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



 
                 THE SEMI-ANNUAL REPORT OF THE CONSUMER
                      FINANCIAL PROTECTION BUREAU

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

                                HEARING

                               BEFORE THE

                    COMMITTEE ON FINANCIAL SERVICES

                     U.S. HOUSE OF REPRESENTATIVES

                      ONE HUNDRED TWELFTH CONGRESS

                             SECOND SESSION

                               __________

                             MARCH 29, 2012

                               __________

       Printed for the use of the Committee on Financial Services

                           Serial No. 112-114


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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


                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on:
    March 29, 2012...............................................     1
Appendix:
    March 29, 2012...............................................    49

                               WITNESSES
                        Thursday, March 29, 2012

Cordray, Hon. Richard, Director, the Consumer Financial 
  Protection Bureau (CFPB).......................................    12

                                APPENDIX

Prepared statements:
    Cordray, Hon. Richard........................................    50

              Additional Material Submitted for the Record

Cordray, Hon. Richard:
    ``Semi-Annual Report of the Consumer Financial Protection 
      Bureau,'' dated January 30, 2012...........................    53


                       THE SEMI-ANNUAL REPORT OF
                         THE CONSUMER FINANCIAL
                           PROTECTION BUREAU

                              ----------                              


                        Thursday, March 29, 2012

             U.S. House of Representatives,
                   Committee on Financial Services,
                                                   Washington, D.C.
    The committee met, pursuant to notice, at 9:38 a.m., in 
room 2128, Rayburn House Office Building, Hon. Spencer Bachus 
[chairman of the committee] presiding.
    Members present: Representatives Bachus, Hensarling, Royce, 
Biggert, Miller of California, Capito, Garrett, Neugebauer, 
McHenry, Posey, Westmoreland, Luetkemeyer, Huizenga, Duffy, 
Renacci, Hurt, Dold, Canseco, Stivers; Frank, Waters, Maloney, 
Gutierrez, Velazquez, Sherman, Miller of North Carolina, Scott, 
Green, Cleaver, Donnelly, Carson, and Carney.
    Chairman Bachus. The committee will come to order.
    Mr. Cordray, as you know, we are going to have some vote 
interruptions and I would like everyone to know, the Members as 
well as anyone listening, that Mr. Cordray has agreed to stay 
until 2 p.m., which is a very nice accommodation. We very much 
appreciate that.
    And we thank you for your attendance today to deliver the 
semi-annual report of the Consumer Financial Protection Bureau 
(CFPB). The CFPB is an independent Federal agency whose 
authority, as many of us have said, is ``far-reaching;'' some 
have said ``unprecedented.''
    Title X of the Dodd-Frank Act confers virtually unfettered 
discretion to the Director to identify financial products and 
services deemed to be unfair, deceptive or abusive and to ban 
them under what has been described as a highly subjective 
standard that has no legally defined content.
    All of us agree on the need to protect consumers. All of us 
also agree that every government bureaucracy needs transparency 
and oversight.
    The simple truth is that there is no reason we cannot have 
both robust consumer protection and an agency that is 
accountable for the action it takes and the resources it uses.
    The cause of greater accountability was not well-served by 
the President's decision to circumvent the advice and the 
consent of the Senate and install the CFPB's Director in a 
constitutionally questionable maneuver.
    As I have told you previously, Mr. Cordray, I believe 
neither you nor the agency you head were well-served by that 
decision since it cast a legal cloud over the legitimacy of the 
Bureau's regulatory and enforcement activity.
    And I have also previously stated that this dispute has 
nothing to do with you personally, but with the structure and 
lack of accountability surrounding the agency you have been 
asked to lead.
    The House has passed two bills this Congress, H.R. 1315 and 
H.R. 4014, that make the CFPB more accountable without in any 
way hampering its ability to protect consumers.
    H.R. 1315 includes provisions placing the CFPB under the 
management of a five-member bipartisan commission, an idea 
originally proposed by and supported by House Democrats. H.R. 
4014, which passed the House just this week with strong 
bipartisan support and the support of Mr. Cordray, fixes a 
critical omission in the Dodd-Frank Act that could have 
resulted in a regulated institution waiving their attorney-
client privilege when sharing confidential information with the 
CFPB.
    Given that the CFPB is not subject to the annual 
congressional budget process, hearings like this are essential 
to the oversight process. In fact, hearings like this are the 
only opportunity currently available to Congress to exercise 
any oversight of the CFPB at all.
    Again, Mr. Cordray, I thank you for your appearance.
    And I now recognize Mrs. Maloney.
    Mrs. Maloney. Okay. Is Mr. Frank coming, or should we wait 
for him?
    Chairman Bachus. We are going to--
    Mrs. Maloney. First of all, I would like to--should I wait 
for Mr. Frank or--
    Chairman Bachus. I will allow Mr. Frank to come in and make 
an opening statement.
    Or would you like Mr. Hensarling--
    Mrs. Maloney. Okay. I will just go ahead, in the interest 
of time.
    First of all, I would like to welcome Director Cordray and 
really thank you for your impressive accomplishments so far. I 
know that when we were doing the markup on Dodd-Frank, I 
offered an amendment that called for an annual report and 
oversight by this committee of the CFPB.
    That was later amended to make it a semi-annual report to 
Congress. But if I had known that you would be before this 
body, or someone as senior as yourself would be before this 
body 15 times so far this year alone, I would not have offered 
that amendment, because you have been very accountable to us 
and to this Congress.
    And I would like to say it was great to have you in my 
district in New York, where you discussed and launched an 
inquiry into overdraft practices. I know that you have had 
similar meetings across this country with various concerns from 
student loans to mortgages to just general concerns of 
consumers.
    And as we reach the 3-month anniversary of the CFPB as a 
fully operational agency, I would like to note some of the 
Bureau's outstanding work.
    While some will undoubtedly continue to define the CFPB as 
an unchecked agency, I believe that the Bureau's 
accomplishments and oversight have been extraordinary.
    The Bureau has initiated an examination into the growing 
level of student loan debt and its ramifications on our 
economic recovery. It is tirelessly helping consumers 
understand financial products and services through the ``Know 
Before You Owe'' Program.
    The Bureau has taken great steps to curtail deceptive, 
unfair, and abusive debt collection practices. They have 
modified and put forward a simplified mortgage application that 
people can actually understand.
    And the Bureau is resolving consumer complaints, launching 
bank and nonbank supervision programs, developing simple 
disclosures for credit cards and other financial products, 
targeting specific abuses aimed at older Americans and 
servicemembers, and creating offices just to address these 
concerns.
    I think this is a great list of accomplishments for a new 
agency. And from what I can see in your report, it is just the 
beginning.
    I hope that during this hearing we can focus on what the 
CFPB has laid out in its report rather than constant complaints 
that there is not enough oversight or accountability.
    The Bureau's structure, the positive GAO report, the very 
fact that Director Cordray is appearing today before us in his 
15th appearance, or of other senior staff, is a testimonial to 
the number of checks placed on the Bureau.
    I would say it is very accountable, given the number of 
times you have been here. And I congratulate you on your fine 
record so far.
    I look forward to your testimony and to hearing about the 
plans for the future to work for safety and soundness and the 
protection of our consumers.
    Thank you.
    Chairman Bachus. Mr. Hensarling is recognized for 2\1/2\ 
minutes.
    Mr. Hensarling. Thank you, Mr. Chairman.
    On January 4th of this year, the President made an alleged 
recess appointment of our witness, Richard Cordray, to head the 
newly created CFPB.
    The problem was that the Senate was not in recess at the 
time. In fact, it was in pro forma session. The Senate has the 
constitutional authority to determine the rules of its 
proceedings, not the President.
    Under a similar set of circumstances in 2007 when, 
inconveniently for Democrat Senate Majority Leader Harry Reid, 
a Republican was in the White House, he was quoted as saying, 
``The Senate will be coming in for pro forma sessions to 
prevent recess appointments.''
    Now, one may not like the policy, but it is a pretty 
convincing confirmation that a pro forma session is not a 
recess. So it is fairly clear the Senate did not believe that 
they were in recess on January 4th; and under the Constitution, 
they could not have been in recess because the House did not 
consent.
    Therefore, there can be no recess appointment.
    But had there been a recess appointment, this doesn't solve 
the President's problem. Section 1066 of Title X of Dodd-Frank 
clearly states that the Director must be ``confirmed by the 
Senate.''
    A recess appointment is not a Senate confirmation.
    In 2005, then-Senator Barack Obama indicated recess 
appointees lose credibility because they cannot make it through 
the confirmation process.
    Mr. Cordray, we just met for the first time about 15 
minutes ago. And although we don't know each other, those whom 
I know from Ohio say you enjoy a good professional reputation. 
They respect you. They respect your judgment and your fairness, 
so this is not personal. But in my humble opinion, I believe 
you sit before us as an unconstitutional appointee, an unlawful 
appointee in using the President's characterization, and you 
suffer from a loss of credibility from the outset.
    So for as long as you may occupy this office, you have been 
given an incredibly, incredibly important charge to protect 
consumers. But you have also been granted unprecedented, 
unaccountable, unilateral powers to ban and ration consumer 
credit products, restrict the fundamental economic freedoms of 
our citizens, and effectively control huge swaths of our 
economy. So obviously, I look forward to hearing your views.
    I yield back the balance of my time.
    Chairman Bachus. Thank you.
    Mr. Green is recognized for 3 minutes.
    Mr. Green. Thank you, Mr. Chairman.
    And I thank the ranking member as well.
    Mr. Director, I thank you for appearing today. And I am 
excited about some of the things that are happening, especially 
this Office of Servicemember Affairs that you are working on. I 
think that this is an initiative that all of us will be proud 
of, helping our servicemembers, which is an opportunity for me 
to extend a word of gratitude to all of the members of the 
committee for helping with the Homes for Heroes Initiative that 
we passed, the legislation.
    And my colleague, Mr. Hensarling, yesterday gave an 
expression of appreciation and I thank him for using a little 
bit of his time to give his expressions.
    I did not mention Mr. Grimm when I talked about this other 
initiative, the Homes for Heroes, and this is not something 
that you are associated with, Mr. Cordray, but Mr. Grimm was 
the cosponsor and I want to make sure that I mention him.
    With reference to your appearance today, you also have an 
Office of Older Americans that I think is important. I 
understand that Mr. Skip Humphrey is the person who will lead 
this agency or office, and I am eager to hear more about this.
    I have some of the accomplishments. You have been there a 
short time, but your list of accomplishments has become very 
impressive over a very short period of time.
    This test pilot program, ``Know before You Owe''--I think 
that is something that consumers with credit cards will be 
excited about. You have initiated an examination into the 
student loan debt. I think it is something that college kids, 
especially, are going to be excited about. You have an ``Ask 
the CFPB'' Q&A opportunity for members of the public so that 
they can increase their financial literacy.
    You have initiated an overdraft exploration program and you 
are going to look at the harmful effects on consumers. You have 
created a first-of-its-kind program, a database, the Repeat 
Offenders Against Military Database (ROAM). And this is to 
combat the fraud that targets our veterans and their families. 
I think it is an important program as well. There are many 
others that you have initiated and I am looking forward to 
working with you.
    I do want to just call to your attention something I think 
is important to you. A lot of the small banks are still having 
a good deal of consternation. And I look forward to working 
with you so we might do some things to allay their concerns.
    I am confident that there are ways by which we can make 
sure that they have a greater understanding of what we are 
attempting to do with this agency. So I thank you for being 
here today. I am eager to hear more from you. And I yield back 
the balance of my time.
    Chairman Bachus. Mrs. Capito, for 2 minutes?
    Mrs. Capito. Thank you, Mr. Chairman.
    And I want to welcome Mr. Cordray from the neighboring 
State of Ohio to this morning's hearing, which is the first 
statutorily mandated hearing to discuss the CFPB and to discuss 
the report.
    A little over a year ago, Professor Warren visited my 
office to update me on the progress of standing up the CFPB. 
She said at the time that the CFPB provided an opportunity to 
knock down the silos that existed between Federal financial 
regulatory agencies and to provide clarity to consumers and 
institutions in consumer supervision.
    Unfortunately, from all of the interviews and testimony 
that we received, this is not what is occurring. I fear that 
the CFPB has just created a new silo. Although the prudential 
regulators transferred some personnel to the CFPB, some of 
these agencies have not eliminated FTE positions and they were 
not transferred.
    So rather than using this opportunity to ensure there is no 
duplication among the agencies, we have just added another 
bureaucracy to the equation. It is my hope, Mr. Cordray, that 
you and your team will be judicious in assessing the staffing 
needs going forward and will work with the prudential 
regulators to eliminate these duplicative divisions and 
positions.
    It does add an unnecessary and added burden, I think to 
particularly the community banks, as they are moving forward 
trying to unlock and create jobs and get lending in small 
businesses going again.
    I do have questions, like my colleague from Texas, on the 
nature of the appointment of Mr. Cordray as the Director. I do 
believe it could lead to some legal challenges of the CFPB 
actions and create some more ambiguity. So I hope that this 
becomes more clarified. But I would like to thank you for 
appearing before the committee and I look forward to your 
testimony.
    Chairman Bachus. Ms. Waters is recognized for 1\1/2\ 
minutes.
    Ms. Waters. Thank you.
    Mr. Chairman, I thank you for holding this hearing this 
morning.
    And Director Cordray, I am pleased that you have another 
opportunity to testify before our committee. In fact, we have 
been seeing a lot of you. As I understand it, you have been 
before the Congress 5 times since you were appointed CFPB 
Director back in January. That is once every few weeks. And 
that is not to mention all of the times other employees of the 
CFPB who have come up to Congress to testify since the Bureau 
opened its doors. Your agency has been before Congress 16 times 
over the short course of its life.
    It is clear that this agency is setting the gold standard 
in terms of transparency and accountability. The CFPB has gone 
out of its way to solicit public and industry feedback on 
mortgage disclosure forms as well as a student loan disclosure 
sheet.
    Moreover, the CFPB is governed by budget caps, veto by the 
Financial Stability Oversight Council, and an annual GAO audit, 
to name just a few of the provisions to which the Bureau is 
uniquely subject. So I am pleased to hear from you what is 
included in your semi-annual report to Congress and your plans 
for what you will undertake in the coming months.
    Thank you and I yield the balance of my time to Mr. 
Gutierrez.
    Chairman Bachus. So you will reserve 10 seconds for Mr. 
Gutierrez?
    I recognize Mr. Royce.
    Mr. Royce. We have expressed our concern from time to time 
about this arrangement, but this legislation that set up the 
CFPB is going to add to the regulatory costs that are growing 
at a rapid clip.
    It has few checks and balances, but broad, largely 
undefined authority. And here is the main point: It separates 
safety and soundness regulation from consumer protection 
regulation.
    Prior to her departure, this is what FDIC Chairman Sheila 
Bair had to say about this problem: ``Banking agencies' 
assessments of risks to consumers are closely linked with and 
informed by a broader understanding of other risks in financial 
institutions. Placing consumer protection policy-setting 
activities in a separate organization, apart from existing 
expertise and examination infrastructure, could ultimately 
result in less effective protections for the consumer.''
    If we are not able to mandate coordination between the CFPB 
and the prudential regulators through changes in law, my hope 
is that this semi-annual hearing before Congress can at least 
serve as a platform for a discussion of the key concerns that 
so many prudential regulators have on this issue, and which we 
by past experience have learned the hard way is a big problem 
with bifurcated regulation.
    I yield back, Mr. Chairman.
    Chairman Bachus. Thank you.
    Mr. Baca is recognized for 1 minute and 15 seconds.
    Mr. Baca. Thank you very much, Mr. Chairman and Mr. Ranking 
Member.
    I also want to thank Mr. Cordray for being here today. One 
of the biggest accomplishments contained in the Dodd-Frank Act 
was the creation of the Consumer Financial Protection Bureau.
    I say, finally we have a cop on the beat whose sole purpose 
is to ensure that the American consumers are getting a fair 
shake in the marketplace. In the past 4 years, it has been 
dominated by efforts to clean up the mess created by the 
previous structure which left enforcement and regulation based 
solely on financial industries' bottom line.
    If we are to accept the notion that the financial sector 
was created and exists and depends on the activity of the 
American consumer, then I think it is imperative that we do all 
that we can do to protect the well-being of the American 
consumer.
    In just a few short months since Mr. Cordray took his post, 
the CFPB has taken on a number of issues including the Know 
Before You Owe Program, which is great, and ensuring that 
consumers know what they are getting into with mortgages, 
student loans or credit cards.
    I hope that this good work will continue and I hope that we 
can discuss the next steps that we can do to work with the CFPB 
to ensure accountability and transparency.
    But at the same time, as Ed Royce indicated, we need 
mandates. But remember that we need mandates with funding, as 
well. You can't just have a mandate without giving the 
additional funding to make sure that we have the accountability 
and the transparency. That has to come hand-in-hand together. 
And I look forward to your testimony. Thank you very much.
    Chairman Bachus. Thank you.
    Mrs. Biggert, for 1 minute?
    Mrs. Biggert. Thank you, Mr. Chairman.
    And welcome, Director Cordray.
    I would like to echo a number of concerns expressed by my 
colleagues on this side of the aisle. I am particularly 
concerned about reports that the CFPB is engaging in regulatory 
activity that could jeopardize the safety and soundness of 
financial institutions.
    I am also concerned about attempts to regulate forced 
placed insurance. And finally, I am told that the simplified 
Real Estate Settlement Procedures Act/Truth in Lending Act 
(RESPA/TILA) mortgage disclosures that the CFPB is developing 
may, in fact, be more complicated than previous disclosures. I 
welcome your comments on these matters and thank you very much 
for being here.
    And I yield back.
    Chairman Bachus. Mr. Gutierrez is recognized for 2 minutes 
and 15 seconds.
    Mr. Gutierrez. Thank you, Mr. Chairman, I appreciate that.
    First of all, welcome. And, second, I would love to see how 
we went from 7 pages to 3 pages and made it more complicated, 
because that is what we have done in terms of disclosure of 
transactions and key terms and something easier to understand. 
I agree.
    I know you are currently testing the document and I 
congratulate you. I think that is what we should be doing. But, 
maybe--Democrats--I am sorry--not a partisan party, just 
appointed by a Democratic President. Maybe we did find a way to 
take 7 pages and reduce it to 3 pages and make it more 
complicated.
    But I want to tell you that credit cards companies, you 
have to stay on top of them. They are getting trickier and 
trickier every day in terms of trying to figure out how it is 
they hoodwink the American public.
    Student debt, I think, should be a nonpartisan issue. One 
trillion dollars, more than all the credit card debt in America 
and all--that is the youth; that is--those are the ones being--
they are not going to be able to buy a home. We have to figure 
out a way to make sure, as they engage in student debt, that 
they are not getting ripped off also. And that the terms and 
the agreements are such that they are going to let the next 
generation of great America, our children, to be able--so I am 
happy you are looking into that.
    You have done so many things, and I would like to say that, 
you have been--I think it has been 5 times, you have had the 
job a short time--and 5 times--let me see that would make like 
16 times since last year.
    It looks like we are going to get--what the best thing 
about you is that people just want to see you on Capitol Hill.
    And I have to tell you, every time one of those bankers 
come knocking on my door and asking if we are going to talk 
about this, I think next year at Halloween, they are going to 
have like, a Cordray costume for all the bankers and all their 
things because you are just a scary man when it comes to them.
    But, you know what? I don't think that is so bad. I think 
that they need to have a little bit of the fear of the Lord in 
them as they move forward.
    And, lastly, we have to stay on top of them. Because last 
week I opened up my account and I said, ``Huh, Banco 
Popolare?'' I keep $250 there at Banco Popolare because that is 
the minimum for their savings account, so they won't charge you 
every month.
    They raised it to $500 and charged me $4 because I was 
under the $500 in order to keep my money. They are continuing 
to do these little tricky, tricky things. They continue to put 
their hands in the consumers' pockets. Keep up the good work. 
Thank you.
    Chairman Bachus. Thank you.
    I will go in with you. We will get a copyright on a Richard 
Cordray Halloween outfit.
    Mr. Miller is recognized for 1 minute.
    Mr. Miller of California. Thank you.
    Mr. Cordray, mortgage origination is a critical function of 
our housing finance system reforms directed by Dodd-Frank, and 
must be implemented with considerable care and caution.
    The CFPB has been quite active in this area, working on the 
ability to repay regulations for residential mortgage loans, 
working on integrated mortgage disclosure requirements under 
RESPA and the Truth in Lending Act, and working on new 
requirements for mortgage origination.
    But, sir, if not well-crafted, these rules will harm, not 
help, consumers by drying up liquidity in the mortgage market, 
driving up costs, and limiting access to mortgage credit.
    We have already seen the rule implemented in the name of 
the Consumer Protection Act saying the impact of limiting 
consumer access to lower-cost loans. Some cases' rules said in 
the name of the Consumer Protection--prevented borrowers from 
closing on their own home purchases because of legitimate 
discrepancy in the closing table.
    There are rules that are implemented in the name of 
consumer protection that have forced mortgage originators to 
offer loans where consumers ultimately pay more for their 
closing costs. While we must protect the consumer, we must make 
sure that costs to increase the name of consumer protection are 
not implemented.
    We must not inappropriately restrict liquidity or consumer 
protection in the name of consumer protection. In your 
testimony, I hope you will address the ways you will make sure 
that access to credit and preserve consumer closing costs will 
not increase or formulate these new rules are done properly.
    I yield back.
    Chairman Bachus. Thank you.
    Mr. Carney, for 1 minute.
    Mr. Carney. Thank you, Mr. Chairman. I want to thank you 
for having this hearing today.
    And I thank Director Cordray for coming in again. It is 
good to see you.
    My colleagues on the other side of the aisle are concerned 
about how you were appointed. I am just happy that you were 
appointed and that we have a good man directing this agency, 
doing a difficult job at a very challenging and important time.
    I look forward to following up on the conversations that we 
have started in my office when you were the enforcement 
director, I think at the time, about nonbank lending payday-
loan making, short-term lending and, in particular, practices 
on the online lending environment. I appreciate the fact that 
you have had field hearings on this issue in Alabama and I look 
forward to continuing our conversation on that.
    Thanks again for the great work that you are doing and I 
look forward to our conversation today.
    Chairman Bachus. Mr. Dold?
    Mr. Dold. Thank you, Mr. Chairman, and I am--
    Chairman Bachus. For 1 minute, I am sorry.
    Mr. Dold. Thank you, Mr. Chairman, and I am one of those on 
the other side who are concerned about how the appointment was 
made and I think that just goes down to the basic structure of 
the law.
    We all know there is an ongoing discussion about the CFPB's 
organizational structure. It is also a big concern that I have. 
Should the CFPB structure be the same structure that the House, 
under Democrat control, passed in the 111th Congress, which is 
also the structure that we have been advocating in this 
committee during this Congress? Or should the CFPB structure 
remain as it is today with few checks and balances, I believe, 
for the American public?
    While the structure discussion continues, I think that we 
all should be able to agree on some fundamental principles. 
First, strong consumer protection is important, necessary, and 
good for consumers and private sector businesses.
    Second, the CFPB's rulemaking and other processes should be 
constructive and transparent while thoroughly and objectively 
considering all viewpoints from interested parties.
    Third, regulations that stifle legitimate product 
availability, innovation, competition, and growth would be 
inefficient and ineffective while unnecessarily harming 
consumers, employment and our economy.
    As we move forward, I hope that the CFPB and Congress will 
use common ground as a basis for analyzing existing and future 
proposals.
    Mr. Cordray, I appreciate your time and your being here 
today.
    Chairman Bachus. Thank you.
    Mr. Frank, for 2 minutes.
    Mr. Frank. Thank you, Mr. Chairman.
    Mr. Cordray, welcome to one of the longest running series 
in Washington, the hearings on oversight over your agency in 
which my colleagues complain that there is no oversight.
    I look forward to the reruns going forward.
    They complain that the CFPB is not being oversighted, and 
we have oversight hearings and hearings about the structure, 
because they have nothing firm to complain about.
    The agency has been in existence now for a considerable 
period of time and there are no problems, none of the horrors 
and abuses that we were threatened were going to happen have 
happened.
    So, in the absence of that, let me talk about an important 
issue which was our addition of the word ``abusive'' to the 
practices you were to protect people against, and unfair and 
deceptive definitions.
    People say, ``What do you mean by abusive?'' We defined it. 
We defined it in the statute to say it is abusive if it 
materially interferes with the ability of a consumer to 
understand the term or a condition; or takes unreasonable 
advantage of a lack of understanding on the part of the 
consumer--the risks, costs or conditions; the inability of the 
consumer to protect the interest.
    In other words, it may depend on the consumer. And if 
people think that is some farfetched notion, remember that one 
of the problems we had with the subprime loans was they were 
going to an 80-year-old and urging her to refinance when she 
had nearly paid off her mortgage. Now, refinancing for some 
people might be a good idea. When it is sold to an 80-year-old, 
it is probably not such a good idea.
    This allows you to deal with ignorance. And there are 
people who said, why are you getting involved in ignorance? And 
I quoted before, and I misplaced the book, and I wish I had the 
book for a very distinguished economist who said, ``Of course 
there needs to be a capacity in the government to protect 
people, not just against deception and not just against 
unfairness, but against people who would take advantage of 
their ignorance.''
    That is what ``abusive'' does. And we, in acting on that, 
and in giving you the authority to protect people against 
abuse, so defined, we are following the instruction of that 
particular economist whose name is Friedrich Hayek.
    And I urge my colleagues, who quote Hayek more than they 
read it, to look specifically at what he said and there will be 
great support for dealing with efforts to exploit the ignorance 
of individuals.
    Thank you, Mr. Chairman.
    Chairman Bachus. Thank you.
    We have one, and possibly two, votes on the House Floor, so 
Members may want to do that. We will come back and hear your 
testimony.
    I recognize Mr. Canseco for 1 minute.
    Mr. Canseco. Thank you, Mr. Chairman.
    This week, just across the street from the Capitol, we have 
been reminded about the constitutional limits of our Federal 
Government as the President's health care law appears to be in 
serious jeopardy.
    Unfortunately, I believe it won't be very long before 
matters involving the CFPB end up in the very same place. We 
must be ever so mindful today that President Obama gave a 
recess appointment to Mr. Cordray, despite the fact that the 
Senate was in session at the time, a black-and-white matter, 
despite the Administration's spin that there is some gray 
there.
    This political maneuver by the President has set up a 
constitutional crisis at a time of already heightened 
uncertainty in our economy. In other words, at a time when we 
can least afford it.
    With that, Mr. Chairman, I yield back.
    Chairman Bachus. Thank you.
    Mr. Garrett will close out the opening statements, and then 
we will go vote. We will come back as soon as we can. So, I 
would encourage the Members to make your way to the Floor.
    Mr. Frank. Mr. Chairman, with your indulgence, I have 
another committee I have to go testify at, so I won't be back 
right away. It is not a sign of my lack of interest in the 
oversight of this agency.
    Chairman Bachus. Thank you.
    Mr. Garrett, for 1 minute.
    Mr. Garrett. Thank you.
    Mr. Cordray, the fact that you are here today is quite 
troubling, in yet another display of this Administration's 
arrogance and flagrant disregard of the Constitution.
    The only check in Dodd-Frank of the CFPB is the position of 
the Director requires Senate confirmation, and this President 
ignored it. The only way this President gets around the 
confirmation process is to rely on the constitutional power to 
fill the vacancies that may arise during a recess.
    But the problem is that this constitutional authority 
depends on the Senate being in recess. I suppose this President 
is an impatient man, but instead of waiting for a 
constitutionally significant recess of at least 3 days, this 
President declared the Senate in recess and this was a 
unilateral infringement on the constitutional powers of this 
Congress to determine for himself when it is in recess.
    The recess appointment clause was adopted to ensure 
unfettered continuation of the government. It is not here to 
provide an escape hatch for this President when he wants to 
avoid the Senate confirmation process.
    History tells us this, the founding fathers said so: 
``Nothing more than a supplement for the purpose of 
establishing an auxiliary method of reappointment,'' they said, 
``in cases in which the general method was inadequate.''
    This position was illegitimately occupied and has not only 
been granted broad indefinable powers that will affect almost 
every aspect of American business; it also has been insulated 
from the congressional appropriations process and oversight.
    I say all that, Mr. Cordray, with nothing ill against you 
personally. But as a Member of this Congress, who has sworn an 
oath to support and to defend the Constitution, I find the 
method in which you were appointed extremely offensive and a 
violation of the highest law of this land, the Constitution of 
the United States.
    With that, I yield back.
    Chairman Bachus. Thank you.
    At this time, we will stand in a brief recess.
    [recess]
    Chairman Bachus. The committee will come to order. Are we 
ready to proceed?
    Mr. Cordray, you are recognized for a 5-minute opening 
statement. And if you wish to go over, that won't be a problem. 
We won't be interrupting you.

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

    Mr. Cordray. Thank you. Chairman Bachus, Ranking Member 
Frank, and members of the committee, I want to thank you for 
this opportunity to testify on the first semi-annual report of 
the Consumer Financial Protection Bureau detailing the Bureau's 
accomplishments in its first 6 months.
    In January, I presented this information to your colleagues 
in the Senate, and I look forward to presenting it to you 
today.
    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 enact.
    I said that I would always welcome your thoughts about our 
work and I stand by that commitment. I am pleased to be here 
with you today to tell you about our work and to answer your 
questions.
    The people who work at the Consumer Bureau are always happy 
to discuss our work with the Congress. This is the 15th time, 
maybe the 16th time, I learned this morning, that we have 
testified before either the House or the Senate.
    And my colleagues and I look forward to working closely 
with you, with the businesses who serve their customers in the 
consumer finance markets, and with the millions of American 
consumers themselves.
    I am honored to serve as the first Director of this new 
Consumer Bureau. I am energized and inspired by the many 
talented people who work at the CFPB, and I am driven by the 
challenges and responsibilities of our mission to protect 
American consumers.
    Our mission is of critical importance to making life better 
for Americans. Consumer finance is a big part of all our lives. 
Mortgages allow people to buy a home and spread the payments 
over many years. Student loans give young people with talent 
and ambition access to an education. Credit cards give us 
immediate and convenient access to money when we need it.
    These products enable people to achieve their dreams. But 
as we have all seen in recent years, they can also create 
dangers and pitfalls if they are misused or not properly 
understood.
    During my years in State and local government, I became 
deeply engaged in consumer finance issues. I saw good people 
struggling with debt they could not afford. Sometimes, those 
people had made bad decisions they came to regret. Sometimes, 
an unexpected event like a loved one getting sick or a family 
member losing a job overwhelmed even their most careful 
planning.
    Still other times, I saw unscrupulous businesses which 
obscured the terms of loans or engaged in outright fraud, 
causing substantial harm to unsuspecting consumers and even 
ruining their lives and devastating their communities.
    I am certain that each one of you hears every day from your 
friends, your neighbors, and constituents in your district who 
have these kinds of stories to tell. These people do not want 
or expect any special favors. They just ask for a fair shake 
and a chance to get back on track toward the American dream.
    One of our primary objectives at the Consumer Bureau is to 
make sure that the costs and risks of these financial products 
are made clear. People can 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.
    Another key objective is making sure that both banks and 
their nonbank competitors receive the evenhanded oversight 
necessary to promote a fair and open marketplace.
    Our supervisors are going onsite to examine their books, 
ask tough questions and fix the problems we uncover. Under the 
laws enacted by you, the Congress, and with a Director now in 
place, we have the ability to make sure this is true across all 
financial products and services.
    The Consumer Bureau will also make clear that violating the 
law has consequences. Through our field examiners, our direct 
contact with consumers and businesses, and our highly skilled 
researchers, we have multiple channels to know the facts about 
what is happening in the marketplace.
    We plan to use all of the tools available to us to ensure 
that everyone respects and follows the rules of the road. Where 
we can cooperate with financial institutions to do that, we 
will. When necessary, however, we will not hesitate to use 
enforcement actions to right a wrong.
    As we move forward with our work, we need to hear directly 
from the consumers we protect and the businesses who serve 
them. We do this on our Web site, consumerfinance.gov, where 
consumers are able to tell us their personal stories.
    We also make it a point to get out of Washington regularly 
and hear from people firsthand. Thus far, we have held town 
hall meetings in Philadelphia, Minneapolis, Cleveland, and New 
York City. And we held a field hearing in Birmingham, Alabama.
    We are hearing from thousands of Americans about what works 
and what does not. We are listening closely. And we hope that 
many of you will join us at these events when we come to your 
communities.
    Accomplishing our mission will take time. But as you can 
see from our semi-annual report, we are already taking 
important steps to improve the lives of consumers.
    Thank you. I look forward to answering your questions.
    [The prepared statement of Director Cordray can be found on 
page 50 of the appendix.]
    Chairman Bachus. Thank you, Director.
    Director, you have probably heard Ranking Member Frank talk 
about ``abusive'' as being a new term but he said it was 
defined in the Act. There has been a lot of focus by both sides 
on what is abusive, how that would be determined by your 
agency, and also by the lender, how they would know whether it 
was abusive or not.
    I am looking at the definition of ``abusive,'' and one of 
the things is it ``takes unreasonable advantage of a lack of 
understanding on the part of the consumer.''
    Now, whether they understood something or not, would that 
not depend on maybe their ability to think and understand and 
reason? To a certain extent, would that be based on their, 
either what we call commonsense or I.Q.?
    Mr. Cordray. I think that prong of the abusive definition 
is, in fact, situational and somewhat subjective. I think some 
of the prongs of the definition that Congress enacted, and 
which, of course, is the law that we must follow and carry out, 
are firmer. And some of them are a bit less firm.
    So we have been trying to puzzle through exactly how that 
pretty straightforward and very explicit definition of the term 
that is in the law--it is the law that we are supposed to 
enforce--should be applied in the facts and circumstances of 
individual situations.
    And that is something that we are just trying to assess 
very carefully as we go.
    Chairman Bachus. In fact, you would almost have to go 
situation by situation, would you not?
    Mr. Cordray. With some of the prongs, I think that may be 
more true than with others, yes.
    Chairman Bachus. And that could be a problem for an 
institution or a lender, in that the same agreement in some 
cases, depending on just the ability of the consumer to 
understand or focus on the agreement, could determine whether 
it is abusive or not.
    For instance, under the definition and under the law, a 
financial institution could be liable any time a consumer 
simply doesn't understand the product or service. Is that not 
correct?
    Mr. Cordray. No, I don't think that is quite what the law 
says. It does speak of taking unreasonable advantage of the 
consumer.
    Chairman Bachus. Of their lack of understanding.
    Mr. Cordray. That is right. So I think that for an 
institution, if they are in a situation, they should be 
thinking carefully about whether they are taking unreasonable 
advantage of their consumer. And I think you often have a 
pretty good sense of whether you are doing that or not; maybe 
not always.
    Chairman Bachus. No.
    Mr. Cordray. And if so, you should hesitate and think 
again, and be careful that you are treating your customers 
fairly. I think it is something good businesses think about 
every day.
    Chairman Bachus. Okay. There was an article in ``American 
Banker'' that talked about an interview with you in which you 
indicated you didn't anticipate the agency writing a rule 
around--you were asked in a follow-up question whether your 
statement meant that people will mostly have to look at your 
actions as a model for how the new term ``abusive'' is defined.
    And you are reported to have responded, ``I think that is 
probably right.'' Was that a correct reporting of your 
response?
    Mr. Cordray. It was.
    Chairman Bachus. Okay. Does that mean that you are going to 
sort of use your enforcement authority, rather than rulemaking 
authority, to set the standard on what is abusive?
    Mr. Cordray. I think it meant several things. Number one, 
it meant that for us to define what abusive means feels a 
little presumptive, given that Congress defines what abusive 
means. Our job is to carry out what Congress says, given us as 
the law that finds us, not to make up that law ourselves.
    Having said that, we have to go in and supervise 
institutions. So there is some guidance that we have provided 
around that set of terms--unfair, deceptive and abusive acts or 
practices--in our examination manual, which is public and 
available on our Web site. And institutions have every 
opportunity to look carefully at that and to inquire with us 
and ask questions about anything that is unclear to them.
    But I do think that how the law that Congress has defined 
applies in particular situations is something that we are going 
to have to measure on a facts and circumstances basis as we go.
    But Congress defined it, not us. And it is our job to try 
to apply it on its terms.
    Chairman Bachus. But I think you are acknowledging some 
difficulty with being able to at least write a rule and tell 
institutions when they would be and when they may not be 
violating the law, it seems.
    Mr. Cordray. No, I don't think so. I just don't think that 
is probably the preferred approach, when Congress has defined 
the term already. We could further define the term, but are we 
going to define it differently from what Congress defined? I 
don't think so.
    We could perhaps clarify how it applies in particular facts 
and circumstances. But I think we ought to take some time with 
it, rather than up and just pontificating about it at the 
beginning.
    So that is what we are going to try to do. We are trying to 
be careful here, measured and thoughtful. Sometimes, that means 
you don't have all the answers in the first instance. I think 
that is where we are.
    Chairman Bachus. All right. Thank you.
    Ms. Waters?
    Ms. Waters. Thank you very much, Mr. Chairman.
    Mr. Cordray, the State and Federal Mortgage Services 
Settlement unveiled in February set forth new mortgage 
servicing standards that address issues such as pre-foreclosure 
referral notices to borrowers, third-party provider oversight, 
loss mitigation requirements, single point of contact 
standards, and other measures.
    However, the settlement only covers five of our major 
mortgage services. And the servicing standards will only be in 
place for the life of the settlement. That is 3 years.
    I know you have a lot on your plate. But does CFPB have any 
plans to develop permanent servicing standards that cover the 
entire servicing industry? If so, will CFPB use the servicing 
standards in the State/Federal settlement as a template for 
whatever you develop?
    Mr. Cordray. Thank you, Congresswoman, for the question.
    It is a very timely question.
    And the answer is, we do have the intention of developing 
servicing standards that would apply across the industry. One 
of the things we want is for all servicers to be put on a level 
playing field. As you noted, the servicing settlement was a 
partial step.
    It was an important step forward, but it is a partial step. 
It only applies to certain institutions, and only applies to 
certain loans in their portfolio. We are working with an 
interagency group of other Federal agencies to develop 
standards. That was true before the servicing settlement was 
reached, and it remains true after the settlement was reached.
    There is no question that the provisions in the settlement, 
which were worked over very carefully on a Federal/State basis 
with those institutions, are going to be the basis for trying 
to provide broader guidance to the market.
    But as you noted, there are many servicers out there that 
have not been touched by this settlement. They have not been 
affected in any way. Some of them, nonbank servicers, have 
never been overseen by anyone. And we need to bring them under 
the umbrella, so that everybody is playing by the same rules, 
as quickly as possible.
    So we are going to move forward on this. We have certain 
mortgage servicing rules we are required to adopt by January. 
We are looking at what else should be part of that. And we are 
consulting closely with our fellow agencies.
    But we see that as a high priority. For me, I saw mortgage 
servicing problems in Ohio going back to when I was a local 
treasurer, then State treasurer, then State attorney general, 
and now have found them to be national in scope.
    Ms. Waters. Thank you very much. That is great. I really 
appreciate that.
    I have been following very closely the mortgage servicing 
consent, or the process initiated by the OCC and the Federal 
Reserve Board for the five largest mortgage servicers. This 
process allows the servicers to hire their own auditors to 
investigate their foreclosure practices during 2009 and 2010.
    I fail to see why they didn't include the CFPB in this 
process. And we didn't get a really good answer. Given CFPB's 
new jurisdiction over servicing, what do you think? Do you have 
any desire to be involved in this process?
    Mr. Cordray. Congresswoman, we are taking complaints now on 
our Web site, and in calls from people about mortgage issues. 
Quite a few of those complaints deal with foreclosure 
situations and other servicing issues.
    I think the Congress is well-served on any kind of 
initiative like this, that the OCC has embarked on, to exert 
oversight, just as you exert oversight over our efforts and 
processes. I think it ought to be kept in mind that the OCC was 
the very first of the Federal agencies to step up and document 
the extent of the abuses in the mortgage servicing sector.
    They issued the first report on that. It demonstrated the 
seriousness in this. As they saw it, it was so serious that it 
affected the safety and soundness of institutions. That allowed 
everyone to build and move forward toward the servicing 
settlement.
    And now, as you say, it is very important for us to broaden 
that across the industry and make sure all these other 
processes are working as well as possible. It is a complicated 
space, but the Consumer Bureau has very significant authority 
here, both to examine institutions, banks and nonbanks, to 
enforce the law going forward, and to write rules.
    We will do that very carefully. And we are glad to consult 
with you as we go.
    Ms. Waters. Thank you very much.
    And I will yield back the balance of my time.
    Mrs. Capito [presiding]. Thank you.
    Mr. Hensarling is recognized for 5 minutes for questions.
    Mr. Hensarling. Thank you, Madam Chairwoman.
    Mr. Cordray, I want to follow up on the line of questioning 
that Chairman Spencer Bachus had. I think what I heard you say 
with respect to the term ``abusive'' was that the law was clear 
in this area. But I thought I also heard you say it was 
situational and subjective.
    I know that at least the co-author of Dodd/Frank, Senator 
Dodd, during the Senate debate on the creation of the Act, said 
on the Senate Floor, ``I have never claimed our proposal of 
consumer protection is perfect. I acknowledge the word abusive 
does need to be defined, and we are talking about striking that 
or making it better.''
    The language never changed after that. So for the record, I 
want to say at least the co-author of the Act doesn't find it 
too clear. And I am just wondering, is it clear or is it 
subjective? Is it clearly subjective?
    Are those competing or complementary terms? I don't 
understand your point of view.
    Mr. Cordray. Congressman, what I was saying, which is I 
think undeniable, is that this is not an undefined term in the 
law. Some people have mistakenly said that the term ``abusive'' 
is vague or that it is not defined.
    Congress explicitly defined the term. They laid out several 
specific prongs that would have to--
    Mr. Hensarling. So it can be defined, but it is subjective?
    Mr. Cordray. It is very expressly defined in the law. There 
are criteria that people are supposed to use in determining 
whether--
    Mr. Hensarling. But did you not earlier say it was 
subjective, in your testimony just a few minutes ago?
    Mr. Cordray. What I said was if you look at those prongs, 
they have to be applied in facts and circumstances, common to 
many legal definitions that Congress has adopted. And some of 
the prongs are situational to the individual consumer.
    I think that is true.
    Mr. Hensarling. Can a consumer product be both fair and 
abusive?
    Mr. Cordray. I think Congress has made a judgment. And 
again, it is not for me to just make up terms and go forward on 
any basis I please. I am supposed to enforce the law that you 
all have enacted and we intend to do that. Congress has--
    Mr. Hensarling. --case law surrounding and greater 
statutory specificity with respect to ``unfair.'' The question 
is, is the term ``abusive'' redundant of ``unfair'' or is this 
something that is completely separate. So, the question is: Can 
you have a fair product which is still yet an abusive product?
    Mr. Cordray. Yes.
    Mr. Hensarling. So the answer is yes?
    Mr. Cordray. I would be glad to answer your question.
    The answer to your question is Congress has put together 
three different terms in that passage. They have talked about 
``unfair,'' ``deceptive,'' or ``abusive'' acts or practices.
    Congress has seemed to indicate that there is a distinction 
among each of those categories. That isn't to say there can't 
be some overlap. There may be significant overlap. But I think 
the answer to your question is Congress has pretty clearly 
spoken and said there could be a practice that would not be 
unfair, but that would be abusive.
    Mr. Hensarling. Mr. Cordray when you--
    Mr. Cordray. --lawyers who are arguing back and forth and 
trying to understand exactly the parameters of that and it may 
be some time before everybody comes--
    Mr. Hensarling. In interpreting the term, ``abusive,'' you 
said it could be situational. Is situational consumer-specific; 
atomistic, down to the individual consumer? Could it be?
    Mr. Cordray. The chairman asked me specifically about a 
particular prong, which was the consumer's understanding. That 
seems unavoidably situational, meaning consumer by consumer.
    Mr. Hensarling. So a product could be abusive to one 
individual consumer, yet not abusive to another consumer? Is 
this correct?
    Mr. Cordray. I think the law seems to pretty clearly 
contemplate that, yes. Then there are other prongs that are--
that is not necessarily true of.
    Mr. Hensarling. So if I am the financial institution, if I 
am the First State Bank of Mineola, Texas, and I want to roll 
out a product, in order to avoid litigation or enforcement 
action, am I going to foresee the day where I have to impose a 
financial literacy test on each and every one of my customers 
to avoid an enforcement action from your agency?
    Mr. Cordray. No, I think it merely reflects the kind of 
careful practices that good businesses engage in all the time. 
And to go back to the ranking member's comments, if you are 
offering a refinancing to an elderly customer that you know 
full well may be having some difficulty understanding the 
terms--
    Mr. Hensarling. But you did say it could be consumer-
dependent, down to the individual consumer, correct?
    Mr. Cordray. So, again, I think good businesses and good 
banks are mindful of this. They would not approach certain 
customers with certain products that they would approach 
other--
    Mr. Hensarling. My time is almost up, Mr. Cordray.
    Just one other quick question--you said at one point, 
``Fraud is fraud.'' But you have also been on the record as 
saying, ``Frankly, there is a lot of fraud that is committed in 
the marketplace that is not on its face necessarily technically 
illegal.'' So is fraud, fraud? Or is there legal fraud and 
illegal fraud; or the mere fact that your agency determines 
that you don't like the fraud, then it becomes illegal?
    Mr. Cordray. I appreciate you asking about that. The 
subcommittee chair of a different committee asked me about the 
same quote. That was an unfortunate either misquote or perhaps 
out-of-context quote of mine.
    I didn't mean to imply that something that is in compliance 
with the law would be illegal. That is obviously not 
definitionally correct. But you can have fraudulent acts and 
practices that may or may not rise to an actual illegality. It 
depends on whether there is materiality, whether there is 
reliance, whether there is damage. That is a standard matter in 
securities laws.
    But our job will be to protect consumers against fraud, 
against unfair, deceptive acts and practices and abusive to the 
extent that definition is relevant and adds to the other 
definitions, which remains kind of a matter under debate.
    Mr. Hensarling. Thank you, Mr. Cordray.
    My time--
    Mrs. Capito. Mrs. Maloney, for 5 minutes?
    Mrs. Maloney. Thank you.
    Director Cordray, yesterday, I read in one of the papers 
that you have a new feature on the CFPB Web site called, ``Ask 
Us Anything.'' I wanted to call it to the attention of my 
colleagues and others because financial literacy is something 
that I care deeply about and I firmly believe that when people 
have the best information, they can make the best decisions for 
their financial lives.
    Can you report on the usage of this function? And how will 
these questions inform your work going forward?
    Mr. Cordray. Thank you, Congresswoman.
    It is something that we think will be an important 
foundation that we will build on going forward. As we prepared 
the Bureau to receive and to handle and to resolve consumer 
complaints in the credit card area and in the mortgage area, 
and now we are into other areas as well, we inevitably 
developed training materials for our folks who would be 
receiving those complaints to be able to address different 
questions, to be knowledgeable about the products they would be 
talking about and the like.
    And it occurred to us that rather than limit that 
information only to our own employees who would be dealing with 
these complaints, if we could put it out on our Web site and 
make it more available to the public at large, maybe they could 
answer a lot of questions for themselves. They could go to it 
and get that information when it is most pertinent and 
convenient for them.
    We will continue to build on this. This will be an 
iterative process. People can add questions that they would 
like to have us answer. They can offer their thoughts about the 
answers that we are providing to the questions that are raised.
    We expect we will build this out across the whole range of 
products and services. We hope to become a trusted resource for 
people out in the marketplace who need to know more. They know 
they need to know more. They aren't sure where to go to get it. 
Sometimes, they will go to Web sites now that are self-
interested Web sites where somebody is trying to sell them a 
product, and therefore, the information may be distorted by 
that self-interest.
    We don't have any of that. So we hope to promote this and 
we would be glad if you would promote it among your 
constituents and others as well. It is intended to help muscle 
up consumers so that they can protect themselves.
    Mrs. Maloney. Director Cordray, most of us hear quite a few 
complaints from our constituents about student loans. In fact 
recently it has been reported that student loan debt reached $1 
trillion and that it is even higher, which is hard to believe, 
than credit card debt.
    I know that you have released a shopping sheet for student 
loans so that parents and students can make a comparison about 
what the terms are. What steps are you taking to further 
educate students and parents about the merits and drawbacks of 
the various options they have in student loans? And are you 
including the deferred interest and all those other aspects?
    Mr. Cordray. Those are good questions. This is obviously a 
subject of growing importance to a number of Americans and 
should be for the country as a whole. Because, as was mentioned 
earlier, the population we are talking about here are young 
people who have the ability to make something of themselves. 
They are the kinds of young people we would like to see rise 
towards success in our society. They are held back only by 
lacking the means they need to be able to finance an education.
    This becomes a momentous decision for a young person and 
their family. Do they get on the right financial track? Or do 
they get on the wrong financial track? And if they end up on 
the wrong financial track, they are not going to achieve what 
they could achieve.
    We are going to be deprived of their talents in our 
society. And they are going to end up in a financial mess that 
will last them for years. It is one of the very few big 
decisions people will make in the course of their lives that 
has lasting repercussions; like the mortgage decision; like 
certain retirement decisions.
    We have the financial aid shopping sheet that you mentioned 
because we want to make the prices and risks and comparisons 
clear for young people and their families who are not familiar 
with this. They have not done it before or maybe they have done 
it once. Maybe they didn't get it right then either.
    We also have a student debt calculator so that people can 
understand what their rights are; what the repayment 
alternatives may be. So that once they are in situations of 
having significant student loan debt, they can best plan their 
path forward to getting out from under that debt and relieving 
that cloud over their future.
    We are working closely with the Department of Education on 
initiatives around that. And I am sure we will have many more 
ideas as we go. There are a lot of areas of concern.
    Holly Petraeus, who heads our Office of Servicemember 
Affairs, has indicated that the 90/10 rule for financial 
institutions creates some perverse incentives for them to offer 
loans to students that they know full well are going to default 
at high levels because that gives them access to the 90 percent 
of Federal funding, especially from the G.I. Bill.
    I know it is something Congress is starting to look at. We 
do urge you all to look carefully at this and what the 
unintended consequences have been.
    We have many young people, some of whom serve their 
country, and many others as well who need the opportunity to 
succeed and they are foundering because of bad financial 
decisions.
    Mrs. Maloney. Thank you.
    Mrs. Capito. The gentlelady's time has expired.
    Mr. Miller, for 5 minutes?
    Mr. Miller of California. Thank you. I am sure you are 
aware, to address the alleged abuses of mortgage origination, 
Congress passed the SAFE Act, which was a significant 
achievement at its time but it is potentially, I believe, being 
jeopardized.
    We are hearing of reports of lenders training their own 
loan origination staffs. That was not our intent. This is 
inconsistent with the Act's principles that we should be 
independent-training these individuals with respect to pre-
licensing and continuing education requirements. Mortgage 
origination training should be independent; the best regulatory 
tool we have to ensure all loans are originated are licensed 
and qualified. And that is important.
    And it is a three-part question. I am going to try to give 
you time to answer it. Do you share my concern about lenders 
training their own personnel? And what do you plan to do to 
address this development? Do you plan to include language to 
address this issue in the CFPB's mortgage origination rule?
    Mr. Cordray. Thank you, Congressman, for that question. It 
is a thoughtful question because I would agree with you that 
training your own staff, although that, I suppose, can be cost-
effective, there are real questions about whether that is 
sufficient and adequate to achieve what we want.
    And you can imagine that when you train your own staff, the 
training might be distorted a bit by the potential self-
interest of the organization which, again, I think is 
inconsistent with the congressional intent.
    I will take that comment back with me, and I will have my 
staff get back to you on how we see it and what we are planning 
to do about it. The SAFE Act is, as you know a statute that did 
come over to us now to enforce.
    There are a number of questions that have come up about it 
including--the chairman had raised the question with us about 
transitional licensing, which is another new issue for us. But 
we will be glad to look at that and think carefully about that. 
My sense is you are--
    Mr. Miller of California. --problematic and you plan on 
addressing it in a fashion?
    Mr. Cordray. I will have my staff get back to you on that. 
Yes.
    Mr. Miller of California. Great. Thank you.
    In your testimony, you say that the CFPB will be proposing 
a new Loan Origination Compensation Rule within the next 6 
months, I believe you said. And in April of last year, the 
Federal Reserve implemented a loan origination compensation 
rule aimed to protect consumers from unscrupulous lending 
practices, which we are all concerned about.
    But we think the provisions actually went too far. While 
intended to prevent steering, the Fed rule actually causes 
consumer to multiply pay more in their closing cost, this 
because the Federal rule has forced mortgage originators to 
only offer loans with the closing costs rolled into the loan.
    I introduced a bill that would ensure consumers have the 
ability to pay their closing costs upfront, if they so choose, 
no matter how the mortgage company pay their employees. I don't 
think those two are connected.
    While the Fed rule is intended to protect consumers from 
mortgage originators that would try to overcharge buyers, it is 
causing buyers to lose their home purchases and deposits 
because of legitimate discrepancies in closing costs. My bill 
would allow the mortgage originator to reduce their 
compensation at closing to cover differences in costs that are 
beyond the control of the originator.
    This provision is narrowly tailored to protect borrowers 
from bad actors while still allowing the necessary ability at 
closing so borrowers are prevented from not closing their home.
    My concern is if there is a discrepancy at closing such 
that the originator cannot even modify their compensation to 
the benefit of the buyer. Can you please tell me how you plan 
on addressing that; this problem, so it doesn't continue?
    Mr. Cordray. Okay. Thank you, Congressman. I want to be 
kind of careful in my response to that. That is an open, 
pending rulemaking for us.
    We were, as you said, given the mortgage loan originator 
compensation rule that the Federal Reserve enacted and 
finalized last year. But we were given authority under the law 
and, in fact, are required to do some work in that area as 
well, by January of this coming year.
    This is an issue that we are looking at. There are other 
issues we are looking at such as the perhaps unintended effects 
on pension arrangements and bonus arrangements, especially at 
some of the smaller institutions.
    We have a whole process on that. We have comments that we 
are digesting. We will be glad to speak further with you.
    I am not sure how much I can say publicly, however.
    Mr. Miller of California. I am sure you have seen 
situations where you get ready to close.
    Mr. Cordray. Yes.
    Mr. Miller of California. You pre-stated your costs 
upfront. The rule they have applied doesn't allow any leeway at 
all in that.
    And you have had situations where everybody who sits around 
the table and is saying, ``Well, this is occurring. We need 
this type of a reduction.'' And many times, your mortgage 
originator will make those allowances rather than lose the 
closing.
    And now, they can't even do that. And that is just a--there 
are some bad actors out there who would raise costs at closing, 
and the buyers at the last minute say, ``Well, I either do this 
or I don't get my home.''
    My bill doesn't allow for that. But to modify the closings 
and let the person roll those costs that they have in the 
closing into their loan rather than paying upfront--if it is 
not in some way impacting them in a negative way, I think it is 
something you really need to look at.
    And I am not in any way asking you to do something that 
puts the individual at risk due to some unscrupulous 
individual. But we need to allow some leeway on the part of the 
buyer, I believe.
    Mr. Cordray. I hear you on that. We will take that back, 
and I appreciate that. On its face, it sounds fairly sensible, 
I would have to say.
    Mr. Miller of California. Thank you, sir.
    Mr. Cordray. Yes.
    Mrs. Capito. Ms. Velazquez, for 5 minutes for questions.
    Ms. Velazquez. Thank you, Madam Chairwoman.
    Director Cordray, in the Small Business Committee, we have 
heard a great deal of concern among merchant and retail 
businesses who fear that their financial transactions with 
other businesses could be subject to CFPB oversight.
    What can you say to rest the worries that new regulations 
will affect purely commercial transactions?
    Mr. Cordray. The authority that is given to us under the 
law has to do with consumer financial products and services. It 
is defined in the law to only really affect matters involving 
household credit used for personal purposes. And, it is a broad 
array of products--mortgages, credit cards, student loans, and 
payday loans. It goes on into debt collection, debt settlement, 
credit reporting, and other areas.
    Contrary to views about the breadth of our authority, we do 
not have authority over commercial transactions between 
businesses that don't involve credit to consumers. So I would 
simply reiterate that is what our law is, and that is not 
within our purview.
    Ms. Velazquez. Okay.
    Some policymakers have expressed concerns that the new 
Bureau will extend its reach to include businesses that 
previously were not subject to a Federal financial regulator, 
like equipment leasing, factory firms or money service 
businesses.
    Should small businesses that previously didn't offer 
consumer financial products be concerned about a new layer of 
regulations?
    Mr. Cordray. If a business does not offer consumer 
financial products or services, they would not be subject to 
our oversight. If they do, they would. So money service 
companies previously were not subject to any Federal oversight, 
arguably, there are some laws that may have applied to them. 
They now are potentially subject to oversight by us.
    This is a big shift that the law represents, which is that 
there are plenty of consumer markets where you have chartered 
institutions, banks, credit unions, and thrifts competing 
against nonchartered institutions that were not subject to any 
oversight whatsoever.
    And we want to make sure that they are held to the same 
sorts of standards and principles and people are put on a level 
with one another.
    That is the big part of our job. It is a big challenge for 
us to do it, but we are working hard to do that as we go over 
the first few years of our existence.
    Ms. Velazquez. And despite efforts to establish a single 
regulator for consumer financial protection, the Federal 
regulators have nonetheless retained enforcement powers for the 
overwhelming majority of banks. Is there a risk that this will 
weaken protections for consumers or lead to confusion for 
financial institutions?
    Mr. Cordray. I don't know that there should be confusion. I 
think for the vast majority of banks, as you indicated, and it 
is my understanding as well, they remain subject to the same 
regulators they have always had.
    For the 110 largest institutions, those with assets over 
$10 billion, they will now be overseen by us for consumer 
protection purposes and by their prudential regulator for 
safety and soundness purposes. So there is some overlap there.
    But for all of these reasons, it really behooves us to 
collaborate closely with our fellow agencies to make sure that 
we are approaching problems in common, to make sure that we are 
on the same page, to make sure we are consulting carefully and 
getting their perspective as we act, and we give them whatever 
perspective we may be developing as they act.
    That is something we are working toward among my fellow 
heads of the agencies and among the staffs. It takes a little 
time for everybody to adjust to one another.
    Ms. Velazquez. If I may--
    Mr. Cordray. Yes.
    Ms. Velazquez. I am the ranking member on the Small 
Business Committee.
    Mr. Cordray. Yes.
    Ms. Velazquez. It is quite frustrating for me to, time and 
time again, when we have community banks coming before the 
committee to discuss why it is so difficult for them to 
continue to lend to small businesses, they are saying because 
of the Dodd-Frank regulations.
    And if they have assets of less than $10 billion, those 
regulations and oversight will not have any direct impact on 
those community financial institutions.
    Mr. Cordray. We won't be enforcing the law with respect to 
them. We won't be examining them, except possibly pursuant to 
ride-along authority that we don't anticipate utilizing in the 
immediate future.
    Our regulations will affect them. And that is why I have 
said time and again in front of this and other panels that we 
need to think carefully about what the effect of our 
regulations may be on smaller institutions.
    That is why we are utilizing the Small Business Regulatory 
Fairness Act (SBREFA) panels that are provided in law to make 
sure small providers have the ability to inform us directly 
about their concerns and their operations and how they work.
    That is something we are taking very seriously. We have 
one, and soon a couple of more, of those panels at work. And so 
we are listening carefully to them. I am creating an advisory 
council for community banks and a special advisory council for 
credit unions so that their perspectives do not get lost in the 
shuffle for us.
    It is important for us. And I agree with you. We need them 
to be able to lend to small businesses, because small 
businesses create the vast majority of jobs in this country. 
And some of the encouraging recent economic news seems linked 
to the fact that small business lending is up and small 
businesses are being created at a faster pace. That is a very 
good thing for us.
    Mrs. Capito. The gentlewoman's time has expired.
    I will recognize myself for 5 minutes for questioning.
    In your report, you talk about streamlining inherited 
regulations and the law ``is to address outdated, unnecessary 
and unduly burdensome regulation.''
    The President talked about this in his State of the Union; 
how he wants to eliminate old or antiquated regulations. I 
guess my question is, what steps are you taking to work with 
him to eliminate these overly burdensome or repetitive or 
inherited regulations?
    Can you give me specifics--except I don't want to hear 
about the one-page mortgage, because the last time I asked that 
question I got a 3-minute answer on the one-page mortgage so--
not from you, I will say that. We are all well aware of that, 
and that is a good thing. We are very happy about that.
    So if you could help me with that because the Treasury 
Secretary pointed to the CFPB as one of the ways to eliminate 
these old regulations.
    Mr. Cordray. I appreciate the question. I have also been 
known to give some long answers from time to time; I am trying 
to shorten them.
    On this, though--I was over at the U.S. Chamber of Commerce 
yesterday, speaking with them. And one of the things that they 
praised us for, and I think it is a very common-sense thing for 
us to do, is our initiative on streamlining the regulations 
that we have inherited from other agencies.
    We didn't write those rules. We are not personally invested 
in them. They were adopted by different agencies at different 
times for different purposes. There is often not a lot of 
careful thought about the aggregate impact of those.
    So, we have had a request for information outstanding, 
published in the Federal Register for a couple of months now 
asking anyone to bring us their ideas as to how we can cut back 
and streamline regulations and show that we are a different 
sort of agency, that we are interested in doing this.
    And in the consumer realm, we think there is room to do 
this, because there has been such a sort of mania for 
disclosure over the years that those disclosures piled up, 
piled up, piled up and became very dense and unreadable. 
Consumers were deriving very little value from them; they were 
often confused even if they did read them. And we think we can 
cut that back in some areas pretty substantially.
    So this is something we are taking very seriously. The 
Chamber has given us some thoughtful comments. Hundreds of 
others have as well. We are going to be digesting those.
    Mrs. Capito. I would like to follow up with you on that as 
time moves on.
    If you look at it from a community bank perspective, you 
are having to divert your resources to a compliance officer, an 
accountant or an attorney to keep up with the vast majority of 
regulations, not just the new but the old as well. And that 
diverts resources from the job creation or small business 
lending that we want to see our financial institutions do.
    The Federal Reserve initially proposed the qualified 
mortgage rule before it was transferred to the CFPB. And it 
offered two different alternative proposals, with differing 
protections for liability for lenders.
    We have had a lot of discussion about this.
    Mr. Cordray. Yes.
    Mrs. Capito. One would give a total safe harbor and one 
would have a rebuttable presumption protection. Which 
alternative would you prefer? And will the CFPB draft a 
different proposal?
    Mr. Cordray. So, again, I want to be a little bit careful 
how I answer this question. It is a pending rulemaking. We have 
been getting quite a bit of input, both from industry and from 
consumer groups, and also from our fellow agencies.
    As you know, it was the Fed who proposed the rule. And then 
it has come over to us to finalize. It is also a very important 
rule because providing guardrails around lenders, paying 
attention to the borrower's ability to repay is something that 
is very important for cleaning up the mess we have in the 
mortgage markets.
    What we have found as we have been working on this is you 
can have a sort of definitional safe harbor; a definitional 
rebuttable presumption. If you leave the standards vague and 
mushy, there is not a lot of difference between the two, 
because you can still litigate over whether you comply with the 
qualifications to get into the safe harbor.
    What is very important in this area, though, is that we try 
to create bright lines, so there will not be a lot of 
litigation. We don't want this to be punted into the courts and 
people not to be sure for years to come. And we are going to 
work to do that.
    We want to get this right. This also intersects with the 
Qualified Residential Mortgage (QRM) rule on risk retention 
that other agencies are going to be adopting. So we are taking 
a lot of close inputs from a lot of groups who have competing 
but, in some ways, converging perspectives on some of these 
issues.
    Mrs. Capito. I would urge caution in this area, simply 
because, as we know, to really get the economy moving again, we 
have to get this right.
    And we have to get first-time home buyers into the market. 
We have to get people being able to move in order to get our 
economy moving again.
    So I would like to again follow up with you on that. My 
time has expired. I did want to ask you about the complaint 
line. And I also wanted to get into the silos.
    But I will save that for another day.
    And, our next questioner is Mr. Miller.
    Mr. Miller of North Carolina. Thank you, Madam Chairwoman.
    I have been puzzled by some of the complaints about the use 
of subjective terms in the statute and whether that will lead 
to results that are just snatched out of thin air, because my 
knowledge actually is that subjective terms are used throughout 
the law to so that the law applies differently in different 
circumstances.
    And that has, in fact, been viewed as a strength of our 
legal system. There was an 18th or 17th Century English judge 
who wrote--and this is probably not exact, but it is close--
``There shall be no fixed definition of fraud, lest devious men 
contrive ways to evade it.''
    We all see the value in clarity, but clarity can also lead 
to inflexibility. And there needs to be some subjective 
standard to reach new circumstances.
    The idea that reasonableness is somehow a new thing, 
snatched out of the air to be applied in the law is very 
peculiar. The ``reasonable man standard,'' the proximate cause, 
is not exactly the clearest standard. It obviously depends on 
circumstance.
    Mr. Cordray, do you think you will have any difficulty 
applying standards of fair, unfair, unreasonable and/or 
abusive?
    Mr. Cordray. I think that with standards like that, 
Congressman, there is a gray area and then there is a core. And 
within the core, there is really no question that the people 
who are perpetrating acts that are within that core, they know 
that what they are doing is probably wrong, and yet they do it 
anyway.
    In the gray area, it is a little harder to judge. And I 
think we should tread more cautiously in the gray area. But as 
you say, these are terms that have been defined over decades.
    Mr. Miller of North Carolina. Actually, over centuries.
    Mr. Cordray. That is true. And it goes back to the common 
law in many instances, and when they were codified into 
statutory law. There are still a lot of years of courts 
interpreting them further.
    But for some of them, it is very well-plowed ground at this 
point. And I think that the main outlines of how people 
mistreat their customers are pretty well-defined.
    When they see that is happening, or they see that is very 
likely happening, they should be hesitating. They should be 
rethinking. And I think that is entirely appropriate.
    Mr. Miller of North Carolina. You said there are gray areas 
and core areas. You have enforcement powers and you have 
regulatory powers. In the gray areas, would you probably 
proceed straight to enforcement or would you probably turn to 
rulemaking and apply that rule prospectively, so everyone would 
know what the rules were?
    Mr. Cordray. I think that there could be situations where 
we might do either. But I also think that there is enough 
misconduct that occurs in the core areas that we would be well-
served to focus on that at the outset, in the first period of 
our Bureau.
    We want to get that cleaned up. Then, we can work on trying 
to define around the edges a little more clearly.
    Mr. Miller of North Carolina. There have also been concerns 
today and in the past about whether your rules, the 
prohibitions on unfair and deceptive and abusive practices, 
would threaten the solvency of the financial system or 
financial institutions.
    The legislation, as first proposed by the Obama 
Administration, including a requirement that a plain vanilla 
product be offered side-by-side with any other product offered 
by a financial institution; and that was shot down--there were 
gales of protest.
    And there was a sentence or two placed in the law that 
bears no requirement to offer any given financial product. So 
it is only your authority, then, to prohibit unfair practices, 
like you are not allowed to require any financial institutions 
who offer a product that might be unprofitable for them?
    Mr. Cordray. One of the mandates in the law is that we are 
supposed to promote innovation in financial services, which 
means, let 1,000 flowers bloom, as long as they are not beyond 
the pale, exploiting or treating their customers unfairly or 
being deceptive.
    We do want there to be innovation and vigorous competition 
in the financial realm. There will be times when an array of 
choices is better for consumers. There may be times where, for 
example in the mortgage market in the lead up to the financial 
crisis, where there were a lot of exotic products being offered 
to customers where they were a very poor fit, and the default 
rate showed that very quickly.
    It is something that we are going to have to think 
carefully about as we go. But again, in general, we want to 
encourage innovation and we want to encourage competition. But 
we want it to be fair competition. And we want it to be 
competition that respects the consumers.
    Mrs. Capito. The gentleman's time has expired.
    Mr. Posey, for 5 minutes.
    Mr. Posey. Thank you, Madam Chairwoman.
    It is good to see you again, Mr. Cordray. When you were 
here previously, you stated, and you also told the chairman 
earlier today that you promise to be accountable and answerable 
to Congress and you are eager to work with Congress.
    But apparently some of the people in your agency haven't 
gotten the memo yet. I have heard occasions where--this is from 
another office, not mine. It remains nameless only so they have 
no need to fear retribution--but, ``Our district is unable to 
close out certain cases that get referred to them because CFPB 
states it doesn't have to respond to them, because it reports 
directly to the Fed.''
    That was the second day of this month. I pursued that a 
little bit further when I saw it, and I found a litany of 
unreturned phone calls and messages that they have.
    And so maybe, there are some people who just need to be 
briefed on your philosophy in the agency.
    Mr. Cordray. I am not entirely following your question. Are 
you talking about a financial institution that feels that they 
couldn't get answers from our agency or someone else?
    Mr. Posey. Congressional offices.
    Mr. Cordray. Okay.
    Mr. Posey. Members of Congress.
    Mr. Cordray. That is very different from what I have heard, 
although I am happy to--and my staff will be happy to take up 
any particular situations that need to be addressed.
    I have heard a lot of compliments from different 
congressional offices, on both sides of the aisle, in terms of 
how we are handling consumer complaints. And we are beginning 
to see on our consumer complaint line lots of post mortems from 
consumers who are very pleased with the fact that after months 
of problems--
    Mr. Posey. I don't want to spend all my time on this.
    Mr. Cordray. I am sure it is a mixed bag.
    Mr. Posey. Yes, I am sure it is.
    And there is something called the Victims Relief Fund, 
wherein your agency hangs on to the money instead of returning 
it to the Treasury. And it is supposed to be used to compensate 
victims of wrongful activity.
    There is no requirement that I can see that the penalty 
must be paid to the victims of a specific wrongdoing for which 
the penalty was collected. What happens to the money if the 
victim can't be located or there is more money collected than 
there is due compensation? Are you allowed to keep the money 
and commingle it with other agency funds?
    Mr. Cordray. This is something that we have been looking at 
carefully. It is a provision of the Act, as you said. The first 
thing that happens in any matter of that sort is we are 
supposed to make a vigorous effort to find the victims who were 
wronged and make sure that they are recompensed as fully as 
possible.
    If there is a penalty that is assessed, that doesn't 
necessarily tie specifically to compensation. But if we can 
compensate victims, that is our first priority.
    If not, the law provides that money can be used to 
facilitate and aid financial literacy and education efforts 
around the country for consumers. So, that is a possible 
disposition of funds as well.
    Beyond that, I think we are just trying to be mindful of 
carrying out the law as Congress enacted it. And that is what 
it seems to say to us.
    Mr. Posey. Would you anticipate being involved in 
stipulated settlements?
    Mr. Cordray. Do you mean settlements that don't go to a 
final court resolution?
    Mr. Posey. Yes, sir.
    Mr. Cordray. I imagine that will happen frequently just as 
it does for every government agency and every private litigator 
as well.
    Mr. Posey. But you don't anticipate that money will just be 
unbudgeted revenue to the agency? That the money would be 
transparent and it would be going to victims or to education as 
you indicated?
    Mr. Cordray. I see what you are saying.
    When we arrive at a settlement, I think it will typically 
be our practice to enter that settlement agreement in accord as 
a consent decree, which creates more enforceability and more 
transparency.
    And then the nature of that document is that the court will 
specify in the court order how any funds are to be allocated 
and how they are to be used. And that creates binding law that 
we have to follow.
    So that is what I would expect would typically be the case 
in our matters that don't go to some final judgment in a court.
    Mr. Posey. That is what I wanted to hear. Thank you very 
much.
    I yield back, Madam Chairwoman.
    Mrs. Capito. Thank you.
    Mr. Scott, for 5 minutes?
    Mr. Scott. Thank you very much, Madam Chairwoman.
    Mr. Cordray, how long have you been on the job?
    Mr. Cordray. I have been on the job for 3 months, minus 5 
days.
    Mr. Scott. 3 months. And could you tell the committee what 
areas have raised the greatest number of complaints, the 
greatest areas of concern; if you had to prioritize on where 
there is the greatest area of problem and abusive practice 
lending and carrying out your mission? What would that be? 
Would it be mortgage servicers? Would it be student loans, 
credit cards? What would it be?
    Mr. Cordray. It is a little hard to determine trends yet 
because it has been a short time and we have been receiving 
complaints in stages. But I think there is very little question 
that the pace of complaints has been fastest in the mortgage 
area, especially around foreclosures and around servicer 
practices and the frustration that people feel.
    In fact, my guess is that the pattern of complaints we are 
receiving mirrors the pattern of complaints each of your 
offices receive from your constituents because I think most of 
these problems are pretty common nationally.
    We have also received a lot of complaints around credit 
cards, typically for smaller dollar issues, but still very 
frustrating to people. And we have begun receiving complaints 
about student loans. We expect we will have a significant 
volume of those and others.
    Mr. Scott. I am glad that you volunteered that answer; the 
priority of--area of concerns and complaints have been in the 
mortgage area.
    And I commend you. I think January 20, 2012, you put out in 
your annual report, a greater emphasis on dealing with the 
mortgage service area; and certainly commend you on that.
    Let me ask you how your Bureau responds to developments 
that happened and may be a little bit outside, but impact the 
mortgage area?
    For example, recently during this period, I think about a 
few months ago, there was a settlement made of billions and 
billions of dollars apportioned out to the States that was 
designed to go back to help struggling homeowners with their 
mortgages.
    One of the major areas of concern--this difficulty with 
mortgage holders is having the ability to write down the 
principal. We have been after that for a long time. The 
Secretary of the Treasury was before the committee last week 
and I asked him pointedly about that: ``Could that money be 
used to assist homeowners in their greatest area of need in 
terms of lowering the cost of their monthly payment, writing 
down the principal?''
    And he said, ``Yes.'' And you are aware of this, are you 
not?
    Mr. Cordray. Yes.
    Mr. Scott. So how are you getting this information out to 
mortgage holders who are very confused, and do not understand? 
Are you working to get out to each of the States, the 
communities, how the mortgage holders who are struggling can 
take advantage of this?
    For example, my State of Georgia's share in this is $816 
million. One of the concerns we have had, for example, is that 
the Governor of Georgia has decided that $110 million of this 
would not be used. Those funds will be diverted; they wouldn't 
go to the struggling homeowners.
    What I am trying to get at--it seems something like this, 
where you are really talking about consumer protection, is an 
area where you ought to weigh in as well.
    What has been your response? How have you gotten 
information out? Where is there a clear understanding of how 
this money can get into the hands of the consumer to help them 
for what it was designed to do, to get that principal down and 
help these people save their homes? And that these States 
cannot just willy-nilly use this money for a rainy day fund or 
whatever? And that is a problem. How are you all helping us 
with that?
    Mr. Cordray. The mortgage servicing settlement was 
organized around the principle that there was significant money 
that was allocated on a State-by-State basis. And State 
attorneys general would have a significant say in whether that 
was used, for example, for homeowner counseling, or for razing 
abandoned houses in cities, which is another big problem, or 
any of a number of other uses.
    There is also money in the settlement, though that is not 
subject to control at the State level, that will go toward 
homeowner relief, some of which will be in the form of 
principal writedowns, others of which will take different 
forms. Principal writedowns are one tool in the toolbox of 
addressing an upside down mortgage situation. And the--
    Mr. Scott. I know my time is short, but could you just tell 
us quickly what your Bureau is doing to get this vital 
information out to the consumer?
    Mrs. Capito. If you could do this quickly, because I want 
to get one more questioner in before we have to go?
    Mr. Cordray. That is fine. We are working with these other 
agencies that reached the settlement which we were not integral 
to, to make sure that we help publicize what is available to 
homeowners. But I think the lion's share of that is falling on 
the backs of the State attorneys general, the HUD Secretary, 
and the Justice and perhaps Treasury Departments.
    Mr. Scott. Thank you.
    Mrs. Capito. Mr. Luetkemeyer, for 5 minutes?
    My intention is, after Mr. Luetkemeyer's questions, to put 
us in a recess, and then come back after the votes. We have two 
votes.
    Mr. Cordray. Okay.
    Mr. Luetkemeyer. Thank you, Madam Chairwoman.
    Mr. Cordray, in reading your report, I am noticing here 
that the positions you are filling and have a breakdown of all 
the different groups that you are hiring--there is nothing 
there that indicates the breakout of people who actually have 
some real-world experience with regards to financial services.
    Can you tell me, are you hiring people who have some real-
world experience, who have ctually worked in a bank or in a 
credit union, or some sort of a payday-loan place and who 
actually know the unintended consequences of a rule or law that 
if proposed by you and the enforcement of it, how that all fits 
together?
    Mr. Cordray. Congressman, it is a good question. It would 
be a pretty poor performance by me if the answer to the 
question was, ``No, we are not.'' In fact, we are. We have a 
number of people who have come to the Bureau, I am pleased to 
say, who have come not from other Federal agencies or not from 
State government or not from the public sector at all, but from 
private sector entities; often from banks or other financial 
institutions.
    Mr. Luetkemeyer. Do you have a number off the top of your 
head, percentage-wise what it would--
    Mr. Cordray. I don't have a number, but it is many.
    Mr. Luetkemeyer. Could I get that number, please?
    Mr. Cordray. --including the Deputy Director of the Bureau 
who worked in various capacities at Deutsche Bank, at McKenzie, 
for Capital One, and has intimate knowledge of the financial 
markets.
    Mr. Luetkemeyer. Could I get that number from you at--
    Mr. Cordray. Sure, we would be happy to provide that.
    Mr. Luetkemeyer. I appreciate it.
    With regards to that, I know there is a movement I have 
seen that some folks are trying to have Mr. Martin Eakes, who 
is chief executive officer for the Center for Responsible 
Lending--do you know Mr. Eakes by any chance?
    Mr. Cordray. I have not met him, but I have heard quite a 
bit about him.
    Mr. Luetkemeyer. Okay. They are trying to recommend him, I 
believe, for a position with your agency. Are you considering 
that at all?
    Mr. Cordray. That is news to me, sir.
    Mr. Luetkemeyer. Okay. I was just curious.
    The reason I ask is because he has been rather outspoken 
with his opinion of oversight in regard to the financial 
services industry. In fact, in 2010 at Duke University's Fuqua 
School of Business, he made a statement that says, ``We have 
hired 40 lawyers, Ph.D.s and MBAs to basically terrorize the 
financial services industry.'' That gives me great pause 
whenever somebody like that is being recommended to your 
agency.
    If they have the attitude going in that they are there to 
terrorize the industry that they have oversight over, I am--
what is your reaction to that quote?
    Mr. Cordray. I don't have any particular reaction. I am not 
familiar with the quote.
    Mr. Luetkemeyer. Does that sound like somebody you would be 
interested in hiring?
    Mr. Cordray. With everybody we think about hiring, we would 
want to look at the full picture. We want a range of 
viewpoints. But, look, we are looking for a responsible, 
balanced perspective on the problems we are facing. And, 
frankly, whether we hire someone or not--and again, this 
particular situation that you raise is news to me--we are 
getting input on a broad basis from people who have a lot of 
different perspectives; some of whom dislike the banks, and 
some of whom love the banks.
    And we want to get all that perspective and filter that in 
as we figure out how to proceed on some of these hard issues.
    Mr. Luetkemeyer. In your opening testimony, you made the 
comment that you believed that everybody needs evenhanded 
oversight. And I think that if you are true to your words 
there, I would think that Mr. Eakes would have a little 
difficult trying to gain employment with your agency. But we 
will--
    Mr. Cordray. Again, I think the premise of the question is 
mistaken, but--
    Mr. Luetkemeyer. Another question for you--basically, you 
have rulemaking authority as well as enforcement authority. And 
with regards to rulemaking, do you do any cost/benefit analysis 
of the rules you propose?
    Mr. Cordray. We make strenuous efforts to, as our statute 
tells us, assess the benefits, costs, and impacts of each and 
every rule that we would consider adopting, yes.
    Mr. Luetkemeyer. Is that information public? Is that 
something we can get our hands on if--
    Mr. Cordray. It is part of every rulemaking and it is 
typically published as part of the rulemaking. So, there is 
nothing hidden about it. And it is something that courts will 
review carefully when they look at the finished product by us. 
And so, it is something that, not only do we have every reason 
to do and do carefully, but also it makes common sense. So--
    Mr. Luetkemeyer. This is, for instance, a rule of thumb or 
maybe you--can I get your thoughts on it? When you propose a 
rule and you get a cost/benefit analysis showing that it is 
going to cost 10 times more than the benefit it is going to 
return, is that something that alarms you? Is that something 
that you believe probably is not worthwhile pursuing?
    Mr. Cordray. That would be of concern to me. And it should 
be, yes.
    Mr. Luetkemeyer. Okay.
    Just give me a quick overview. In your notes and also in 
your statement, you said that you have been hearing from 
thousands of Americans about what works and what does not work.
    What has worked and what is not working from things you 
have heard from them?
    Mr. Cordray. I think there are a lot of Americans who still 
feel that they have trouble making their voices heard when they 
are on the other side of the table in some of these 
transactions, or if the transaction doesn't work out and they 
are now dealing with a mortgage servicer or a debt collector, 
someone down the road.
    Again, I am sure it is not anything different than what you 
hear every day from your constituents who sometimes are at 
their wits' end and coping with situations where they just 
would like to know that somebody is standing on their side and 
helping them.
    I know you do that. We try to do that as well. And we are 
happy to work with you to do that together.
    Mr. Luetkemeyer. I appreciate your testimony, Mr. Cordray.
    Thank you, Madam Chairwoman.
    Mrs. Capito. Thank you. The committee will stand in recess. 
We will have two votes. We will get back as quickly as we can.
    Thank you for your patience.
    [recess]
    Mrs. Capito. In the interest of everybody who is here, we 
are going to go ahead and start, if that is okay.
    Mr. Green, for 5 minutes.
    Mr. Green. Thank you, Madam Chairwoman.
    Again, Mr. Director, thank you for being here. I would like 
to visit with you quickly on several issues. I would like to 
start, if we may, with the small banks and credit unions.
    As I have indicated, I have been meeting with them. And 
they have expressed some concerns and I would like to give you 
an opportunity to share with us some of the outreach efforts 
that you have in place to allay some of their concerns.
    Mr. Cordray. Thank you, Congressman.
    It is something that I have indicated is a point of 
emphasis for the Bureau. And this goes back to my personal 
background. I served, as I mentioned before, as the elected 
State treasurer in Ohio and also as attorney general.
    As State treasurer, I worked a great deal with smaller 
banks in the State because we had a small business lending 
program that we made available to them and a number of them 
participated in it.
    And out of that work, we created a community bankers' 
council that advised me about all aspects of the work we were 
doing at the Treasury and really improved our work.
    When I became attorney general, I continued that, and had a 
bankers' advisory council on the kind of financial issues that 
we touched on in the attorney general's office.
    And so, I have said I am going to do the same as the 
Director of this Bureau. We are going to have both a community 
banks' advisory council and a credit union advisory council.
    We just met earlier this week to work out how we are going 
to select members for that, and the frequency of meetings and 
the like. They are going to have very direct input to me.
    The other thing is that we are required by the law in a 
number of our rulemakings to have special panels that give 
small providers and small banks the opportunity to give us very 
direct input about rule proposals and how those would affect 
their operations and whether there should be adjustments made 
and the like. That is something we are going to consider with 
each of our proposals.
    We have issued one final rule thus far, on remittance 
transfers, which are the international transfers of money that 
many people engage in. And we have issued a supplemental 
proposal to consider whether there should be a threshold of 
institutions that don't do these transactions as a regular 
matter which should arguably be exempt or on a relaxed footing 
with some of the requirements.
    Mr. Green. With reference to our servicemembers, I see that 
you have the Office of Servicemember Affairs.
    I am eager to hear what you say about this. I am amazed at 
how important this has become to our country, the veterans as 
well as those on active duty.
    So could you share a few thoughts, and then I will have one 
more question for you?
    Mr. Cordray. Sure. I think you are exactly right. It is of 
increasing importance to our country because we have a whole 
new crop of veterans who are, or will be, returning from active 
duty.
    Many of them were activated from National Guard status. And 
we should be making sure that they are protected both during 
their active duty, for which they have very special provisions 
in the law, and after they come back. There is a lot of 
emphasis right now on hiring veterans and making job 
opportunities available. But similarly, we want to protect them 
because many of them have benefits coming under the G.I. Bill. 
And whenever you have money coming, there are people who have 
different ideas for you, and many of them are not looking out 
for your own best interest.
    I have been very impressed with Holly Petraeus, both as a 
colleague of mine and then since becoming Director, as I work 
with her; she has been a strong voice for our military. She 
spends a lot of time going across the country visiting military 
bases and bringing back the insights that she gleans from those 
trips about the needs and struggles not only of servicemembers, 
but their families, and making sure that we give voice to those 
concerns, whether they are within the narrow jurisdiction of 
the Bureau or whether it means working with the Department of 
Defense or the Department of Education or others.
    There is much that she is getting done. And we want to 
protect servicemembers every way we can because it feels like 
the appropriate way to repay our debt to people who have risked 
so much, and sacrificed so much, for the liberties of the rest 
of us.
    Mr. Green. Thank you.
    And finally, my district is quite diverse. We have the 
ballot in my district printed in four languages: English; 
Spanish; Vietnamese; and Chinese. So I would like to know what 
you are doing in terms of language translation to make sure 
that we are communicating with all persons in the country, 
lawfully here, I might add.
    Mr. Cordray. First of all, that is fascinating. Second of 
all, at the Bureau, maybe the most direct way we hear from 
people is on our consumer complaint line. And this is very 
important to us; we created this capacity; we are able to field 
inquiries from people in 187 languages, which pretty much 
covers the waterfront in this country, as best we can tell.
    And we don't want anybody to be blocked from being treated 
fairly as a consumer by the fact that there is some sort of 
language barrier that means they can't make their voice heard.
    We also know that in many communities where there is a 
language barrier, they can be the targets of predatory schemes 
and plans because there is an assumption, often sadly correct, 
that they will not pursue law enforcement remedies or complain 
to the government. They will just take their lumps.
    We don't want that to be the case. We want those 
communities to be just as protected as the majority community. 
And if that means breaking down language barriers to do it, 
that is something that feels like it is appropriate for us.
    Mr. Green. Thank you, Madam Chairwoman. I owe you 1 minute 
and 15 seconds.
    Mrs. Capito. Thank you.
    Mr. Renacci, for 5 minutes.
    Mr. Renacci. Thank you, Madam Chairwoman.
    And I want to welcome a fellow Buckeye. No matter what we 
agree or disagree on, I am sure Saturday night, we will be 
agreeing on which team should be winning.
    Mr. Cordray. We sure will.
    Mr. Renacci. But Mr. Cordray, I have heard serious concerns 
being raised about the CFPB examination policy under which one 
or more CFPB enforcement attorneys accompany CFPB examiners on 
all CFPB exams.
    Some have pointed out that none of the Federal banking 
agencies has ever done this, and that having enforcement 
attorneys participate in exams has a chilling effect on the 
examination process. I am afraid that the CFPB practice is 
intimidating and does not foster the openness that you 
characterize that you would characterize a relationship between 
the CFPB and the institutions it examines.
    Indeed, this practice feeds the institutional fear that the 
CFPB's main purpose or object during an exam is to obtain 
documents and information that later can be used to launch an 
enforcement action. Are you concerned about this as far as the 
institution's perception of the CFPB?
    Mr. Cordray. It is something I have had discussions on with 
a number of bank CEO's. I make it a point--I frequently am 
calling through the list of the different financial 
institutions that we are now working with to make sure that 
they know there is an open line of communication to me. Some of 
them have raised the issue.
    And I have taken pains to explain that we are trying to 
integrate our supervision and enforcement teams. We want the 
supervision teams to understand where enforcement works and why 
and how. And we want the enforcement team to understand how 
supervision and examinations work, and how; and that often may 
be a preferable way to address and resolve problems, which is a 
new thing for a lot of enforcement attorneys who have come from 
different contexts; like it was new to me coming from an 
attorney general's office where we didn't have any kind of 
examination capacity.
    So I have indicated it is not an attempt to create some 
sort of macho message that we are sending. We don't have 
regional counsels and so this is one way to ensure that our 
examination teams have proper support. People shouldn't read 
any message into that and none is intended.
    Mr. Renacci. Okay.
    On enforcement also, according to some reports--you may be 
able to confirm this--the CFPB enforcement staff now has over 
100 attorneys, which is more than twice as many as are 
currently employed by the OCC. This disparity is striking 
since, unlike the OCC, the CFPB has no 150-year track record of 
supervision and regulation on which to judge its reasonably 
anticipated enforcement needs.
    Will enforcement be a principal, or what will be a 
principal focus of these examinations?
    Mr. Cordray. First of all, I think that number is above 
where we are at the Bureau. I don't think it is accurate that 
we have 100 enforcement attorneys at the moment.
    But what people need to keep in mind is that we are 
supposed to enforce the law not only against the banks, the 
large bank institutions like the OCC does, but also a very 
significant densely populated nonbank realm as well. And we are 
going to need enforcement attorneys to address a lot of 
problems in that area.
    We are talking about debt collection. We are talking about 
mortgage issues, both servicers and brokers. There are a lot of 
areas that people have a lot of dissatisfaction with; and we 
need to make sure that the laws are being respected, that they 
are being followed, that they are being enforced.
    So enforcement is one of a number of tools, all of which 
are essential to doing our job well. And I think particularly 
given the fact that we are dealing with both banks and nonbanks 
and no Federal oversight of nonbanks has previously existed, 
this is appropriate.
    But we will continue to calibrate that as we go. We are 
learning as we go every month, as you can imagine.
    Mr. Renacci. Based on the consumer testimony, the CFPB's 
overdraft protection and payday-advance field hearing, it is 
apparent that there exists in the marketplace a growing need 
for short-term credit options. I believe that it is critical 
that we identify and address the small number of lenders who 
operate illegally, whether they are insured depositories or 
nonbanks.
    My concern, however, is that overregulation by the CFPB of 
the vast majority of regulated bank and nonbank lenders will 
limit innovative products and access consumers need to 
legitimate short term credit. Can you provide some assurances 
that will not be the case?
    Mr. Cordray. That is a great question. It is an issue that 
we are thinking a lot about at the Bureau. We had our first 
field hearing on the issue of short-term low-dollar loans.
    We recognized that is an area where consumers have a real 
demand. They need that product. But we are concerned that 
products in that area need to be products that help consumers 
rather than harm them.
    There are some banks that are now coming into that sphere 
and competing. We would like to see there be robust competition 
with good products and good customer service for consumers who 
have short-term needs; and many do, no question about it. Not 
everybody has a rich family member who is always there to 
provide $500 or $700 when they need it.
    So we want to foster competition in that area. But it is 
something we are thinking carefully about because there are 
some predatory products as well, and we want to encourage the 
good products and we want to discourage the bad products 
frankly.
    Mr. Renacci. Thank you, Mr. Cordray. I yield back.
    Mrs. Capito. Mr. Sherman, for 5 minutes?
    Mr. Sherman. Thank you, Director Cordray.
    In a world of the darkness of the filibuster, a recess 
appointment offers one little glimmer of light. And if a series 
of pro forma sessions constitute real sessions of the Senate, 
then cartoons are real people.
    I welcome you to this committee. I have one long question 
dealing with mortgage finance and then a whole bunch of 
questions that are probably so numerous that, for those, you 
will probably want to just respond for the record.
    The Bureau is currently working on the ability to pay 
qualified mortgage regulation. This is going to shape the 
future of the mortgage market and people's ability to buy 
homes. Congress created this ``Ability to Pay'' rule to ensure, 
in fact, that creditors were determining the consumer's ability 
to repay the loan before making the mortgage. Everybody agrees 
you make a mortgage to someone who can afford to repay it.
    However, we have heard from consumer groups--I have heard 
from industry, I have heard from others--that the Bureau's 
current thinking might give us a regulation that is so 
stringent that it could reduce access to mortgage credit in 
what is already a tight mortgage lending environment.
    So I would like your comments on this qualified mortgage 
rule; specifically whether you intend it to be a broad measure 
based on ability to pay or a narrower measure that might deny 
creditworthy buyers access to credit.
    You have indicated a desire to finish the rule by the 
middle of this year. So when finalized, will it require lenders 
to determine that the borrower has a reasonable ability to pay? 
Under Dodd-Frank, the lenders can satisfy this requirement by 
originating a qualifying mortgage which is a safer, more 
sustainable product. How will that definition of a qualifying 
mortgage relate to the rules that you are putting together on 
``Ability to Pay?''
    Mr. Cordray. Okay.
    Mr. Sherman. I told you it was a long question.
    Mr. Cordray. It is a long question, but I have long answers 
typically, so maybe they match up.
    As I said earlier on this subject, I want to be a little 
careful because it is a pending rulemaking. There was the 
proposed rule that the Federal Reserve put out, and it has now 
fallen to us to finalize that rule. We are consulting with 
other agencies and we have received extensive input on the rule 
from consumer groups, from industry groups, and from people 
across the spectrum, all of whom are interested in the mortgage 
market, the real estate market, and we all feel the same way; 
we want to see it come back to life and to vibrancy. It is 
going to be important to the economic recovery.
    So this is an important statute. We want to get the rule in 
the right place. We are trying to be careful as we think about 
it. And we are looking closely at the alternatives that the 
Federal Reserve Board proposed.
    We are considering how best to give effect to the language 
of the statute. And as you indicated, congressional intent in 
this regard is a salient point to us. Ensuring access to credit 
in the market broadly is important to us. One of the 
difficulties here is it is not so easy to predict the path 
forward of the mortgage market.
    We had a very overheated mortgage market leading up to the 
financial crisis. There were a lot of lenders that, 
astonishingly, were making loans without considering the 
ability to repay of the borrower--completely ignoring that. 
They were able, surprisingly, to sell those loans on the 
secondary market.
    Mr. Sherman. I am going to have to interrupt you at this 
point--
    Mr. Cordray. Yes.
    Mr. Sherman. --and I will have a number of questions for 
the record.
    Mr. Cordray. Okay.
    Mr. Sherman. One of them will relate to ATM disclosures, 
which, as you know, have to be a physical disclosure on the 
machine, as well as a screen that pops up as you are operating 
the ATM.
    What has come to my attention is that there are people who 
will rip off the external physical disclosure and then somebody 
will come sue for the fact that it is not on the machine.
    Now that we have a more technological world in which every 
machine also has the screen warning, which is far more 
noticeable and far more important, one would hope that you 
would write regulation so that you either didn't have to have 
the physical one, or that you had the physical one when you 
installed the machine, but you are not responsible for the fact 
that somebody comes by and rips it off, and then, 
coincidentally, somebody comes by and sues you. So that will be 
one of my questions for the record.
    Others will relate to whether to establish an Office of 
Regulatory Burden Monitoring; whether to have credit unions and 
community banks involved on your consumer advisory board; the 
fact that you have a 400-page regulation on remittances, and we 
hope that, at least for credit unions and other smaller 
financial institutions, you would be able to put out something 
a little more streamlined.
    Mrs. Capito. The gentleman's time has expired.
    Mr. Sherman. I will ask you also when we expect a larger 
market participants rule to be finalized.
    Mr. Cordray. Okay.
    Mr. Sherman. And we will get all those submitted as 
questions for the record. I thank you for your appearance.
    Mr. Cordray. All right. Thank you.
    Mrs. Capito. Thank you. I am trying to squeeze it in so we 
can get this before the next vote.
    Mr. Royce?
    Mr. Royce. I would like Director Cordray to return to that 
quote that I mentioned earlier in this hearing:
    ``I feel it bears observation that banking agencies' 
assessments of risks to consumers are closely linked with and 
informed by a broader understanding of other risks in financial 
institutions, placing consumer protection policy-setting 
activities in a separate organization,'' she said, ``apart from 
existing expertise in examination infrastructure could 
ultimately result in less effective protections for 
consumers.''
    I would just ask you if you agree in concept with her 
concern there?
    Mr. Cordray. I hadn't heard that quote before, and I found 
it curious because the FDIC, in fact, has reorganized their own 
staff to separate consumer protection staff from other staff so 
that they can make sure they have a more direct focus on these 
same issues. So, they have kind of mirrored Dodd-Frank.
    Mr. Royce. But remember, the quote here is a separate 
organization.
    Mr. Cordray. Yes. Okay.
    Mr. Royce. And that is your point?
    Mr. Cordray. Yes.
    I actually think that the two issues go hand-in-hand. I 
don't think that you can have a safe-and-sound financial 
institution that is not treating its customers in a sustainable 
basis for the long term.
    If they are eating their customer base by exploiting them 
in the short run, which is the kind of things that raise 
consumer protection concerns, they will not be a safe-and-sound 
institution in the long run. So I think there is much more 
harmony between these concepts than people have recognized.
    I also think, though--and I would agree with you--that it 
behooves us to correlate closely with our fellow regulators to 
make sure that we aren't inadvertently--we certainly don't 
intend to--undermining anything about the safety and soundness 
of the financial system, which would also disserve consumers.
    Mr. Royce. However, since we have lost the argument for 
inclusion in one organization or in one entity, as she pointed 
out, you could share that information and have a broader 
understanding of other risks and financial institutions in 
terms of your decision-making. Would you agree that the authors 
of this bill went to great lengths during deliberations to 
ensure that you were not required to consider safety and 
soundness?
    Mr. Cordray. I am not sure I would agree with that.
    Under the new law, I sit as part of the Financial Stability 
Oversight Council (FSCO), along with my fellow regulators. FSOC 
has the ability to override our rules if they threaten the 
safety and soundness of the system. I think that means that we 
will have to, and should want to, take that into account as we 
write rules and also seek out and hear their perspective and 
have that inform us.
    Mr. Royce. Right, with a supermajority vote.
    I would point out that perhaps the reason I am focused on 
that issue of not considering safety and soundness is because I 
tried during the markups, during Dodd-Frank, to have that 
included, but I failed in that endeavor.
    But let me go to another concern that I have here. The CFPB 
will now have the authority to rule whether a State law is 
inconsistent with Federal consumer protection laws. What 
standards will the CFPB use when exercising this authority, 
because if little is done in terms of keeping the States on the 
same page, then we could end up with a patchwork of varying 
consumer protection laws? And would you agree that would be bad 
for consumers and businesses?
    Mr. Cordray. I think we have had a patchwork of consumer 
laws in this country for decades and another term for it is 
Federalism, though--
    Mr. Royce. Or maybe the Articles of Confederation would 
actually be the term for it, because there are exceptions, like 
in the insurance industry, where we do have 50 different 
regulators, 50 sets of rules, 50 separate markets, and a 
consequence to loss for the consumers and businesses as a 
result.
    But the real reason we gave up on the Articles of 
Confederation and tried to go to one national market was to 
avoid such a comeuppance because that is what was so costly 
pre-Federalist system.
    The idea under the Federalist system was that we were going 
to have at least one national market. That is not where we 
ended up. And that is where I hope that rather than compound 
this problem, which I think Dodd-Frank will do, you might work 
in the other direction to create one national market.
    Mrs. Capito. The gentleman's time has expired.
    Mr. Westmoreland?
    Mr. Cordray. Could I respond to the Congressman or--
    Mrs. Capito. Quickly.
    Mr. Cordray. One of the things that we are supposed to do 
is ensure coordinated enforcement of the Federal law here.
    Dodd-Frank was unusual in allowing States to enforce the 
Federal law. We want to make sure that we aren't going in 50 
different directions on Federal law.
    As for State law, we are inclined to be respectful of the 
States. As we have situations, or if they come to your 
attention and you want to bring them to our attention, we will 
be very interested in hearing about concerns in that regard.
    Mr. Royce. Thank you, Director.
    Mrs. Capito. Mr. Westmoreland, for 5 minutes.
    Mr. Westmoreland. Thank you, Madam Chairwoman.
    Mr. Cordray, what would be your personal--right over here.
    Mr. Cordray. Yes, thank you.
    Mr. Westmoreland. I know it is hard to get the direction 
from down there but what would be your personal definition of 
``fair''; F-A-I-R?
    Mr. Cordray. Congressman, I don't know that my personal 
definition is relevant here because ``unfair'' is a defined 
term in the law. And my job as Director of this Bureau is to 
enforce the law that Congress has enacted. Therefore, we will 
apply the terms that Congress specified as to what ``unfair'' 
means.
    But I do think it is likely that you and I and most people 
would have a fairly common-sense, probably consensus view of 
what is fair and unfair. It is not to say we would agree in 
every circumstance. There probably would be a significant 
number of circumstances where we would all agree that something 
was unfair.
    And then, there would be areas that are gray areas where we 
should, as a Bureau, I think tread cautiously and be a little 
careful. You don't want to come down hard on people when things 
are not clear.
    Mr. Westmoreland. Okay. That is fine.
    What is the definition of ``fair'' that you are going by?
    Mr. Cordray. It is the definition in the Dodd-Frank Act 
which, itself, builds on years of case law and interpretation--
    Mr. Westmoreland. Okay.
    Mr. Cordray. --by the Federal Trade Commission--
    Mr. Westmoreland. What is the definition that you go by 
that Dodd-Frank lays out?
    Mr. Cordray. I don't have it in front of me, but it is a 
defined term. And the term is defined on the basis of decades 
of case law that have been very carefully worked out. And this 
is not an area of controversy, I think, for financial 
institutions under our purview.
    They understand that law. Their concern to us that they 
have expressed is that we not go deviating from that in some 
unexpected direction, which we do not intend to do.
    Mr. Westmoreland. Do you have a definition of ``personal 
responsibility?''
    Mr. Cordray. That is not a defined term under the law, so I 
could give you my own view of it.
    Mr. Westmoreland. Okay.
    Mr. Cordray. And I will.
    I think that consumers have a responsibility to make their 
own decisions and to be responsible and accountable for their 
own decisions. They are the ones who have to live with those 
decisions.
    But I do think there is much that we can do as a Bureau and 
as a country to make sure that consumers are better informed 
about the choices that they may be making. And we have a 
responsibility to try to make those choices more accessible to 
consumers so that they are not confused by back-end pricing; by 
dense fine print that doesn't specify terms very clearly, and 
that sometimes fosters and takes advantage of that customer 
confusion.
    Mr. Westmoreland. So you are admitting that there is some 
personal responsibility involved when people make financial 
decisions and that there are certain consequences to those 
decisions. Correct?
    Mr. Cordray. I would acknowledge that, absolutely. Yes.
    Mr. Westmoreland. Do you or the CFPB--do you all ever 
recommend products or push a certain product for somebody such 
as 30-year loan versus an ARM? Do you promote those type of 
things or is that a personal decision?
    Mr. Cordray. I don't think that, as a Bureau, it is our 
role to promote or hawk particular products. That is not what 
we are doing. But it is our role to enforce and to implement 
the law.
    Congress has made some judgments here about some of the 
exotic mortgage products, for example, that led to the mortgage 
crisis, the financial meltdown, the credit crunch that 
destroyed many businesses in this country and cost a lot of 
people jobs and homes. We will implement those decisions.
    To the extent we have judgments to make, we will try to 
make them very carefully in this realm.
    Mr. Westmoreland. But you are not trying to go to a plain 
vanilla or ``everybody gets the same thing'' type loans?
    Mr. Cordray. I don't think we are trying to mandate 
products for individuals. I think if people are presented with 
an array of choices that are responsible choices that are 
clearly explained, then ultimately, they have to make their own 
decisions. I would agree with you, I think, on that.
    Mr. Westmoreland. Do you think it enters into the fact 
that--I think your report was disappointing, to say the least. 
And do you think that has anything to do with there not being--
that you don't have any accountability to Congress as far as 
funding is concerned?
    Mr. Cordray. I think we have more accountability to 
Congress on funding than any of the other banking agencies 
because all of them are independent of the appropriations 
process. And I don't hear any strong move here to put them 
under the appropriations process. The OCC has been around for 
100 years; the Federal Reserve has been around for 100 years. 
In fact, we have a statutory cap on our budget, which none of 
the rest of them have.
    We are subject to multiple audits and testimonies and 
oversight by Congress. I welcome your active oversight. I am 
always pleased to come up here and talk to you about the work 
we are doing and hear from you about your concerns.
    If there was anything you were disappointed about in our 
semi-annual report, as you just indicated, I would be happy to 
have my staff work with yours to understand how we could do 
better, because we want to improve as we go.
    Mrs. Capito. The gentleman's time has expired.
    Mr. Duffy?
    Mr. Duffy. Thank you, Madam Chairwoman.
    Mr. Cordray, just to be clear--I was in here for a pretty 
decent part of the hearing, but not all of it. Is it fair to 
say that the rules that come out of the CFPB that apply to big 
banks will also apply to smaller banks as well, but just 
implemented by a different regulator? Is that fair to say?
    Mr. Cordray. They will apply to all banks. And that is one 
of the reasons why I have said that we should consider 
carefully whether they perhaps should apply in a different way 
to smaller banks that don't have an army of compliance 
officers, and may have different, simpler processes and cannot 
afford to bear some of the same transitional and other costs.
    Mr. Duffy. And that has been one of my concerns.
    Mr. Cordray. Yes.
    Mr. Duffy. I have a lot of small community banks in my 
district. The way it seems today is that the rules are still 
going to apply to them. And they don't have the resources to 
hire new compliance officers and new attorneys. Even though you 
may not be enforcing them, someone else will be enforcing those 
rules on them.
    Is it also fair to say that we could have a consumer who is 
seeking out a certain product, and you could deem the product 
fair; but it could also be deemed abusive as well, is that 
correct; could be fair but also abusive?
    Mr. Cordray. Yes. We were having this discussion earlier.
    Congress used 3 terms in that passage--unfair, deceptive 
and abusive acts or practices--which seems to be an indication 
that Congress believed and it defined the terms to some degree 
that each of them is distinct, although there may well be some 
considerable overlap among them.
    Mr. Duffy. And in regard to the term ``abusive,'' was it 
your testimony that you believe that the definition as set out 
by Congress is sufficient and there is no further definition 
that needs to be made by the CFPB?
    Mr. Cordray. It was my testimony that sometimes people have 
referred to ``abusive'' as not a defined term.
    It, in fact, is defined, and was defined very explicitly by 
Congress. Our role as an independent Federal agency is to 
enforce and implement the law that Congress has enacted. So 
that is the term. That is the way they have defined it. Our job 
is to try to apply that to the specific facts and 
circumstances.
    Mr. Duffy. And I think the--
    Mr. Cordray. If the Congress at some point is going to 
rewrite that law, we will implement whatever law Congress 
writes.
    Mr. Duffy. And so to look at the phrase ``abusive,'' the 
term ``abusive,'' it does give--if you want to call it a 
definition or it lays out some guidelines for what abusive is--
and at one point it says it ``takes unreasonable advantage 
of.''
    Do you have an idea of what unreasonable advantage means? 
Do you have a definition of what unreasonable advantage means?
    And how would that be implemented? How, if you are a small 
bank in Wisconsin, would you go to see if CFPB is going to be 
looking at us taking unreasonable advantage?
    Mr. Cordray. I think the term ``reasonable'' is a common 
term in the law. It is a common term in tort law. The 
``reasonable man'' is the test that courts have used for 
centuries to try to define behavior. And it becomes more 
carefully defined over time.
    I think that if banks are in a position where they fear 
they may be deemed to be taking unreasonable advantage of their 
customers--we had the example earlier of peddling an exotic 
mortgage product to an elderly widow, that probably would be 
something where the bank should take a slightly different 
approach than if they are peddling it to a more sophisticated 
consumer.
    Mr. Duffy. And so you would agree, though, that it is a 
subjective standard. There is no bright-line standard on how 
this can be implemented for the phrase ``abusive.'' It is 
subjective to the Director or to your staff on what that means.
    Mr. Cordray. I wouldn't agree with that characterization. I 
think it is a facts-and-circumstances test. I think that most 
good businesses know it when they see it. They know when they 
are walking a line and they know when they are far beyond the 
line.
    They also can communicate with us to get more guidance as 
we know--
    Mr. Duffy. But humans view facts differently. And if there 
is no bright-line test, what you might find abusive someone 
else might not find abusive. What is abusive in Alabama may not 
be abusive in Wisconsin. Isn't that fair to say?
    Mr. Cordray. I think it is the case that what is abusive 
and takes unreasonable advantage can differ from circumstance 
to circumstance so--
    Mr. Duffy. And I only have 30 seconds left.
    I want to have you talk to me about this, because also, 
when we talk about an unreasonable standard, it talks about ``a 
lack of understanding on the part of the consumer of the 
material risk, cost or conditions of the product or service.''
    And you had referenced, in our case law, we will reference 
a reasonable man. What would a reasonable person know or should 
know when they engage into that agreement? But this standard 
isn't the reasonable person. This is the individual standard.
    So you are a small bank in Wisconsin and you have one 
person come in, and the standard that you use with them may not 
be abusive. But the next person who comes in, the same standard 
would be used. But because of their background, because of 
their education, because of their experience, it could be 
abusive for the second customer who comes in.
    How do you comply with this law?
    Mr. Cordray. I think good businesses do this all the time, 
sir. I think they think carefully about which customer they are 
dealing with. Most of the community bankers I speak to, and 
credit unions, tout the fact that they know their customers. 
They know them well. They tailor their dealings with the 
customer to the situation of that customer. It is not one-size-
fits-all. I think that is part of their strength.
    I would also point out there are other prongs of that 
definition that are much more objective, such as taking 
unreasonable advantage of the fact that the consumer is not 
able to choose their provider. That is true of debt collectors 
and others. And in that setting, there is really nothing that 
is subjective at all about that.
    So the fact that some of this definition--which Congress 
has laid down, and we are required to implement--may be firmer 
and some of it may be softer, I think it is not surprising.
    If you all decide at some point to rewrite this, we will 
implement whatever law you write.
    Mr. Duffy. Thank you.
    Mrs. Capito. Mr. Stivers, for 5 minutes.
    Mr. Stivers. Thank you, Madam Chairwoman.
    And I would like to thank Rich for being here. The problem 
with having such low seniority on the committee is I don't get 
a chance to tell all my friends and colleagues who have left 
that Rich is one of my constituents. I have known him for 
years. And I have found him to be a great public servant who 
cares deeply about this country and tries to do the right 
thing. And he also listens.
    So I appreciate him coming to testify before us today. 
While some of us on this side of the aisle are unhappy about 
the process under which you were appointed, I do want to assure 
my colleagues on the record that the President picked someone 
whom I think can carry out this job very well, and do it in the 
right way, ensuring we try to protect consumers while still 
looking out for the safety and soundness as well as 
competitiveness of our financial services industry.
    I would urge you to continue to look out for both 
competitiveness and safety and soundness while you are 
protecting consumers, because they are interrelated. And if we 
put our financial services institutions out of business in the 
name of consumer protection, we haven't really protected 
anyone.
    So I appreciate you being here.
    And I did have a thought for the gentleman from California, 
who has left, who did compare pro forma sessions to cartoon 
sessions. And I am just curious if the gentleman believes that 
the payroll tax cut that was passed during a pro forma session 
is a cartoon tax cut. I am not sure if he does and he has left, 
so I won't get my question answered today.
    But I would like to turn to more serious business and talk 
to you about Section 1100G of Dodd-Frank, which requires you to 
put safeguards in place to ensure that new regulations don't 
lead to further reduction in the availability or affordability 
of credit for small businesses and consumers.
    And I am just curious what kind of safeguards you are 
putting in place to make sure that happens? Because obviously 
we all believe in consumer protection, and I know Mr. Royce 
from California talked about how he believes it should be 
integrated.
    I hope we can integrate it well. And I hope that you will 
work with the other regulators to integrate consumer protection 
into everything, but I do want to make sure that we keep 
affordable, available credit for our small business and 
consumers.
    Mr. Cordray. Thank you, Congressman.
    First of all, to go back to a point you made a moment ago, 
which I very much agree with, it does not help protect 
consumers if we undermine the safety and soundness of the 
financial system. Consumers depend on the availability of 
credit to be able to do things like buy homes, access 
education, and be able to manage and control their spending. 
And if the system does not provide those opportunities to 
people, then their lives are stultified as a result.
    And I also very much agree that having a competitive, 
vibrant financial sector is good for consumers for all those 
same reasons, lots of availability of choice and the like.
    As you point out, our governing law, which is the only 
thing that gives us authority to do anything, does tell us that 
access to credit is one of the chief objectives that we are 
supposed to serve. We will try to be mindful of that as we go 
about our different tasks.
    One of the tasks I have talked a little bit about today is 
this ability to repay rule in the mortgage market. And there 
are other mortgage rules that we are required to develop.
    In the end, we want a mortgage market where credit is 
available to people. In the lead-up to the financial crisis, 
the mortgage market was a market in which credit was available 
in some of the most bizarre terms; nonunderwritten loans that 
paid no attention to people's income; to their ability to 
repay; to their assets; and lots of falsification. It was a 
very broken market.
    And one of the things we need to keep in mind is, as a 
result of that we had the credit crunch, which has hurt small 
businesses.
    Mr. Stivers. I only have 1 minute left so--
    Mr. Cordray. I am sorry.
    Mr. Stivers. --if you could give me the answer, what you 
are doing to safeguard affordability and availability in 
writing, that would be great.
    And I do want to quickly--
    Mr. Cordray. Okay. That is fine. You got it.
    Mr. Stivers. --just mention one other thing. The Bureau is 
working on a two-page prototype credit card agreement, is my 
understanding. I understand that the printed portion in the 
contract with definitions comes in at about 4,431 words. And 
that doesn't include definitional terms that are housed on 
other pages.
    So we are talking about a two-page agreement, a one-page 
summary, and somewhere between two to seven pages of 
definitions with other untold information tacked on too.
    And I am just curious if the goal is to make sure that 
people understand and read these contracts, why we aren't 
building on the one-page agreement summary that is now 
available under the Truth in Lending Act, rather than 
developing a government-designed contract?
    Mr. Cordray. It is a good question, and it is one that we 
are trying to carefully consider.
    We are not in this, at this point, trying to operate in 
this area by putting out a dictate or a single rule that 
everybody has to follow. We have come out with a prototype 
agreement. Several institutions have been interested in 
piloting that agreement. We are seeing lots of other 
institutions come out with their own, shorter agreements.
    I think what we are all moving toward, and there seems to 
be a lot of interest in the industry on this, too, is a shorter 
summary agreement that people can read and understand that 
pulls out the key points.
    And then there is lots of other information that maybe 
would be good for them to have; maybe it protects the 
institution against liability; that maybe could be presented on 
the Internet. It is available if they want to go and look at it 
there. They can be referenced to it.
    But it doesn't necessarily have to pollute the short, clear 
agreement in ways that cause customers not to read anything, 
which is what we have seen a lot.
    So I think that is what we are working toward. And a lot of 
institutions are interested in working toward that. And I think 
we will end up with some pretty good consensus around this.
    Mr. Stivers. I yield back my nonexistent time, Madam 
Chairwoman.
    Mrs. Capito. The gentleman's time has expired. So it is 
just the two of us. And you said you would stay till 2:00, so--
    [laughter]
    It will you and me for another hour. That is a joke.
    Anyway, the Chair notes that some Members may have 
additional questions--I think Mr. Sherman mentioned he was 
going to have some--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.
    I would like to thank you for your patience.
    Mr. Cordray. Thank you.
    Mrs. Capito. I know it has been kind of a herky-jerky day. 
And I appreciate your honesty and your response in responding 
to all of the questions.
    Mr. Cordray. It gives me a better appreciation for all the 
schedules you have to keep.
    Mrs. Capito. With that, the hearing is adjourned.
    [Whereupon, at 12:49 p.m., the hearing was adjourned.]


                            A P P E N D I X



                             March 29, 2012


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