency, 
should be treated like the other bank regulatory agencies.
    In some other cases, the Comptroller of the Currency--the 
Federal Reserve--they go back to approximately a century and it 
has been determined over time that those should be nonpolitical 
in their budgeting and appropriations.
    I think the other issue that was raised earlier today which 
is the cautionary tale was OFHEO. OFHEO was an appropriated 
agency which was supposed to exert oversight over Fannie Mae 
and Freddie Mac.
    This Congress reviewed that situation and found it highly 
unsatisfactory in the last decade, and therefore moved to a 
model where the FHFA is now the overseer of Fannie Mae and 
Freddie Mac and is not subject to appropriations because they 
found that the politicization of the OFHEO mission had impeded 
its ability to oversee these large and sophisticated and quite 
powerful financial institutions.
    We are now overseeing from the consumer protection 
standpoint, some of the largest and most sophisticated 
financial institutions in our country. Several of them have 
assets in excess of $1 trillion. Doing the same kind of work 
with a different emphasis as our fellow banking agencies, it 
feels to me we should probably be on a par. And if we are not 
on a par, it is dangerous to the confidence with which people 
could expect to us to carry out our work.
    Mrs. Maloney. Thank you.
    Also, could you comment on the oversight of the Fed's IG on 
your agency, the CFPB? And can you talk about how much is the 
IG in contact with you and your staff, what types of activities 
the IGs office looks at and what the IG has found in any report 
or investigation the office has completed?
    Mr. Cordray. Sure.
    The Inspector General model is a new model to me because I 
don't have background and experience with the Federal 
Government before coming to this Bureau. At the State level, we 
were always subject to oversight by our State auditor and they 
had the ability to come in and look at any aspect of our 
operations.
    They could set the priorities--that was entirely 
appropriate. And we always worked very closely with them, not 
only because we thought it was important to have clean audits 
for the public's trust and confidence, but also because that 
was a measure of whether we were doing things right.
    And if there were disagreements about how to do something, 
we would typically defer to them. At this level, my 
understanding, the Inspector General is--it is a broad 
authority to give the public and the Congress confidence that 
we are operating appropriately and effectively and efficiently.
    We will be an open book to our IG. We already have been 
open to both the Treasury and Fed IGs who both oversaw us last 
year.
    We have met with the Federal Reserve's Inspector General, 
who is our IG--impressive individual; impressive staff; 
obviously going to take their work very seriously. I take it 
seriously as well.
    I have let them know that they should bring anything they 
want to my attention personally at any time. I would be 
accountable in that way. And I think Congress obviously will 
look very carefully at their work--
    Mrs. Maloney. My time has almost expired. I do want to know 
to what extent is the CFPB subject to Federal contracting 
procurement and other laws. And is it comparable to other 
similar agencies? Are you subject to the procurement laws of 
the Federal Government?
    Mr. Cordray. We are, again, analogous to the other banking 
agencies. We are an independent agency, not part of the 
Executive Branch, per se. We are closer to Congress, but we 
are, again, akin in that respect to the other Federal banking 
agencies.
    Mrs. Maloney. So, are they subject to the contracting 
procurement laws of the country?
    Mr. Cordray. I know that we are subject to procurement laws 
and the constraints and I believe they are the same ones as the 
other banking agencies.
    Mrs. Maloney. Thank you very much. I yield back. Thank you.
    Mr. Fitzpatrick. I recognize the gentleman from Florida, 
Mr. Posey, for 5 minutes.
    Mr. Posey. Thank you, Mr. Chairman.
    Just a follow up on a question from earlier in our first 
round--did you indicate you plan to seek criminal and civil 
penalties for wrongdoing?
    Mr. Cordray. Congressman, we do not, under our statute, 
have the authority to bring any criminal actions. What we are 
authorized to do and in fact told to do by our statute is if we 
uncover any conduct that we believe could be criminal in 
nature, we are to refer it to the Department of Justice which I 
think is akin to what you--
    Mr. Posey. Yes, because most of the people I represent, 
they resent the civil penalties without criminal penalties. 
They don't like to see the big, rich people who are exploiting 
them buy their way out of this stuff.
    And I know the agencies like to levy the penalties there 
because then they have it as revenue. It doesn't go directly 
back into the Treasury like it should. And I hope that someday 
Congress will have the political will to do that because that 
is just right.
    There were some discussions earlier about the level of 
detail expected for your agency. And, while there may be people 
in this Chamber who would be glad to check out of a grocery 
store and have the cashier look at the basket and arbitrarily 
say, ``Well, your bill is about $200 or so,'' but most people 
would like to have an itemized receipt. They don't need to know 
the ingredients that are in every item that they buy, but they 
would like to have some kind of accountability for that.
    Accountability changes behavior. Bureaucrats who don't 
perform, don't change behavior. The SEC has over 200 lawyers. 
They handle an average of 600 cases a year.
    I hope that your attorneys that you have talked about will 
be capable of handling more than an average of a half a case a 
year. In the private sector, they carry a much greater load 
than that. And if something else, I think that next to the 
general public is suspect.
    And speaking of general public suspect, again, I talked 
about the article in Judicial Watch that discussed the salaries 
that you began paying some of these new employees. And I 
noticed an intern was hired at $42,000 a year.
    Most of the interns in our offices work for nothing. If all 
the agencies start paying interns that kind of money, we will 
never get any interns to work for the experience which is 
typically what they like to do.
    I noticed we had a new employee, $251,388--an Associate 
Director for Consumer Education. Now, that is over 5 times the 
average household income for working people who play by the 
rules back in my district.
    How do I justify that? How can I explain that to my 
constituents as being reasonable?
    Mr. Cordray. Certainly. To begin with, I worked as an 
intern for Senator John Glenn years ago and I was unpaid, so I 
am familiar with what you are describing.
    The salary levels for the Consumer Bureau are fixed by law 
by Congress. And we are required by law to have a comparable 
salary structure and benefit structure to that of the Federal 
Reserve.
    Congress did it, so Congress would know better than I why 
it was done, but it was done, I believe, to make us comparable 
and competitive with the fellow Federal banking agencies so 
that we wouldn't consistently lose better and more experienced 
employees to them.
    The other thing that needs to be understood is that the 
work that we do is attempting to oversee, again, the most 
sophisticated, the most powerful--and many of them, very 
extensive financial institutions in our society. And we need to 
be able to do the kind of sophisticated work that involves 
examining banks with a trillion dollars or more in assets, 
multiple--
    Mr. Posey. No. But this is for a Consumer Education 
Associate Director, over a quarter of a million dollars a year. 
That doesn't pass a straight-face test.
    Mr. Cordray. Yes.
    Mr. Posey. And are you telling me that Judicial Watch was 
wrong when they said records show workers starting at twice the 
maximum pay specified by the Office of Personal Management?
    Mr. Cordray. Again, we have broad pay bands and we don't 
always--we typically try to pay to the midpoint of our pay 
range, not at the very top. So I would like to look at the 
particular incidents that you are describing.
    But what I will say is we are required by law to have pay 
bands and a pay structure that is comparable to the Fed. As of 
last account, as I was preparing for this hearing, we on 
average are about 1 percent below the Fed in our pay bands and 
we are about 4 percent below them in average salary.
    So, we are complying with the law. That is what we are 
supposed to do.
    If you have concerns about individual positions or 
individual salaries, we would be happy to take them up, go back 
and review them, and get your staff whatever information you 
require.
    Mr. Posey. Yes. I have a lot of concerns and a lot of 
questions about them. But if the Fed has an Assistant to the 
Director of Consumer Education that they pay over $251,288 a 
year, I would like to know about it. And if they do, I would 
bet it is not an employee who just started at that. If another 
employee made that in the Fed, I would guess they would 
probably have been there a lifetime to accumulate that. I hope 
I am right.
    Mr. Cordray. We will go back and review that particular 
incidence that you are noting. I assume that out of all of our 
employees, your staff has looked carefully, and if there are 
others that they want us to look at, we will do that as well.
    Mr. Posey. I have a pretty good-sized file here. I will 
just use that as an example.
    Thank you. My time is up.
    Mr. Cordray. Thank you.
    Mr. Fitzpatrick. Mr. Cordray, there are no other questions. 
I want to thank you for your attendance and for your 
responsiveness.
    The Chair notes that some Members may have additional 
questions for this witness, 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 this 
witness and to place his responses in the record.
    This hearing is adjourned.
    [Whereupon, at 12:21 p.m., the hearing was adjourned.]



                            A P P E N D I X



                           February 15, 2012


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