[Senate Hearing 112-374]
[From the U.S. Government Publishing Office]

                                                        S. Hrg. 112-374



                               before the

                            SUBCOMMITTEE ON


                                 of the

                              COMMITTEE ON


                          UNITED STATES SENATE

                      ONE HUNDRED TWELFTH CONGRESS

                             FIRST SESSION


                            SENIOR CITIZENS


                           NOVEMBER 15, 2011


  Printed for the use of the Committee on Banking, Housing, and Urban 

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                  TIM JOHNSON, South Dakota, Chairman

JACK REED, Rhode Island              RICHARD C. SHELBY, Alabama
CHARLES E. SCHUMER, New York         MIKE CRAPO, Idaho
ROBERT MENENDEZ, New Jersey          BOB CORKER, Tennessee
DANIEL K. AKAKA, Hawaii              JIM DeMINT, South Carolina
SHERROD BROWN, Ohio                  DAVID VITTER, Louisiana
JON TESTER, Montana                  MIKE JOHANNS, Nebraska
HERB KOHL, Wisconsin                 PATRICK J. TOOMEY, Pennsylvania
MARK R. WARNER, Virginia             MARK KIRK, Illinois
JEFF MERKLEY, Oregon                 JERRY MORAN, Kansas
MICHAEL F. BENNET, Colorado          ROGER F. WICKER, Mississippi
KAY HAGAN, North Carolina

                     Dwight Fettig, Staff Director

              William D. Duhnke, Republican Staff Director

                       Catherine Galicia, Counsel

                       Dawn Ratliff, Chief Clerk

                     Riker Vermilye, Hearing Clerk

                      Shelvin Simmons, IT Director

                          Jim Crowell, Editor


     Subcommittee on Financial Institutions and Consumer Protection

                     SHERROD BROWN, Ohio, Chairman

            BOB CORKER, Tennessee, Ranking Republican Member

JACK REED, Rhode Island              JERRY MORAN, Kansas
CHARLES E. SCHUMER, New York         MIKE CRAPO, Idaho
ROBERT MENENDEZ, New Jersey          MIKE JOHANNS, Nebraska
DANIEL K. AKAKA, Hawaii              PATRICK J. TOOMEY, Pennsylvania
JON TESTER, Montana                  JIM DeMINT, South Carolina
HERB KOHL, Wisconsin                 DAVID VITTER, Louisiana
KAY HAGAN, North Carolina

              Graham Steele,  Subcommittee Staff Director

         Michael Bright, Republican Subcommittee Staff Director


                            C O N T E N T S


                       TUESDAY, NOVEMBER 15, 2011


Opening statement of Chairman Brown..............................     1


Hubert H. ``Skip'' Humphrey III, Assistant Director, Office of 
  Financial Protection for Older Americans, Consumer Finance 
  Protection Bureau..............................................     3
    Prepared statement...........................................    18
Julie Nepveu, Senior Attorney, AARP..............................     5
    Prepared statement...........................................    20




                       TUESDAY, NOVEMBER 15, 2011

                                       U.S. Senate,
Subcommittee on Financial Institutions and Consumer 
          Committee on Banking, Housing, and Urban Affairs,
                                                    Washington, DC.
    The Subcommittee convened at 3:07 p.m., in room 538, 
Dirksen Senate Office Building, Hon. Sherrod Brown, Chairman of 
the Subcommittee, presiding.


    Senator Brown. The Subcommittee on Financial Institutions 
and Consumer Protection will come to order of the Senate 
Banking Committee.
    Thank you for joining us today as we consider the financial 
security and the health security of America's senior citizens 
in this age of widening inequality. I want to thank our 
witnesses for being here today, Ms. Nepveu and Mr. Humphrey, 
whom I will introduce in a moment, and to thank Senator Corker, 
who has worked on these issues in his role as Ranking Member of 
the Special Committee on Aging, a committee chaired by Senator 
Kohl of Wisconsin. He has done significant work in the area of 
fighting against senior scams.
    Earlier this year, I attended a seniors financial education 
workshop in the city of East Cleveland, a generally low-income 
area where it seems financial institutions, especially 
nonbanks, have preyed on seniors, perhaps more than most places 
in my State. I heard firsthand how institutions like KeyBank 
are partnering with nonprofits to help elderly Americans avoid 
mail and telemarketing and Internet fraud. And I heard 
firsthand how the financial security of our seniors is 
threatened by a number of financial predators.
    This Subcommittee in October examined the state of 
household wealth for middle class Americans. We learned more 
about how middle class wages and household wealth have remained 
relatively stagnant over the past decade while household debt 
more than doubled. Too many seniors have seen retirement 
savings vanish in the financial crisis and the ensuing 
recession. Many seniors are living on fixed incomes, relying 
principally on Social Security, and literally cannot afford to 
pay these outsize fees and interest associated with credit 
cards and mortgages.
    In Cuyahoga County, where Cleveland and East Cleveland are 
located, a senior living on Social Security Disability had her 
first trial mortgage modification payment double-billed, 
causing the bank to tack on $150 in overdraft fees. That is 
simply too much money for a senior living on a modest Social 
Security check and living from one modest check to another.
    Other seniors suffer from health issues exacerbated 
obviously by the stress of struggling to meet their 
obligations, or so often just to hold on to the family home. A 
recent study by the University of Maryland found that seniors 
who fall behind on their mortgages reported in far too many 
cases symptoms of depression, more food insecurity, all of the 
things that afflict people in their later years with that kind 
of anxiety and pressures on them. They are more likely to 
respond they were not taking their prescription medicines as 
prescribed because of the cost.
    I received a letter yesterday from an elderly couple in 
Geauga County, Ohio, who had worked to obtain a mortgage 
modification from their lender. Let me just quote from the 
letter. ``How does one measure,'' they wrote, ``two years of 
waiting for a resolution, the cost of mental anguish, the 
health issues revealed in the loss of the ability to sleep, 
depression, and anxiety over the worry of losing a spot on this 
earth we have called home for 40 years. All this in search for 
a lower interest rate.''
    As Ms. Nepveu will attest to today, this is an unfortunate 
story that too many Americans face daily. In addition to the 
housing crisis, too many seniors struggle to meet the unfair 
terms of unscrupulous lenders looking to take advantage of 
their vulnerable state. Congress created the Consumer Financial 
Protection Bureau with the sole mission of protecting consumers 
from these bad actors. Unfortunately, many of these activities, 
as we have heard many times here in this Subcommittee and 
elsewhere, are perpetrated by nonbanks and the Consumer 
Financial Protection Bureau does not have authority over these 
nonbank lenders until a full-time lender is confirmed. So I 
again urge my colleagues to confirm Rich Cordray, a former 
colleague of Attorney General Humphrey and an Ohioan and former 
Attorney General of Ohio, so that the Bureau can use its full 
authority over nonbank lenders.
    Yesterday, the other Senator Brown, Scott Brown from 
Massachusetts, told the Boston Globe that he supports Rich 
Cordray and believes he deserves an up or down vote. I am 
confident on an up or down vote he will be confirmed. No one 
has expressed any real doubt about his qualifications. It is a 
political statement made by some 40 Republicans in this body. 
Never in the history of the Senate, the Senate Historian told 
me, has one party blocked someone's nomination simply because 
they do not like the agency or they want to rewrite the rules 
governing the agency.
    I look forward to hearing from Mr. Humphrey, who will share 
his plans for the CFPB's new Office of Older Americans. Mr. 
Humphrey comes from a distinguished family of public servants, 
one of my heroes, Hubert Humphrey, who may have been, I would 
say with Senator Kennedy, perhaps the two best Senators of the 
last century. I was proud to have met your father a couple of 
times, of course, never had the opportunity to serve with him, 
but was an admirer from afar for many years.
    As our seniors increasingly become targets of more and more 
financial predators, we must empower the CFPB with all the 
tools necessary to protect our seniors. We look forward to 
hearing from you today and I will introduce the two panelists.
    Hubert Humphrey III, Skip, joined the Consumer Financial 
Protection Bureau as the Assistant Director of its newly 
established Office of Older Americans in October, just a month 
or two ago. Mr. Humphrey has spent much of his professional 
life working to protect consumers, serving as a Minnesota State 
Senator for 10 years and as Minnesota's Attorney General for 16 
years. He then initiated broad-ranging educational initiatives 
that helped reduce crime targeting consumers, especially those 
who are older and more vulnerable. He worked on behalf of 
seniors as President of the Minnesota AARP and until recently 
served on that organization's national board.
    Julie Nepveu is testifying on behalf of that organization, 
the AARP, a nonprofit, nonpartisan organization that helps 
people age 50 and older. I do not quite get this 50 thing. I 
was even more amazed by how you found me, like, every third day 
after my 50th birthday----
    Senator Brown.----and I will not ask you about that, but--
well, I was not that amused, but that is OK.
    Senator Brown. She focuses on consumer protection, housing, 
disability, and low-income issues as Senior Attorney, AARP 
Foundation Litigation. She formerly practiced law with the 
Lawyers' Committee, a great organization for civil rights under 
law, and Legal Services of Northern Virginia on fair housing, 
race discrimination, Federal housing, predatory lending, and 
community accountability.
    I want to welcome both of you. Mr. Humphrey, if you would 


    Mr. Humphrey. Thank you very much, Chairman Brown. I also 
want to thank Ranking Member Corker and the other distinguished 
Members of your Committee for the opportunity to speak----
    Senator Brown. Let me interrupt for a moment. Mr. Corker 
will be here shortly. He is on a call with his leadership. Just 
sorry I did not mention that. Please proceed.
    Mr. Humphrey. All right. As you mentioned, my name is 
Hubert Humphrey and I joined the Consumer Financial Protection 
last month to serve as its Assistant Director of the Office of 
Older Americans. The CFPB was created by the Dodd-Frank Act and 
launched in July of this year. The mission of the Bureau is 
important to all Americans to ensure that markets for consumer 
financial products or services are fair, transparent, and 
competitive, and that all consumers have access to those 
markets. We will fulfill this statutory charge by making rules 
more effective, by consistently and fairly enforcing those 
rules, and by empowering consumers to take more control over 
their economic lives.
    The Dodd-Frank Act specified certain populations that 
needed focused attention. Among them, students, service 
members, and older Americans. Older Americans have been hit 
hard by the economic crisis, Mr. Chairman, as you mentioned. 
Many over 62 are not financially prepared for retirement, and 
financial exploitation of senior citizens is growing.
    When our Office for Older Americans at the CFPB launched 
last month, it did so with a focus on ensuring that seniors 
have the information that they need to make sound financial 
decisions, and it launched with an emphasis on helping seniors 
identify and avoid unfair, deceptive, and abusive practices 
targeted at them. Both of these focus areas were mandated by 
the Act.
    The need to help older Americans is great. As seniors top 
50 million and soon will make up 20 percent or more of the 
population, they will face more challenges to maintaining 
economic security, supporting long anticipated retirement 
plans, and exerting control over financial decisionmaking.
    Though I have been on the job for less than a month, I have 
already seen the critical need for the CFPB when it comes to 
older Americans. Take, for example, Mr. Chairman, Suzanne of 
Kentucky. The CFPB helped Suzanne. Now, she is 81 years old. 
They helped her to reach an agreement with her credit card 
company after she had been trying to do so for herself for more 
than 6 months. After losing her job in 2010, Suzanne realized 
that she could not keep up the minimum payments on her 
longstanding credit card debts. She asked the credit card 
companies to cut the minimum monthly payments. One issuer did 
not agree.
    After repeated appeals after the many phone calls, she 
simply could not keep up the payments. She said that she was at 
a point of tears. The company started to charge her $25 in late 
fees and her interest rates spiked. She said that she had hit a 
wall and just did not know what to do. Well, eventually, she 
wrote her Congressman and he advised her to contact the CFPB.
    Ten days after the CFPB contacted the credit issuer, the 
company credited back all of the interest charges and late 
fees. Suzanne told the CFPB that she was elated with the 
results. Her balance now is zero. So while the Bureau has much 
work to do, we are already starting going forward.
    I have spent my first few weeks with the Bureau listening 
and learning from older Americans like Suzanne. I traveled to 
California, Florida, Massachusetts, where I met with seniors, 
State law enforcement officials, and other concerned groups. 
They asked me to help build awareness about one of the biggest 
financial issues facing seniors, elder financial abuse and 
exploitation. It has been called a hidden epidemic, the crime 
of the 21st century, and it is a serious growing problem that 
we need to address. According to one survey and study, 
Americans over the age of 65 lost more than $2.9 billion in 
financial abuse and exploitation in 2010. That is a 12 percent 
increase from the $2.6 billion estimated in 2008.
    Now, as I listened, many talked about the shame and 
embarrassment people feel when they are tricked or taken 
advantage of. People need to feel comfortable speaking about 
these issues. At the CFPB, we want to raise public awareness. 
We want to give people a forum and to help them have the 
courage to speak up about this underreported problem. We do not 
want them to hide anymore.
    I am honored to have this opportunity to help older 
consumers navigate their way to better financial decisions and 
a more secure financial future.
    Thank you, Mr. Chairman. I look forward to your questions 
and the Committee's questions.
    Senator Brown. Thank you, Mr. Humphrey. I should add, I was 
a great admirer of your mother, too, and not just talk about 
your father. Thank you.
    Mr. Humphrey. Thank you.
    Senator Brown. I am and was. Thank you.
    Ms. Nepveu.


    Ms. Nepveu. Chairman Brown, Ranking Member Corker, and 
distinguished Members of the Subcommittee, good afternoon. I 
appreciate this opportunity to offer the views of AARP on 
financial security issues facing older Americans. AARP would 
like to thank Chairman Brown and Ranking Member Corker for 
holding this hearing.
    Financial fraud is becoming increasingly sophisticated and 
harder to combat. Older consumers, as Mr. Humphrey has 
mentioned, lose billions of dollars every year to fraudulent, 
abusive, or deceptive practices. Consumer fraud is listed by 
every State as the major nonviolent crime perpetrated against 
older people. Many consumers do not know how or where to 
complain to seek a remedy for fraud. Embarrassment, fear of 
being deemed competent and losing control and independence of 
their financial abilities may make them reluctant to pursue a 
remedy when an abuse occurs. Reduced capacity to make financial 
decisions is a significant problem for many older people. 
Therefore, we must commit to increasing consumer protections to 
prevent harmful financial services and practices.
    AARP has identified numerous practices that continue to 
threaten the financial security of older people. These include 
mortgage lending fraud and deception regarding fees and 
interest rates and disclosures, leading to higher payments when 
borrowers would qualify for more favorable terms. Such mortgage 
lending practices ultimately lead to foreclosure, an area 
itself rife with fraud and abuse, and they make people 
vulnerable to mortgage rescue scams that cost older homeowners 
millions of dollars in fees but do not save their homes.
    Practices of the credit card industry using complicated 
terms and hidden fees that hide the true cost of credit make 
comparison shopping impossible. Prepaid debit cards that do not 
provide protection against theft, loss, or unauthorized use and 
that charge high fees to access funds, check balances, or even 
to decline a transaction. Other high-cost loans, with interest 
rates that can exceed 400 percent, seriously threaten the 
financial security of the most vulnerable borrowers. These 
include bank overdraft fees, live loan checks, auto financing, 
payday loans, auto title loans, and tax refund anticipation 
    AARP would like to thank Senators Merkley and Brown for 
introducing the Deceptive Loan Check Elimination Act.
    Older consumers, in particular, are highly vulnerable to 
the increasingly aggressive and often illegal debt collection 
tactics used to collect disputed or stale debts or debts caused 
by identity theft. Complaints about debt collection abuse have 
topped the charts of the State AGs and the FTC for over a 
decade. Rampant fraud by debt collectors is taxing the 
resources of State courts and State Attorney Generals and must 
be addressed comprehensively.
    Forced arbitration makes it impossible for consumers to 
obtain a remedy for violations of the law, essentially giving 
businesses a ``get out of jail free'' card and allowing them to 
keep their ill-gotten gains. The Federal preemption of State 
law that would protect a consumer's access to meaningful, 
effective court remedies places an unsustainable burden on 
cash-strapped public enforcement systems to monitor harmful and 
deceptive action practices.
    Additional examples are provided in my written testimony, 
and I would be happy to supply you with real-life examples of 
some of these problems if you would prefer.
    Now, Chairman Brown asked me to address the role of the 
Consumer Financial Protection Bureau in restoring consumer 
financial protection. AARP supports an independent CFPB that 
has the sole mission to ensure that American families can trust 
the financial products they use to help them achieve their 
goals and to avoid traps that lead to financial distress. 
Surveys conducted by AARP demonstrate that Americans age 50-
plus, regardless of their party affiliation, want Congress to 
act to hold financial institutions accountable.
    The full potential for the CFPB to be an effective cop on 
the beat, protecting Americans from deceptive and unfair 
financial practices, will not be realized until there is a 
leader in place and the agency can use all the powers it has 
been granted. We appreciate that the Senate Banking Committee 
has moved forward to fill this critical leadership position and 
we urge the full Senate to move quickly to continue this 
confirmation process.
    Of particular interest to AARP has been the creation of the 
Office for the Financial Protection of Older Americans. This 
office is tasked with improving the financial decisionmaking of 
older people and preventing unfair, deceptive, and abusive 
practices that are targeted at them. AARP is particularly 
pleased that former AARP board member, Hubert Humphrey, has 
been selected as the head of this office. As the former 
Attorney General for Minnesota and an ardent and successful 
consumer advocate, we are assured that the financial security 
needs of our members will be identified and addressed.
    AARP looks forward to continuing to contribute to the 
effort of protecting older consumers from financial fraud and 
abuse. Thank you for the opportunity to share AARP's views with 
you today.
    Senator Brown. Thank you, Ms. Nepveu.
    We hear about a lot of financial products, some newly 
created, some that have been around for a while, some slightly 
changed, that are used in these scams. One, the product of 
reverse mortgages, which is not by definition or by nature 
necessarily an abusive kind of product or one that can create 
scams necessarily, but we hear banks that have typically 
offered these, some of these banks are exiting this whole idea 
of doing reverse mortgages. We also hear reports about 
alternative nonbank lenders gaining access to seniors' Social 
Security and other Government benefits.
    What do you make of this, that nonbank lenders, if you 
will, have gotten into the reverse mortgage and have access to 
this Social Security information? Ms. Nepveu, why do you not 
start. What do you make of this, where this is going?
    Ms. Nepveu. Well, the reverse mortgage market has long been 
problematic for seniors. It provides an amazingly lucrative 
field for scammers and for high fees to be sucked away from 
people's homes. But it is also a source of equity for folks to 
tap when they are retiring and they do not have income but they 
have their home asset. So it is a very important area that 
needs to be available for seniors to use, but it also needs to 
have special protections because of the serious harm that can 
affect seniors.
    Now, the alternative finance markets and the mainstream 
banks both are in the same boat in that they each can charge 
high fees for this process. They both can cause seniors to lose 
their homes. They can both make the value of the property that 
would be available to seniors to tap for their equity less than 
they otherwise would have available to them.
    And so we are very concerned with the reverse mortgage 
market and----
    Senator Brown. And concerned, too, about banks, not just 
    Ms. Nepveu. Banks and nonbanks, that is right.
    Senator Brown. And some of the abuses have also been--if 
not abuses, the lack of perhaps financial literacy has played a 
significant role in making these more attractive to seniors 
than maybe in reality they are, even with banks?
    Ms. Nepveu. Well, you know, the financial literacy problem 
with reverse mortgages is somewhat different because in a 
reverse mortgage situation, each person who gets one of these 
mortgages is required to have counseling. And in the counseling 
process, they are given quite a lot of information, and these 
counselors are usually HUD-certified counselors. The problem is 
that sometimes the game changes in the middle. They are told 
for many years that people will be protected, and then at the 
end of the day, they are not protected.
    So there is more to be done on that score and I think that 
even with the counseling, there are still a lot of very high-
cost loans out there. At the moment, I am not sure that there 
are many loans being made in the reverse mortgage area because 
the lending markets are so poor, the home values are dropping, 
and that makes it more difficult for people to tap any equity.
    Senator Brown. OK. Thank you, Ms. Nepveu.
    Mr. Humphrey, the Wall Street Journal a couple of years ago 
reported there are no publicly available statistics on the 
proportion of payday loans that are backed by Social Security 
and other Government benefits. Treasury is charged, as you 
know, with ensuring that Social Security payments reach 
beneficiaries, but Treasury will say that there is a long, 
proud history in this country of never being late and these 
benefits always being whole and all. But privacy rules prevent 
Treasury, they will tell you, from monitoring recipients' bank 
accounts without cause.
    The Social Security Administration says it is not 
responsible once benefits have been paid out. Of course, they 
say that, and I understand that.
    How do you envision--I know you have only been there a 
month, but how do you envision CFPB and specifically the Office 
of Older Americans filling these information gaps for seniors 
as this moves forward?
    Mr. Humphrey. Mr. Chairman and Members of the Committee, 
thank you for that question. I think it is a very important 
point. As I receive my Social Security checks, I want to make 
sure that they are safe and secure and that the information is 
not shared with anyone that I do not want it shared with.
    But may I just say that, obviously, Members of Congress 
have learned that this is a very important area, particularly 
in the area of the reverse mortgages. That is why there is a 
study that has been requested and we are in the process of that 
review. Part of some of the things that you are talking about, 
I am sure will be taken up in that review, and I look forward 
to the results because the Bureau is really operating on the 
basis of facts, on data, on the research that is available and 
will be available in order to come forward with rules, 
regulations, and proposals which we have been charged to give 
in the future to Congress.
    Senator Brown. Thank you.
    Senator Merkley.
    Senator Merkley. Thank you very much, Mr. Chair, and thank 
you for convening this gathering. I appreciate the testimony 
from both of you and the work you are doing to protect older 
Americans, senior Americans.
    I wanted to start by asking, if I could, Ms. Nepveu, if you 
could expand a little bit on the issue involving live loan 
checks. Obviously, it is something the Chair and I are very 
concerned about, but you bring a national perspective to this, 
and if you could fill us in a bit, that would be helpful.
    Ms. Nepveu. Certainly. Thank you for the question, sir. 
AARP supports the bill that you and Mr. Brown have both--the 
Deceptive Loan Check Elimination Act. Essentially, what this is 
is that banking entities will send a check to a person 
unsolicited and tell them that they have access to this money. 
What they do not necessarily tell the people is that they have 
access to a loan at a very high interest rate, that once they 
cash that check will cause them to be on the hook for the full 
    It is a growing problem. In the 1970s, when credit cards 
started sending out credit cards to folks and saying, this is 
now your credit card, that practice was stopped because it is 
so dangerous. People's checks get lost. They get charges sent 
against them. They do not necessarily want the money. They are 
not necessarily capable of using the money wisely. But most 
importantly, it is deceptive. People do not understand what it 
    So this bill will go a long way to helping to prevent that 
kind of problem.
    Senator Merkley. Thank you, and I will tell you, some of 
the things that I have noticed on these, sometimes there is a 
statement in very small print on the back that many seniors 
would be unable to read. I have seen it in light gray print 
that makes it difficult to read. And even if you could read it, 
a lot of folks assume that this is a refund of some sort if it 
is coming from anyone they might have had a business 
relationship in the past with. Do you see those kinds of issues 
around the country?
    Ms. Nepveu. We have been seeing them, and this is not 
unlike a few years ago when people were sending checks for 
$2.50 and cramming their cell phone bills with all kinds of 
membership fees for a variety of things. This is not unlike 
that practice except we are talking about enormous amounts of 
money and we are talking about very high interest rates and the 
harm to people is much greater. It is not just a couple of 
dollars and they can get out of it. This is once they are on 
the hook for it, they are on the hook for it forever.
    Senator Merkley. You know, as you all were doing your 
initial presentation, you were mentioning things such as 
mortgage rescue scams, credit card deception, prepaid credit 
cards with high and unexpected fees, the live loan checks, and 
so forth. I was wondering if there is any sort of estimate of 
these type of amount of resources we are talking about around 
the country.
    Right now, we are having this discussion in Congress in the 
supercommittee and in the appropriating committees about 
resources for safety net, resources for this program or that 
program. But it seems much better to help people have strong 
financial lives so that they never have to resort to a safety 
net in the first place.
    Ms. Nepveu. Right.
    Senator Merkley. And so do we have a sense of the scale? 
And I realize maybe you are just looking at it from the 
viewpoint of the seniors, but that is fine, too, kind of the 
scale of the impact of predatory practices in shifting funds 
out of the pockets of seniors.
    Ms. Nepveu. I think Mr. Humphrey mentioned $2.9 billion in 
2010, but I have--the Lawyers' Committee recently did a 
mortgage scam study, and as of July 2011 found that about $40 
million had been taken out of the pockets of consumers in 
mortgage rescue scam fees, where the folks think they are going 
to save their homes and, of course, they are not. About 41 
percent of that was for older folks, $16 million. And that is 
only the tip of the iceberg because most people would not know 
to report these kinds of activities.
    We also know that the bank overdraft fees are taking 
enormous, millions of dollars of people's Social Security 
benefits every year, tens of millions of dollars. It is not a 
small problem at all. It is significant, and that is why AARP 
is working on these issues.
    Senator Merkley. Mr. Humphrey.
    Mr. Humphrey. Senator, let me just mention, the $2.9 
billion, I think, is referencing the abuse and exploitation, 
which the point that you are talking about goes beyond that. 
And I have to tell you, I have only recently moved here, but I 
am waiting for that nice new mail to come in, and I guarantee 
you, I guarantee you, Mr. Chairman and Senator, there will be 
at least four letters telling me about all the money that is 
available, with checks already printed out ready to go, just as 
you have mentioned, and it is a tragedy because it is the same 
thing as you have mentioned, Senator, in the gray, small print, 
legal terms. Those are the kind of things that confuse seniors, 
that we need to have provide helpful information.
    And what I would like to do is, as charged by the Act, I 
want to help bring together, to collaborate together with other 
State and Federal agencies as well as private and nonprofit 
organizations to see that we are able to provide the 
information for a very active and robust literacy, financial 
literacy. That is really what is important.
    And then if when you combine that, Senator, if you combine 
that literacy so that individuals can make these crucial 
decisions in a well informed way, if you combine that with good 
supervision and strong enforcement, then I think you have the 
kind of impact that will allow good and honest businesses to 
compete in the marketplace with a fair set of rules and 
regulations and laws and will remove those that are causing the 
trouble, because they cause trouble not only for seniors and 
for the consumer, they cause trouble for honest businesses.
    Senator Merkley. Robust competition within fair rules 
sounds tremendous. Thank you for dedicating yourself to that. 
Thank you.
    Senator Brown. Thank you, Senator Merkley.
    Mr. Humphrey, I mentioned in my remarks I attended a senior 
financial education conference in East Cleveland some months 
ago. You noted in your testimony that consumer education is one 
of the tools that the Bureau would be able to use to protect 
consumers and especially your Office of Older Americans will 
have a focus on ensuring that seniors have the financial 
information they need prospectively.
    What is the role for financial education? Would you just 
talk about sort of your philosophy there, including 
collaboration by banks, not-for-profits, working with them and 
not always in some sense working against their practices, 
particularly for the nonbanks but for anybody, but how you work 
with them to sort of promote financial literacy for their 
customers and for the people you work for.
    Mr. Humphrey. Well, Mr. Chairman, thank you. I think we 
have to recognize that there are many very good actors out 
there that are doing good work. They are trying to provide the 
information, the training, the advice, the good work that needs 
to be done to help seniors really have the tools to make 
important decisions as they age.
    So the first and most important thing of our office is to 
help bring that together, and that is one of the charges that 
the Act calls for, is for us to help coordinate and collaborate 
together to find the best practices, to inform those so that we 
can work together. And I see that as something that I have 
tried to do all of my public career. When I was Attorney 
General, I can tell you that, for the most part, it was very 
helpful to have a Federal presence as we were taking 
enforcement actions and as we were taking preventive actions 
and working with other organizations.
    I see that as somewhat the same role. You asked my own 
personal view. I think it is very important that we have the 
combination, as I mentioned to the Senator, that you have the 
combination of education for prevention and for proper 
individual decisionmaking and enforcement that provides then 
for an honest marketplace where these financial transactions 
can take place and be helpful, not only to the businesses but 
to the customer.
    Senator Brown. Where does the not yet confirmation of 
Attorney General Cordray--how does the fact that he has not yet 
been confirmed hamper your efforts to do that?
    Mr. Humphrey. Well, I think that, obviously, having a 
Director will help us in the nonbank area. That will allow for 
greater supervision. In order to take on these whole questions 
along the framework of deceptions and scams and others, you 
need to have that fullness of supervision and enforcement, and 
I think that would be helpful.
    There are a lot of things we could do. As I said, we have a 
lot of work to do with colleagues and with the partners that we 
have around the country. As I spoke and I visited with friends 
in California and Florida and Massachusetts, I asked them the 
question, what will a Federal presence--what do you see as the 
Federal partner act in your role, and I asked them to share 
that with me as they have an opportunity to think about that, 
and I am getting information back. We have not gotten all of it 
yet. We are going to look and find out what that role and 
relationship, that partnership, that strong partnership will 
    Senator Brown. Thank you.
    Ms. Nepveu, I mentioned two elderly Ohioans who had such 
trouble navigating the whole mortgage modification process. 
What do you hear from your members about their experiences with 
mortgage modification, and include in your answer 
recommendations on how this Committee, this Subcommittee, this 
full Government, the Government generally, can help in this 
    Ms. Nepveu. The mortgage modification process has been a 
disaster, frankly. The approximately 40 to 50 percent of the 
folks who seek modifications are deterred even before they get 
in the door because they are not yet in default. They cannot 
change anything until they step over that cliff. And then once 
they are in that cliff, 30 percent find that their paperwork 
gets lost, or they get it sent back because they filled it out 
in the wrong language, or they get it sent back because the 
people have decided their home is not worth enough money 
anymore, or it is sent back because they are in default, of all 
    We also see problems with dual tracking. People's homes are 
being foreclosed at the same time that their mortgage 
modifications are going through.
    There have been a number of cases in litigation recently 
where the homeowners have been led to believe that they are 
getting a modification, they have met all the terms of the 
trial modification, and then the bank says, no, never mind. We 
are not going to do it.
    Senator Brown. Led to believe by whom, by the banks----
    Ms. Nepveu. By the banker. By the servicers.
    Senator Brown. By the servicer?
    Ms. Nepveu. So the servicer says, OK, if you will follow 
this, make these payments at this rate for 3, 6 months, that is 
your trial modification period. They meet all those terms, and 
then at the end of that time, they said, well, we are going to 
foreclose on you anyway.
    Senator Brown. Would the servicer know that was what he or 
she was going to do 3 or 4 months before the foreclosure, in 
your mind?
    Ms. Nepveu. It is difficult to know what the servicers know 
and do not know. We know that they earn money by servicing 
these loans and they earn money by having--some of them earn 
money having these properties go into foreclosure.
    Senator Brown. Then they are not----
    Ms. Nepveu. So the incentives are not in the--they are not 
aligned with the interests of the homeowners. The incentives of 
the servicers are not the same as the incentives----
    Senator Brown. The servicers in these cases where they say 
to the homeowner, if you pay this amount for the next 6 months, 
then we will work this out, the servicer is not violating a 
contract when they still send--the servicer is not violating 
the law----
    Ms. Nepveu. Well----
    Senator Brown.----or are they when they foreclose at the 
end of the 6 months?
    Ms. Nepveu. That is an open question at this point. There 
have been some cases where courts have held they are in 
violation. They are allowing those cases to go forward in 
saying that the banks do have some kind of obligation----
    Senator Brown. Who is able to put it in a court of law to 
bring suit in that case?
    Ms. Nepveu. The person seeking the modification.
    Senator Brown. Can----
    Ms. Nepveu. So they say, here is a contract claim. You made 
us a promise and we are challenging----
    Senator Brown. Who has the financial wherewithal to do that 
if they are about to be foreclosed on?
    Ms. Nepveu. Well, a lot of times, these are done by 
attorneys who are seeking to protect homeowners. They are legal 
services attorneys. They are consumer law attorneys. They will 
only get paid at the end of the day if they win the case.
    Senator Brown. And it is a relatively small percentage of 
these cases, I assume, that they end up in court like that.
    Ms. Nepveu. Very few. Very few cases end up in court. And 
right now, as I said, there is a big problem with courts 
saying, just because there was a HAMP program protecting you 
does not mean that you have a right to enforce that. So they 
are saying that the fact that there is a HAMP program does not 
provide any protection to these folks, and there is no contract 
claims above that. There are several cases in several of the 
circuits at this point where that is a huge problem and we are 
watching those cases very carefully.
    Senator Brown. Thank you, Ms. Nepveu.
    Senator Merkley.
    Senator Merkley. Thank you, Mr. Chair.
    I want to continue on this because I just want to affirm 
that these are the stories we hear every day, and so many 
people feel the modification program was turned into an 
additional scam. That is, they were told to stop making their 
payments so they would qualify. Then huge fees were run up 
which diverted their funds. And then they were told, you have 
not made your payments, so you do not qualify. That is--it is 
just obscene that Americans should be subjected to that by the 
one major program designed to assist them escape from the 
predatory mortgages they already had or other impacts of the 
economy on working families.
    Ms. Nepveu. That is right, sir. And in addition, what we 
are doing is kicking the can down the road because we are going 
to have--even where we have some kinds of modifications, the 
kinds of modifications that are being made are going to 
explode. Again, they are entering into more adjustable rate 
mortgages or ending up with balloon payments at the end of the 
day that people will not be able to pay.
    Senator Merkley. I wanted to ask you all about a completely 
different form of problem, and this is one that came to light, 
because I remember my family experienced it, in which a 
grandchild called, only it was not really the grandchild, it 
was a scammer calling the member of the family and putting a 
young man, or at least a young male voice on the line saying, 
``It is me, Grandma. I have been stopped at the border with 
illegal drugs. They are holding me and they are not going to 
allow me out of here until I post bail.''
    And then the police get on the line--in this case, it was 
Canadian police--saying, ``well, you know how rough the 
treatment is of folks who are detained in this type of 
situation with drugs at the border, and, of course, I know you 
do not want your grandson submitted to that sort of rough 
treatment and so you need to go down and immediately, as soon 
as you post bail, we will release him.'' Meanwhile, the young 
man gets back on and is sobbingly asking the grandmother not to 
tell the parent because he is so embarrassed by the situation. 
Terrible, terrible, stressful situation.
    After this happened within my family, I heard about it 
happening often. Is this type of telephone scam something you 
see a growing amount of? What tools do we have to counter it? 
What should we be doing to protect our retired Americans, 
especially now that so much information about family 
relationships is available on the Web? There are genealogical 
sites that tell you who is who. There is all kinds of 
information the scammers can bring to bear to make it seem very 
    Mr. Humphrey. Senator, if I could just respond, you 
describe very aptly the tragic situation that happens all too 
often. And now with the detailed information that seems to be 
available on the Internet, it becomes very convincing over the 
phone to a person who may be isolated, who has strong feelings 
about family, is concerned, and so this is the exact kind of 
situation we hope in working together with partners and 
bringing together and figuring out the best practices for 
financial education to help give seniors the tools, the courage 
to give a call and say, I will get back to you. Let me get hold 
of someone that I can find out how we can go ahead with this so 
that they can make the call to the proper authorities and find 
a way to stop that kind of a scam. That is absolutely crucial.
    And unfortunately, it happens all too often, and it happens 
to all of us. I was sitting in a meeting in Florida and I 
received an email that said that, unfortunately, there had been 
a delay in payment that was supposed to be made from a bank in 
London and that all I had to do was give the authority to go 
forward with someone in South Africa to get all this money. I 
mean, the scams are unbelievable that are out there and we have 
to do something to not only provide the education and the 
effort of good knowledge about the marketplace, but we also 
need to follow up with the enforcement to see that these things 
do not happen.
    Senator Merkley. Thank you.
    Mr. Humphrey. It is tragic. It is tragic.
    Ms. Nepveu. I agree, sir, and one of the problems is the 
enforcement side of it, and when Grandma gets the call, she is 
going to call her bank and try to create a remotely--create a 
check. She is going to use the banking process to get the money 
to this scammer. The banks need to be partners with consumers 
in these scams, not to allow this to happen, because the bank 
should know that this is bizarre. The bank should know that 
Grandma never sends money to Joe Scammer in Canada or in 
Nigeria or anywhere else. The bank should be alert to these and 
help the consumers avoid these, because Grandma may be 
isolated. She may also have limited capacity to understand what 
is going on. She also may be bullied into doing some of this 
    You know, sometimes the family members are the ones 
creating the problem. Sometimes Grandson is calling Grandma and 
getting her to send money. Whether it is really Grandson or not 
really is not the point. The point is, she is being abused 
financially and the banks need to do more to protect, and there 
are some regulations. Regulation CC was amended several years 
ago to improve the ability of banks to stop these practices, 
but more needs to be done in this.
    Senator Merkley. Thank you. Well, all we can do to help 
folks on that, it is a terrible situation. They prey on every 
good instinct of our senior citizens to back up their family 
and help someone in trouble.
    You mentioned remotely created checks, and it is my 
understanding that these played a more important role before 
credit cards. But now, often, are utilized--my understanding is 
they are being utilized to bypass. We have in Oregon State 
something that I was involved in when I was Speaker there, a 
protocol that puts a 36 percent interest rate cap, not just on 
payday loans but all consumer loans to avoid the payday loans 
kind of finding a way to bypass the payday loan legislation 
under consumer loans. And we also had Internet legislation to 
close that loophole.
    It appears that the way that folks are getting around that, 
because the legislation essentially makes it so people cannot 
legally collect on Internet payday loans, is remotely generated 
checks done in advance. Is there still a legitimate role for 
remotely generated checks that outweighs their use in a number 
of predatory situations?
    Ms. Nepveu. Did you want to--I think there is still a 
legitimate reason to use those. For example, if my credit card 
bill is due this afternoon, I am, like, oh no, I forgot to pay 
it. I would like to be able to pay it and avoid the $35 late 
fee. But banks need to be alert to who is--you know, if 
Discover calls up and says, I have got this remotely created 
check and I want to process it, that is one thing. If the 
``telemarketers are us'' call up and say it, then the bank 
should be a little bit more suspicious.
    For example, Wachovia got in trouble with this several 
years ago because they were allowing telemarketers to take 
money out of older persons' accounts and the OCC entered into a 
settlement with them to stop this practice.
    We can be a little more selective. We do not have to get 
rid of remotely created checks altogether to solve this. We do 
not have to get rid of prepaid debit cards altogether to solve 
these problems. But we have to be careful about how we allow 
these different programs to go forward and whether or not 
appropriate protections are in place before they get out there 
and do harm.
    Mr. Humphrey. Senator, I would like to just add on to say 
that I think, also, that there are some legitimate uses. I can 
tell you that when I pay electronically my property taxes back 
in Minnesota, I usually do it by giving the information or the 
routing number and the rest. I have been asked other times to 
not do that, or to give it out, and I have absolutely refused. 
In fact, just 2 days ago, I was asked and I said, I am sorry. I 
do not give that information out.
    Now, we need to make sure that it is used properly, and I 
think your point is very well taken. One of the things that the 
Bureau has is a good research component, and I would hope that 
they will be looking at these kinds of uses, the proper uses, 
the improper uses. One of the challenges and one of the charges 
that we have in the Office for Older Americans is to make sure 
that when rules and regulations, when research is done 
throughout the Bureau, that there is a sensitivity to the 
senior concerns and needs so that these kinds of situations are 
taken into account, not just for a person who is 40-, 50-, 60-
years old, but for someone is 75 to 80 years old. So I would 
hope that we would be looking carefully at those things and 
obviously respond to your concerns on that.
    Senator Merkley. Thank you. If we have time, I will ask one 
more question.
    Senator Brown. Proceed.
    Senator Merkley. This goes back really to where Senator 
Brown started in talking about reverse mortgages. One feature 
that I had not previously been familiar with is that sometimes 
loan originators really push to have a younger spouse deed over 
their share of the house to the older spouse in order to 
provide larger draws, and then if the older spouse dies, the 
younger spouse does not own the house and would have to pay off 
that reverse mortgage in order to stay in the house. I had not 
heard about this before and was wondering if either of you had 
any insight on that particular strategy.
    Ms. Nepveu. Yes, sir. There are two parts of that. The 
first thing is that the reverse mortgage statute provides 
protection for spouses so that they are not supposed to be 
kicked out of their homes at the end of the--at the death of 
the spouse who took out the mortgage. That particular provision 
is not being enforced by HUD and AARP currently is involved in 
litigation against lenders and HUD to make that actually 
    But AARP also recently settled a lawsuit against HUD to 
require that when the surviving spouse--because for 17 years, 
people were told, if your spouse dies, you will still be 
protected. You will still be able to stay in the home. You will 
never have to pay more than that house is worth. It was fine 
until the mortgage market, the bottom dropped out, and now 
homes are not worth what the mortgages were paying. Now these 
spouses, surviving spouses, usually older women, are being told 
they have to pay back the entire amount of the loan when the 
house is only worth a fraction of what it used to be worth.
    So AARP filed a lawsuit to get them to reverse course, 
again, to go back to where they were for 17 years, and say they 
never have to pay more than 95 percent of the value of the home 
because it is a non-recourse loan.
    Senator Merkley. Mm-hmm.
    Ms. Nepveu. And people were promised that if the one spouse 
was not on the deed, they still would get to stay in the home 
and they still would not have to pay back more than that 95 
percent, because the lender could pay the 95 percent. The 
neighbor could pay the 95 percent. But the person who has been 
living in that home for 40 years is being required to pay 150 
percent if that is what the value of the home was and it has 
fallen that much and that is just not fair.
    Senator Merkley. Mm-hmm.
    Ms. Nepveu. It is not what the legislation required, 
    Senator Merkley. Thank you.
    Mr. Humphrey. Senator, I would just add that this, I think, 
makes it clear how important it is to have good advice given, 
to have a counselor that you can trust. One of the challenges 
and charges of the Act is for our office to monitor the 
certifications and the designations of senior advisors and we 
are working with States who already have some model legislation 
in this area to make sure that when these complicated 
situations are explained, that it is really coming from a 
person that has the certification, that knows the information 
and can provide the proper advice to seniors.
    So it is terribly important in these rather complex 
situations, particularly as they are aggravated by the current 
market. You know, I am sure that most of your constituents, 
their primary asset, as mine is, is my home. And so we are 
talking about the absolutely vital interest of the people in 
this country and of older Americans.
    Senator Brown. Thank you, and Senator Merkley----
    Senator Merkley. Thank you, Mr. Chairman.
    Senator Brown.----thank you very much. I wanted to add on 
to something sort of precipitated by your comments, Ms. Nepveu, 
and then I will wrap the hearing up.
    In your written statement, Mr. Humphrey, you had said the 
CFPB Office for Older Americans will pay special attention to 
the problems facing older women.
    Mr. Humphrey. Yes.
    Senator Brown. Women live longer, as we know, and according 
to one estimate, nearly half of women over 62 outlive their 
savings, and that makes, obviously, what you do and what you 
both do, really, about these reverse mortgages especially 
    So thank you. Senator Merkley, thank you for joining us. 
Thanks to both witnesses.
    I wanted to enter one thing in the record. I just got 
notice that, as you know, one of the provisions in Dodd-Frank 
is that there be aggressive oversight of this Consumer 
Financial Protection Bureau, partly because some Members of the 
Senate and House are not so supportive of this agency and this 
bureau and want to make sure that we do the right oversight. In 
this result, the law required--Dodd-Frank required the GAO to 
do an annual financial audit.
    The GAO released its annual financial audit recently, and I 
would like to read three points that were made. The GAO's 
financial audit released this week found three things--
primarily three things: That CFPB's financial statements were, 
quote, ``presented fairly in all material respects in 
conformity with U.S. Generally Accepted Accounting Practices;'' 
two, that CFPB, again, I quote, ``maintained in all material 
respects effective internal control over financial reporting as 
of September 30 of 2011;'' and three, and I quote again, ``CFPB 
had no reportable noncompliance with laws and regulations.''
    That tells me a lot. That is not always the case in a GAO 
audit. Congratulations to that bureau. More importantly, it 
speaks to me of the importance of finally confirming a 
    Senator Brown. Thank you both again. If any Members of the 
Committee, Senator Merkley or others who were not here, have 
questions they submit to you, we would appreciate an answer. We 
will submit them to you, if there are any, in the next 5 days, 
say, and if you would, get an answer to us as quickly as 
    Thank you for testifying. Thank you especially for your 
public service, both of you, and your good work.
    The hearing is adjourned.
    [Whereupon, at 4 p.m., the hearing was adjourned.]
    [Prepared statements supplied for the record follow:]
          Assistant Director of the Office for Older Americans
                  Consumer Financial Protection Bureau
                           November 15, 2011
Financial Security Issues Facing Older Americans
    Thank you Chairman Brown, Ranking Member Corker, and distinguished 
Members of the Subcommittee for the opportunity to speak with you today 
about the Office for Older Americans at the Consumer Financial 
Protection Bureau (CFPB).
    My name is Hubert Humphrey and I joined the Bureau last month to 
serve as its Assistant Director of the Office for Older Americans. As 
an Attorney General and State Senator in Minnesota, I became keenly 
aware of the many financial challenges that consumers face. Then, as a 
national board member of the AARP, I learned about the hardships of 
older Americans. Now I look forward to putting these past experiences 
to good use in helping our Nation's senior consumers in the financial 
    The mission of the Bureau is important for all Americans: To ensure 
that markets for consumer financial products or services are fair, 
transparent, and competitive, and that all consumers have access to 
those markets. We will fulfill this statutory charge by making rules 
more effective, by consistently and fairly enforcing those rules, and 
by empowering consumers to take more control over their economic lives.
    The CFPB was created by the Dodd-Frank Wall Street Reform and 
Consumer Protection Act. The law created the CFPB as a point of 
accountability for consumer financial protection. The statute also 
provided the Bureau with a wide range of tools to do this--research, 
supervision, rulemaking, enforcement, and consumer education. Having 
this full range of tools means that the Bureau can use the appropriate 
one in the smartest way possible--matching problems to solutions.
    Since launching the Bureau in July of this year, Bureau staff have 
been traveling across the country to meet and listen to consumers, 
consumer and civil rights organizations, big banks, community banks, 
investors, and trade organizations. The Bureau has also begun many 
important projects and programs, including taking and resolving 
consumer credit card complaints, supervising large banks, streamlining 
two federally required mortgage disclosure forms, and establishing a 
private education loan ombudsman to help students and their families 
with student debt problems. And, importantly, the Bureau launched its 
efforts to help older American consumers--well before the statutory 
deadline of January 21, 2012 to set up this office.
    When the Dodd-Frank Act created the CFPB, it specified certain 
populations that Congress felt needed focused attention--students, the 
underserved, servicemembers, and older Americans. Through the Consumer 
Education and Engagement Division, the Bureau is working on serving all 
these groups. In the Division's Office for Older Americans, we are 
hiring a highly experienced and competent staff. Our work and planning 
is underway. We have an Older Americans home page on the CFPB Web site, 
www.consumerfinance.gov, where people can go to find information and 
resources. And most critically, we are engaging with older consumers 
and already helping them.
    Take, for example, Suzanne, of Lawrenceburg, Kentucky. The CFPB 
helped Suzanne, 81, reach an agreement with a credit card company that 
saved her more than $7,000 and put her on firmer financial footing. She 
lost her job in 2010 and has not been able to find work since. After 
being unemployed for 9 months, she realized she could not keep up the 
minimum payments on her longstanding credit card debts that she had 
been steadily paying off for years. She asked the card issuers to cut 
the minimum monthly payments. One issuer agreed but the other only 
offered a modest reduction. After repeated appeals over many months and 
many phone calls, she sent what she was able to afford anyway. The 
issuer started to charge her late fees and her interest rate spiked. 
Eventually, she wrote a local Congressman who advised her to contact 
the CFPB. Ten days after the CFPB contacted the credit card issuer, the 
company credited all of the extra interest charges and late fees. ``I 
was elated,'' she said. Suzanne's balance is now zero.
    This is just one of the CFPB's success stories helping older 
Americans in the first several months of operations. As the Bureau 
moves forward, it hopes to help more people like Suzanne.
    Older Americans have been hit hard by the economic crisis. Many of 
those in the 62-plus population are not financially prepared for 
retirement, and financial exploitation of older Americans is growing. 
When the Office for Older Americans launched last month, it did so with 
a focus on ensuring seniors have the financial information they need to 
make sound financial decisions, and it launched with an emphasis on 
helping seniors identify and avoid unfair, deceptive, and abusive 
practices targeted at them. Both of these focus areas were mandated by 
the Dodd-Frank Act.
    The need to help older Americans is great. As seniors top 50 
million in number and soon will make up 20 percent of our population, 
they will face more and more challenges to maintaining economic 
security, supporting long-anticipated retirement plans, and exerting 
control over financial decisionmaking.
    One of the tools that the CFPB has to help older Americans is the 
unique opportunity to enhance, help coordinate, and promote efforts of 
senior groups and community organizations, faith-based groups, 
financial services providers, adult protective services agencies, and 
State and Federal regulators. There is great work being done by many of 
these groups right now--the CFPB can coordinate and streamline those 
efforts and help amplify them where needed.
    Under the Dodd-Frank statute, the CFPB's Office for Older Americans 
is specifically tasked with several functions, including addressing the 
concerns of seniors being misled by deceptive certifications or 
designations of financial advisors. The CFPB will fulfill this mandate 
by monitoring certifications and designations and alerting Federal and 
State regulators about those that are unfair, deceptive, or abusive. In 
addition, the Office will submit to Congress and the Securities and 
Exchange Commission legislative and regulatory recommendations on best 
practices for disseminating relevant information and enabling seniors 
to identify those advisors that best meet their needs and to verify a 
financial advisor's credentials.
    The Dodd-Frank Act also mandates that the CFPB promote sound 
financial management and decisionmaking of seniors, with a particular 
focus on the areas of long-term savings and planning for retirement and 
long-term care. To this end, the Office for Older Americans will work 
with the other divisions within the CFPB to conduct research and 
identify best practices and effective methods and tools to educate and 
counsel seniors. This is a common approach we take at the CFPB--because 
research and market analytics is an important component to what we do.
    Indeed, throughout the Bureau--not just with our Office for Older 
Americans--we are fact-based, pragmatic, and deliberative. The CFPB 
will diagnose problems carefully and intelligently after examining all 
the evidence. Because we have different tools to choose from when we 
address a problem, we can be strategic in how we deal with problems. 
Maybe a problem is best addressed through education. Maybe it is best 
addressed through rule writing. Or maybe it is best addressed by 
examining relevant market actors and shining a brighter light on the 
    I would like to add that the CFPB Office for Older Americans will 
pay special attention to the problems facing older women. Women live 
longer and, according to one estimate, nearly half of women over 62 
will outlive their savings. They are more likely to be living in 
poverty than men, and are more likely than men to be victims of 
financial abuse and exploitation. Congress understood this need and 
directed the Office for Older Americans to work with a center run by 
the Women's Institute for a Secure Retirement, which provides financial 
education and retirement planning for low-income women, women of color, 
and women with limited English-speaking proficiency. We look forward to 
that work.
    Though I have been on the job less than 1 month, I have already 
seen the critical need for an office tasked with looking out for and 
educating older Americans in their financial decisions. While the 
Office for Older Americans has much work to do, I want to draw 
attention to one of the biggest financial issues facing seniors and 
this country today--elder financial abuse and exploitation. Whether you 
call it a hidden epidemic or the Crime of the 21st Century, as some 
have, it is a serious problem that we need to address.
    The numbers paint a sobering picture. According to a study by the 
MetLife Mature Market Institute, Americans over the age of 65 lost more 
than $2.9 billion to financial abuse and exploitation in 2010, a 12 
percent increase from the $2.6 billion estimated in 2008. Seniors are a 
highly targeted group for financial fraud in part because they tend to 
be wealthier. The most recent available data from the Survey of 
Consumer Finances show that the median net worth of families headed by 
somebody 55 or older is about three and a half times the median for 
other families.
    More disturbing is the $2.9 billion the MetLife study estimated 
represents only a fraction of all instances of financial exploitation 
against older Americans because elder financial abuse and exploitation 
is underreported. By its nature, it is difficult to measure how much 
financial fraud is not reported. Although estimates vary widely, 
studies suggest that only a small fraction of elder financial 
exploitation is reported. One of the reasons for underreporting is that 
many times, financial exploitation occurs in a person's home. Indeed, 
studies typically find that elder financial abuse or exploitation is 
sometimes committed by family members, caregivers, and trusted 
    These numbers are shocking, but when I hear from real victims I 
become even more convinced of the need in America for an office like 
the CFPB. I have spent my first few weeks with the Bureau listening and 
learning from seniors and those who serve them. I travelled to cities 
in California, Florida, and Massachusetts where I met with seniors, 
State law enforcement officials, adult protective services workers, and 
groups that work with seniors. They all said the same thing--we need 
help building awareness about elder financial abuse and exploitation. 
Some of the specific problems they raised include the underreporting of 
fraudulent and other abusive practices, the need for more robust 
centralized reporting of such practices, the guardianship process, and 
the need for more training on elder abuse and exploitation for law 
enforcement, financial institutions, and others.
    While I was in Ft. Lauderdale, I listened to a heartbreaking story 
from a daughter about how her mother was placed into a guardianship 
without her knowledge. The guardian had virtually no qualifications to 
act as a fiduciary and it was months before the daughter even knew that 
her mother's finances were being administered by a court-appointed 
guardian. During the guardianship, her mother was moved to a nursing 
home, unbeknownst to her daughter, where she died 78 days later. Over 
$375,000 of the mother's estate was gone, most of it to guardianship 
``fees.'' The daughter spent 6 years in litigation to try to remedy the 
wrongs suffered by her mother. She now fights to help prevent this from 
happening to others.
    Many talked about the shame people feel when they are tricked or 
taken advantage of, especially when it is done by family members. 
People need to feel comfortable speaking about these issues. At the 
CFPB's Office for Older Americans, we want to raise public awareness 
and give people a forum to speak up about their experiences and speak 
out to help prevent them.
    I spent my public service career in State government and having the 
Federal Government as a partner was a great asset. I joined the CFPB 
because I have been struck by the response from outside the Beltway to 
this Bureau and specifically the Office for Older Americans. We do not 
yet know all the specifics of how the CFPB will address the issue of 
elder abuse, but the Office for Older Americans will work with other 
agencies such as the Administration on Aging, and it will work with 
elder abuse groups that have been working on these issues. We want to 
help stop this growing and horrible epidemic.
    As Marie-Therese Connolly, a recent recipient of the MacArthur 
Foundation ``genius'' grant for her work on elder abuse, said in 
testimony before the Senate Special Committee on Aging earlier this 
year, citing a case of abuse where the son had worn ear plugs to mute 
his mother's cries: ``We as a Nation also have been wearing earplugs. 
It is time that we remove them.'' I, along with the CFPB, will help to 
make the voices of seniors heard.
    As a former State attorney general, I know the importance of laws 
and the enforcement of those laws to protect consumers and to weed out 
bad practices and players. But until consumers have the information, 
skills, and confidence to make decisions that make financial sense for 
them--including the courage to say no--we cannot move this country 
forward and we may be doomed to repeat the mistakes of the past decade. 
In the end, the best defense against deceptive practices and elder 
financial abuse and exploitation is not only tough enforcement, but 
also effective prevention through good education and training of all 
our consumers, not just older Americans.
    I am honored to have this opportunity at the Bureau to help older 
consumers navigate their way to better financial decisions and a more 
economically secure financial future. I, speaking on behalf of the 
Office for Older Americans, look forward to working with you in the 
years ahead to help serve our Nation's seniors.
    Thank you and I look forward to your questions.
                         Senior Attorney, AARP
                           November 15, 2011
    Chairman Brown, Ranking Member Corker and distinguished Members of 
the Subcommittee, good afternoon.
    As the largest nonprofit, nonpartisan organization representing the 
interests of Americans age 50 and older and their families, AARP would 
like to thank to Chairman Brown and Ranking Member Corker for holding 
this hearing. AARP appreciates this opportunity to appear before the 
Committee to offer our views on financial security issues facing older 
    A major priority for AARP is to assist Americans in accumulating 
and effectively managing adequate retirement assets. A key to achieving 
this goal is helping individuals better manage financial decisions and 
protecting consumers from financial fraud and abuse that can erode 
retirement savings and financial assets.
    Although older households have long been considered among the most 
frugal and resistant to consumer debt, changing economic conditions--
particularly declining pension and investment income and rising costs 
for basic expenses such as prescription drugs, health care, housing, 
food, and utilities--have forced many older people to rely increasingly 
on credit to make ends meet.\1\
    \1\ Deborah Thorne, Elizabeth Warren, Teresa A. Sullivan, 
``Generations of Struggle'' (June 2008). Available at http://
    To meet the challenges of this dynamic marketplace and ensure the 
economic security of older persons, AARP has recommended that the 
quality of consumer information in the marketplace be improved. We must 
increase the level of consumers' financial literacy, particularly among 
baby boomers, minorities and low-income people.
    But education alone is not enough. The terms and conditions that 
govern credit products are often obscured because the required legal 
documents and consumer disclosures are beyond the understanding of a 
large portion of the population. When coupled with bad advice, abusive 
practices, or fraud, the variety and complexity of credit products can 
be intimidating and confusing for even the most well informed 
consumers. As such, we must also commit to increasing consumer 
protections to prevent harmful financial services and practices that--
as the recent economic turmoil clearly demonstrates--threaten not only 
individual financial security, but also that of the Nation.
    The scope and extent of the harm perpetrated against consumers by 
fraudulent, abusive or deceptive practices is astounding. Billions of 
dollars are lost every year through these practices and older Americans 
are disproportionately affected. Although older people make up just 12 
percent of the population, they constitute a full 30 percent of the 
victims of consumer fraud crime. Women, who make up an increasingly 
larger percentage of the older population by virtue of a longer life 
expectancy, are the majority of the victims.
    Consequently, consumer fraud is listed by every State as the major 
non-violent crime perpetrated against older citizens.\2\
    \2\ See ``Top 10 List of Consumer Complaints of 2008 Resource List 
(March 2010), available at http://naag.org/top-10-list-of-consumer-
    Not only are older people more likely targets of consumer fraud, 
they are also different from younger consumers in the intensity of the 
overall impact of such abuse on their lives. Having lower or fixed 
income and fewer years of work to recover from a financial setback 
makes older people particularly vulnerable. Many consumers do not know 
how or to whom to complain even if they do want to seek a remedy. Fear 
of being deemed incompetent and losing independence and control over 
their finances may contribute to their reluctance to pursue a remedy 
when an abuse occurs.
    AARP has identified the following practices that continue to 
threaten the financial security of older people:
    The mortgage marketplace must be safe and fair for all borrowers. 
Practices that steer consumers into higher priced loans than they 
qualify for, that strip equity from their homes through higher fees and 
interest rates, and that result in foreclosure when a borrower has the 
ability to retain a home must be prevented and the harm rectified. 
Lenders should be required to apply consistent rules that consider the 
borrower's ability to repay a loan and provide them access to the best 
priced product for which they qualify. To remedy the unfair practices 
of the mortgage marketplace that significantly contributed to the 
foreclosure crisis, borrowers should have access to fair servicing and 
loan modifications where they have the ability to pay. Force placed 
insurance and unwarranted servicing fees should be prohibited. Nonbank 
mortgage lenders also must be supervised.
    It has long been understood that older homeowners were all too 
often the targets of the predatory lending practices that began in the 
early 1990s. Older homeowners were key targets because they often were 
``house rich and cash poor.'' Older homeowners typically had equity in 
homes they had owned for decades but because they lived on fixed 
incomes, raising money for maintenance, repair and property tax bills 
could be difficult. Others suffered from some diminished capacities 
making it difficult to resist predatory offers.
    Experience with countless older homeowners over the years 
repeatedly demonstrated that despite good--often sterling--credit 
ratings, these borrowers were steered to subprime lenders whose 
unscrupulous practices are now well documented.\3\ Despite legal and 
legislative advocacy by AARP and countless others, far too many older 
Americans who entered into questionable mortgages currently face 
foreclosure and eviction from the homes they have lived in for decades.
    \3\ See Alison Shelton, AARP Insight on the Issues 9 (September 
2009). Available at http://www.aarp.org/money/credit-loans-debt/info-
Credit Cards
    Despite enacting important protections in 2009, more must be done 
to protect consumers from unfair or predatory practices, hidden fees, 
and complicated terms and conditions in credit card agreements. 
Consumers need protection from efforts to evade the protections of the 
CARD Act, as well as the marketing of expensive and predatory credit 
card products, and complex fee structures that hide the true cost of 
credit and make it difficult for consumers to shop for the lowest 
priced credit card products that meet their needs.
Overdraft Fees
    Despite new rules requiring consumers to ``opt in'' before being 
charged overdraft fees on their ATM and debit cards, many consumers 
continue to be charged abusive and unfair overdraft fees by banks. The 
most vulnerable consumers--those with the least amount of money--are 
often hardest hit by practices such as aggressive or deceptive 
inducement to opt in to overdraft protection, reordering of 
transactions to increase fees, and steering consumers into accounts or 
fee structures that maximize imposition of fees without informing them 
of less expensive overdraft protection options. Consumers must be 
protected from banking practices that unfairly siphon off their limited 
Prepaid Debit Cards
    Consumers increasingly use prepaid debit cards for purchases. In 
part this has resulted from Government benefit administrators utilizing 
prepaid debit cards to help reduce the cost of benefits disbursement. 
Despite the convenience provided by such cards, they can be very costly 
to consumers. Many charge high fees for periodic statements or 
transaction information, to check balances, decline transactions, to 
access funds at an ATM, or to load funds onto the card. Moreover, 
consumers do not understand that prepaid debit cards carry less 
protection than other payment instruments such as ATM or credit cards. 
Prepaid cards do not give consumers full protection from loss, theft or 
unauthorized charges. They may also open unbanked consumers to the risk 
that payday lenders may seek to secure loans with the receipt of public 
benefits deposited onto prepaid cards. In light of the increasing use 
of such cards, protections should be enhanced to ensure that consumers 
are not harmed by high fees, inappropriate assignment of exempt public 
benefits, and misrepresentations of the terms and conditions for use of 
such cards. In particular, Government benefits administrators must take 
additional steps to protect beneficiaries against high costs and fees.
Other Abusive Loans
    High cost lending practices by both mainstream and alternative 
financial services providers that charge fees and interest costs that 
can exceed 400 percent seriously threaten the financial security of the 
most vulnerable borrowers.\4\ Borrowers who cannot meet their most 
basic needs of food, shelter, or healthcare are most often the targets. 
Deceptive practices include those by payday, auto and auto title 
lenders who often exact high tolls on those who can least afford it. At 
tax time, many consumers are targeted by tax preparation companies to 
get a quick or instant refund--really a loan--for which consumers are 
unknowingly charged hefty tax preparation and loan fees. Billions of 
dollars of Earned Income Tax Credits, intended to keep hard working 
families out of poverty, are siphoned off in high fees and tax 
preparation charges. Sadly, most of the borrowers are eligible to have 
their taxes prepared for free, with quick refunds through electronic 
deposit, without paying all the fees. Federal preemption of State 
consumer protection laws has opened the door to increased abuse, 
leaving consumers further exposed to unregulated and often deceptive 
lending practices.
    \4\ See Ann McLarty Jackson, Donna V.S. Ortega, Elizabeth Costle, 
George Gaberlavage, Naomi Karp, Neal Walters, Vivian Vasallo, A 
Portrait of Older Underbanked and Unbanked Consumers: Findings from a 
National Survey (September 2010). Available at http://www.aarp.org/
Credit Reports
    Fair and accurate credit reporting is essential to protecting the 
financial security of consumers. A consumer's credit report impacts not 
only the price and availability of credit but also of auto and 
homeowner's insurance, access to housing, and opportunities for 
employment. Unfortunately, consumers have difficulty correcting their 
credit reports when they contain significant inaccuracies that result 
from mistakes, incorrect and outdated information, fraudulent accounts 
due to identity theft, and mixed up files of different consumers. 
Consumers also need better guidance on how to check and correct their 
credit reports. Because so few consumers understand what will cause a 
decrease or increase in their scores, or the magnitude of the impact of 
particular actions such as closing a credit card account, making a late 
payment or filing for bankruptcy, more consumer education is needed to 
give consumers the tools they need to improve their financial outlook. 
Lack of information and the wide variety of credit scores in the 
marketplace makes consumers more vulnerable to predatory lending, 
credit repair scams or higher priced lending and insurance than that 
for which they should qualify. Much more needs to be done to ensure 
credit reporting is fair, accurate, and transparent.
Debt Collection
    The Federal Trade Commission and State attorneys general, for 
longer than a decade, have received more complaints about the debt 
collection industry than any other industry, and the number of 
complaints is on the rise. As more and more consumers carry even higher 
levels of debt, the debt collection industry, assisted by technological 
advances in data storage and communications capabilities, has been 
transformed into a trillion dollar debt buying industry over the span 
of a decade.
    Debt once considered to be uncollectible is charged off by 
creditors and sold at auction for pennies on the dollar. Using 
increasingly aggressive and often illegal collection tactics, 
collectors pursue alleged debtors well after the statute of limitations 
has run, often with little or no documentation to prove the ownership 
or amount of a debt. Unrepresented debtors who do not understand how to 
protect their interests or assert valid defenses have little, if any, 
ability to protect themselves. Some may unknowingly agree to extend the 
time a debt may be collected by making a minimal payment in an attempt 
to end harassing collection attempts.
    Abusive collection tactics have caused significant harm and 
suffering to consumers, as well as taxed the resources of State 
attorneys general. The high level of fraud inherent in the current 
collection environment must be addressed comprehensively.
Forced Arbitration
    Consumers who purchase financial products or services routinely are 
required to give up their access to justice if the company violates the 
law. By inserting a forced arbitration agreement in a standard 
contract, a business can exempt itself from legal avenues to hold it 
accountable for violations of the law. Forced arbitration clauses are 
already ubiquitous in contracts of adhesion for every type of consumer 
service and product. The recent Supreme Court decision in AT&T v 
Concepcion \5\ undermines consumer challenges to forced arbitration 
clauses because the Supreme Court has held that Federal law preempts 
such State contract law defenses. Forced arbitration creates an unlevel 
playing field for consumers and causes further erosion of consumer 
protections. The ability of corporations to include a forced 
arbitration clause in a standard form contract places an even higher 
burden on already cash strapped public enforcement systems to monitor 
harmful and deceptive acts and practices.
    \5\ AT&T Mobility, LLC v. Concepion, 131 S. Ct. 1740 (2011).
    It is well established that the failure of the regulatory system to 
rein in abusive types of consumer loans in areas where Federal 
regulators had clear authority to act, and either chose not to do so or 
acted too late to stem serious problems in the credit markets, was a 
major factor in the recent financial crisis. As such, a key goal for 
AARP in the Wall Street Reform and Consumer Financial Protection Act 
(``Dodd-Frank Act'') was strengthened consumer protection to restore 
market accountability and responsibility, rebuild confidence, and 
ensure the stability of the financial markets. Surveys conducted by 
AARP demonstrate that Americans age 50+, regardless of party 
affiliation, want Congress to act to hold financial institutions 
    AARP supports an independent Consumer Financial Protection Bureau 
(CFPB) that has as its sole mission the development and effective 
implementation of standards that help protect the financial security of 
Americans so that they can get the information necessary to make 
responsible, informed financial choices. Congress created the Bureau to 
ensure that American families can trust the financial products they use 
to help them achieve their goals and avoid traps that lead to financial 
distress. The full potential for the CFPB to be an effective ``cop on 
the beat,'' protecting Americans from deceptive and unfair financial 
practices, will not be realized until there is a leader in place and 
the agency can use all the powers it has been granted. We appreciate 
that the Senate Banking Committee has moved forward to fill this 
critical position, and urge the full Senate to move quickly to expedite 
the process.
Office of Financial Protection for Older Americans
    Of particular interest to AARP has been the creation of an Office 
for Financial Protection for Older Americans within the structure of 
the CFPB. This office is tasked with improving the financial 
decisionmaking of seniors and preventing unfair, deceptive, and abusive 
practices targeted at seniors.
    Seniors have been hit hard by the economic crisis. Even if they 
planned well, they have seen their retirement savings and home equity 
shrink. The growing epidemic of elder financial abuse has exacerbated 
these problems,

    The Office of Financial Protection for Older Americans will help 
seniors navigate these financial challenges by:

    Educating and engaging seniors about their financial 

    Reaching out to and coordinating with senior groups, law 
        enforcement, financial institutions, and Federal and State 
        agencies to identify and prevent scams targeted at seniors;

    Using all available information to identify trends and bad 
        practices; and

    Protecting seniors from fraud and deception in financial 
        counseling service.

    AARP is particularly excited that a former AARP Board member, 
Hubert H. (Skip) Humphrey III--a former Attorney General of Minnesota, 
and an ardent and successful consumer advocate--has been selected to 
head up this office. AARP has provided input into the broad range of 
initiatives that the Bureau will pursue, and we look forward to 
continuing this effort on an ongoing basis to serve the needs of our 
    It is clear that consumers need help to protect themselves in an 
increasingly complex financial marketplace. As was so painfully 
demonstrated just a few short years ago, the threats to personal 
financial security are threats to the Nation's financial stability and 
security. The CFPB creates a centralized forum for addressing recent 
wrongdoing and protecting current and future generations from a re-
occurrence of these financial woes.
    Thank you for this opportunity to share AARP's views.