[House Hearing, 112 Congress]
[From the U.S. Government Publishing Office]
THE IMPACT OF DODD-FRANK ON CONSUMER
CHOICE AND ACCESS TO CREDIT
=======================================================================
HEARING
BEFORE THE
SUBCOMMITTEE ON FINANCIAL INSTITUTIONS
AND CONSUMER CREDIT
OF THE
COMMITTEE ON FINANCIAL SERVICES
U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED TWELFTH CONGRESS
SECOND SESSION
__________
JULY 19, 2012
__________
Printed for the use of the Committee on Financial Services
Serial No. 112-147
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HOUSE COMMITTEE ON FINANCIAL SERVICES
SPENCER BACHUS, Alabama, Chairman
JEB HENSARLING, Texas, Vice BARNEY FRANK, Massachusetts,
Chairman Ranking Member
PETER T. KING, New York MAXINE WATERS, California
EDWARD R. ROYCE, California CAROLYN B. MALONEY, New York
FRANK D. LUCAS, Oklahoma LUIS V. GUTIERREZ, Illinois
RON PAUL, Texas NYDIA M. VELAZQUEZ, New York
DONALD A. MANZULLO, Illinois MELVIN L. WATT, North Carolina
WALTER B. JONES, North Carolina GARY L. ACKERMAN, New York
JUDY BIGGERT, Illinois BRAD SHERMAN, California
GARY G. MILLER, California GREGORY W. MEEKS, New York
SHELLEY MOORE CAPITO, West Virginia MICHAEL E. CAPUANO, Massachusetts
SCOTT GARRETT, New Jersey RUBEN HINOJOSA, Texas
RANDY NEUGEBAUER, Texas WM. LACY CLAY, Missouri
PATRICK T. McHENRY, North Carolina CAROLYN McCARTHY, New York
JOHN CAMPBELL, California JOE BACA, California
MICHELE BACHMANN, Minnesota STEPHEN F. LYNCH, Massachusetts
THADDEUS G. McCOTTER, Michigan BRAD MILLER, North Carolina
KEVIN McCARTHY, California DAVID SCOTT, Georgia
STEVAN PEARCE, New Mexico AL GREEN, Texas
BILL POSEY, Florida EMANUEL CLEAVER, Missouri
MICHAEL G. FITZPATRICK, GWEN MOORE, Wisconsin
Pennsylvania KEITH ELLISON, Minnesota
LYNN A. WESTMORELAND, Georgia ED PERLMUTTER, Colorado
BLAINE LUETKEMEYER, Missouri JOE DONNELLY, Indiana
BILL HUIZENGA, Michigan ANDRE CARSON, Indiana
SEAN P. DUFFY, Wisconsin JAMES A. HIMES, Connecticut
NAN A. S. HAYWORTH, New York GARY C. PETERS, Michigan
JAMES B. RENACCI, Ohio JOHN C. CARNEY, Jr., Delaware
ROBERT HURT, Virginia
ROBERT J. DOLD, Illinois
DAVID SCHWEIKERT, Arizona
MICHAEL G. GRIMM, New York
FRANCISCO ``QUICO'' CANSECO, Texas
STEVE STIVERS, Ohio
STEPHEN LEE FINCHER, Tennessee
James H. Clinger, Staff Director and Chief Counsel
Subcommittee on Financial Institutions and Consumer Credit
SHELLEY MOORE CAPITO, West Virginia, Chairman
JAMES B. RENACCI, Ohio, Vice CAROLYN B. MALONEY, New York,
Chairman Ranking Member
EDWARD R. ROYCE, California LUIS V. GUTIERREZ, Illinois
DONALD A. MANZULLO, Illinois MELVIN L. WATT, North Carolina
WALTER B. JONES, North Carolina GARY L. ACKERMAN, New York
JEB HENSARLING, Texas RUBEN HINOJOSA, Texas
PATRICK T. McHENRY, North Carolina CAROLYN McCARTHY, New York
THADDEUS G. McCOTTER, Michigan JOE BACA, California
KEVIN McCARTHY, California BRAD MILLER, North Carolina
STEVAN PEARCE, New Mexico DAVID SCOTT, Georgia
LYNN A. WESTMORELAND, Georgia NYDIA M. VELAZQUEZ, New York
BLAINE LUETKEMEYER, Missouri GREGORY W. MEEKS, New York
BILL HUIZENGA, Michigan STEPHEN F. LYNCH, Massachusetts
SEAN P. DUFFY, Wisconsin JOHN C. CARNEY, Jr., Delaware
FRANCISCO ``QUICO'' CANSECO, Texas
MICHAEL G. GRIMM, New York
STEPHEN LEE FINCHER, Tennessee
C O N T E N T S
----------
Page
Hearing held on:
July 19, 2012................................................ 1
Appendix:
July 19, 2012................................................ 29
WITNESSES
Thursday, July 19, 2012
Date, Raj, Deputy Director, Consumer Financial Protection Bureau
(CFPB)......................................................... 6
APPENDIX
Prepared statements:
Date, Raj.................................................... 30
Additional Material Submitted for the Record
Capito, Hon. Shelley Moore:
Written statement of the Financial Services Roundtable....... 33
Duffy, Hon. Sean P.:
Letter to Treasury Secretary Timothy F. Geithner from Fred R.
Becker, Jr., President/CEO, the National Association of
Federal Credit Unions (NAFCU), dated June 27, 2012......... 51
Luetkemeyer, Hon. Blaine:
Written responses to questions submitted to Raj Date......... 54
THE IMPACT OF DODD-FRANK ON CONSUMER
CHOICE AND ACCESS TO CREDIT
----------
Thursday, July 19, 2012
U.S. House of Representatives,
Subcommittee on Financial Institutions
and Consumer Credit,
Committee on Financial Services,
Washington, D.C.
The subcommittee met, pursuant to notice, at 2:02 p.m., in
room 2128, Rayburn House Office Building, Hon. Shelley Moore
Capito [chairwoman of the subcommittee] presiding.
Members present: Representatives Capito, Renacci, Manzullo,
McHenry, Pearce, Luetkemeyer, Huizenga, Duffy, Canseco;
Maloney, Hinojosa, Miller of North Carolina, and Scott.
Also present: Representative Green.
Chairwoman Capito. I now call the subcommittee to order,
and I would like to inform Members, and Mr. Date, that we do
expect a series of votes this afternoon between 4:30 and 5:00.
It will be a long series of votes, and it is my intention to
complete this hearing by the time votes are called. I am sure
you are okay with that.
Anyway, this afternoon's hearing is the second installment
of the Financial Institutions and Consumer Credit
Subcommittee's contribution to oversight hearings leading up to
the second anniversary of the Dodd-Frank Act. Today, we are
joined by Mr. Raj Date--this is not his first visit here, and I
appreciate him coming back again--who is the Deputy Director of
the Consumer Financial Protection Bureau (CFPB), and he will
provide members of this subcommittee with an update on the
operations of the CFPB since the designated transfer date of
last July.
Many of my colleagues on the other side of the aisle like
to highlight the number of times the CFPB has testified as
proof positive of sufficient congressional oversight. According
to the CFPB's Web site, this will be the 24th time a
representative from the agency has testified before either the
House or the Senate. So, just for the sake of comparison, how
does that compare to the other financial regulators? The
Treasury and the Federal Reserve each have appeared 45 times,
the SEC has appeared 47 times, the FDIC has appeared 26 times,
and the OCC has appeared 22 times. Testifying at hearings is a
central function of a Federal regulatory agency, but it does
not necessarily equate to Congress having sufficient oversight.
Republicans have offered common-sense proposals that
provide for greater congressional oversight of an agency that
will be spending hundreds of millions of dollars each year
without compromising the core mission of protecting--a shared
mission, I might add--consumers, and I urge the Senate and the
Administration to accept our good faith offering and work with
Republicans to place these vital reforms in place.
I am especially interested to hear Mr. Date's thoughts on
two rules that are now before the CFPB's purview. The first is
the credit card ability-to-pay rule--on which we had a
hearing--that CFPB inherited from the Federal Reserve, and the
second is the Qualified Mortgage rule that is pending.
Last fall, the Federal Reserve finalized rules providing
guidelines for credit card issuers to determine a borrower's
ability to pay. When drafting this rule, in my view, and I
think it is borne out in the actions, the Federal Reserve
clearly misinterpreted the statute and required all borrowers
to provide proof of an individual income, even though the
statute clearly intended that requirement to apply only to
underage students seeking credit. The practical effects are
that we are hearing more and more anecdotal stories from across
the Nation about stay-at-home spouses, male and female, being
denied credit because they do not have an individual income.
This is a clear example, I think, of Washington regulations
that have gone wrong. I have asked the CFPB to fix this
inequity, and they have assured us and the committee that they
are working on it, and they will have a resolution by this
summer. We are working on a legislative solution to restore
parity in case that doesn't come about.
Last week, we heard from many witnesses about the
importance of clarity in the CFPB as the CFPB promulgates the
Qualified Mortgage rule. Again, the actions of this agency
could determine the availability of credit for borrowers across
this Nation, and I would urge the CFPB, as I did in a letter
with Mr. Sherman that I am sure you received, to have a broad
definition for the Qualified Mortgage and provide a strong
legal safe harbor for the loans that fit these criteria. We
need to ensure this rule does not overly restrict credit for
consumers and increase the cost of credit for borrowers.
Again, I would like to thank Mr. Date for appearing before
the committee. Our members are very interested in the actions
of the CFPB. Going forward, we must ensure that agencies strike
the appropriate balance between protecting consumers and
ensuring that there is sufficient access to credit.
With this, I would like to recognize the ranking member,
the gentlelady from New York, Mrs. Maloney, for the purpose of
making an opening statement.
Mrs. Maloney. I thank the gentlelady for calling this
hearing and I thank her for pointing out that this is the 24th
time the Bureau has testified before Congress, oftentimes
before this committee, but it is always with good news. It is
always with good news of how we are protecting consumers and
how we are moving forward.
Just yesterday--I would like unanimous consent to place in
the record a report really from the American Banker that shows
that the CFPB hit a financial institution with their first-ever
penalty. And I was waiting to see in what area it was going to
take form, and it took form in the area of credit card reforms,
so I was pleased to see that the Bureau is being serious about
cracking down on unfair, deceptive, and anticompetitive
practices.
Just yesterday, they announced their first enforcement
action, finding deceptive marketing of credit protection
products to consumers with lower credit scores. These practices
were uncovered during the supervision process, a critical
authority we gave to the CFPB, and it will put $140 million
back into the pockets of 2 million cardholders. This case in
point is why the Bureau is necessary, and I applaud the work
that was done in the months leading up to this announcement.
We need to put this in perspective. Not only is this the
24th hearing, but there have been 50 bills and numerous
amendments that have been introduced to either gut, slow down,
block or defund the financial reforms, including the repeal of
this bill. There have been numerous legal challenges to
dismantle the CFPB as well as other important aspects of
financial reform. And the very agencies which have been tasked
with implementing financial reform are facing drastic budget
cuts. The SEC is looking at a 12 percent cut. The CFTC would
get a 41 percent cut. And if my colleagues get their way,
together that would amount to $323 million cut, but it pales in
comparison to what Americans lost in the financial crisis. It
is merely two-tenths of a basis point of the $19 trillion in
household wealth that Americans lost. We lost 8.7 million jobs,
and 6.3 million more Americans are now in poverty because of
the financial crisis. If we had prevented those abuses, then we
would not have had these drastic losses.
The CFPB is a pillar of the financial reforms that we
enacted 2 years ago, and consumer protection in financial
products is its first and only mission. That was not the case
before financial reform, where consumer protection authority
was housed in multiple agencies whose chief mission was safety
and soundness, not consumer protection, and that is important,
but too often consumer protection was a secondary thought, a
third thought or not even thought about at all. Now the system
has changed; it is safer, stronger, more transparent, and there
are new tools to monitor and mitigate threats that consumers
face and to protect them.
These reforms are helping to build a sound foundation to
support economic growth, and we do see signs of that growth. We
have added 3.8 million jobs, and business lending has increased
15 percent, according to the Bureau of Labor Statistics, after
these reforms went into place. CFPB has leveled the playing
field for consumers and financial institutions.
And I for one do not really understand why there is such
great opposition to it. The ``know-before-you-owe'' is really
very important so consumers can see and assess how much they
owe. They have simplified credit card contracts, introduced new
student loan assessment tools, highlighting rates and
eliminating confusing rhetoric so people know what they are
getting into, and I really don't understand why some of my
colleagues are opposed to it for giving consumers disclosures
that will clearly state their obligations under their
mortgages: their interest rates; their payments; their fees;
and other important information.
For all the talk of limits to consumer choice and
restrictions in credit, none of that has materialized. And for
all the talk about unacceptable agencies and unaccountable and
not transparent, the CFPB has been unprecedented in its
transparency. Just go to their Web site. They have been
forthcoming with Members, with the industry, and with
consumers, and I look forward to hearing their report today. I
hope there have been more advancements to simplify information,
to level the playing field, and to strengthen our overall
economy and consumers' understanding of their exposure and
enabling them to better manage their own financial life and
their own risk. I thank the gentlelady for calling this
hearing, and I look forward to the gentleman's testimony. Thank
you.
Chairwoman Capito. Mr. Duffy, for 2 minutes.
Mr. Duffy. Thank you, Chairwoman Capito, for holding this
very important hearing. Here we are a year after the CFPB took
over responsibility for promulgating Federal consumer
protection rules, and many questions still remain on the
potential future actions that the Bureau may take.
As you know, I have been following the CFPB developments
ever since being elected to Congress, and my focus has been
particularly targeted at how the CFPB actions impact small
financial institutions, many of them in smaller, more rural
parts of America. Almost daily, I continue to hear from
community banks and credit unions in my district and throughout
Wisconsin about the increasing regulatory regime that these
institutions are now facing. Many of them tell us it is not
making their lives easier. The small institutions are telling
us that it is making their lives far more difficult.
We have had numerous hearings discussing this important
issue. We had one recently in Wausau, Wisconsin, and we have
also had many hearings in this room talking about the impact on
small community institutions. This hearing will hopefully
highlight some of those concerns. Today, we will be discussing
the impact of Dodd-Frank on consumer choice and access to
credit.
As we have this conversation on consumer choice, I want to
make sure that we do not restrict financial institutions from
providing consumers with the power to choose the products that
they want and the products that make the most sense for them.
I would also like to ask for unanimous consent to offer a
letter into the record from the National Association of Federal
Credit Unions that addresses the regulatory burden and the
issues that are arising with regard to consumer choice.
Chairwoman Capito. Without objection, it is so ordered.
Mr. Duffy. Thank you. And I want to thank Mr. Date for
coming today, and I look forward to his testimony.
Chairwoman Capito. Mr. Hinojosa for 2 minutes.
Mr. Hinojosa. Thank you, Chairwoman Capito, and Ranking
Member Maloney.
I also want to thank you, Mr. Date, for once again coming
before this subcommittee to speak out about the progress of the
Consumer Financial Protection Bureau. We are once again
evaluating the CFPB and marking the 2-year anniversary of the
Dodd-Frank Wall Street Reform and Consumer Protection Act.
Two years later, I still hear my friends and colleagues on
the other side of the aisle complaining about the so-called
strangling red tape which the law has supposedly imposed. On
Monday, The National Journal published a story entitled,
``Gripes and Few Laws From GOP on Dodd-Frank.'' By next month,
the CFPB will have testified before Congress 26 times during
their 18-month existence.
I would like to point out that, according to a poll
commissioned by the AARP and other organizations taken earlier
this month, most Americans disagree with the negative
characterization of the CFPB that my Republican colleagues have
embraced. In fact, two-thirds of voters and 69 percent of
independents agreed that the CFPB is a necessary institution, I
repeat, that it is necessary to have it.
No wonder they feel this way. While the big banks are
complaining about the red tape, we are being inundated with new
scandals and evidence of malfeasance by the major financial
institutions. Starting with the JPMorgan exotic derivatives
loss that may reach up to $9 billion, there have been several
instances which reflect poorly on the financial services
industry and beg for more oversight and protection for our
consumers.
Just yesterday, the CFPB announced its first enforcement
action against Capital One Bank, which will have to refund $140
million to 2 million consumers and pay a $25 million penalty.
It has also recently come to light that HSBC Bank has been
looking the other way while terrorist organizations and drug
cartels launder money with their institution. Last week, the
chairman of Peregrine Financial Group admitted to 20 years of
embezzlement, and of course, we are all appalled at the London
Interbank Offered Rate, or LIBOR, fixing scandal which may have
involved up to 16 banks in a conspiracy to report false rates.
It boggles my mind that instead of seeking to regain public
trust, if only for self preservation, these institutions
continue to evade the law and point at the CFPB and the Dodd-
Frank Act and cry foul.
In closing, I want to say that rather than continually
trying to hamper the work of the CFPB, we should be encouraging
the Bureau and the other regulators to hamper these Wall Street
banks from evading laws and putting our economy at risk. We do
need the Consumer Financial Protection Bureau, and the recent
scandals only underscore this point. With that, I yield back.
Chairwoman Capito. The gentleman yields back.
Mr. Canseco?
Mr. Canseco. Thank you, Madam Chairwoman.
The number I am keeping in mind today is 1,100, and that is
how many pages the CFPB's recently proposed rule regarding
mortgage disclosures contains, even though the disclosures
themselves will be less than 10 pages in length. Many of us
have expressed skepticism over the argument that the creation
of another unaccountable bureaucracy would somehow reduce red
tape and compliance costs and make financial decisions easier
to understand for consumers.
The CFPB's biblical length rule seems to have validated our
worst fears about this agency. With its proposed rule, the CFPB
has shown us the path they have chosen to take, and I am afraid
that for financial institutions, families, and consumers, the
outlook isn't good. I yield back my time.
Chairwoman Capito. The gentleman yields back.
Mr. Scott for 3 minutes.
Mr. Scott. Thank you very much, Madam Chairwoman.
In addition to forming the CFPB, the Dodd-Frank Act also
imposed a risk retention requirement for lenders that I think
we really need to take a good look at as we discuss this today,
a risk retention requirement for lenders who securitize
mortgages that they originate.
Under Dodd-Frank, there is a requirement that lenders must
retain 5 percent of the credit risk of any asset in order to
encourage sound lending practices. The law currently exempts
Qualified Residential Mortgages, or what are referred to as
QRMs, from this risk retention. And on that note, as many of
you may know, I am the cosponsor of the Consumer Mortgage
Choice Act, which would simply amend the calculation within
Dodd-Frank determining whether a mortgage loan is compliant
with the QRM requirement. This is necessary. Our legislation
would exclude so-called points and fees as long as they are
reasonable.
So I am going to be interested to know what Mr. Date's view
on the legislation might be and how it might affect consumers'
access to credit in order to obtain mortgages, because it seems
to me that any expansion of charges to be included in the
finance charge could very well cause vast numbers of mortgages
to fail to meet the standards required of a Qualified Mortgage,
and obviously, if the CFPB counts all originations and title
charges as part of the points and fees, then a huge part of the
mortgage loan market in my State of Georgia and elsewhere will
not meet the requirement to be a Qualified Mortgage, and
lenders will not be able to make the loan, and moreover, there
could be an especially negative impact on the consumer's
ability to choose affiliated mortgage and title companies if
affiliated fees are included.
And so, it could be that by expanding the range of charges
that must be included in the finance charge, it could make it
nearly impossible for the average consumer to obtain a
Qualified Mortgage. I would like for us to look at this and get
your opinion on that as we move forward and look forward to the
hearing. Thank you, Madam Chairwoman.
Chairwoman Capito. Thank you.
That concludes our opening statements.
I would like to welcome, again, Mr. Raj Date to our
committee. He is the Deputy Director of the CFPB. Welcome.
STATEMENT OF RAJ DATE, DEPUTY DIRECTOR, CONSUMER FINANCIAL
PROTECTION BUREAU (CFPB)
Mr. Date. Thank you, Chairwoman Capito, Ranking Member
Maloney, and members of the subcommittee for inviting me back
to discuss the work of the Consumer Financial Protection
Bureau.
The last time I was before this subcommittee was back in
November and the CFPB had been in existence for just over 100
days. Today as we look forward to the 1-year anniversary of the
CFPB on July 21st, so the day after tomorrow, I am glad once
again to have the opportunity to discuss the important work
that we are doing.
As you know, before the Dodd-Frank Wall Street Reform and
Consumer Protection Act, no agency was solely responsible for
protecting consumers of financial services. Now, after the
Dodd-Frank Act, one agency is solely responsible for consumer
protection, and that is the CFPB. Congress equipped the CFPB
with a range of tools to reform the consumer finance
marketplace: tools like research and supervision and
enforcement and rulemaking and consumer education. I am pleased
to report that we have been using these tools to deliver
tangible value to American consumers.
In addition to supervising the country's biggest banks, we
have also begun our supervision of nonbank businesses in two
markets, residential mortgage and payday lending. On Monday of
this week, we announced the addition of credit reporting
companies to our nonbank supervision program, and over time we
will continue to build out our nonbank supervision activities.
Many of these nonbank products and services have never before
been supervised at the Federal level, so these are important
changes for consumers.
And yesterday, we resolved our first enforcement action.
During our supervision of a major credit card issuer, our team
identified deceptive marketing practices used by the bank's
third-party vendors to pressure or mislead customers into
paying for add-on products when they activated their credit
cards. Yesterday's consent order, which we issued in
conjunction with the OCC, requires the credit card issuer to
refund $140 million to 2 million consumers and to pay an
additional $25 million fine.
Other work that we have been up to: Evaluating overdraft
protection; helping students to better understand their
financial options; and working with the prudential regulators
to help struggling military homeowners who have received
permanent change of station orders.
In most of what we do, we have had the benefit of an
ongoing and productive dialogue with the consumer finance
industry. We are, for example, working with one of the largest
credit unions in the country to figure out if shorter, more
transparent credit card agreements can make a meaningful
difference to consumers' understanding.
The place that we are spending most of our time, as you
might imagine, is the mortgage market. Given what American
consumers have gone through since 2007, mortgage reform is
appropriately at the top of the Bureau's policy agenda. From
shopping for a mortgage to closing on a mortgage to paying for
a mortgage, we are working toward restoring trust across the
mortgage business system. Over the next 6 months, we will be
proposing and then finalizing rules to address problems
consumers often face in buying or refinancing a home.
Let me start with shopping for a mortgage. Markets don't
work if both parties to the transaction don't understand what
it is they are getting into. With our new loan estimate form,
we are saying ``no more'' to costs and risks being buried in
the fine print. Not only are we integrating the Federal
mortgage disclosure forms, as Congress directed us to do, but
we are simplifying those forms, too. The idea is for borrowers
to have a better chance to actually understand the price and
the risk of their obligations in a way that is better for
everyone involved.
When it comes to closing on a mortgage, the Bureau is
proposing rules that would require lenders to provide the most
critical information 3 days before closing instead of at the
closing table. This means consumers will have the time to
review the loan terms and the costs and ask questions about
anything that they don't understand or that just doesn't seem
right.
We are also trying to put an end to mortgages that, as a
practical matter, destine consumers to fail. In the years
leading up to the financial crisis, lenders too often paid
little attention to whether consumers actually had the ability
to repay their loans. The results were disastrous, not only for
consumers but for the housing market, for investors, and for
the broader economy. By the end of the year, we plan to
finalize a rule requiring lenders to make a good faith
determination that borrowers actually have an ability to repay
their loans.
And finally, when it comes to paying for a mortgage, we are
considering common-sense rules of the road. So, for example, we
are considering whether a servicer should be required to give
borrowers better information about how much they owe every
month. We are still at the early stages of these servicing
rulemakings, but I am optimistic that we can find a common-
sense path forward. In the end, we want to craft sensible rules
that work for the market throughout the credit cycle, but we
also want to be mindful of just how fragile and risk-averse the
market seems to be today.
Throughout all of our efforts across consumer finance, we
want to minimize compliance burden to the extent possible, and
we want to encourage a competitive market where consumers and
honest businesses can both thrive. Again, thank you for
inviting me back, and I look forward to your questions.
[The prepared statement of Mr. Date can be found on page 30
of the appendix.]
Chairwoman Capito. Thank you.
I would like to say in reference to the comment that you
made about whether you are going to recommend that everybody
send out a statement monthly on what they owe on their
mortgages, I get that. I get that from my own lender every
month. I think it is probably a good business practice, and I
think you will find a lot of people are already doing that,
which I am sure you already know.
But anyway, I brought up two rules when I was mentioning my
opening statement. Let me go to the one that Gail Hillebrand
came to our committee and spoke about, and that is the stay-at-
home spouse issue with the ability to repay to be able to get
credit in their own name. Can you tell me what the status of
that is? And I am hoping that you are moving as quickly as she
said that you would be towards a resolution of this.
Mr. Date. Yes, strangely, Chairwoman Capito, I am not sure
I actually have that much to add beyond your explanation of the
issues associated with the ability-to-pay rule in the CARD Act
and how the Federal Reserve Board's regulation may have the
unintended consequence that you discussed on nonworking
spouses.
Associate Director Hillebrand had discussed our approach to
it, and that remains our approach, which is to try to move from
the admittedly merely anecdotal evidence today to a more
systematic understanding of the magnitude of the problem, its
trajectory, and to think about potential solutions that we
might be able to move forward with. She had talked about the
end of the summer being the point in time where we would have a
good sense of what the right path is, and that remains our
plan.
Chairwoman Capito. My understanding--
Mrs. Maloney. May I--
Chairwoman Capito. Let me go ahead and finish because I
only have 3 minutes. My understanding on her, on our testimony
is that this is a real problem. I am a former stay-at-home
spouse myself. I understand the issues and how important this
issue is to folks who are staying at home with their children
to raise their families, both, as I said, males and females, so
my understanding is that the resolution to this issue was going
to be reached by the end of the summer, not just an analysis of
whether there actually is a problem. So I would encourage you
to keep moving forward quickly on this. It is extremely
important to these families that we have a resolution to this
sooner than later, and that was the crux of what she said when
she was here, the way I understood it.
Let's go to the bright line. Mr. Cordray has said that a
bright line is exceedingly important in the criteria for a
Qualified Mortgage. I have an article here from the Wall Street
Journal yesterday which said the Fed's new mortgage disclosures
are a bust. I guess they could say the CFPB new mortgage
disclosures are a bust, in his opinion. I don't agree with some
of what he is saying here, the nitpicking of the forms; I
looked at them. It looks fine to me. I think he is complaining
about having the APR on the third page. I don't think that
bothers me as much as it seemingly bothers him, but he does say
that the unintended consequences, and we did discuss this in
our hearing last week, would be a tightening of credit and an
inability--if you can't get a Qualified Mortgage, you are out
of the game. Everybody on our panel said nobody is going to
write a mortgage that is not a Qualified Mortgage, and so it
needs to be broad and it needs to have bright lines in terms of
the legal protections.
So do you agree that the safest way to ensure that standard
is not overly litigated is to get the legal safe harbor on
this, or what is your position on that?
Mr. Date. As always, Chairwoman Capito, thank you for
raising the set of reforms around mortgages because it is at
the top of our policy agenda for a reason, it is the single
most important and largest market in the country, and it is the
one that we have the most impact on. The ability to repay
curiously also called ability to repay provision with respect
to mortgages, which most people call the Qualified Mortgage
Rulemaking, is a pending rulemaking so I am a little bit
constrained in how I can talk about it, but I will point out
that it is difficult to find a lot of dissenting voices to the
core notion that you are saying, which is that bright lines
matter. To the extent that the Qualified Mortgage is meant to
be at the time of origination to provide some manner of
presumption, either irrebuttable or rebuttable in some way,
that the ability to repay provision has been met, then, that is
not especially helpful if no one knows whether or not the loan,
when made, is in fact a Qualified Mortgage. So I think most of
the commenters throughout the two comment periods on the QM
rule have made very similar arguments.
There are related issues with respect to the degree and
magnitude of litigation risk that we recently reopened the
comment period to get more perspectives on. I know that your
letter, and thank you for it, takes a point of view on that
question. I would characterize the point of view in that letter
as being quite solidly within the spectrum of the wide
diversity of perspectives on litigation risk as evidenced by
the comment letters that we have received, but we are trying to
move forward on the timetable that we have laid out.
Chairwoman Capito. I would also bring up and caution you
that in this article that was written in the Wall Street
Journal, an opinion article that raises some questions, and we
have heard this in our office of Habitat for Humanity and other
nonprofits that try to get maybe nonqualified borrowers to be
able to be in a home, sweat equity, those kinds of things. I
would hope that would be taken into consideration and have some
flexibility for these really valuable programs to move forward.
I guess my other question, my final question--I don't have
time for a final question. Maybe I will come back afterwards.
Mrs. Maloney?
Mrs. Maloney. I thank the gentlelady, and I would like to
add my voice with the concern on the stay-at-home moms. It was
certainly not my intention when I authored the bill to in any
way roll back rights of women, and just on my own calls that I
hear in my district from stay-at-home moms, this has been quite
a challenge, so I look forward to your report, and I hope that
you can make accommodations that are in line with the spirit of
the law, and this is something we agree on. This is something
that we both support wholeheartedly.
We are having a day on the Floor next week on regulatory
burdens, and many people or some people on the other side of
the aisle have criticized the CFPB, claiming that it has too
much of a regulatory burden on smaller institutions and
businesses, yet I do know that in the financial reform, we made
a point of requiring that the Bureau convene panels during the
rulemaking process to assess the effects of proposals on small
businesses. Can you report on how this process is working? And,
very importantly, in your data-driven research, has it been any
type of a burden in any way? Also, some have claimed that it
has ensured the end of free checking. Would you agree with that
statement or could you give your analysis of that particular
complaint, shall we say?
I do want to say I am very proud to have been one of the
authors of Dodd-Frank. I worked on the conference committee,
and I feel this is a centerpiece, an incredibly important
reform, I support it completely, but it is also very important
to answer any types of criticisms that come our way, so I look
forward to your response. Thank you.
Mr. Date. Thank you, Ranking Member Maloney, and I will
take those questions in the order in which you posed them.
First, with respect to burden on small institutions, I think
sometimes lost, and perhaps it is my own fault for not being as
clear about this as maybe I can be, the CFPB does not supervise
or enforce the law with respect to small banks. There are
15,000 banks, thrifts, and credit unions within the country.
Our supervision authority extends to call it the biggest 105
out of 15,000.
Second, are any putative sort of burdens associated with
abiding by regulations that are promulgated by the CFPB?
Although conceptually I understand that notion, the fact of the
matter is that we have finalized two substantive rulemakings
since being in business for a year, one of which by its terms
kept in place the status quo, that is the Alternative Mortgage
Parity Transactions Act rulemaking, and the other is not yet
effective, and indeed we have publicly said we are considering
means by which to provide exemptions for smaller providers. So
the burden argument with respect to smaller institutions I
think we have been quite attentive to and indeed the Congress
has been.
Mrs. Maloney. What was the second rule you came forward
with?
Mr. Date. The Remittance Rulemaking.
Mrs. Maloney. The Remittance Rulemaking.
Mr. Date. And when that was finalized, it was not yet
effective, and, second, we are now considering means by which
to provide exemptions or different requirements with respect to
smaller remittance providers.
You had mentioned the small business review panels that we
convene. I am essentially a quite conservative person. I tend
to be slightly fearful and anxious about things that are new,
and we are the first financial regulator to conduct small
business review panels. There are only two other Federal
agencies that do them, OSHA and the EPA, and so I will confess
to a certain amount of anxiety a year ago about how this would
work out.
I have been very pleased personally with how it is that we
have been able to convene panels of small entity
representatives, the diligence that the representatives have
taken to the task at hand, the feedback that we have gotten,
and as I think you probably have already seen in a couple of
our proposals and will continue to see, for example, in our
servicing proposal when it comes out, we have been able to
listen to quite right-minded concerns and adapt to them where
we can. It has been a real benefit to us, and I am proud of the
team that is responsible for that at the Bureau.
Finally, just briefly on the notion of free checking, the
Federal Reserve Board had a not insubstantial change to
overdraft fee opt-in a couple of years ago. We have said that
we will evaluate how it is that the marketplace has changed
since then. We don't actually know how it is that the
marketplace has changed until we do the work, and as a result,
the notion that somehow the CFPB has either promoted or
prevented free checking I think is just factually inaccurate.
Second, I would just point out, not just from this
particular job I am in but from years prior, there is no free
anything. Products that provide value, institutions tend to
charge for one way or another.
Mrs. Maloney. My time has expired. Thank you.
Chairwoman Capito. Mr. Renacci for 5 minutes.
Mr. Renacci. Thank you, Madam Chairwoman.
Thank you, Mr. Date, for being here.
Mr. Date, on June 28th the CFPB amended its regulations to
provide that submission of confidential information to the CFPB
will not waive any applicable privilege and to assert that the
Bureau's transfer of such information to another Federal or
State agency does not waive privilege. How do you address the
concerns raised by the American Bar Association that because
the proposed rule is based in part on an assertion of the
Bureau's authority to compel production of privileged
materials, the proposed rule may not protect the privileged
status of the information?
Mr. Date. I understand that concerns have been voiced, and
it is a concern that caused us to propose and then finalize
exactly the rulemaking that you are referring to, Congressman.
Supervision of banks and nonbanks is core to what we do. I
would argue that of the many policy tools we have, it is the
single most central, it is the single most flexible, it is the
one that makes everything else better. Supervision depends on
confidential information being shared with regulators, full
stop. You cannot create a supervisory relationship that is
going to be meaningfully additive to the system unless
institutions can count on that, which is why we proceeded with
and finalized the rule that you discussed.
Mr. Renacci. Again, I appreciate the intentions of the
rule, but I share some of the concerns of the American Bar
Association. I believe the statutory change is preferable. In
fact, in recent congressional testimony, Director Cordray had
also stated that legislation would be helpful in removing all
doubt. It is for that reason I supported Representative
Huizenga's efforts in H.R. 4014, but I also have concerns for
institutions not covered under the Huizenga bill. Many nonbank
financial institutions are now subject to the CFPB. Many of
these nonbank institutions are also regulated by the consumer
finance regulators, not State bank supervisors, as currently
defined under the FDI Act.
Regardless of how an institution is regulated at the same
level, I believe they should be extended the same protections
when they and their regulators share information with the CFPB.
So I would ask you, can you envision a scenario where the
CFPB will collect information from a nonbank financial company?
Mr. Date. Certainly, Congressman. Given the nature of
nondepositories, the number of them, and the diversity of their
business models, the nondepository supervisory process may not
look identical to, say, a supervisory process with respect to a
$150 billion bank. It will rely on the exchange of information,
absolutely.
Mr. Renacci. Sure. Can you envision a scenario where the
CFPB might share or collect information with a State consumer
finance regulator as opposed to a State bank regulator?
Mr. Date. We have promulgated our point of view on when it
is and under what conditions of confidentiality we would share
information of any kind, and I believe that takes account of
that possibility, where there is a shared purpose and
confidentiality is assured. So, again, I understand and
appreciate the analogous situation that nondepositories are in
versus depositories.
Mr. Renacci. So there is a possibility that there would
be--
Mr. Date. I would say core to the question is to the extent
that confidential information can be important to enabling an
effective supervisory regime, we will insist the confidential
information be shared, and we will obviously be quite careful
with it. Again, our point of view is that does not somehow
waive attorney-client privilege for the supervised
institutions, but to the extent that there is doubt out there,
and I am not quibbling with whether or not there is, in fact,
some doubt, then statutory remedy is something, as Director
Cordray has pointed out, that we would welcome.
Mr. Renacci. So you could see why a nonbank institution
would want the same protections extended to the consumer
finance regulator that are extended to a State bank regulator
under the FDI Act?
Mr. Date. Yes, by and large the entire premise of the
supervisory authority of the CFPB is grounded in parallel
treatment of institutions. The idea is if you are going to be
in the consumer finance business, it shouldn't matter if you
are a bank or a thrift or a broker or an investment bank, you
all should follow the same set of rules.
Mr. Renacci. So this really comes down to those
protections.
This is one of the reasons I joined my colleague from
Colorado, Mr. Perlmutter, on H.R. 6125. It is legislation to
ensure that all information shared between State agencies and
the CFPB is afforded the same protections. This is the only way
that I believe we can remove all doubt and protect the free
flow of all information.
Madam Chairwoman, without objection, I would like to submit
for the record a letter in support of H.R. 6125.
Chairwoman Capito. Without objection, it is so ordered.
Mr. Renacci. And I yield back the remainder of my time.
Chairwoman Capito. The gentleman yields back.
Mr. Hinojosa for 5 minutes.
Mr. Hinojosa. Thank you, Chairwoman Capito.
Mr. Date, the CFPB was created as the first Federal
regulator wholly responsible for protecting the American
consumer. This is apparent in the recent enforcement action
against Capital One, the first by the CFPB. The hearing held
earlier today was entitled by the Republicans, ``Who is in Your
Wallet? Dodd-Frank's Impact on Families, Communities, and Small
Businesses.'' That was the title. It seems to me the hearing's
title mirrored, ironically, the catch phrase of Capital One's
omnipresent commercials.
I have a question or two to ask. In addition to credit card
companies, credit bureaus also heavily affect the financial
lives of Americans, and the Bureau just announced its intention
to supervise credit bureaus through its larger participant
authority. Can you elaborate on what this rule will mean for
credit bureaus and also what it will mean for consumers?
Mr. Date. Certainly. As actually we were just talking
about, one of the key features of the CFPB's supervisory
authority is that it has the opportunity to extend not just to
big banks but to nondepositories as well, because
nondepositories, after all, are quite important features of the
consumer finance landscape in the United States, and I would
argue certainly perhaps none more importantly than the credit
Bureaus and the information flows built off of it.
The fact of the matter is that the latticework of consumer
information that is captured within credit reporting companies
has great benefits for the democratization of credit across the
United States. It is a quite remarkable thing.
On the other hand, it is certainly possible that
inaccuracies or inequities with respect to that data can have
the consequences of trapping consumers into situations that end
up not being especially fair to them or to the system more
broadly. Those are issues, among others, that we hope to be
able to put light on through our continued activity in the
space, including our continued supervision of credit reporting
companies.
As you point out, this week we finalized our rule with
respect to the larger participants within the credit reporting
agency industry. There are something like 30 firms that would
be subject to that rulemaking and therefore subject to our
supervisory authority. Together, those 30 firms constitute
better than 90 percent of the revenues in that business, and we
will proceed with alacrity as soon as that rule becomes
effective.
Mr. Hinojosa. I look forward to seeing the impact that you
will have.
Can you explain the Bureau's auditing practices? Who
conducts the audits, how often are they required to happen, and
what has been found to date through auditing processes?
Mr. Date. Audits or supervisory exams are the core activity
within the supervisory process, and that is true for the CFPB.
It is true for the prudential regulators and has been true for
quite some time. The key thing to remember with respect to
exams broadly is that the purpose of the CFPB's exam process is
to ensure compliance with the law. It is not meant to sneak up
on people. We try to be quite clear and transparent about what
the expectations both of the law and of our exam teams are so
that institutions are in a best position to ensure their own
compliance, to ensure that they have a compliance management
system that they can count on, and to ensure that our
relationship can be a productive one to make sure the consumer
financial laws are abided by and that consumers are protected
in the way that the Congress has intended.
Mr. Hinojosa. Another criticism that we have heard is that
the Bureau is going to create additional regulatory burdens for
our smaller institutions and for businesses, yet Dodd-Frank
requires that the Bureau convene panels during the rulemaking
process to assess the effects of proposals on small businesses,
which are of great concern to me. Can you report on how the
process has worked so far?
Mr. Date. Yes. It has been a quite productive early venture
into the convening of small business review panels, the
synthesis of the feedback that we hear with respect to
potential rulemakings, and to date folding that feedback into
the proposed rules that we actually promulgate. If the purpose
was to make sure that we are hearing a diversity of
perspectives with respect to impact on small enterprises and
make sure that we are attentive to them even before we propose
a rule, I would call it an unmitigated success.
Mr. Hinojosa. My time has run out, and I yield back.
Mr. Renacci [presiding]. The gentleman yields back.
I recognize Mr. Duffy for 5 minutes.
Mr. Duffy. Thank you, Mr. Chairman. Just a quick question
and to clarify, you had indicated that the rules that you make
in the CFPB have an impact on the 105 largest banks. And you
are going to enforce those rules, but is it fair to say also
that the rules that you promulgate will be enforced on smaller
institutions as well? Is that correct?
Mr. Date. Yes. Our rulemaking authority, as distinct from
our supervisory authority, is meant to cover the entire
landscape of firms, which is why we have been so attentive, as
we were talking about a moment ago, to make sure that we are
using, for example, the small business review panel process to
ensure that the rules as crafted can ease compliance burden
where necessary, especially with respect to smaller firms.
Smaller firms, be they depositories or nondepositories, are
by their nature less able to easily shoulder significant
compliance burden. Compliance costs tend to be more fixed than
variable, which means that to the extent that a firm is
smaller, equivalent compliance burden will be more biting, more
constraining, and so we are attentive to that basic fact and
trying to make sure that we are attentive to it as applied to
various regulatory requirements.
Mr. Duffy. That is one of my concerns. Being from a more
rural part of the country, I keep getting that feedback from
our small banks and credit unions about the compliance costs
with all these new rules that are coming out. Within the CFPB,
those who are dealing with disclosure issues with QM and QRM as
well as other disclosure forms, are you guys all communicating
so when QM and QRM and the disclosure forms all come out, we
are not going to have different waves of compliance issues for
small banking institutions? Are all institutions, are you guys
all talking together so it is going to be very fluid and we are
not going to have one rule come out with QM that will then
maybe be modified when the disclosure forms come out, you guys
are all talking and this is going to be a very smooth process?
Mr. Date. Yes. Dodd-Frank contemplates a number of reforms
to the mortgage market, quite appropriately in my opinion,
given how many facets of the mortgage market proved to be quite
not up to the task of pricing and calibrating risk.
We are proceeding in three sorts of ways to make sure that
your concern is addressed. Number one is structural. In some
ways, the statute itself lays out means by which to make sure
that somehow definitions don't get uncoordinated. So, for
example, the Qualified Residential Mortgage definition, which
is an important element of the risk retention framework under
Dodd-Frank, that definition cannot be broader than the
Qualified Mortgage definition. So there is a structural means
by which these fit together.
A second is process. So there is a great advantage--it is
not easy on the team, but there is a great advantage to
actually developing all of these areas simultaneously so that
we are thinking about those interactions instead of in series
really thinking about them as an integrated whole.
Mr. Duffy. So with the process and the practice internally,
you are all communicating, you are trying to make it as simple
and easy as possible for all these small institutions?
Mr. Date. Yes, absolutely, because the compliance burden
can fundamentally be dead weight in the economy. We want to
make things as easy as possible and still achieve the consumer
protection aims appropriately baked in the statute.
Mr. Duffy. Right. Switching just a little bit, you have
heard the argument, we have heard it today, and we have read
articles as well that the new rules may reduce the power of
consumers to choose different products that may work for them.
I think the Chair brought this up earlier about this example of
Habitat for Humanity, an example where they may have issues
with making loans to not as wealthy individuals in our
community because of the risk for making that loan and the
ability to repay. We saw with the CARD Act that we want to make
sure people have the ability to pay, we all agree that is a
sound banking principle, but the side impact of that is, if you
are a spouse who stays at home, you may not be able to get a
credit card. Have you guys contemplated all of these offshoot
issues? I know you are trying to do the right thing, I know we
are trying to make the process work better, we are trying to
protect consumers, but in the end, there are some unintended
consequences. I certainly don't imagine you guys intend to have
Habitat for Humanity not be able to engage in a loan and build
a home for a low-income family in communities across America. I
don't imagine that is your intent, but that is the reality of
some of these rules that are coming out. How do you guys plan
on addressing that?
Mr. Date. Our rulemaking process does not lack for
deliberation and it certainly doesn't lack for transparency and
getting feedback from the public, and so, for example, in the
case of Habitat for Humanity or, frankly, lots of other
institutions that are concerned with providing credit to
especially underserved segments of the population, we
absolutely have heard the feedback, and we are sufficiently
early in the process to make sure that we think about how it is
that these things fit together. We take the feedback for what
it is intended to do, which is to help inform a better, more
nuanced rule that works not just for now but for the long term
and for the entire marketplace.
Mr. Duffy. And one of the concerns--oh, I yield back, my
time is up.
Chairwoman Capito. The gentleman yields back.
Mr. Miller for 5 minutes.
Mr. Miller of North Carolina. Thank you, Madam Chairwoman.
In the last few years on this committee, since the credit
crisis, there are Members who remember that they warned us
repeatedly that we were on the road to ruin in subprime
mortgage lending, and that is not really my recollection. I
introduced with Mel Watt legislation in 2004 to provide
consumer protections in subprime mortgage lending, and I recall
it was a fairly lonely fight. And the argument against it was,
you mean well, this is well-intended, but you are going to
constrict credit, you are going to make credit unavailable to
people who now for the first time can get credit, can buy homes
they couldn't otherwise have bought or will not be able to
refinance.
And I always acknowledged the importance of making credit
available, credit being available. Ned Gramlich, a well-
regarded member of the Federal Reserve Board, argued in the
1990s for subprime lending as democratization of credit, but by
the last decade, he was arguing that the terms had become
obviously abusive, so there is--something that may begin as a
wholesome practice may cease to be. But I think, I thought that
just about everybody agreed that a lot of the loans made, a lot
of the mortgages in particular made in the last decade were not
really such a good idea, and now we are hearing, but we are
hearing the same arguments for consumer protection that it is
going to constrict credit. Do you think that all the loans that
were made in the last, all the mortgages made in the last
decade should have been made or that--and if some consumer
protections against abusive terms for those loans had prevented
them from being made, it wouldn't have been such a bad thing?
Mr. Date. Thank you, Congressman, for the question.
There is no question that the credit business is a cyclical
one. It is difficult to banish, somehow, the credit cycle from
the economy. That said, not just in retrospect, but at the
time, there were mortgage loans being made at the height of the
bubble--in 2005, 2006, and the first half of 2007--that were
simply implausible from a credit perspective. Clearly, loans
were being made without, for example, a lender's inquiry into a
borrower's ability to repay the loan. Basic reforms, frankly
common-sense provisions within Dodd-Frank would have prevented
those loans from being made at the time. To my mind, there is
no question about that.
Mr. Miller of North Carolina. We also hear the idea that
these consumer protections will prevent people from making
consumer choices. Looking at the kind of consumer choices that
those mortgages represented, particularly at the height of the
bubble, because by that time, subprime mortgages, whatever
wholesome innovation they may have been in the 1990s, the
predatory mortgages had completely shoved those out of the
market. It was entirely a predatory market. The terms that made
those loans subprime were almost entirely predatory. Do you
think we should be too worried about consumers not having a
choice that no one in their right mind would make?
Mr. Date. Let me give an example just from our supervisory
and enforcement action announced yesterday. It would be my
characterization that, for example, add-on credit card products
may make sense for some borrowers, but it doesn't make sense to
make that inquiry until you are confident that the sales
practices associated with those products, in fact, abide by the
law. No one can be expected to make the right choice for
himself, herself or their families unless they actually are
confronted with a financial services landscape that operates in
a fair and nondeceptive way. I think that is the central
challenge for the Bureau, and it is the central thrust of the
consumer reforms as I understand them within Dodd-Frank.
Mr. Miller of North Carolina. Okay. I yield back.
Chairwoman Capito. The gentleman yields back.
Mr. Canseco?
Mr. Canseco. Thank you, Madam Chairwoman.
Mr. Date, the CFPB on its Web site has a consumer complaint
database, and there is a disclaimer attached to it that says,
``We do not verify the accuracy of these complaints, but we do
take steps to confirm a commercial relationship between the
consumer and the identified company.''
So given that the CFPB does not verify these complaints but
boasts that it collects thousands of them, am I correct in
assuming that the complaint database from a legal, ethical, and
rational point of view will not influence enforcement of
regulatory actions by the CFPB?
Mr. Date. I think I lost the last part of it. You are
asking me whether or not consumer complaints will not influence
enforcement?
Mr. Canseco. No, no, no. You have a complete consumer
complaint database, but it says that it does not verify the
veracity of those complaints. Now, am I to assume that you
don't use them at all for any of your enforcement actions?
Mr. Date. Oh, I see what you mean. The consumer complaint
database that is published, we certainly make sure that we,
what is called de-dupe the complaints as they come in, which
means you remove duplicates, you don't want to double and
triple count things, and we make sure that a customer who is
making a complaint is in fact a customer of the institution
they are complaining about.
What that disclaimer means is that we put those counts and
classifications on complaints and without publishing a point of
view as to whether or not the consumer is somehow right in the
complaint. However, for a subset of the complaints that we
receive, both on the randomized and in a focused way both, we
do conduct investigations on a subset of those, and the
outcomes of those investigations may or may not influence--
Mr. Canseco. Yet they are unverified.
Mr. Date. The ones that would influence an enforcement
agenda would be the ones that come up--
Mr. Canseco. But your database says that they are
unverified and that you will not verify the accuracy of the
complaints. Very specifically, do you use unverified complaints
to use, to start enforcement action or do you just have them
there just as a collection?
Mr. Date. There is an internal step that we obviously do
with respect to a subset of complaints that we receive to
investigate, and to the extent that those investigations result
in a finding of a potential of a violation of law, then of
course then we would take appropriate steps thereafter.
Mr. Canseco. So, therefore, it is not true that they are
verified? They are verified, you go and verify them; is that
correct?
Mr. Date. Internally, we will investigate a subset of the
complaints.
Mr. Canseco. So it is a misstatement for you to say that
you will not verify the accuracy of these complaints, yes or
no? Do you verify the accuracy of the complaints?
Mr. Date. Of all the complaints that are catalogued on the
Web site?
Mr. Canseco. Right.
Mr. Date. No, that is correct, we do not--
Mr. Canseco. Okay. Thank you. So therefore what is to keep
your organization from putting together a campaign against a
single financial institution by having hundreds of individuals
send complaints to the CFPB about an institution, and more
importantly, who is going to verify the accuracy of these
complaints were such an event to occur?
Mr. Date. We are careful to make sure that--that is why we
ensure that there is a commercial relationship between a
complainant and an institution. You would not want to somehow
open the system to someone submitting thousands of complaints
with respect to a firm that he or she happens not to like. So
there are antifraud mechanisms built in, and we are attentive
to that.
The notion, though, that raw numbers of complaints are
somehow irrelevant to a consideration of, that would be
relevant for consumers, I certainly don't see things that way.
The prior--
Mr. Canseco. My time is sort of running out, but let me ask
you this: Are there any penalties for individuals or groups of
individuals who submit bogus complaints to the CFPB?
Mr. Date. We have not, as far as I know, assessed any
penalties with respect to so-called bogus complaints that we
have discovered to exist.
Mr. Canseco. Okay. All right.
Mr. Date. I cannot promise--
Mr. Canseco. Now, so moving on here, one of the things that
troubles me about the CFPB is your agency's ability to ban
products or at least make them so unattractive that nobody will
use them. In a White Paper released in May, economists at the
Chicago Fed debunked the theory that low-income or naive
consumers were the primary target of lenders accused of pushing
complex mortgages. The Chicago Fed study showed that those who
took out interest-only or negative amortization loans by and
large had much higher income and higher FICO scores than any
borrowers, yet the CFPB excluded these types of mortgages from
the proposed Qualified Mortgage rule.
So my question is, if a sophisticated borrower with a high
income and high credit score wants to use a complex mortgage to
buy a home or invest in a second property, why should the CFPB
or any other Federal agency stop them?
Mr. Date. Congressman, I think just to be clear about what
it is the ``ability to repay'' provision does, it is possible
to provide a negatively amortizing loan or an interest-only
loan and be in compliance with the ability-to-repay rule, as it
is--obviously, we have to finalize a rule, but as contemplated
by the statute. It is certainly possible.
I think what you are referring to is that the ``Qualified
Mortgage'' definition within the statute, I think fairly
unambiguously, does not provide for deferred amortization
products.
Mr. Canseco. Okay. Has the CFPB conducted any type of
empirical study to determine the typical consumer--I see my
time is up.
Chairwoman Capito. Your time is up.
Mr. Canseco. Thank you very much, Mr. Date.
Chairwoman Capito. Mr. Scott for 5 minutes.
Mr. Scott. Yes, thank you.
Mr. Date, in my district of Georgia, a significant
percentage of homes are valued at less than $100,000, and with
the Qualified Mortgages 3 percent cap on points and fees, many
of my constituents, especially low-income and first-time home
buyers, will not have the access to credit if title charges,
escrows for taxes and insurance, and loan officer's
compensation have to be included in the calculation.
As a result of this, I cosponsored H.R. 4323, the Consumer
Mortgage Choice Act, to assure that these fees would be
excluded, regardless of whether they are using a lender with
affiliated businesses or not. So it seems to me that any
expansion of charges to be included in the finance charges will
cause vast numbers of mortgages to fail to meet the standards
required of a Qualified Mortgage, and obviously, if the CFPB
counts all originations and title charges as parts of the
points and fees, a huge part of the mortgage loan market in
Georgia and elsewhere will not meet the requirements to be a
Qualified Mortgage, and lenders will not make the loans.
Moreover, there could be an especially negative impact on
consumers' ability to choose affiliated mortgage and title
companies if affiliated fees are included.
So, with this information, and as I have articulated it,
are you not concerned that expanding the range of charges that
must be included in the finance charge will make it nearly
impossible for average consumers to obtain a Qualified
Mortgage?
Mr. Date. Thank you, Congressman, for raising the question.
It is one that we have been trying to be mindful of, and it is
a good example of the benefit of working on a number of these
reforms and at the same time, to make sure that an approach is
appropriately integrated and doesn't create problems in one set
of the reforms even as we are trying to solve problems in a
different set.
So, with your example, we are trying to make sure that the
finance, sort of an all-in finance charge if it is used that it
doesn't inadvertently somehow create dramatically different
sweeping in or sweeping out of loans under, for example, the
HOEPA standards or under the Qualified Mortgage standard. We
have a solicited comment with respect to precisely those
questions, which is how is it that one should account for the
conceivably unintended consequences of vastly increasing the
universe of HOEPA loans even as we move forward with respect to
the TILA and RESPA project.
Mr. Scott. Okay. So you don't see any difficulty here at
all with this situation?
Mr. Date. I think you are right to point out the issue,
which is if we were somehow blind to it and just blithely
proceeded with a new definition of finance charge without being
attentive to potential impact on HOEPA and Qualified Mortgage,
I would agree that would be a bad outcome, but due to your
flagging the issue and others, the team is very much going to
focus on it.
Mr. Scott. So you see our legislation as a useful way of
making sure that the expansion, any expansion of charges to be
included in the finance charge will not cause vast numbers of
mortgages to fail to meet the standard required of the
Qualified Mortgage?
Mr. Date. I see, and that is one of the means that we are
trying to contemplate in the rulemaking project itself.
Mr. Scott. Okay, thank you, sir.
I yield back, Madam Chairwoman.
Chairwoman Capito. The gentleman yields back. The Chair is
going to recognize Mr. Huizenga for the purpose of making an
introduction of a guest, and then I will go to Mr. Pearce. Go
ahead.
Mr. Huizenga. Thank you, Madam Chairwoman. It is a real
honor to have a couple of members from the European Parliament
join us here today. We have with us Miss Sharon Bowles, who is
the Chair of the Economic and Monetary Affairs Committee, who
is sitting right over here, and Mr. Peter Skinner. Both are
from the U.K. He also serves on the Economic and Monetary
Affairs Committee. I had a chance to meet Sharon for the first
time a short while ago, but she is the first Briton to chair
that committee, and the first female, I believe, to do that as
well and has been Chair since 2009. And then Mr. Skinner
actually has been in Parliament since 1994 and has been on this
committee for 16 years. So the committee has the responsibility
of economic and monetary policies for the EU, taxation and
competition policies, free movement of capital and regulation
of financial services such as banks, insurance, pension funds,
asset fund management accounting, international monetary and
financial systems, so they are here meeting with a number of
our regulators and also continuing to build those
relationships.
Peter and I had a chance to meet in Copenhagen a few weeks
ago as part of the transatlantic legislative dialogue, and we
are looking forward to continuing to build those relationships
as we know we are in a one world market space for financial
services. I am very pleased that you are able to join us here
today. So thank you, Madam Chairwoman.
[applause]
Chairwoman Capito. Thank you for that, and welcome to our
guests. We could have orchestrated a little more fireworks for
you, but we are doing business as usual here.
Mr. Pearce for 5 minutes.
Mr. Pearce. Thank you, Madam Chairwoman.
And thanks to Mr. Date for being here and for your service.
I guess as I am looking at your account, and you are reporting
that the CFPB is solely accountable for protecting consumers of
financial products and services, I wonder--and you go into some
of the failures of homeowners who couldn't understand or
couldn't afford homes, lost those, and then the ability to
repay is a repeating theme. So I wonder if the CFPB has taken a
close look at what led to those homeowners not being able to
repay, what caused that process that began to push loans out at
people? Have you all done that?
Mr. Date. Sure. We obviously also work with the backdrop of
a great deal of work that has come before at other agencies and
public and private researchers. Thank you for raising this
because I do think it is important, Congressman, to look back
to how is it that we got here in the first place. We are--
Mr. Pearce. I am just asking, not for you to recount it.
Have you studied it?
Mr. Date. Oh, certainly, and indeed it is relevant.
Mr. Pearce. So do you all have any authority over Fannie
Mae?
Mr. Date. Our--
Mr. Pearce. Just yes or no.
Mr. Date. Our authority extends to consumer financial.
Mr. Pearce. So no?
Mr. Date. So the GSEs don't have consumer relationships in
general, but if they did--
Mr. Pearce. But the GSEs actually, according to--I don't
know if you have read the book by Gretchen Morgenson and Joshua
Rosner, ``Reckless Endangerment,'' but on page 5 of that they
explain that Fannie Mae led the way in relaxing loan
underwriting standards, a shift that was quickly followed by
private lenders, and then later in the paragraph, it became the
playbook for financial executives, and in that whole process
under James Johnson, he began to--he spent about $100 million
in 10 years lobbying Congress to make certain small changes in
the rules that would allow him to push those.
So you had members of this committee back in 2005 were
asked, are you afraid that the easy lending programs, for
example, that James Johnson was pushing through Fannie and that
this institution was encouraging, are you concerned that these
easy lending programs are going to wind up luring people into
homes they could not ultimately afford?
And so it is not kind of like this came on us in the middle
of the night. It was well-orchestrated by a guy who began to
change the financial compensation standards in Fannie Mae and
Freddie Mac to one of loan values, and he pushed $100 million
towards himself in his 9 years as head of Fannie and Freddie,
and so I wonder as you are concerned about the health of our
consumer, if you have worried about who is protecting us from
policy and who is protecting us from these people who will buy
influence here to redirect?
If you don't do that and if you all haven't asked those
hard questions behind the scenes, then I fear that there is no
one actually out here who is really concerned about the
consumer because this thing didn't begin with the banks. It
began with one guy that began to buy influence here on Capitol
Hill and with the Administration. It began in 1994 with
President Clinton buying into the idea that somehow--I think it
was 1994--that he says more Americans should own their own
home. That is a theme that continued through both of his terms
and through President Bush's term, but it was during those
periods that they began to restructure the policies in order to
push loans at people who couldn't afford them, and when I hear
that you are just sort of blandly going along and not kicking
back at the system that encouraged it, it gives me great pause,
it gives me a sadness that this is all just a little bit of a
game, that we used the crisis to come down, and we are going to
lean on banks all the way up and down Main Street without ever
really getting at the problem.
The problem originated in these halls, and I think you all
know that, but I don't think you have the courage to get out
and push and say loudly, but we are only looking at a piece of
the problem, you are not letting us get where the real problem
is. The real problem was there; it was there in the halls of
Congress. It was there on the Financial Services Committee. And
it was there with James Johnson and when he was buying
influence here, and you are not saying that. I haven't heard it
once. And it just makes me sad because you are the guys, you
are the sheriff in town, and you are looking the other way.
I yield back.
Chairwoman Capito. The gentleman yields back.
Mr. Green for 5 minutes.
Mr. Green. Thank you, Madam Chairwoman. I thank the witness
for appearing, and I thank you for allowing me to be a part of
this subcommittee.
I am very much concerned about our military families. As
you know, members of the military are sometimes required to
relocate, and upon relocating, they have mortgages that have to
be dealt with. Sometimes, they have to have short sales. They
have to have refis, and these things are sometimes difficult to
negotiate with servicers because of what servicers perceive as
a limited amount of authority.
These persons who serve us in our military, they do so
without question. They go where they are told to go. Families
go with them. I would like to compliment the President and the
First Lady for the Joint Forces Initiative that helps them with
education, jobs, and job training. Can you explain what the
CFPB is doing in concert with the FDIC and some other agencies
to make sure that they can get the assistance they need when
they have to transfer or they have to relocate to some other
area because they are forced to do so as a result of serving
our country?
Mr. Date. Thank you, Congressman, and thank you for your
concern with respect to issues surrounding servicemembers and
their interaction with the finance system in the United States.
This is a specific instance of a broader theme with the Bureau
and its work to date where we have tried to shine a light on
issues that are especially important to our servicemembers.
As you point out, servicemembers not infrequently are asked
to change stations with Permanent Change of Station Orders.
When military homeowners receive those orders, they don't have
the flexibility to say, no thank you, I would rather stay right
here. And that becomes a real problem to the extent the
homeowner, like so many homeowners across the country, is in
fact underwater. So there is not very much flexibility to be
able to refi away or sell the house. We worked with the
prudential regulators to make sure servicers were put on notice
that in fact there are legal obligations with respect to the
treatment of our military borrowers under a number of different
statutes and that we are quite attentive to it over time. It is
an area where Congress has already done a lot, and combined
with shining a bright light on the issues, my hope is that we
can effect real change.
Mrs. Holly Petraeus, who runs our Office of Servicemember
Affairs, has been doing exactly that, not just on mortgages,
but across a number of important markets where frankly the men
and women who put on a uniform to serve the country, we at some
level should be attentive to the fact that they have financial
circumstances that are different than most of the civilian
population, and we should ensure that our regulated
institutions follow the law with respect to them.
Mr. Green. Thank you. I trust we will promulgate rules that
will help them to make this transition and maintain their
creditworthiness and in general not get caught with a home that
they can't do anything with because of the current market
conditions. I hope that you will do your best.
Now, I have a minute and 16 or 17 seconds left. Have you
been asked any question that you would like to respond to and
you need perhaps a moment to answer or some statements that may
have been made that you didn't get a chance to respond to? If
so, you now have a minute to do so.
Mr. Date. Thank you, Congressman.
Hopefully, I have been responsive to questions as they have
been raised. Given the frequency, though, with which concerns,
I think some quite legitimate concerns, about the impact of
financial reform on small community banks has been raised, I
think it is useful to just point out the fact that over the
last decades, community banks have been pushed further and
further toward the periphery of consumer finance in the United
States. There is some reason for that, at least in part because
we had a regulatory system that did not create an even playing
field. If, in general, you have a regulatory system that makes
it as a practical matter easier to be a nondepository or easier
to be very big compared to very small, then you shouldn't be
surprised when community banks end up with the short end of the
stick. If we did our jobs right, we should be able to help
them, not make it worse.
Mr. Green. Thank you, I yield back.
Thank you, Madam Chairwoman.
Chairwoman Capito. Thank you.
Mr. Luetkemeyer for 5 minutes, please.
Mr. Luetkemeyer. Thank you, Madam Chairwoman.
Mr. Date, it is always interesting to have you before the
committee. It is an interesting discussion this afternoon.
Can you tell me what spurs the rulemaking of CFPB, the
different areas that they get into?
Mr. Date. Thank you, Congressman.
Let me answer that in terms of the long-term policy agenda,
and then the near-term, not quite in that order. The near-term
policy agenda as it applies to rulemaking really is set out by
the statute. We have a not inconsiderable rulemaking agenda
within the mortgage business that is mandatory and carries with
it a timetable that is--
Mr. Luetkemeyer. Let me call timeout right there. What is
the reason, or do you know or have any idea, what the reason is
for the rulemaking request that has been made of you?
Mr. Date. Yes, when the statute is relatively clear in most
cases, the--
Mr. Luetkemeyer. Why is the statute the way it is? Why
would the statute want you to make a rule in certain instances?
Mr. Date. I know that the deliberations and debate with
respect to the statute were lengthy and spirited, and of course
Congress in its discretion has chosen rulemaking mandates, and
we have embraced them, and we are moving forward with speed.
Mr. Luetkemeyer. Okay. In the course of your rulemaking, do
you do a cost-benefit analysis of each rule?
Mr. Date. We do. It comes in a couple of different flavors.
One is an analysis of the cost and the benefits and the burdens
associated with the rule. There is also an element that relates
with particularity to the impact on relatively small
institutions within the financial services landscape.
Mr. Luetkemeyer. With regard to your RESPA and TILA rules,
have you done a cost-benefit analysis on those yet?
Mr. Date. Yes. And as part of the proposal, part of the
reason why the document is 1,100 pages long is that the new
rules associated with TILA and RESPA integration are like 60
pages of the 1,100 pages. The other, whatever that is, 1,040
pages relate to lots of other required elements of our
rulemaking, including the cost-benefit analysis, so that is
laid out in that which we publish.
Mr. Luetkemeyer. Okay. Part of the initiative of going to
RESPA, though, was to create a simpler disclosure form and
something more consumer-friendly. And yet, we wound up with a
3-page-long estimate at the beginning and a 5-page-long
estimate at the end. Do you think that is really an
improvement?
Mr. Date. I do. Both to my mind are improvements. We have
been careful to reach out to a number of different--
Mr. Luetkemeyer. Have you ever done a survey to see how
many consumers actually read those documents?
Mr. Date. We conducted what is called ``qualitative
usability testing'' before the proposal was even issued.
Mr. Luetkemeyer. Qualitative using?
Mr. Date. Usability testing. It goes by a few different
terms. It is something that is used at other agencies as well
as not infrequently in the private sector to develop the broad
contours of a piece of collateral or disclosure form so that--
Mr. Luetkemeyer. I get it. Did you ever do it?
Mr. Date. Yes, absolutely.
Mr. Luetkemeyer. What was your finding on the RESPA forms?
Have you done it on RESPA yet?
Mr. Date. You are referring to the general kind of
difficulties that consumers have with the current form--
Mr. Luetkemeyer. No, I am asking, did you do the survey on
the RESPA form to see if anybody reads them?
Mr. Date. We did conduct--
Mr. Luetkemeyer. What was the result?
Mr. Date. In general, that which we have proposed is
something that is easier, it would appear, based on the testing
to date.
Mr. Luetkemeyer. More pages, and it is going to be easier
to read; is that right?
Mr. Date. It is--so the mandate by the Congress was to
combine the TILA and RESPA closings documents, or the final
truth in lending disclosure.
Mr. Luetkemeyer. Do you know offhand what the percentage is
of the people who actually read the RESPA documents?
Mr. Date. You would be hard-pressed, I think, Congressman,
to find borrowers who sit at a closing table and thumb
through--
Mr. Luetkemeyer. Do you have a figure please?
Mr. Date. I don't know the--
Mr. Luetkemeyer. Two percent?
Mr. Date. I wouldn't hazard a guess, but we will be doing
quantitative testing after the proposal comment period ends.
Mr. Luetkemeyer. But we don't know how many--we do propose
a rule, and we don't know what percentage of people actually
read this stuff. So, therefore, is there a use for it?
Mr. Date. Oh, sure, this is for most people the single
largest financial transaction that they will enter.
Mr. Luetkemeyer. If they don't read it, Mr. Date, what good
is it?
Mr. Date. Congressman, at some level, I suppose it would be
useful to know how the dollars in the transaction actually
flow.
Mr. Luetkemeyer. I have one more quick question for you. In
following Mr. Canseco's discussion here about verifying
complaints, it was very concerning to me that you indicated
that you did not verify all the complaints, did not go through
and try and figure out if they were a legitimate complaint and
didn't follow up, if there was something needed to be followed
up on, why?
Mr. Date. Oh, no. This was, I feel like I was not
adequately clear. To the extent that there are complaints that
the consumer disputes the resolution of, then we have an
investigations team within our consumer response unit that will
follow up with those complaints--
Mr. Luetkemeyer. But you indicated to him you just verified
whether it was a legitimate complaint that they actually did
business with them; you didn't tell them that you actually
followed up on each individual complaint to see if there was
something there.
Mr. Date. What I just referred to is our approach with
respect to complaints that we receive. With respect to that
which we publish on the Web site, we--and we are quite
transparent about it--that which we publish on the Web site is
the nonpersonally identifiable information associated with
complaints that we receive with the various data fields as we
receive them. It is something that will continue to populate
over time. That is--for example, we have--
Mr. Luetkemeyer. My basic question was, you get the
complaints, you verify that it is a legitimate complaint the
person does business, do you follow up with an individual
complaint? If one individual--you talk about--you keep telling
me about this subset, about a whole group of people who are
being abused or there is a problem, but if there is one
individual case, you are not following up on it from the
discussion and answers you are giving me; is that correct?
Mr. Date. With a random sample of complaints that are
resolved--
Mr. Luetkemeyer. If you are giving a random sample, Mr.
Date, you are not taking care of every single one of them.
Mr. Date. Complaints that are resolved to the satisfaction
of a consumer, we will not follow up with an investigation of
every single one of those complaints, no.
Mr. Luetkemeyer. My time is up.
Thank you, Madam Chairwoman.
Chairwoman Capito. Mr. Manzullo?
Mr. Manzullo. Thank you.
According to FICO and other sources, small amounts of
medical debt that had been reported to credit bureaus can
dramatically lower a consumer's credit score and keep a
creditworthy customer from assessing credit and bolstering our
economy. Is the review of medical debt that it is reporting by
credit bureaus on your radar screen?
Mr. Date. It is, and more broadly, trying to understand the
interplay between data, data accuracy, its resilience as it
feeds into scores and the usability of scores thereafter is
within sort of both the medium-term research agenda and the
near-term supervisory agenda.
Mr. Manzullo. We know it impacts the credit score. The
reason I ask that question is that I practiced law for several
years, and I was probably involved in 300, 400, 500
bankruptcies, and one of the things that we saw toward the end
of my law career and what we see today are people filing
bankruptcy because of high medical bills.
Obviously, these are not large screen TVs. These are bills
that were incurred because a person had no insurance or
otherwise. And that being the case, it really has no impact--
not the word impact--it really has nothing to do with a
person's ability to pay the bills that would come day to day.
And we are seeing even small amounts of money, even if they
are money for bills, even if the bills are paid off, that
already impacted a person's credit score. That is where I want
to go on. Do you think that you would be open to look into the
fact, so that perhaps there may be a regulation that says if a
medical debt is under such and such an amount and it has been
resolved, that it no longer should be part of a person's
permanent credit record?
Mr. Date. I understand the issue you are raising, and I do
think that we should take steps to inquire into it. It is
something that has been raised also in other contexts, field
hearings that we have conducted. It is also analogous to other
issues. For example, delinquency rates for homeowners--
otherwise identical homeowners, one of whom happens to be
underwater because he lives in a part of the country where
there is a lot of depreciation, delinquencies are higher where
people are more underwater. Does that necessarily mean that you
are more or less likely to pay your auto--an analogous kind
of--
Mr. Manzullo. If I could send you a letter on that, laying
out that issue--
Mr. Date. We would welcome your thoughts.
Mr. Manzullo. The second thought I had is on RESPA. When I
practiced law, I closed probably 2,000 real estate closings,
everything from small shopping centers and farms and
residences, industrial properties, etc. And most of those were
homes, and I am showing my age, but it was before RESPA took
effect--I think it was in 1973 or 1975. What we are seeing now
is going from a relatively small folder of documents to
documents that can reach 6, 7, 8, 10 inches high. In my
experience, in fact in closing one of my own loans, is the fact
that it is impossible for a person to read through all that
information. And in the effort and good faith attempts by
regulators to disclose to the public, I think there has been so
much work at that end, that we really have to ask ourselves the
question, exactly what does the consumer need to know?
Alex Pollock, who was the head of the Federal Home Loan
Bank of Chicago--I think you know Alex--came up with, I
believe, a 1\1/2\-page closing statement. Are you familiar with
that?
Mr. Date. I am.
Mr. Manzullo. Tell me your thoughts on this. The closing
statement plus the amount of paper that appear at a closing.
Mr. Date. Many of the documents at a closing are State law-
driven and not Federal.
But I absolutely agree that there has been, over a period
of decades, I assume right-minded in the moment, but also
reflexive reaction, there is a problem, add another disclosure,
add another disclosure. And at some point, and I think that
point is relatively early on, there are diminishing returns to
another sheet of paper.
I mentioned to one of your colleagues in a different
subcommittee here a couple weeks ago, my wife, who happens to
be here today, we bought a house a year ago. She does financial
fraud at the Department of Justice, and consider what I do for
a living. We didn't read the documents at the closing table. At
some level, to the extent that things are predicated on an
unrealistic assumption of human behavior, that is bad. That is
why we are trying to get the most critical information in
people's hands 3 days beforehand, so that they actually have a
chance to look at the most critical things ahead of time. I
certainly don't think that just sort of throwing up our hands
is the right answer, but we want to makes things better and not
worse.
Mr. Manzullo. Thank you.
Mr. Date. Thank you.
Chairwoman Capito. Thank you.
I believe that concludes our questioning. I would like to
ask for unanimous consent to insert into the record a statement
from the Financial Services Roundtable.
Hearing no objections, it is so ordered.
The Chair notes that some Members may have additional
questions for this witness, which they may wish to submit in
writing. Without objection, the hearing record will remain open
for 30 days for Members to submit written questions to this
witnesses and to place his responses in the record.
Hearing no further discussion, this hearing stands
adjourned.
[Whereupon, at 3:35 p.m., the hearing was adjourned.]
A P P E N D I X
July 19, 2012
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