[Senate Hearing 112-441]
[From the U.S. Government Publishing Office]
S. Hrg. 112-441
HOLDING THE CFPB ACCOUNTABLE: REVIEW OF FIRST SEMI-ANNUAL REPORT
=======================================================================
HEARING
before the
COMMITTEE ON
BANKING,HOUSING,AND URBAN AFFAIRS
UNITED STATES SENATE
ONE HUNDRED TWELFTH CONGRESS
SECOND SESSION
ON
REVIEWING THE FIRST SEMI-ANNUAL REPORT, EXAMINING HOW WELL THE CONSUMER
FINANCIAL PROTECTION BUREAU IS FULFILLING ITS MISSION HOLDING THE CFPB
ACCOUNTABLE
__________
JANUARY 31, 2012
__________
Printed for the use of the Committee on Banking, Housing, and Urban
Affairs
Available at: http: //www.fdsys.gov /
U.S. GOVERNMENT PRINTING OFFICE
74-650 WASHINGTON : 2013
-----------------------------------------------------------------------
For sale by the Superintendent of Documents, U.S. Government Printing
Office Internet: bookstore.gpo.gov Phone: toll free (866) 512-1800; DC
area (202) 512-1800 Fax: (202) 512-2104 Mail: Stop IDCC, Washington, DC
20402-0001
COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS
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
Charles Yi, Chief Counsel
Catherine Galicia, Counsel
Laura Swanson, Policy Director
William Fields, Legislative Assistant
Andrew Olmem, Republican Chief Counsel
Beth Zorc, Republican Counsel
Dawn Ratliff, Chief Clerk
Riker Vermilye, Hearing Clerk
Shelvin Simmons, IT Director
Jim Crowell, Editor
(ii)
C O N T E N T S
----------
TUESDAY, JANUARY 31, 2012
Page
Opening statement of Chairman Johnson............................ 1
Opening statements, comments, or prepared statements of:
Senator Shelby............................................... 3
WITNESS
Richard Cordray, Director, Consumer Financial Protection Bureau.. 5
Prepared statement........................................... 33
Response to written questions of:
Senator Shelby........................................... 35
Senator Johanns.......................................... 50
Additional Material Supplied for the Record
Semi-Annual Report of the Consumer Financial Protection Bureau... 80
GAO Financial Audit: Bureau of Consumer Financial Protection's
Fiscal Year 2011 Financial Statements.......................... 133
Testimony Before Congress by CFPB Officials sheet................ 188
The CFPB Obligations and Transfers tables........................ 189
(iii)
HOLDING THE CFPB ACCOUNTABLE: REVIEW OF FIRST SEMI-ANNUAL REPORT
----------
TUESDAY, JANUARY 31, 2012
U.S. Senate,
Committee on Banking, Housing, and Urban Affairs,
Washington, DC.
The Committee met at 10:04 a.m. in room 538, Dirksen Senate
Office Building, Hon. Tim Johnson, Chairman of the Committee,
presiding.
OPENING STATEMENT OF CHAIRMAN TIM JOHNSON
Chairman Johnson. Good morning. I call this hearing to
order.
Before we begin, I would like to send my best wishes to
Senator Mark Kirk for a speedy recovery. Senator Kirk is a
valued Member of this Committee and he is the Ranking Member of
the Mil Con/VA Subcommittee on Appropriations, which I chair. I
have no doubt that with his strong will and determination, he
will be back at work as soon as humanly possible. Our thoughts
and prayers are with him and I look forward to his return.
Today marks the first Banking Committee hearing of the
year. I am confident that we will have another productive year
in the Committee as we build on the foundation set in the first
session.
Our Committee tackled an aggressive agenda last year and I
thank all of my colleagues for their contributions. In 2011, we
held 72 public hearings and Executive Sessions, including 60
oversight hearings. Of those, 26 were Subcommittee hearings and
I want to commend each of our Subcommittee Chairs and Ranking
Members for their leadership. Additionally, we held over 70
bipartisan staff briefings.
I am proud to say that we were successful at finding
bipartisan consensus more than a few times. The Committee
reported out favorably 26 nominations, with the full Senate
confirming 17 of those nominees. We also unanimously approved
two long-term reauthorizations, for the National Flood
Insurance Program and for the charter of the Export-Import Bank
of the United States.
Senator Shelby, I would like especially to thank you for
working with me last year to plan bipartisan hearings to lay
the foundation together for housing finance reform. I am
hopeful that in 2012, we can continue to work across the aisle,
and I am encouraged by the bipartisan markup scheduled for
later this week. On Thursday, I expect this Committee to
approve bipartisan bills reauthorizing our national transit
programs and increasing sanctions on Iran.
Looking ahead to the rest of the year, my priorities will
be to oversee implementation of the Wall Street Reform, to
continue building consensus on housing finance reform, and to
look out for the interests of rural and tribal areas and the
smaller financial institutions that serve them, to strengthen
national and international security, to act on the President's
nominees, and to pass critical program reauthorizations.
The Committee will also continue to closely monitor the
situation in Europe, as well as explore new issues, such as the
development of mobile payments. In the coming weeks, we will
take a closer look at the state of the housing market, examine
some of the proposals for addressing housing stock surplus, and
hear from the Federal Reserve on the upcoming monetary policy
report.
Based on the bipartisan successes we had last year and the
imperative to meet the continued economic challenges that face
our country, I remain optimistic we will find common ground
again this year.
Let me now turn to an issue that we should all agree on,
examining how well the Consumer Financial Protection Bureau is
fulfilling its mission. I would like to welcome Richard
Cordray, the newly appointed Director of the Consumer Bureau to
the Committee to provide testimony and the Bureau's first semi-
annual report to Congress.
I would remind my colleagues that we are not here today to
debate Mr. Cordray's appointment. Our job is to roll up our
sleeves and provide meaningful oversight of the Consumer Bureau
to make sure that it is doing its job of protecting consumers
and fostering an open and efficient consumer financial
marketplace.
The Wall Street Reform Act gave this Committee an important
tool to help ensure that the Bureau is accountable to American
consumers by requiring the Director to appoint to and appear
before this Committee at least two times a year. It is our job
to help make sure that the agency is doing its job effectively
and efficiently.
So to my colleagues who do not believe that the Consumer
Bureau is accountable, I point out the simple fact that it is,
and that is why we are here today.
Mr. Cordray, I know that you share my strong commitment to
oversight, accountability, and transparency of the Consumer
Bureau. In fact, this is the 13th time since Wall Street Reform
became law that a Bureau employee has appeared before a
committee of Congress. And your agency's outreach to
stakeholders in your rulemaking process has been applauded
across the board.
It has been 6 months since the Consumer Bureau officially
opened for business and only 4 weeks since it acquired all of
its powers. Yet in that short time, Bureau employees have been
hard at work. They have finalized a rule on consumer
remittances and are currently reviewing comments on close to 20
other proposals. They have developed the ``Know Before You
Owe'' programs, which are meant to simplify mortgage and credit
card disclosures. They are developing a student loan worksheet
to help students and their families shop for loans. They have
also rolled out supervisory and examination programs for large
depository institutions and for nondepository institutions. Mr.
Cordray, we look forward to hearing from you in greater detail
about this ongoing work.
Recently, you made comments about the CFPB's role in
reducing regulatory burden on small community banks and credit
unions. This is an important issue to the consumers and
institutions in my State of South Dakota. I am interested to
hear more about the Bureau's plan to ensure that in future
rulemakings the right balance is struck between consistent
protections for consumers and regulations for small
institutions.
Finally, I would like to hear about progress in two areas
that the Committee reviewed last fall, consumer protections for
servicemembers and veterans and for older Americans.
Mr. Cordray, although you and your staff of the Consumer
Bureau are faced with a difficult task, I have confidence that
you are all up to the challenge. I look forward to your
testimony and working with you to enhance our consumer
financial markets.
Now I turn to Ranking Member Shelby for his statement.
STATEMENT OF SENATOR RICHARD C. SHELBY
Senator Shelby. Thank you, Mr. Chairman.
Today, the Committee will hear from Richard Cordray, the
Director of the Bureau of Consumer Financial Protection. Since
the Bureau was first proposed, I have expressed my grave
concerns about its lack of accountability. I did not think then
and I still maintain that it is inconsistent with our
constitutional values to have so much power vested in the hands
of one bureaucrat without adequate supervision by the elected
representatives of the American people. Nevertheless, the Dodd-
Frank Act intentionally designed the Bureau to be free of even
the most basic checks and balances.
Unfortunately, the President has now circumvented one of
the only remaining checks with his recess appointment of Mr.
Cordray. I suspect that the Supreme Court will ultimately
decide the constitutionality of the President's action. Until
then, Mr. Cordray has indicated that he will exercise the full
authorities of the Bureau.
Because of the structure of the Bureau, this means that Mr.
Cordray will have unfettered power over the operation of the
Bureau. His decisions alone will determine how the Bureau
approaches its work. If he so chooses, he does not have to
answer to anyone. This is not a choice any bureaucrat should
have. Since his appointment, Mr. Cordray has indicated that he
intends to proceed cautiously and prudently when he exercises
his authority. The real test, however, will be whether this
caution finds its way into the Bureau's actions.
Unfortunately, the Bureau's early history is not
encouraging. Over the past year, actions taken by the Bureau
have repeatedly been inconsistent with the promise of its
leaders. For example, under Dodd-Frank, the Bureau is required
to convene panels of small businesses to discuss the impact of
proposed regulations. Mr. Cordray himself has stated that the
Bureau would convene these small business panels, and I quote,
``not just because the law tells us to do so, but because we
recognize that it will help us do our work better.'' Since its
inception, however, the Bureau has yet to convene a single
small business panel, despite having issued multiple rules.
Moreover, the Bureau has indicated that it has no plans to
convene these panels for some of its most important
rulemakings, including rules on mortgage underwriting
standards. Officials at the Bureau have said that it will
comply with the Administrative Procedures Act. They have even
pointed to the APA as one of the checks on the Bureau's
authority. Yet the Bureau has repeatedly evaded the intent of
the APA by issuing interim final rules without asking for
public comment before the rules become effective.
Consequently, the Bureau has been able to impose costly
regulations on the American economy without providing the
American people with any opportunity for comment. Listening to
the rhetoric coming from the Bureau's leadership, one would
think that the Bureau would have gone out of its way to
actively seek public comment on its rules. In a speech last
year, the Bureau's Deputy Director outlined how the Bureau
would approach its work. He stated, and I quote, ``The Bureau
will invite public input to provide a fact base to help the
Bureau evaluate the cost, benefits, and impacts of those rules
and to suggest alternatives.'' Those were his words. He also
stressed that the Bureau was, quote, ``going to be fact-based,
pragmatic, and deliberative.'' The Bureau's recent rulemaking
process suggests that its officials like to give the appearance
of listening to the public, but really believe that the Bureau
knows what is best without much public interference. Moreover,
it suggests that the Bureau's own agenda will not be impeded by
procedures or the need to collect facts and public comments.
The Bureau's recent rule on remittance transfers provides
another example of the divergence between the Bureau's rhetoric
and its actual operation. The leadership of the Bureau has said
that it will seek, quote, ``to make regulations more effective
at achieving intended benefits for consumers while lowering
costs for lenders.'' The Bureau's remittance transfer rule
suggests that lowering costs is not high on its priorities. The
primary purpose of the rule is to lower the cost of
remittances, yet the Bureau's own analysis reveals that
compliance with this rule will require more than 7.6 million
hours. That means that more than 3,800 full-time employees will
be required to work on compliance for this single rule.
So rather than conduct a cost-benefit analysis to determine
if this rule is justified, the Bureau has indicated that it
will impose the rule and examine its impact after the fact.
Ironically, we were told that the Bureau would be a data-driven
agency where research was core to its work. In contrast, the
Bureau's remitted transfer rule suggests that when it comes to
basing its rules on a thorough examination of facts and data,
the Bureau is not all that interested in living up to its own
rhetoric.
Early last year, 44 of my colleagues and I sent a letter to
the President stating that we would refrain from considering
the nomination of any person to be the Bureau's first Director
until certain changes were made to the Bureau's structure, not
its authorities. During the September hearing on Mr. Cordray's
nomination here, I stated that I believed that these changes
would help to preserve the system of checks and balances
embodied in our Constitution. Mr. Cordray's recess appointment
has shown, however, that the President is not much interested
in any constitutional checks on his power. My Democratic
colleagues seem to share the same opinion.
The Bureau is budgeted to receive a total of $329 million
in funds from the Federal Reserve Board this year. This could
grow to well over half-a-billion dollars as early as next year.
So by design, these payments were made directly to the Bureau
without any oversight through any Congressional appropriations
process.
It is also my understanding that the Bureau has already
hired 800 people, and it has been reported that the Bureau
hopes to hire as many as 1,000 people by the end of this year,
some making more than $225,000 a year. How have my Democratic
colleagues in the Senate responded to this incredible
bureaucratic expansion? They have resisted every Republican
effort to make the Bureau more accountable to the American
people by changing the structure. To make things worse, they
have also cut this Committee's funding by 25 percent, making it
even more difficult to oversee these massive bureaucracies that
are growing in power and size under Dodd-Frank.
As I have said many times, things are not getting better,
just bigger and more unaccountable. In fact, our financial
regulators have become bureaucracies that are now too big to
oversee and it is only getting worse under the Democratic rule.
Our financial regulators now resemble the financial firms they
were created to regulate.
The Consumer Bureau is the most recent iteration of the
same problem. It tells the public one thing but delivers
another. It evades the law by relying on technicalities and
small print. It ignores consumers while advancing its own
special interests. And it operates behind a facade of
accountability when it, in fact, exercises unchecked power in
the marketplace.
Just as financial firms need to be held accountable, so do
financial regulators. I believe that the Bureau's short history
has only made the case for reform even more compelling.
Thank you, Mr. Chairman.
Chairman Johnson. Thank you, Senator Shelby.
Are there any other Members who wish to make a brief
opening statement?
Thank you all. I want to remind my colleagues that the
record will be open for the next 7 days for opening statements
and any other material you would like to submit.
With that, Mr. Cordray, you may proceed with your
testimony.
STATEMENT OF RICHARD CORDRAY, DIRECTOR, CONSUMER FINANCIAL
PROTECTION BUREAU
Mr. Cordray. Thank you, Mr. Chairman, Ranking Member
Shelby, and Members of the Committee. We want to thank you for
this opportunity to present the first semi-annual report of the
Consumer Financial Protection Bureau detailing the Bureau's
work in its first 6 months.
Before I became Director, I promised Members of Congress in
both chambers and on both sides of the aisle, including a
number of you, that I would be accountable to you for how the
Consumer Bureau carries out the laws you have enacted. I said
that I would always welcome your thoughts about our work. I
stand by that commitment today. I am pleased to be here to tell
you about our work and to answer your questions.
The people who work at the Consumer Bureau are always happy
to discuss our work with the Congress. This is the 13th time we
have testified before either the House or the Senate, and my
colleagues and I look forward to working closely with you, with
the businesses who serve their customers in the consumer
finance markets, and with the hundreds of millions of American
consumers themselves.
I am honored to serve as the first Director of the new
Consumer Bureau. I am energized and inspired by the many
talented people who work at the Bureau and I am driven by the
challenges and responsibilities of our mission to protect
American consumers.
Our mission is of critical importance to making life better
for Americans. Consumer finance is a big part of all our lives.
Mortgages allow people to buy a home and spread the payments
over many years. Student loans give young people with talent
and ambition the opportunity to get an education. Credit cards
give us immediate and convenient access to money when we need
it. These products enable people to achieve their dreams. But
as we have all seen in recent years, they can also create
dangers and pitfalls if they are misused or not properly
understood.
During my years in State and local government, I became
deeply engaged in consumer finance issues. I saw good people
struggling with debt they could not afford. Sometimes those
people made bad decisions they came to regret. Sometimes an
unexpected event, like a loved one getting sick or a family
member losing a job, overwhelmed even their most careful
planning. Still other times, I saw unscrupulous businesses who
obscured the terms of loans or engaged in outright fraud,
causing substantial harm to unsuspecting consumers, even
ruining their lives and devastating their communities.
I am certain that each one of you hears every day from your
friends, your neighbors, and your constituents who have these
kinds of stories to tell. These people do not want or expect
any special favors. They just ask for a fair shake and a system
of consumer finance that actually works for consumers and a
chance to get back on track toward the American dream.
One of our primary objectives at the Consumer Bureau is to
make sure the costs and risks of financial products are made
clear. People can make their own decisions and nobody can or
should try to do that for them. But it is the American way for
responsible businesses to be straightforward and up front with
their customers, giving them all the information they need to
make informed decisions. That is good for honest businesses and
it is good for our economy.
A particular quote caught my eye recently which embodies
this view. It goes, ``free men engaged in free enterprise build
better nations with more and better goods and services, higher
wages, and higher standards of living for more people. But free
enterprise is not a hunting license.'' That was Governor Ronald
Reagan in 1970. I agree with what he said and it is a view
widely shared by the people who work with me at the Consumer
Bureau.
So another key objective is making sure that both banks and
their nonbank competitors receive the even-handed oversight
necessary to promote a fair and open marketplace. Our
supervisors will be going onsite to examine their books, ask
tough questions, and fix the problems we uncover. Under the
laws enacted by Congress and with the Director now in place, we
have the ability to make sure this is true across all financial
products and services.
The Consumer Bureau will also make clear that violating the
law has consequences. Through our field examiners, our direct
contact with consumers and businesses, and our highly skilled
researchers, we have multiple channels to know the actual facts
about what is happening in the marketplace. We plan to use all
the tools available to us to ensure that everyone respects and
follows the rules of the road. Where we can cooperate with
financial institutions to do that, we will. When necessary,
however, we will not hesitate to use enforcement actions to
right a wrong.
As we move forward with our work, we need to hear directly
from the consumers we protect and the businesses who serve
them. We do this on our Web site, consumerfinance.gov, where
customers, consumers, and businesses are all able to tell us
their stories.
We also make it a point to get out of Washington regularly
and hear from people firsthand. Thus far, we have held town
hall meetings in Philadelphia, Minneapolis, and Cleveland, and
a field hearing in Birmingham. We are hearing from thousands of
Americans about what works and what does not. We are listening
closely and we hope that many of you will join us at these
events when we come to visit your communities.
Accomplishing our mission will take time, but as you can
see from our semi-annual report, we are already taking
important steps to improve the lives of consumers.
Thank you. I look forward to your questions.
Chairman Johnson. Thank you very much for your testimony.
As we begin questions, I will ask the Clerk to put 5
minutes on the clock for each Member and hopefully we will have
two rounds.
As Director, you will be expected to be independent,
exercise independent judgment, and act independently from the
White House and the Treasury Department. Are you prepared to
act independently and use your own judgment?
Mr. Cordray. Mr. Chairman, yes, I am, and yes, we are. We
understand that our role under the law is to be an independent
Federal agency and our job is to carry out the laws that
Congress has enacted and protect consumers in the marketplace.
We will, though, stand with public officials of both parties
from all over the country, Federal, State, and local, who want
to work with us to protect consumers. That will help us do our
work.
Chairman Johnson. You have talked about reducing the
regulatory burden on small community banks and credit unions.
How will you ensure that the right balance is struck between
consistent protections for consumers and your suggestion for
tiered regulation for small institutions in the Consumer
Bureau's rulemaking? What other actions can the agency take to
minimize the impact of regulations on these institutions
without sacrificing protections for consumers?
Mr. Cordray. Thank you for raising that issue, Mr.
Chairman. Many people raised that with us. Many of the Members
of this panel have raised that with us. First of all, I can say
that I have made a promise openly at this Committee hearing
when I was up for my nomination that we would work to reduce
the burdens of our work on community banks and credit unions,
who I firmly believe, and have said before and will say
constantly, had very little to do--nothing, really, to do--with
bringing on the financial crisis and have a traditional model
of doing business that is consumer service oriented, is
community oriented, and is the kind of model we want to
encourage in this marketplace.
I have told the community banks that I am going to create a
special advisory panel of community banks to speak directly to
me and to the Bureau about the work we are doing, to raise
their concerns with us and to inform us about how we are doing
and how what we are doing affects them. I have also pledged to
do the same with the credit unions.
We also are going to be mindful of that in each of our
rulemakings. The remittance rule, which was mentioned earlier,
that we have finalized the beginnings of that rule, includes
also a proposed rule where we are considering further and
seeking broad input on whether we should set a threshold for
that rule so that community banks and credit unions below a
certain threshold can be free of its burdens, where the burdens
really outweigh the benefits to their consumers and to those
institutions. So that is something we will continue to consider
in that case over the next several months, and we are going to
take a similar approach wherever it is feasible, wherever it
makes sense to do so, in consultation with the community banks
and credit unions.
Chairman Johnson. In November, the GAO released its annual
audit of the Consumer Bureau's fiscal year 2011 financial
statements. The GAO gave the CFPB a clean audit and the highest
rating that not every agency receives. What steps will you
take, Director Cordray, to ensure the Bureau continues to lead
by example with its own finances?
Mr. Cordray. Mr. Chairman, we were gratified to get a clean
audit and a strong audit from the GAO. As you know, we are
subject to multiple audits per year and also to oversight by
the Inspector General of the Federal Reserve. As a public
official, it has always been important to me personally that we
be able to show a strong record of audits in my offices--as a
county treasurer, as a State treasurer, as a State Attorney
General. In each of those offices, I inherited problems in the
prior audits that we cleaned up and we had clean audits during
my time there. I expect and intend, and it is important to me
personally, to try to maintain a similar record here in this
Federal agency.
Chairman Johnson. How will your recess appointment impact
the work of the Consumer Bureau?
Mr. Cordray. I do not know that it will impact it at all,
sir. I understand that I have been appointed as Director. That
gives me responsibilities under the law to carry out, both
myself and the Bureau. It feels that my legal responsibility is
to do the best job I can at that and that is what I am totally
focused on doing.
Chairman Johnson. Leveling the playing field among
financial institutions is an important part of the Consumer
Bureau's nonbank authority. Future rulemakings should provide
consistent protections for consumers and regulations for all
institutions that offer similar products. Many people are
awaiting your nonbank large market participant rule. That rule
will also provide businesses which will now be regulated by the
Consumer Bureau with some legal certainty. When will the large
market participant rule be finalized?
Mr. Cordray. The larger participant rule will be finalized
on the statutory timeframe, which is by this summer. We are
underway. I believe we have already put out a notice where we
have asked for comment and we have received many comments
already on what we might propose as that rule. We will be
bringing out the proposed rule soon. It will be subject to the
notice and comment process and we will transform that into a
final rule on the statutory deadline that we have been given by
the Congress.
Chairman Johnson. Senator Shelby.
Senator Shelby. Thank you, Mr. Chairman.
Mr. Cordray, as I noted in my opening statement, recently,
you stated that the Bureau will convene small business panels
as part of its rulemaking. And your quote is, ``not just
because the law tells us to do so, but because we recognize
that it will help us do our work better.'' It is a good quote.
However, the Bureau did not convene a panel before
publishing the final rule on remittance transfers. I understand
that you believe you were not legally required to hold panels
for this rule because the Federal Reserve Board proposed the
rule, but the intent of Congress, I thought, was pretty clear
regarding the potential effects of your rules on small and
medium-sized businesses.
I am concerned that you have already displayed a
propensity, perhaps, to use technicalities to achieve your own
goals. Perhaps I am wrong. Could you explain your actions or
the actions of the Bureau--I know you have not been there
long--regarding the small business panels and your intentions
in the future? We think that is important, to comply with the
letter and the spirit of the law.
Mr. Cordray. Yes, Senator. I agree, and let me clear up the
record on that. I appreciate the opportunity to do that.
Senator Shelby. OK.
Mr. Cordray. So, as I said, the small business panels--I
meant it then and I mean it now--are both required by the law,
except in certain instances, and they will help us do our work
better.
With respect to the remittance rule, that was a rule that
was proposed by the Federal Reserve before we became a Bureau.
We inherited the rule and took it through to completion. In the
law, the timing that the Congress created on small business
panels is that they are to be convened and we are to get their
input prior to proposing a rule. So for the remittance rule,
that time had passed before we gained any authority over that
rule.
What we did was we solicited broad input from all comers,
including small businesses and others, and we took that into
account in proposing the final rule, which has been adopted,
and in further proposing the rule that I mentioned a moment
ago, which is to set a threshold below which we may well find
it appropriate to exempt smaller institutions entirely from the
burdens of that, if that is appropriate.
We do intend with our next rule, which is the consolidation
of the forms for mortgages, to convene small business panels.
In fact, that is underway now, the process for doing that. And
we will do it as the law requires in every instance, again, not
just because the law tells us to, but because it is a good
idea.
Senator Shelby. Would you look at the possibility of
revisiting, if you thought it was necessary--other people
thought it was necessary--the rule that you just passed
regarding remittances? I do not know the details of it. I just
know it is going to cost a lot of money to comply with.
Mr. Cordray. Well, you know, it needs to be put in
perspective. Our understanding is it will cost a quarter for
every $100 of remittance transfers. It is a price to pay----
Senator Shelby. You are saying 25 cents, not a quarter of
the hundred dollars, but 25 cents.
Mr. Cordray. Twenty-five cents per $100, or a quarter-of-a-
cent per dollar. That is a price to pay, but it is a small
price to pay for the fact there has never been any consumer
protections for people who sent money overseas, often to loved
ones and family members where they could not tell what money
was going to be actually received. It was on them to have to
take on the burden of any errors that were made. These people
deserve consumer protections.
Senator Shelby. I want to get into the area of safety and
soundness in the Federal Deposit Insurance Corporation. The
Dodd-Frank Act does not require you, as Director, to consider
the safety and soundness of institutions or the potential for
bank failures when you engage in rulemaking, supervisory or
enforcement actions. In fact, the drafters of Dodd-Frank were
adamant about this. They argued that a safety and soundness
check on your actions would essentially, quote, ``gut your
agency.'' You stated that the Federal banking regulators, and I
will quote you again, ``have safety and soundness as their
primary concern. We have consumer protection as our primary
concern.''
How do you intend to reconcile your actions at the Bureau,
where I presume you will give no consideration to the safety
and soundness of institutions, with your responsibilities as a
Board member of the FDIC where there you must consider the
safety and soundness of individual institutions? It looks to me
like it should be a balance there, because safety and soundness
is important, but so is consumer protection, both. I do not
think you have one without the other. If you do not have safety
and soundness, you might not have that institution. You will
not have.
Mr. Cordray. Yes. I agree with that, Senator. I think it is
a balance. What I said was their primary responsibility is
safety and soundness. Our primary responsibility is consumer
protection. I think it would be highly irresponsible if we were
to pay no attention to safety and soundness. We are going to be
consulting and coordinating with the other banking agencies at
all times. That is why I believe Congress put us on the
Financial Stability Oversight Council, to work with them, and
to take account of their views.
I agree with you, it would be irresponsible to think you
can protect consumers while you are killing off institutions
that are serving consumers. That does not fit together.
Senator Shelby. There has got to be a balance, has there
not?
Mr. Cordray. I agree.
Senator Shelby. And you are going to try to have a balance?
Mr. Cordray. We will do that by listening closely to our
fellow banking agencies who have that as their primary mission.
I serve on the FDIC Board with them----
Senator Shelby. I know that.
Mr. Cordray.----and yes, we will.
Senator Shelby. The area of too big to fail, very important
to a lot of us and I hope to you. During the Senate's
consideration of the Dodd-Frank Act, it voted down an amendment
by Senators Brown and Kaufman which would have limited the size
of banks. Under the amendment, no bank would have been
permitted to hold more than 10 percent of the total amount of
insured deposits and a limit would have been placed on
nondeposit liabilities of each bank at 2 percent of GDP. This
amendment would have ensured that the failure of a single
financial institution would not bring down the entire system. I
supported the amendment.
Do you support limiting the size of banks as proposed by
the Brown-Kaufman amendment, and if not, what steps would you
take to ensure that banks are not too big to fail?
Mr. Cordray. Senator, my understanding of our authority at
the Consumer Bureau is we do not have any authority over those
issues. We do not have any authority to limit the size of
banks. We do not have any authority to set interest rates or
the price of financial products. I do not know----
Senator Shelby. But you are on the FSOC, are you not?
Mr. Cordray. I am on the FSOC.
Senator Shelby. Now, that is a consideration of too big to
fail.
Mr. Cordray. Mm-hmm.
Senator Shelby. So you do have some--maybe not in the
Bureau----
Mr. Cordray. Yes. Yes.
Senator Shelby.----but then by cause of your other
placement of where you serve, right?
Mr. Cordray. Yes--fair enough. I would say, just to be
honest with you, sir, I do not know that I have enough
perspective at this point to assess the pros and cons of that
amendment, so----
Senator Shelby. Well, Dr. Volcker stated here before,
perhaps if they are too big to fail, they are too big to exist,
maybe. You know, you have got to think about the taxpayer and
so forth.
Mr. Cordray. Mm-hmm. Mm-hmm.
Senator Shelby. Thank you, Mr. Chairman.
Chairman Johnson. Senator Menendez.
Senator Menendez. Thank you, Mr. Chairman, for calling this
hearing.
In the worst financial crisis in generations, consumers
were not protected from the tricks and traps, and Federal
regulators were often more concerned about the interests of
Wall Street than Main Street. And we now have an obligation to
hold both Wall Street and non-Wall Street lenders and providers
of financial services accountable for whether they treat
consumers fairly, and it could be done by laying down clear
rules of the road, and so that is why I look forward to your
work at the agency.
Let me ask you a couple of specific questions. I want to
ask you about prepaid cards, something that I have been
pursuing for a while now, a product whose use has exploded in
the past few years, especially among under-banked consumers.
Since credit cards, debit cards, and gift cards have all been
regulated to some degree, prepaid cards remain one of the few
largely unregulated products in the marketplace. And as for the
fees consumers pay on them, there are a wide range of
undisclosed, and I believe in many cases unreasonable, fees,
and they certainly do not come with FDIC insurance or
protection against theft or loss for the consumer. So we have
introduced legislation, the Prepaid Card Consumer Protection
Act. What progress has the Bureau made in analyzing this issue
and moving forward on consumer protections on these cards?
Mr. Cordray. Let me say a couple things in response to
that, Senator, and we appreciate your particular interest in
this subject and the legislation you have introduced on the
concerns you raised, both disclosures and transparency on these
products and also protections for the money that people have,
in effect, deposited with the product as opposed to with a
banking institution.
There are two phenomena at work here. Number one, prepaid
cards are an example of the tremendous innovation that occurs
all the time in the financial markets. You know, just in my
generation, when I was a kid, credit cards were a new and
exotic product. Now, they are almost universal in our economy.
Debit cards are a more recent product that are now widespread
and in common use. Prepaid cards are one of the newest
products, but obviously on the cutting edge of finance. More
and more people are beginning to use them, so we need to look
and make sure that there are appropriate protections for
consumers there. Sometimes it takes the law and the regulatory
scheme time to catch up with innovations.
I would also say that it is reflective of the fact that
regulation can push usage around in the market. As you said,
there are now protections and constraints on credit cards and
new ones recently on debit cards. That is pushing the market
more toward prepaid cards, which are not subject to that. So we
certainly want to have some sort of level playing field so that
products are being chosen by consumers and offered by
institutions based on their merits, not because there is some
sort of differential regulatory regime.
Senator Menendez. Well, we certainly appreciate innovation
and we want to see innovation. By the same token, when you see
a market that goes from the regulated process to the
unregulated process, there is a reason----
Mr. Cordray. Yes.
Senator Menendez.----and part of that reason, it is far
more profitable, because very often the circumstances under
which that profitability is achieved is at the expense of the
consumers in a disproportionate fashion.
Mr. Cordray. Mm-hmm.
Senator Menendez. So is this an area the Bureau is going to
be looking at?
Mr. Cordray. Yes. It is an area we are looking at. It is an
area of concern for both the reasons I stated. We are also
aware that the Congress is looking at it, and certainly if you
legislate on the subject, we will be happy to carry out the
laws as you enact them.
Senator Menendez. Let me ask you, you mentioned about, in
your opening statement, about simplified rulemaking,
particularly for smaller institutions. That is something that I
think is welcome to a lot of the Members' ears here. Along
these lines, can you tell the Committee how your agency will
craft regulations and provide regulatory guidance in a way that
makes compliance simple and workable for community banks and
small nondeposit regulated entities?
Mr. Cordray. Sure, and I will say two things about the work
we are already doing. Number one, we are trying to be highly
inclusive in going about this. It was mentioned earlier that
maybe the Bureau has given the impression, some thought, that
we know best. What we find is we will know better as we hear
from others, both the people who operate in these markets, the
financial institutions themselves, and the consumers who tell
us about impacts. So our ``Know Before You Owe'' projects are
pitched entirely around getting the input that allows us to
streamline, simplify, and render more transparent the
disclosures here.
We also have inherited a huge thicket of rules from other
agencies, and we have already published a public Federal
Register notice asking people broadly for their ideas about how
we can streamline those rules, cut down burdens that are not
delivering benefit to consumers. We are in the comment process
on that. We will have comments back sometime later next month.
And then we are going to set to work at seeing what we can do
to show people that we can streamline rules and be an agency
that is mindful of the burden on financial institutions as well
as delivering value for consumers.
Senator Menendez. Mr. Chair, if I may, one last question,
particularly to the minority community in the country, very
important. One of your mandates is to facilitate innovation
through transparency, and one study suggests that half of the
country, over a hundred million adults, cannot find $2,000 in
an emergency if given 30 days to do so. Has the Bureau or does
the Bureau intend to look into how to meet the credit need of
this very large and underserved population?
Mr. Cordray. Yes, Senator, and we actually started. We had
a field hearing in Birmingham a couple weeks ago which was our
first beginning look at the market where it is clear that in
this country, as you say, there is a clear consumer demand for
short-term, small-dollar loans to help people get through
crises, emergencies, when they do not have a stash of money
that they can draw on or they do not have a friendly relative
who is willing to pony up that money for them.
There are a number of products out there that are serving
that need. We want to make sure that those products are
actually helping consumers rather than harming them. But it is
a significant problem that has been unsolved in this country, I
believe, is that there is this demand. We need to fulfill this
demand and we need to spur competition to fill that demand, and
that is something that we are thinking about very carefully. We
do not have all the answers on it, frankly, but over time, we
are going to be trying to figure it out and working with
industry and consumers to understand it.
Senator Menendez. I look forward to working with you.
Thank you, Mr. Chairman.
Chairman Johnson. Senator Corker.
Senator Corker. Thank you, Mr. Chairman, and thank you for
having the hearing, and Mr. Cordray, thank you for coming.
Especially in light of the circumstances over the last period
of time, I appreciate the time you have spent with us in our
office and on the phone and the conversations that we have had.
You know, the title of the hearing is interesting,
``Holding the CFPB Accountable.'' In this role as set up, who
is it exactly that you do report to?
Mr. Cordray. Well, I would say that we are on the same
level with every other independent Federal agency in the
Federal Government, and particularly with the other banking
agencies. Ultimately, in my view, we report to Congress. You
are the ones who enacted----
Senator Corker. But who exactly do you report to, really? I
mean there is no board or anything. So who do you report to?
Mr. Cordray. In my view, I report to Congress. I was in
front of the House Oversight Committee last week to report to
them at their request. I am here in front of this panel today
at your request. I will be here as often as you want me to be,
or meeting privately, so that you know exactly what we are
doing and you have input into what we are doing.
Senator Corker. And each year when your agency needs
funding and kinds of questions like our Chairman asked about
being efficient and all of that, who is it that you seek those
appropriations from each year?
Mr. Cordray. Under our law, which is what gives us
authority, the Congress enacted that we follow, we receive
funds from the Federal Reserve----
Senator Corker. So no one.
Mr. Cordray. We are equivalent to all of the other banking
agencies who do not go through the Congressional appropriation
process, but we are subject to being brought up here and having
you grill us and talk to us about exactly your thoughts about
how we are spending money----
Senator Corker. So let me ask you a question. Regardless of
how people feel about the health care legislation that passed,
I do not think there is any question, but yet some of the
constitutional challenges that are going to the Supreme Court
have sort of muddied the water. Regardless of how you feel
about it, States are not sure exactly what they are going to
do.
Have you all had conversations, especially over the last
couple of weeks, within the agency about the fact that there is
no question that most of the rulemaking that you do, or much of
it, will be challenged constitutionally because of the way
things have occurred that have nothing to do with you, but they
have just occurred. Have you all had any conversations
regarding that whatsoever?
Mr. Cordray. We have had consideration of it. I have been
thinking of it myself. It feels to me that--you know, I have
been appointed as the Director. I understand that there are
concerns and issues people have about that. Having been
appointed as the Director, though, I have legal
responsibilities under the law that you all enacted that I have
to carry out. I have to do that. I am going to do the best I
can with that----
Senator Corker. I understand that and I appreciate that,
and actually, I appreciate the way you have answered many of
the questions today. But what I think you have said is you have
actually had internal conversations with your staff about the
fact that as these rules are made, there is no question that
there are going to be constitutional challenges to those, which
in many ways, instead of creating predictability out in the
consumer market and predictability out in the financial
markets, we are going to have challenges. I would predict many
will rise to the level of the highest court in the land. So it
is an interesting place that you find yourself, again, not of
your choosing.
Let me ask you this, moving on to policies. Risk-based
pricing is something that has been very much a part of our
financial system. Those people who pay late pay more, and those
people who pay on time typically get credit at lesser rates. We
had conversations with someone who was going to be potentially
in your position prior to moving on to Senate races and those
kind of things and it appeared to us that they did not really
believe in risk-based pricing. I am just wondering if you could
really clearly state to us, when people pay late, should they
pay more? When they have lesser credit, should they pay more
for credit? Is that a concept that you are going to reinforce
in the consumer agency?
Mr. Cordray. Senator, I believe that is the way the market
works. I mean, when you price a product, you have to take into
account cost. One of the costs that you have to take account of
is risks of default, risks of loss. They can come from many
different sources, not just the fact that someone on the other
end of the bargain does not follow through. But that certainly
is something that I think any responsible business may have to
take account of in pricing their product.
Senator Corker. I notice that you send out emails. I get
them regarding if I have heard any stories about things that
have happened, to please share them, when somebody has had
problems. And by the way, I hope we have a consumer leader like
yourself that will pursue those kinds of things. I think all of
us want to ensure that when we have bad actors--and we do. I
mean, that just happens. We have bad actors from time to time
that need to be prosecuted.
Are you also with equal vengeance, though, sending out
those emails to people who know of borrowers who committed
fraud, who purposely turned in the wrong income statements and
those kinds of things? Are you going to be rooting out that
kind of activity, also?
Mr. Cordray. Well, we do not ourselves have criminal
authority, as you know, but we can make referrals. Over the
years, when I was Attorney General and at the local level, I
saw bad conduct by some businesses and I saw bad conduct by
some individuals and consumers. And in the real estate market,
the flipping and other types of scams and frauds involved, you
know, both types of parties.
Senator Corker. So you are going to pursue both with
vengeance? I have not received any of those emails yet, by the
way, but I look forward to receiving them.
I will just close with this. You know, both the Chairman
and Ranking Member brought up issues of cost. I do hope--I
think one of the concerns that people had with the agency being
set up as it was and not being concerned about the financial
system itself. I do hope you will pursue the aggregate cost of
credit.
I spent my life--I spent my civic life prior to being here
focused on issues relating to low-income citizens and that is
really why I am in the Senate today. I find that a lot of times
when we think we are doing something good as it relates to
credit, what we actually do is limit credit for people who are
less fortunate and have lower incomes. I hope as you look at
this, you will take that into consideration, the aggregate cost
of credit in general, especially as to lower income, and I
thank you for your service.
Chairman Johnson. Senator Akaka.
Senator Akaka. Thank you very much. Good morning, Mr.
Cordray. Welcome to the Committee.
Mr. Cordray. Thank you.
Senator Akaka. For the first time in history, we have an
agency with a singular consolidated mission, to provide a voice
for the consumers of our country, to protect consumers from the
predatory lending practices that contributed to the economic
crisis from which we are still recovering, and to empower and
educate consumers to make informed financial decisions. Mr.
Cordray, I am very pleased to welcome you here to this hearing
and am confident that you will make the Consumer Financial
Protection Bureau a strong defender for consumers. So I look
forward to working with you.
Some Senators have expressed a view that eliminating the
Director of the Consumer Financial Protection Bureau and
creating a board instead would improve accountability. In my
view, having a single director responsible for the Bureau's
results promotes accountability, efficiency, and effectiveness.
The Government Accountability Office has repeatedly emphasized
the importance of focused sustained leadership to tackle
complicated challenges.
Director Cordray, can you please discuss how, in your view,
the Bureau will be held accountable to the American people?
Mr. Cordray. Well, thank you, Senator. I think that we are
held accountable in the law in a number of ways. I have said,
there are different bodies and independent agencies that are
structured in different ways. Some have a board. Some have a
board and a director. Some have a director. There are examples
of each and they all can work well.
I do think that in our situation, the law that we are
carrying out provides for a single director. That means there
is one person, in this case myself, who sits here and is
responsible to you to answer your questions, and if I cannot
give you a satisfactory answer, I am responsible to go back and
get that answer and bring it back to you. There is no passing
the buck. There is no, I would like to say this but others
might say something else, diffused responsibility. So there is
something to be said for that.
But the accountability here, as I said before, I think lies
from our Bureau to Congress. You are the ones who passed the
laws that give us the only authority we have to do anything. We
are responsible to you for how we carry out those laws. You can
bring us here to testify at any time. You can have us come to
meetings and brief your staff, as many of you have done, and we
will listen closely to you and try to make sure you know
exactly what you need to know about the work we are doing and
have input into that work.
Senator Akaka. Director Cordray, a Government
Accountability Office review of the Federal financial literacy
efforts received significant attention last year. However,
contrary to media's inaccurate reporting, GAO did not find
evidence of overlapping duplication among the 56 programs and
did not identify cost savings that would result from
consolidating financial literacy programs. According to GAO,
this issue was examined by the previous Administration, which
found that each program was targeted to a specific audience,
such as students or veterans, and carried out by an agency with
expertise for a given topic. As a result, GAO noted that
fragmentation of financial literacy efforts makes coordination
essential. Specifically, GAO recommended CFPB coordinate
closely with Treasury to clearly define financial literacy
roles and activities to make the best use of resources.
My question to you is, what steps has the Bureau taken to
address this recommendation?
Mr. Cordray. So that is a good question, Senator. It is
critically important that there be coordination. The law has
provided that there is the Financial Literacy and Education
Commission called FLEC and set up the Director of the Consumer
Bureau to be the Vice Chair of it, working with other agencies.
But it goes beyond just other agencies. There are a lot of
nonprofits. There are a lot of private sector banks and others
who offer financial literacy efforts. There is no need for us
to reinvent the wheel.
When I was a State Treasurer in Ohio, we worked for
financial education in our schools and we eventually got a law
passed that changed it so that every high school student in
Ohio now has to have personal finance education before they can
graduate. I think that is a good model for the Nation. But
there is lots of curriculum. There is lots of material out
there. A lot of it is very good material. And if we coordinate
with one another, we can save resources and be more effective
and more efficient. That is what I think the Financial Literacy
and Education Commission is intending to do and that will be my
approach to it as the Vice Chair.
Senator Akaka. Thank you. Thank you very much, Mr.
Chairman.
Chairman Johnson. Senator Johanns.
Senator Johanns. Mr. Chairman, thank you.
Mr. Cordray, thank you for being here with us today. Today,
I want to visit with you about some thoughts I have about your
appointment, not necessarily to revisit that and stir that up,
because I think that is going to happen. I think there is going
to be litigation that will make that happen. But in my mind,
your being here today raises some very fundamental questions
about the Constitution, about the interrelationship of the
President with Congress, and ultimately, at the end of the day,
the extent of your power in this position.
Now, my views on this are not isolated views. Let me, if I
might, kind of set the stage here with some references to some
people who have served as United States Senators, some who I
have great respect for. Then-Senator Barack Obama, when a
recess appointment came out of the Bush administration,
referred to recess appointments as the wrong thing to do. He
referred to a recess appointee, not necessarily that specific
appointee, but a recess appointee as damaged goods. That is his
words. And then he referred to the situation the country would
find itself in and he said, quote, ``We will have less
credibility,'' because of that recess appointment.
The Majority Leader, Minority Leader at the time, described
it as an end run around the Senate and the Constitution. He
called it an abuse of power.
Senator John Kerry, again, a gentleman that I have worked
with and have a lot of respect for, referred to recess
appointments as an abuse of power of the Presidency.
Sometimes in this business, there is a certain amount of
political push and shove that goes on, obviously. I do not
think that is what they were talking about here. I think they
were talking about genuine issues of constitutional power.
Now, in your case, if we accept the premise of your
validity in this position, then we accept the premise that our
ability to offer advice and consent basically disappears
because the President can determine when we are in recess and
when we are not in recess and just appoint whomever, and then
we do not have a constitutional provision for advice and
consent of the Senate.
Now, I have been through that process. I have a tremendous
amount of respect for that process. I think I benefited greatly
and I hope the country benefited greatly from me going through
that process and seeking a vote of the Senate. And I had no
idea when I started it whether I would win or lose.
Now, there is even a greater challenge here. We took the
opportunity to do some research, and there are not a lot of
cases out there, as you might expect, on the issue of what
impact does this have on your power, but back in 1989 when
Congress created the Office of Thrift Supervision, there was a
challenge to the Director, and I want to read something to you.
Judge Lamberth of the, I think it was the U.S. District Court
for the District of Columbia, found that the company that was
raising the challenge, and I am quoting here, ``was subject to
regulation only by individuals with legal authority to act.''
He then goes on to say, ``Because the Director was not properly
appointed, he has no power or right to exercise the Director's
appointment powers than this court does,'' and then says
Olympic has the ability to seek an injunction to restrain, to
stop the Director.
So not only do we have this constitutional issue, which I
think is fundamental to our power of advice and consent under
the Constitution, but if you are successfully challenged, would
you agree with me that your actions will be invalid during the
time that you are in this position?
Mr. Cordray. Senator, I do not know that I believe that is
clear cut one way or the other. It is also not clear cut by any
means that this is not a valid appointment. I believe it is. I
have read the Justice Department's opinion, which I thought was
persuasive.
But in any event, I do take your point and your concern. I
know that you went through a confirmation process to become a
cabinet officer. Undoubtedly, you appointed numerous people
when you were Governor who went through confirmation processes.
You are very familiar with this process.
As you know, I was in this process. I was nominated in
July, came up, had a hearing here, met with many of you and
appreciated the opportunity to meet with you, and ultimately
went to a vote. So I benefited by months of that experience and
understanding over the course of it, the value of hearing from
and having input from the Senators who took the time to spend
time with me and give me their views about my appropriate role.
I have been appointed as Director. There may be issues
about that. I understand people have different points of view
about that. But I now have legal obligations I am supposed to
carry out for this Bureau. I am going to do that. We are going
to continue to walk straight ahead, one step at a time, trying
to fulfill our legal responsibilities, and that is, it seems to
me, the best I can do at this point.
Senator Johanns. I have run out of time, but I will wrap up
with this. I cannot imagine how anybody could maintain under
the circumstances that your appointment and your service is
valid. And I cannot imagine, then, based upon the precedent
that I see, how the actions you are taking will be upheld, and
I think that is a very, very serious consequence for our
Nation.
Thank you, Mr. Chairman.
Chairman Johnson. Senator Brown.
Senator Brown. Thank you, Mr. Chairman.
I just, simply put, cannot believe we are still having this
debate. The job of--Richard Cordray's job is so important. We
know what all kinds of people have said. The American Financial
Services Association, a trade group for consumer lenders, said
there is a receptivity by the CFPB to learn that is very
refreshing. They want to get it right.
The American Bankers Association said the agency approach
to bank oversight was pretty good news. The Independent
Community Bankers called the process for refining model
mortgage forms refreshing. It was clear, more to the point, and
was a substantial improvement.
The CFPB had its banks audited by GAO, which found their
financial statements are fairly presented in all material
respects. There is strong, effective internal control over
financial reporting.
The Acting Comptroller of the Currency, not exactly known
for his hostility to banks, has said last week that some
attempts to regulate the opaque over-the-counter derivatives
market might be an overreaction.
All of these speak to the focus of this agency and the
effectiveness of this agency, and that we are still having this
debate--and let us lay out some facts before people continue
here to play this inside baseball game that the country simply
does not care about, that President Obama has overstepped or
overreached.
First of all, President Bush made 171 recess appointments.
President Clinton made 139 recess appointments--eight years, I
understand. President Obama has made only 32 recess
appointments, and his recess appointments in large part are
because one political party, the other political party, has
blocked time after time after time even bringing these to a
vote. We were not saying to my colleagues on the other side of
the aisle, vote for Rich Cordray. We were just saying, give him
a vote. This is the first time, as I have said in this
Committee and on the floor a number of times, the first time in
American history, according to the Senate Historian, where a
political party has blocked a nominee simply because they do
not like the agency.
So if the other side would get their way on this and that
precedent would stand, the next time there is a Commissioner
appointed for the FDA, are we going to say, we are not going to
approve him until we weaken food safety laws, as Senator Jack
Reed has said? Is that the way we are going to operate this
place? We cannot operate this Government when one party says,
we are not going to confirm somebody because we do not like the
agency over which he--which he will administer or regulate.
In the end, we know that the other side was simply doing
the bidding of Wall Street. That is what they have always done.
That is what they are doing today. That is what they will
continue to do.
But this agency has important work to do. You can see
already their effectiveness, when people from whom you would
not expect compliments like that are saying those positive
things.
So let us put that aside and talk about Rich Cordray, about
what the Consumer Bureau can do, as in my Subcommittee when
Skip Humphrey testified about what they are doing with seniors
to protect seniors, and what Mrs. Petraeus, Holly Petraeus has
talked about, how we protect veterans. That is why these
agencies are here, not to score political points but to protect
them against the kind of financial service abuses that too many
veterans, too many seniors have been subjected to.
In my last minute or so, I would like to ask Mr. Cordray a
question. Every year, I invite college presidents from around
Ohio, about 55 or 60 of them, 2-year, four-year, private,
public schools, to come to Washington. We spend a day, day-and-
a-half talking about issues that affect them, whether it is
their graduates finding jobs, whether it is student loans,
whether it is affordability generally, whether it is training
scientists, all the things that our colleges and universities
do so well.
One of the issues that we addressed most recently is the
rising cost and the strain that student loans are putting on
middle-class kids and working-class kids that graduate from
college with far too much debt. That is why I proposed the
Private Student Loan Ombudsman Office that was included in the
CFPB. Mr. Cordray, tell me what the Bureau has done to address
the rising level of educational debt in the country. What are
your future plans as you begin to run this agency and figure
out how to protect students in these kinds of situations?
Mr. Cordray. Sure, Senator. First of all, you will be
pleased to know we have hired a terrific individual, Rohit
Chopra, to serve as that Private Student Lending Ombudsman in
the agency.
We also have made student loans one of the focuses of our
``Know Before You Owe'' project. We reached out to the
Department of Education, trying to work in partnership with
those who are relevant in the space, and we developed a Student
Aid Shopping Sheet which is now being promoted around the
country to simplify and clarify for young people and their
families, who very often it is the first time they have
undertaken an obligation of this size and magnitude and it is
going to be critical to the future of that child and their
opportunities, exactly what they are getting into, exactly what
the terms of their loans would be, the repayment terms, the
cost, their interest rate and the like.
And we are also working to further promote clarity around
the repayment terms of student loans. We have a calculator tool
on our Web site that people can use, young people who often do
not appreciate the difference between Federal student loans and
private student loans, to understand the difference in terms,
to understand the timing of repayment.
And we are going to look for more opportunities to try to
positively affect this marketplace. It is too important for
young people. You and I both know many, many young people who
could not get a college education or any higher education,
community college with vocational training, if they did not
have help and loans, and they cannot get it from their family.
And they need to understand the choices they are making so that
they can make good decisions about their future. And the Bureau
stands ready to assist and to help this marketplace be clear
and transparent for them.
Chairman Johnson. Senator Moran.
Senator Moran. Mr. Chairman, thank you very much.
I had no intention of going down the path of your
confirmation process except I will now respond to my colleague
from Ohio. Whether or not Mr. Cordray was confirmed had no
effect upon the consequences of Dodd-Frank to Wall Street. And
to suggest that at least I had refused to confirm Mr. Cordray
because of my protection of Wall Street, I find unfounded. And
I cannot imagine that there is not a constitutional issue about
what Article II, Section 2 of the United States Constitution
means when it says the President can make appointments when the
Senate is in recess. So that issue is--certainly presents
itself--I do not think it presents itself today. It has
presented itself or will present itself in court. I did not
intend to use this hearing as an opportunity to rehash this
issue, but I do want to respond to the gentleman from Ohio to
indicate that I simply disagree with his premise about those of
us who found fault, not with Mr. Cordray but with the
confirmation, or the lack of confirmation and the President's
appointment.
Mr. Cordray, I did not hear but understand that you
responded to Chairman Johnson about community banking and I
appreciate hearing that. I would indicate to you that in my
short period of time as a United States Senator, trying to get
a regulatory environment in which community banks can lend
money to creditworthy borrowers has been a cause of mine, and
it seems to me that the regulatory environment in which they
operate is oppressive and uncertain. And so your suggestion
about appointing an advisory group of community bankers, of
lenders to advise you, I certainly do not disagree, would
suggest that is valuable.
But I would only point out that at every opportunity in
which I have had to question witnesses from the OTC, the
Treasury Department, the FDIC, they have all done the same
thing. They have those advisory committees and yet the growth
in regulations continue and the sense by community bankers that
they are not understood still prevails. So I do not want to
discourage you from doing that, but please, at least from my
perspective, understand that that is probably not sufficient.
It will depend upon your attitude and approach.
And then in that regard, before you respond, our small
lenders, community banks, credit unions, they need clarity, not
only for their own sake but for, in my view, the ability to
grow the economy. I do think that there is a lot of reluctance
on the part of many small businessmen and women to make
decisions because they do not know what next is coming from
Washington, D.C., what the rules are going to be.
And in regard to financial institutions, the phrases that
have been around for a long time are pretty well understood--
unfair, deceptive. But the legislation that created your
position has, to bankers, to us, a new word called ``abusive.''
And my request of you is that before you find something to be
an abusive action by any financial institution, that you take
the full steps of defining what the word ``abusive'' means
beyond whatever in my view minor definitions, lack of
substantive definition there is to that word in the Dodd-Frank
legislation and would ask that you have an opportunity for
public comment.
I have seen examples in just recent days in which financial
regulators have determined a practice that, until that point,
was never considered to be inappropriate, but then go ahead and
criticize a financial institution for that conduct. And so my
request of you is to do what due process requires, if nothing
else, fairness requires, define what ``abusive'' means before
you find some practice to be abusive.
Mr. Cordray. So thank you, Senator. We will be careful
about that. And to return to the issue of community banks and
credit unions, I have a track record on this. I was a State and
local official in Ohio. I have worked with the community banks
and credit unions in Ohio. They know me well. They have spoken
to the fact that they found me to be a pragmatic and listening
person who cared about and was mindful of their business model
and how we could preserve it.
I will say that the thing that hurt the community banks as
much as anything was not so much too much regulation of them as
a complete lack of regulation of many of their competitors in
the mortgage market who did not adhere to the same standards.
Sometimes people would come in asking them for a loan that they
knew was irresponsible. They would say no, and they would see
those people go right down the street and get a loan from
someone who was not licensed or was not regulated and could
just sell it on to someone else, and therefore did not have to
care whether it succeeded. They would be right about the loan,
but it did not matter. And they lost market share to those
people. So our leveling the playing field between the banks and
nonbanks in the mortgage market in particular is very important
to protect the community banks and credit unions.
Beyond that, we will be, as I have said, we will be mindful
of burdens we are imposing on them. We will listen closely to
what they tell us about the effects on their operations and we
will do our best to take account of that.
But the other thing that hurt the community banks and
credit unions as much as anything in our lifetime was the
financial meltdown, the credit crunch that toppled a bunch of
community banks and caused many of their loans to default
because of the deep recession we suffered. If we could have
headed that off by a more sensible approach to these financial
markets 10 years ago, community banks and credit unions could
have thrived. Their model, to me, is the winning model. It is a
customer service model. It is a community oriented model. It is
one that we want to preserve and encourage, and that is my
personal background and viewpoint on it.
Senator Moran. Mr. Cordray, thank you. It is--what you
point out is accurate and it is the community bankers who
believe that they, in most instances, had nothing to do in
causing the problem but yet still are in the bullseye for
additional regulation.
My time has expired. I would only indicate that I am the
Ranking Republican on the Appropriations Subcommittee for
Financial Services, where we have responsibility for
determining, at least initially, the appropriation for the SEC,
the CFTC, the FDIC, the Treasury Department. While you are not
subject to our Subcommittee's jurisdiction--and I cannot speak
for Mr. Durbin--I would indicate to you a desire, a willingness
to have conversations with you about the appropriations process
through the Federal Reserve and your funding, if you are
willing to visit with me.
Mr. Cordray. I would be glad to visit with you and glad to
have our staff come and speak to your staff and make sure you
know everything you need to know about what we are doing. Yes.
Senator Moran. Mr. Cordray, thank you.
Mr. Cordray. Thank you.
Chairman Johnson. Senator Merkley.
Senator Merkley. Thank you very much, Mr. Chair.
I thought I would focus on this issue of the remittance fee
that has come up. It is not addressed in any detail in your
report. I assume that is because your report was covering
through December 31 and the rule was completed in January.
But I just want to state my understanding is that when
people seek to transfer money internationally, this rule says
they need to be told up front how much money is going to
actually arrive, in other words, no hidden fees, you see the
full impact of the exchange rate that is being assigned to it.
And in addition, if the money does not arrive or if the money
that arrives is different than what the person was told, there
is a way to fix that. Is that the essence of this rule?
Mr. Cordray. It is, Senator. If I could say, when you or I,
and I venture to say every one of the people who is sitting in
this room, when we write a check or we make a bank transfer or
we use a credit card, we are entitled to some basic consumer
protections. We expect that, we rely on it, and it is
appropriate.
In this market, though, for people who send money overseas,
typically to loved ones--it is one of the most steadfast, loyal
acts I can imagine, people taking the little they have,
dividing half of it and sending some back to mothers and
fathers left behind--they are entitled to consumer protections,
too, and that is what this rule embodies.
Senator Merkley. Well, I think that this kind of rule is
very compatible with a competitive marketplace. That is, if I
am seeking to send money overseas but I cannot get a firm
estimate of what the fees are going to be, I have no way to
compare vendors and, therefore, there is no--it rewards
predatory practices. But with this rule, it rewards the
efficient provision of services to the economy. Am I correct on
that? It empowers the consumer to shop between vendors.
Mr. Cordray. That is how I see it. That is how the Bureau
sees it, and I believe that is how Congress saw it, which is
why it required us to adopt a rule of this sort.
Senator Merkley. Well, I appreciate that you have done so.
I hope in your next 6-month report we will see an initial
evaluation of the implementation. And if there are ways to make
the enforcement more cost effective, more efficient, certainly
that will be appropriate.
But I was getting some numbers on the cost of a $200
transfer. Estimates are that the costs currently range from 3
percent to 13 percent. That is a 10-percent spread. Now, some
of that may be a difference in destinations, but some may be a
difference in the embedded exchange rates and practices of the
vendors. Certainly, within that 10 percent spread, the quarter
that you referred to, that is, one-quarter of 1 percent as on a
$100 transfer, and it may be a lower amount on a larger
transfer since it is spread over the costs of--enforcement is
spread over a larger sum--it seems like a small price to pay
for creating a competitive marketplace and ending predatory
practice and creating fairness. And if somebody just rips you
off and never delivers the money, you have redress. It seems
like a very small price to pay for a fair and competitive
marketplace that will produce all kinds of efficiencies that
will offset that fee.
Mr. Cordray. That is the judgment I understand Congress to
have made. It seems like a reasonable judgment. Of course, our
job is to carry out the law regardless. But I do think that is
right. And as I said, we are further proposing to see if there
is an appropriate threshold we might set for community banks
and credit unions that do not do these transactions in the
normal course of business. They should not necessarily be
subject to the same burdens, and we are going to be considering
that over the next several months.
Senator Merkley. When you speak of the same burdens, are
you speaking of kind of the enforcement strategies or are you
speaking of providing pricing up front, fair pricing? Would
that also disappear?
Mr. Cordray. That is something we are going to try to
consider, what an appropriate threshold would be. I think that
the protections for consumers, you know, the argument there is
they should be the same. But if there are very few transactions
and there are plenty of other places that consumers can go and
we have made it easier for them, as you say, to shop, which is
very important in this market, and as you say, it has not been
a transparent market, it has not been a market that has
included shopping, then we may well be able to exempt some of
the smallest institutions that do not need to do the same kind
of compliance as larger institutions when they are doing very,
very few transactions.
Senator Merkley. Well, I certainly applaud you for this
rule, for fairness for American consumers, and the fact that
you are setting the rules of the road for an effective,
competitive marketplace that is so important in our capitalist
system. I do hope in the next 6-month report we will see an
analysis as you work to continue to make it operate in the most
effective manner.
I wanted to turn to page 28 in your report where you
mention that you are exploring an issue between the difference
between credit scores sold to consumers and those that are
provided to lenders. This is a new issue to me, one that I had
not heard of. Can you just kind of summarize how this came to
light and what you are exploring? Is this appropriate under the
law? Why is there a distinction, and so forth?
Mr. Cordray. So in the law, which, of course, is the
authority we have, there were two studies Congress asked us to
do by last summer. The first one had to do with remittance
transfers and to what extent that information could be used to
help create credit reports and credit scores for individuals
who might not otherwise have enough data to score them
accurately.
The other one was we were asked to issue a report on the
sort of variations that people have seen but do not quite
understand among different types of credit scores. So, for
example, when you ask for your credit report and your credit
score, you may get one number from the credit reporting firm
and yet when a bank or some financial institution asks for the
same data to sort of judge what interest rate is appropriate to
set for you, they may get a different set of data or it may be
affected by the fact that you have made the request. That may
be taken into account in setting the score. There are just lots
of little things that were not well understood that might
affect us. So we----
Senator Merkley. I am going to cut you off there because I
now recognize I am over my time. I will read your report.
Mr. Cordray. OK.
Senator Merkley. I will be interested in understanding it.
Thank you.
Mr. Cordray. I will be happy to follow up with you or your
staff.
Senator Merkley. Thank you, Mr. Chair.
Chairman Johnson. Senator Schumer.
Senator Schumer. Well, thank you, Mr. Chairman, and I want
to thank our witness for being here. I am happy to see he is
fulfilling his duties as first Director of this historic new
Bureau, one that I and several Members of the Committee fought
hard for and will be one of the lasting legacies of Dodd-Frank
with a real chance to directly impact the lives of virtually
every person in America.
Mr. Chairman, I cannot help but note the fact that we had a
healthy attendance in Committee this morning and a healthy
debate with strong views on both sides of the aisle. I heard
the comments of my colleagues from Nebraska. There was a
discussion last week on the other side to consider a boycott of
the hearing and a few Members appear to have followed through
on the boycott and were absent from the hearing. But the plans
of a mass protest appear not to have gone over with many
Members on both sides of the aisle, of course, including the
other side, and that strikes me as a good thing, but also an
admission that continuing to hold this nomination hostage until
we agree to gut the Bureau that we just passed, notwithstanding
a few of the comments, for instance, of my colleague from
Nebraska, means that my colleagues have dialed down some of
their opposition on this issue. It is a losing fight
politically for them.
Many on the other side, wisely, do not want to continue the
fight because they know it is on the wrong side of consumers,
and the bottom line is we need an agency to guard the rights of
consumers. I learned over my years in trying to simply get
credit card disclosure, even though the Fed had the best of
intentions, they were so busy with so many other things that
they never got around to doing it. It took me 10 years to get
disclosure, and then it had all the intended effects of
bringing interest rates down.
And so I want to thank my colleagues, and he is not here
now, but particularly my friend from Tennessee. I read his
comments last week suggesting that other Members should give up
on the idea of mass reprisals over the installation of you, Mr.
Cordray. Mr. Corker said, quote, ``I do not think anybody is
going to consider that to be a very astute or intelligent thing
to do,'' and I agree with my friend from Tennessee and
appreciate his remarks.
We need to discuss these issues. We do not expect all to
have the same views. But the idea of how to protect consumers
should be on the table. The only way it can fully be on the
table is with Mr. Cordray in his position. The President had no
choice but to do what he did because we can no longer have
agencies close down, not because people disagree with the views
of the nominee or the ethics of the nominee or anything else,
but simply because they do not want the agency to exist or have
any functioning, and we all know, without a chair, you could
not do many of the things that we have to do in terms of issues
like payday lenders and mortgage brokers and abusive credit
card practices.
So these are vital issues to the American people. It makes
no sense for Senators to go AWOL on these consumer issues. I
welcome the debate that we could have here. Let us move on. Mr.
Johanns is right. The courts will decide this. I believe they
will decide that the agency is constituted properly. I believe
they will see that when you just try to block a nominee for the
sake of blocking a nominee, you do not get anything done.
I hope we can end this idea of a boycott. I think the
attempts to boycott by dug-in opponents are losing steam and I
hope we can get on with the debate. People are tired of
obstructionism for the sake of obstructionism, and everyone on
both sides of the aisle, no matter how strong their views,
participating in this morning's hearings understand that. I
hope as the years go on we are able to convince our colleagues
that it would be better to rejoin the debate on the playing
field rather than just take their ball and go home,
particularly on such an important issue.
So that was my statement. I appreciate your being here, Mr.
Cordray, and look forward to working with you to bring
consumers some rights.
Mr. Cordray. Thank you.
Chairman Johnson. Senator Hagan.
Senator Hagan. Thank you, Mr. Chairman, and welcome to the
Committee, Mr. Cordray. I, too, am pleased that you are here
with us today.
I wanted to ask about--well, much of the debate over the
ability to repay rule under Dodd-Frank seems to center on
whether the qualified mortgage should either be a safe harbor
or rebuttable presumption, and the concern has been expressed
that a rebuttable presumption will present an uncertain legal
standard that will result in overly cautious underwriting and
less consumer access to credit. Can you share with me your
views on the safe harbor rebuttable presumption?
Mr. Cordray. Sure. So the ability to repay rule, as you
know and as you mentioned, is one of the rules Congress has
required us to adopt to try to fix what were seen as--and what
were--irregular problems in the mortgage market. I mean, you
would think that you would not really need to have a rule where
the lender pays attention to whether the borrower will be able
to repay the loan----
Senator Hagan. Right.
Mr. Cordray.----before making a loan, but securitization
practices and other things created misaligned incentives in
that market. So we are to adopt that rule.
It is one of the issues that we have heard maybe most about
with respect to that rule thus far, and we are not even to the
proposed rule stage, although it is a rule we are going to be
working on over the course of this year. We have a statutory
deadline at the beginning of next year. It intersects with some
other rules that others--another rule that other agencies are
writing, so we know that we need to move it along and yet at
the same time be careful.
One of the things we have heard most about from
institutions is they would like to see this rule, whatever the
criteria are, have some sort of safe harbor so that it would
not create litigation issues and uncertainties for them as
opposed to a rebuttable presumption. There are others who take
a different point of view on that. It is something that we have
received, I would say, hundreds if not thousands of comments on
already and we are going to be looking at it carefully and
trying to weigh those issues.
I do not have an outcome for you today. As I said, we do
not even have a proposed rule at this point. But it is
something that is very much on our minds and we will appreciate
any input or thoughts that you and your staff want to give us
as we go forward with this.
Senator Hagan. Well, we will continue the dialogue on that.
Mr. Cordray. Yes.
Senator Hagan. Thank you. And I do want to echo the
concerns that have been raised today already about the issue of
financial literacy, and I applaud your efforts, and Senator
Akaka had mentioned it, too. I, too, was very--have always been
concerned about the lack of financial literacy being taught to
our students. When I was in the North Carolina Senate, I also
required that students get that. I think it is just a sound
basis that you need to get by in the world today. You have to
understand debt.
With that, I was also pleased that the CFPB recently
released its examination procedures for payday lenders. It
appears there are a handful of banks making high-cost payday
loans directly to their customers. The Center for Responsible
Lending has indicated that these loans are marketed as short-
term but often keep customers in debt for an average of 175
days a year, which is an average of 16 payday loans per year.
And I understand the rate is somewhere over 300 percent.
Can you say a little more about what the CFPB is doing to
address this sort of sustained use of payday loans?
Mr. Cordray. Yes, Senator, and as I had mentioned earlier,
this was the subject of the first field hearing that the Bureau
conducted in Alabama recently, and the examination procedures
that you have mentioned, we have put out, they apply equally to
nonbank payday lenders and also to banks that may be now
offering a product that is similar to a payday loan in a number
of respects, often called a deposit advance or some sort of
nomenclature around that phrase. We will have the same issues
and the same concerns about any of the products in this realm.
There is a legitimate need, and we heard a lot about it at
our field hearing, for short-term credit availability for
people, whether they are banked and have bank accounts or are
unbanked. There are also a variety of products that are
offered. It includes pawn brokers. It includes car title loans.
There are lots of different products, some of which have some
real advantages, some of which have some real disadvantages.
And one of the things we are going to be trying to do is assess
those products and make judgments about whether they are in
compliance with the law or not.
But we also would like to see a robust competition in this
realm. I mean, small-dollar loans are needed by people. In a
different era, and maybe in some places still now, they would
go to loan sharks. It was dangerous as well as being difficult.
Nobody wants that. We want to have products be available. We
want them to be products that help consumers and not harm
consumers.
There is a lot of thinking that some of the banking
products may be able to be offered on more favorable terms
because there may be less risk when they are dealing with their
own known customers. But we are at the beginning of this. We
will see over time how that develops.
Senator Hagan. Do you have a timeframe?
Mr. Cordray. I do not.
Senator Hagan. OK. All right.
Mr. Cordray. Yes. I do not.
Senator Hagan. One other question. One practice I am
concerned about is the manipulation of the order in which
checking account transactions are posted for overdraft
purposes. Consumers consistently state that they do not want
their transactions posted highest to lowest. Is this the sort
of practice the CFPB will be taking a look at?
Mr. Cordray. It is.
Senator Hagan. OK. Thank you, Mr. Chairman.
Chairman Johnson. The APA requires certain levels of public
participation in the rulemaking process. I am pleased to
continue to hear comments from stakeholders that the Consumer
Bureau has gone beyond that. Would you please describe the
process that the Bureau is following and how it improves your
rulemaking.
Mr. Cordray. I am sorry, Mr. Chairman. I kind of lost the
thread of your question as I was taking notes.
Chairman Johnson. The APA requires certain levels of public
participation in the rulemaking process. I am pleased to
continue to hear comments from stakeholders that the Consumer
Bureau has gone beyond that. Would you please describe the
process that the Bureau is following and how it improves your
rulemaking.
Mr. Cordray. OK. Thank you, Mr. Chairman. And actually,
similar to the questions we were addressing back and forth to
Senator Shelby, there are certain requirements in the law as to
how we go about rulemaking and we obviously are bound to
fulfill all those requirements.
It includes a very robust notice and comment process. So we
issue a proposed rule. Then we get notice and comment,
sometimes from--it depends on how many people are interested.
Sometimes a few dozen individuals, sometimes thousands or tens
of thousands of individuals, as with our ``Know Before You
Owe'' mortgage form consolidation project. We are required by
law to sift through those comments, to weigh them, to evaluate
them, to consider the pros and cons, to address them in our
rulemaking process, and then to develop a final rule.
Some of the things we have tried to do--and again, the
``Know Before You Owe'' is the most outstanding example of this
because mortgage markets are the most important market by
dollar figures for consumers--is to aggressively go out and
seek lots of comment, even before we have proposed a rule. We
are not required by law to do that, but we knew it would help
us do a better job if we were hearing from people before we
even put out a proposed rule. We have done a lot of consumer
testing and there are apparently procedures and processes that
researchers are familiar with that give you a better sense, not
just your judgment about how things really are, but how people
actually respond in fact to these things and to different
terminologies and to a shorter form and the like.
We are also going to be trying to continue to use
technology so that our rules and our proposals and the issues
that we are addressing are out there. We are going to encourage
people to participate through our Web site and through other
means. And we are going to be continuing to try to press the
envelope for how we can use modern technology to encourage
broader participation, therefore, broader perspectives,
therefore, more insight on our rules, not just from consumers
affected by the rules but from the industry participants who
are affected in their operations by our rules because it needs
to work for both sides. And I think it is very interesting, the
work being done by the Bureau, and we hope that it will
continue to be on the cutting edge.
Chairman Johnson. In a response to a question I asked your
agency, a colleague of yours wrote that the CFPB would provide
robust safeguards for consumers and clear guidance for
financial service providers without imposing undue burdens.
Will the CFPB fully consider the cost and benefit to your
rules, ensuring that you take a spartan, streamlined regulatory
approach while protecting consumers?
Mr. Cordray. Mr. Chairman, we are required by law, and not
just by the APA but specifically in our law, to consider the
burdens, costs, and impacts of any rule that we are developing.
We take that seriously, not only because it is the law but
because it is good public policy. We intend to, and that is why
I am setting up some advisory panels to hear broadly from the
financial industry about how our proposals may affect them and
how they may actually work in practice at the same time that we
are hearing from consumers and groups from across the country
about what benefit it might bring to the consumer public.
As I mentioned, we have inherited a lot of rules that we
did not write and we have the opportunity to go back and think
afresh about them, and there may be occasions where we can
streamline those rules, losing no benefit to consumers and
reducing the burdens on financial providers. We hope and expect
to be able to do that.
Chairman Johnson. Senator Shelby.
Senator Shelby. Thank you.
Mr. Cordray, I will try to move on. You have been very
patient here today, but I have got several questions.
We have heard that there is some concern that documents
subject to the attorney-client privilege that are turned over
to the Bureau will not remain privileged. But under the current
law, privileged documents remain privileged when they are given
to the Federal Reserve Board, the Office of the Comptroller of
the Currency, and the FDIC, on which you serve as a member of
the Board. The drafters of Dodd-Frank did not include the
Bureau in this law, which is troubling. Would you support an
amendment that would apply the same privilege protection for
documents given to the Bureau as currently exists for documents
given to the other Federal banking regulators, and if not, why
not?
Mr. Cordray. Yes, we would support an amendment to correct
what we believe was an oversight.
Senator Shelby. OK.
Mr. Cordray. I have told the banking trade associations
that and we are happy to work with them and you to get that
fixed.
Senator Shelby. Thank you.
Senator Moran brought up abusive, the definition of
``abusive,'' the word and so forth. During the discussions that
led to Dodd-Frank, it became clear that some people wanted to
ban some nonbank products and services. Are there any
particular products that exist now that you would ban, or is
this too early? Is it possible for an identical product to be
abusive for one consumer and not for another? Is that possible,
and how would you make that determination if you saw that?
Mr. Cordray. So let me try to address both those questions.
First, I do not think in terms of banning products. I mean,
that is not how the statute speaks for us.
Senator Shelby. Mm-hmm.
Mr. Cordray. It talks about us addressing unfair,
deceptive, and abusive acts or practices----
Senator Shelby. OK.
Mr. Cordray.----which I think is maybe a better way to look
at it. In terms of whether----
Senator Shelby. So you do not think you will be in the
business of trying to ban products, but to make things stronger
and more transparent and so forth for the consumer?
Mr. Cordray. That is the approach and the vantage point I
take on it, Senator, yes.
Senator Shelby. OK. Basel--by virtue of your position on
the FDIC Board of Directors, you will have to make some
important decisions about the Basel capital regime. Both Basel
III and the Dodd-Frank Act eliminate tier one capital treatment
for trust preferred securities. While Dodd-Frank provides a
measure for grandfathering trust preferred securities for small
banks with assets of less than $15 billion, Basel III has no
such exception. Because many small banks have trust preferred
securities, this issue will impact banks in their communities
throughout the country.
How do you plan to resolve the divergent approaches for
small banks taken by Dodd-Frank and Basel III? Have you gotten
into that yet? And would you give your views on Basel III,
including whether it effectively prevents another economic
crisis and prevents banks from being undercapitalized? You
know, the whole thrust is for banks to have more capital, which
makes sense to me, and also to have liquidity, which makes a
heck of a lot of sense.
Mr. Cordray. Yes. I do think that the recapitalization of
the banks and the provisions that we have made domestically
here in the United States as well as what Basel is trying to
accomplish are healthy to the overall system. The American
banks now have more capital that they are keeping on hand than
European banks by comparison, for example.
Senator Shelby. But perhaps not enough, huh?
Mr. Cordray. Well, that is a hard thing to measure in the
abstract----
Senator Shelby. I know it is.
Mr. Cordray.----and people are working on it. I am now a
member, as you said, of the FDIC Board. I have great colleagues
on that Board. They have been working with me to get up to
speed on these issues. I also happen to be fortunate because
the Deputy Director of the Bureau, Raj Date, who has been up
here to testify, is a banking expert in both investment banking
and commercial banking and he is working with me on these
issues. So we will address them as they come, but these are
fascinating and important issues, not just to this country but
for the world, and we want to make sure that our banking system
is strong. I know you want that. We want that, as well.
Senator Shelby. Mr. Cordray, do you know of any financial
institutions you can recall that have been well capitalized,
well managed, and well regulated, and have failed?
Mr. Cordray. I think that only happens, Senator, when there
is some extreme dislocation in the country at large. That may
have happened----
Senator Shelby. That would be very unusual, would it not?
Mr. Cordray. Yes. I would say the Great Depression and then
the financial meltdown we just suffered through in 2007-2008.
That may have happened to some banks that did not deserve it.
Senator Shelby. The Washington Post recently reported that
a program by the District of Columbia government and local
community groups to subsidize mortgages for first-time
homebuyers in the District of Columbia resulted in mortgages
that many buyers could not afford. I know they meant well, but
the article found that nearly one in five borrowers
participating in the D.C. program are now behind on their
mortgage payments.
Do you believe that the lending practices used by nonprofit
entities, although meaning well, that help put consumers in
mortgages they cannot afford are within your purview, and are
you looking at this particular program, because I am not saying
it is abusive, but maybe it is a lack of--I do not know how you
define all that, but lack of judgment, because you want to help
people but sometimes--if one out of five are failing, they have
got to be reviewed. Is that part of your deal or is that not in
your purview?
Mr. Cordray. That is the first time the program you
mentioned has come to our attention----
Senator Shelby. Sure. Well, it was----
Mr. Cordray.----and it may be a local, D.C. program. But I
will say, we had a lot of problems in the mortgage market in
the last decade. We had a lot of practices that, in retrospect,
were not very sustainable even though, as you say, many of them
were well intentioned, although some of the practices out there
were not well intentioned at all. They were just fraud and
greed.
But we need to be careful about what we are doing. I know
the Congress is now requiring us to do a number of things to
try to clean up practices in the mortgage market. We take that
role very seriously and we will continue to be glad to have
your input and counsel as we do that work. And as you are
hearing from your constituents, we are often hearing from many
of the same people, but that helps us with our perspective.
Senator Shelby. Thank you. Thank you, Mr. Chairman.
Chairman Johnson. I would note for the record that Senator
Reed of Rhode Island would have been with us today but he is
away at a funeral.
Mr. Cordray, I thank you for your testimony today and for
your willingness to serve our Nation. Regardless of whether one
agrees with the President's decision to recess appoint Richard
Cordray, the fact of the matter is that he is now Director of
the CFPB. It is time for us all to put politics aside and work
together to protect American consumers and foster a strong and
fair consumer financial marketplace.
This hearing is adjourned.
[Whereupon, at 11:50 a.m., the hearing was adjourned.]
[Prepared statements, response to written questions, and
additional material supplied for the record follow:]
PREPARED STATEMENT OF RICHARD CORDRAY
Director, Consumer Financial Protection Bureau *
---------------------------------------------------------------------------
* The views expressed in this testimony are those of the Director,
and do not necessarily reflect the views of the Board of Governors of
the Federal Reserve or the President of the United States.
---------------------------------------------------------------------------
January 31, 2012
Holding the CFPB Accountable: Review of the First Semi-Annual Report
Chairman Johnson, Ranking Member Shelby, and Members of the
Committee, I want to thank you for this opportunity to present the
first ``Semi-Annual Report of the Consumer Financial Protection
Bureau'' detailing the Bureau's accomplishments in its first 6 months.
Before I became Director, I promised Members of Congress in both
chambers and on both sides of the aisle that I would be accountable to
you for how the Consumer Bureau carries out the laws you enact. I said
that I would always welcome your thoughts about our work. I stand by
that commitment. I am pleased to be here with you today to tell you
about our work and to answer your questions.
The people who work at the Consumer Bureau are always happy to
discuss our work with the Congress. This is the 13th time that we have
testified before either the House or the Senate. And my colleagues and
I look forward to working closely with you, with the businesses who
serve their customers in the consumer finance markets and with the
millions of American consumers themselves.
I am honored to serve as the first Director of the new Consumer
Bureau. I am energized and inspired by the many talented people who
work at the CFPB, and I am driven by the challenges and
responsibilities of our mission to protect American consumers.
Our mission is of critical importance to making life better for
Americans. Consumer finance is a big part of all our lives. Mortgages
allow people to buy a home and spread the payments over many years.
Student loans give young people with talent and ambition the access to
a college education. Credit cards give us immediate and convenient
access to money when we need it. These products enable people to
achieve their dreams. But as we all have seen in recent years, they
also can create dangers and pitfalls if they are misused or not
properly understood.
During my years in State and local government I became deeply
engaged in consumer finance issues. I saw good people struggling with
debt they could not afford. Sometimes those people made bad decisions
they came to regret. Sometimes an unexpected event--like a loved one
getting sick or a family member losing a job--overwhelmed even their
most careful planning. Still other times, I saw unscrupulous businesses
who obscured loan terms or engaged in outright fraud, causing
substantial harm to unsuspecting consumers and even ruining their lives
and devastating their communities.
I am certain that each one of you hears every day from your
friends, your neighbors, and constituents in your district who have
these kinds of stories to tell. These people do not want or expect any
special favors. They just ask for a fair shake--and a chance to get
back on track toward the American Dream.
One of our primary objectives at the Consumer Bureau is to make
sure the costs and risks of these financial products are made clear.
People can make their own decisions, and nobody can or should try to do
that for them. But it is the American way for responsible businesses to
be straightforward and upfront with their customers, giving them all
the information they need to make informed decisions. That is good for
honest businesses and good for the overall economy. A particular quote
caught my eye recently, which embodies this view: ``Free men engaged in
free enterprise build better nations with more and better goods and
services, higher wages and 3 higher standards of living for more
people. But free enterprise is not a hunting license.'' That was
Governor Ronald Reagan in 1970. I agree with what he said, and it is a
view widely shared by the people who work with me at the Consumer
Bureau.
So another key objective is making sure that both banks and their
nonbank competitors receive the evenhanded oversight necessary to
promote a fair and open marketplace. Our supervisors will be going
onsite to examine their books, ask tough questions, and fix the
problems we uncover. Under the laws enacted by Congress, and with a
director now in place, we have the ability to make sure this is true
across all financial products and services.
The Consumer Bureau will also make clear that violating the law has
consequences. Through our field examiners, our direct contact with
consumers and businesses, and our highly skilled researchers, we have
multiple channels to know the facts about what is happening in the
marketplace. We plan to use all of the tools available to us to ensure
that everyone respects and follows the rules of the road. Where we can
cooperate with financial institutions to do that, we will; when
necessary, however, we will not hesitate to use enforcement actions to
right a wrong.
As we move forward with our work, we need to hear directly from the
consumers we protect and the businesses who serve them. We do this on
our Web site, consumerfinance.gov, where consumers are able to tell us
their personal stories. We also make a point to get out of Washington
regularly and hear from people first-hand. Thus far we have held town
hall meetings in Philadelphia, Minneapolis, Cleveland, and a field
hearing in Birmingham. We are hearing from thousands of Americans about
what works and what does not. We are listening closely, and we hope
that many of you will join us at these events when we come to visit
your communities.
Accomplishing our mission will take time. But, as you can see from
our semi-annual report, we are already taking important steps to
improve the lives of consumers.
Thank you. I look forward to your questions.
RESPONSE TO WRITTEN QUESTIONS OF SENATOR SHELBY FROM RICHARD
CORDRAY
Q.1.a. During the hearing, I stated that by virtue of your
position on the FDIC board of directors, you will have to make
some important decisions about the Basel capital regime. Both
Basel III and the Dodd-Frank Act eliminate Tier I capital
treatment for trust-preferred securities. While Dodd-Frank
provides a measure that grandfathers trust-preferred securities
for small banks with assets of less than $15 billion, Basel III
has no such exception. Because many small banks have trusts-
preferred securities, this issue will impact small and
community banks throughout the country.
How do you plan to resolve the divergent approaches for
small banks taken by the Dodd-Frank and Basel III?
A.1.a. To the extent that my position on the FDIC board of
directors requires me to take a position on this matter I will
do so at the appropriate time and after full consideration of
the relevant issues.
Q.1.b. Please give your overall views of Basel III, including
whether it effectively prevents another economic crisis and
prevents banks from being undercapitalized.
A.1.b. During the crisis, many market participants and
observers viewed the capital and liquidity resources of a
number of our Nations' largest banking organizations as
insufficient. Basel III is a significant strengthening of risk-
based capital requirements, as it tightens the definition of
capital and increases capital requirements. It also includes a
new regulatory liquidity requirement. Certainly no single tool
can be a panacea for preventing all future crises, but
experience suggests that a well-capitalized and liquid banking
system will be better positioned to ride out periods of
financial stress and serve as an engine of growth for the
economy. I am hopeful that the new framework will work as
intended to strengthen the resilience of the banking system.
Q.2.a. During the hearing, you were asked about an amendment
sponsored by Senators Brown and Kaufman, which would have
limited the size of banks. Under the amendment, no bank would
have been permitted to hold more than 10 percent of the total
amount of insured deposits and a limit would have been placed
on nondeposit liabilities of each bank at 2 percent of GDP.
This amendment would have ensured that the failure of a single
financial institution would not bring down the entire system. I
supported this amendment. As part of your role as a boardmember
of the FDIC and the Financial Stability Oversight Council, your
opinion on this issue is of particular importance. During the
hearing you indicated that you had not yet had an opportunity
to form an opinion on this issue.
Now that you have had more time to consider this issue, do
you support limiting the size of banks as proposed by the
Brown-Kaufman amendment?
A.2.a. The Brown-Kaufman amendment to Dodd-Frank to prevent
bank-holding companies from controlling more than 10 percent of
total insured deposits and limit nondeposit liabilities
controlled by each bank-holding company to 2 percent of GDP
failed by a 33-61 vote. While I share your concerns about the
increasing concentration of capital in the financial sector,
Congress determines the tools the regulators have to manage
risk and protect consumers. The CFPB is committed to
implementing and enforcing existing law in this regard to the
best of our ability.
Q.2.b. If not, what steps would you take to ensure that banks
are not too big to fail?
A.2.b. The Dodd-Frank Act gives financial regulators important
authorities to enhance financial stability and to manage the
regulatory challenges posed by large, complex, systemically
important financial institutions (SIFIs). The Dodd-Frank Act
also provides for a new SIFI resolution framework that includes
an orderly liquidation authority and a requirement for SIFIs to
submit resolution plans that demonstrate how they can be
resolved through the bankruptcy process. These changes give
regulators better tools to manage the potential risks and
failure of complex financial institutions. A credible capacity
to place a SIFI into an orderly resolution process is critical
to subjecting these companies to meaningful market discipline.
I am aware that the FDIC is working diligently to implement
provisions of the Dodd-Frank Act that provide additional
oversight and resolution authority for SIFIs, and I am pleased
to participate in this effort as a member of the FDIC's Board.
Successful implementation of the Dodd-Frank Act will represent
a significant step forward in providing a foundation for a
financial system that is more stable and less susceptible to
crises in the future, and better prepared to respond to future
crises.
Q.3.a. During the hearing, I mentioned that a program by the
D.C. government and local community groups to subsidize
mortgages for first-time home buyers in D.C. resulted in
mortgages that many buyers could not afford. A Washington Post
article found that nearly one in five borrowers participating
in the D.C. program are now behind on their mortgage payments.
You stated that the hearing was ``first time the program you
mention has come to our attention.''
Do you believe that the lending practices used by nonprofit
entities that help put consumers in mortgages they cannot
afford are within your jurisdiction?
A.3.a. The CFPB generally has jurisdiction over entities that
offer or provide consumer financial products or services,
including nonprofit entities, except to the extent that the
consumer financial protection statutes that the Bureau enforces
have carve-outs for nonprofits. In particular, the CFPB
enforces the Truth in Lending Act and the Consumer Financial
Protection Act. In addition, the CFPB encourages consumers and
whistleblowers to contact the CFPB if they believe a lender has
violated these laws, regardless of whether the entity is
nonprofit or for-profit. This response does not refer to or
comment on the program referenced in your question.
Q.3.b. Will you look into this particular program?
A.3.b. It would be inappropriate for the Bureau to publicly
comment on contemplated supervisory actions or enforcement
plans.
Q.3.c. What steps can the Bureau take to ensure that assistance
provided by nonprofit entities does not result in borrowers
obtaining mortgages they cannot afford?
A.3.c. Among other things, the CFPB is currently working on
final regulations to define a standard for determining a
consumer's ability to repay a mortgage loan, as required by
Section 1411 of the Dodd-Frank Act. This rule will require that
lenders make a ``reasonable and good faith determination based
on verified and documented information that, at the time the
loan is consummated, the consumer has a reasonable ability to
repay the loan.''
Q.4.a. Section 1100G of the Dodd-Frank Act requires the Bureau
to convene a panel a Small Business Advocacy Review panel
before publishing a proposed rule with an Initial Regulatory
Flexibility Analysis. Through the Small Business Advocacy
Review panel the Bureau will meet with representatives of small
entities and will offer an opportunity for those
representatives to provide advice and recommendations on
regulatory alternatives to minimize the burden on small
entities. You have stated that the first time you will convene
the small business panels will be this summer, before you
propose a rule on the streamline of the RESPA and TILA mortgage
disclosures. However, you have also indicated that you will be
proposing your ``larger participant'' rulemaking shortly.
Will a Small Business Advocacy Review panel be convened for
the ``larger participant'' rulemaking?
A.4.a. The CFPB did not convene a Small Business Advocacy
Review panel before issuing its first proposed larger
participant rule. In the notice of proposed rulemaking, the
CFPB certified that the proposed rule would not have a
significant impact on a substantial number of small entities
(SISNOSE), and thus did not require an Initial Regulatory
Flexibility Analysis. Consequently, the convening of a Small
Business Advocacy Review panel was not required.
The CFPB determined that the proposed rule would not result
in a SISNOSE because, among other things, the thresholds for
being defined as a larger participant in the consumer debt
collection and consumer reporting markets are more than $10
million and $7 million in annual receipts, respectively. Thus,
firms meeting the definition of a larger participant in either
of these markets will not be small businesses under the
applicable Small Business Administration size standard of $7
million in annual receipts for these industries. While there
may be rare circumstances in which a small business may be
subject to supervision under this rule, such instances would
not result in a SISNOSE.
Q.4.b. If so, who will be the small business representatives
for the ``larger participant'' rulemaking panel?
A.4.b. The CFPB did not convene a Small Business Advocacy
Review panel for the proposed larger participant rule because
the CFPB has certified that the proposal would not result in a
SISNOSE.
Q.4.c. In general, how will you select the small business
representatives for the Small Business Advocacy Review panels?
A.4.c. The CFPB, in consultation with the Small Business
Administration's (SBA) Chief Counsel for Advocacy, selects
small business representatives to consult with and provide
recommendations for the panel. Using the definitions and size
standards set forth in the Regulatory Flexibility Act, the CFPB
first determines the industry sectors and types of small
entities that are likely to be directly subject to the
requirements of the rule under development. Next, the CFPB
develops a list of potential representatives of affected small
entities to provide recommendations to the panel about the
potential economic impacts of the proposed rule. The CFPB
typically considers representatives it has identified through
its general outreach efforts as well as through suggestions
from trade associations and other external industry
organizations, consumer groups, and/or the SBA. The CFPB then
submits its proposed list of potential small business
representatives to the SBA's Chief Counsel for Advocacy. The
final small business representatives are designated by the CFPB
after consultation with the SBA.
Q.4.d. Have you developed protocols or policies for the Small
Business Advocacy Review panels? If so, please provide a copy
of these protocols or policies to the Committee. Will these
protocols or procedures substantially differ from those of the
EPA or OSHA? If so, please describe why and how your protocols
or procedures will differ. If you have not yet developed any
protocols or policies, when will your protocols and policies be
final?
A.4.d. The CFPB conducts Small Business Review Panels in
accordance with the requirements of the Regulatory Flexibility
Act (RFA). The CFPB has also developed a ``Fact Sheet'' on the
Small Business Review Panel process. The fact sheet is
available on the Bureau's Web site at consumerfinance.gov and
is attached as Appendix A to this document.
The CFPB has consulted, and will continue to consult, with
other agencies involved in the Small Business Review Panel
process (e.g., EPA, OSHA, SBA and OMB) as it implements the
RFA's statutory requirements for the review panels.
Q.4.e. Which rules that will be promulgated by the Bureau, if
any, will not undergo a Small Business Advocacy Review panel?
A.4.e. The Regulatory Flexibility Act, as amended, identifies
the types of rules for which a Small Business Review Panel is
required. Generally, the RFA applies only to rules for which a
notice of proposed rulemaking is required by the Administrative
Procedure Act, or ``any other law.''\1\ When developing a
proposed rule subject to the RFA, the CFPB is required to
convene a Small Business Review Panel prior to issuing the
proposal unless the CFPB certifies that the rule will not, if
promulgated, have a SISNOSE. Accordingly, the CFPB is not
required to convene Small Business Review Panels for proposed
rules that are not subject to the RFA or for proposed rules
that are subject to the RFA but the Director certifies will not
have a significant economic impact on a substantial number of
small entities. The CFPB also is not required to convene a
Small Business Review Panel where another agency, such as the
Federal Reserve Board, issued a rule proposal which was later
inherited and finalized by the CFPB.
---------------------------------------------------------------------------
\1\ See 5 U.S.C. 601(2), 603(a), 604(a), 609(a).
---------------------------------------------------------------------------
The CFPB intends to convene a Small Business Review Panel
for the TILARESPA mortgage disclosure integration rulemaking.
We have not yet reached a formal determination on whether a
Small Business Review Panel will be convened for other proposed
rules subject to the RFA that are under development.
Q.4.f. Will you carry out any actions with respect to
nondepositories before the ``larger participants'' rulemaking
is final? If so, please describe.
A.4.f. The CFPB will not conduct supervisory actions under the
initial larger participant rule until the rule is effective.
Before that date, however, the CFPB may undertake supervisory
activities, such as examinations or requests for reports, in
connection with nonbanks that are otherwise subject to the
CFPB's supervisory authority. This could include, for example,
nonbank companies in the mortgage, payday lending, and private
education lending markets subject to the CFPB's authority.
Finally, the CFPB may undertake enforcement actions or
rulemakings that affect nonbanks before the effective date of
the initial larger participant rule.
Q.5.a. You have said that the Bureau's supervisory program of
nonbanks will be based on multiple factors. One of those
factors is ``the extent of State oversight for consumer
financial protection.'' This presumes that some States provide
more oversight than other States in terms of consumer financial
protection.
Which States provide the most oversight in the areas of
mortgage lending and payday lending?
A.5.a. In determining whether and how to supervise particular
nonbanks, the CFPB will consider a number of factors that focus
on risk, including the extent of State oversight.
The CFPB launched its nonbank supervision program in
January and is still assessing the extent of State oversight in
these markets. State oversight of payday lending varies widely
because State laws and regulations, as well as supervisory
programs, differ and are not coordinated. Some States do not
authorize, or effectively ban, payday loans; other States allow
payday loans, subject to heavy restrictions; still others allow
payday loans and do not impose significant restrictions. In
addition, some States have developed their own supervision
programs for payday lending, with particular areas of focus and
varying resources dedicated to examinations. Some States focus
primarily on reviewing for compliance with State laws, as
opposed to the Federal consumer financial laws for which the
CFPB is responsible for assessing compliance. Many payday
lenders operate in multiple States, which may subject them to
varying types and levels of oversight.
For the mortgage market, State financial regulators created
the Multistate Mortgage Committee (MMC) to coordinate
examination and supervision of those mortgage lenders and
brokers operating in more than one State. The CFPB is
coordinating with the MMC and with regulators in individual
States to ensure that the CFPB does not engage in examinations
that merely duplicate State regulator work in the mortgage
area.
Q.5.b. Which States provide the least oversight in the areas of
mortgage lending and payday lending?
A.5.b. The CFPB launched its nonbank supervision program in
January and is still assessing the extent of State oversight.
We are working closely with State regulatory officials.
Q.6.a. It has been reported that a clarification issued by the
Federal Reserve Board that limits credit card companies to
considering only ``individual'' income, not ``household''
income, on credit applications has made it more difficult for
stay-at-home spouses to get their own credit cards.
Has the Bureau received any information that indicates that
stay-at-home spouses are negatively impacted by the Federal
Reserve Board's clarification? If so, please describe.
A.6.a. As of October 1, 2011, Regulation Z requires credit card
issuers, before extending credit, to assess a consumer's
independent ability to make loan payments. Issuers have told
Bureau staff that this new rule may preclude nonemployed
spouses--in many cases, women--from obtaining credit that they
are, in fact, capable of repaying. According to these sources,
such individuals may no longer be able to obtain credit or be
able to do so only if a spouse agrees to be liable for all
debts incurred on a credit card account. Some outside groups
and Members of Congress have raised similar concerns.
Q.6.b. Will the Bureau conduct a study to understand the impact
the Federal Reserve Board's clarification has had on access to
credit?
A.6.b. The Bureau's December 5, 2011 Request for Information on
``Streamlining Inherited Regulations'' asked for public comment
on whether this section of Regulation Z should be amended. Even
before the rule went into effect, however, the Bureau asked
issuers and trade groups to work with us to provide data that
would enable the Bureau to assess the impact of this
requirement. The Bureau intends to pursue such data and study
the impact of the new rule on spouses who are not employed.
Q.7.a. 12 USC 1833b requires the Bureau to ``seek to maintain
comparability regarding compensation and benefits'' of its
employees with other Federal financial regulators when
establishing and adjusting schedules of compensation and
benefits.
How does the compensation and benefits of Bureau employees
compare to the other Federal agencies listed in this statute?
A.7.a. On average, pay at the Bureau has been at or below the
averages of other Federal financial regulators and within a few
percent of the average pay of employees at the Federal Reserve
Board.
Q.7.b. Please provide a detailed breakdown of the compensation
and benefits for each employee at the Bureau. To the extent
this information is provided in terms of levels, please provide
a detailed description of the duties at each level for this
Committee with your responses to these questions.
A.7.b. The titles and salaries of Bureau employees are listed
in Appendix B. Employees are eligible for benefits that include
standard Federal health, vision, dental, life, and long-term
care insurance programs, and CFPB-specific vision, dental,
life, short-term disability, and long-term disability insurance
programs, in addition to retirement and other benefits. The
value of these benefits for each employee varies depending on
the benefits for which a given employee is eligible and based
on the benefits each employee has elected at a given time.
Q.7.c. Will you provide Congress with a budget justification
that is substantially similar to the budget justifications
provided by Federal agencies which are subject to
appropriations? If not, why not?
A.7.c. Last year the Bureau provided Congress with a budget
justification for fiscal year 2012--even before the agency's
launch on July 21, 2011--and last month the Bureau provided
Congress with its budget justification for fiscal year 2013. As
one would expect of a new agency, the Bureau's budget
justification this year was more detailed than it was last
year, and will grow more detailed over time. Like the budget
justifications of other banking agencies that are not subject
to appropriations, the Bureau's budget justification differs in
some ways from those of larger agencies, particularly those
with budgets that are appropriated. Unlike appropriated
agencies, Congress capped the CFPB's budget permanently in
statute. The Bureau's budget was set at a fraction of the
levels of its fellow banking agencies. If the CFPB determines
that it needs additional funds to operate, it may seek
appropriated funds to supplement its nonappropriated funding;
however, the Bureau has no plans to seek appropriations from
Congress.
Because the Bureau is committed to transparency, we have
posted our budget justification for fiscal year 2013 on our Web
site at consumerfinance.gov/budget. It provides the estimated
level of funding for the Bureau for fiscal year 2012 and 2013
necessary to carry out the authorities that Congress assigned
to the Bureau. The budget justification describes how the
Bureau expects to utilize its funds, includes budget estimates
for each program or budget activity, and identifies performance
measures detailing how we plan to make ourselves accountable
for the use of the funds going forward. As we continue to grow
as an agency, we expect to continue to provide additional
budget and performance information in our budget documents. In
addition to the budget justification discussed above and the
semiannual report submitted to Congress in January of 2012, we
are also publishing information on our Web site regarding
funding transfers received and amounts spent on a quarterly
basis, as well as an annual financial report at the end of the
year, along with GAO's audit of the Bureau's financial
statements, and an independent third-party audit.
Q.8.a. Recently the Bureau and the Federal Trade Commission
signed an agreement to, according to your Web site,
``coordinate efforts to protect consumers and avoid duplication
of Federal law enforcement and regulatory efforts.''
How many Memorandum of Understanding (``MOUs'') or other
similar agreements has the Bureau executed?
A.8.a. To date, the Bureau has executed 127 Memoranda of
Understanding.
Q.8.b. How many MOUs or other similar agreements has the Bureau
executed with each of the Federal banking agencies?
A.8.b. The Bureau has executed 36 MOUs and similar agreements
with the Federal Reserve Board of Governors, the Federal
Reserve Banks, FDIC, NCUA, and OCC. Approximately 58 percent of
these MOUs relate to the transfer of employees from some of
these agencies under section 1064 of the Dodd-Frank Act;
approximately 19 percent relate to retirement and other
employee benefits, including benefits for transferred
employees; approximately 11 percent relate to the transfer or
sharing of responsibilities between these agencies under the
Act; and approximately 11 percent relate to information sharing
between these agencies. (Totals do not add to 100 percent due
to rounding.)
Q.8.c. Is every one of these MOUs or other similar agreements
available online? If not, why not?
A.8.c. Due to the large number of MOUs and the fact that many
contain Personal Identifying Information (PII) inappropriate
for public disclosure, they are not available online.
Q.8.d. Please provide the Committee a copy of each of the MOUs
or other similar agreements that the Bureau has executed.
A.8.d. The Bureau will be happy to discuss with the Committee a
request for copies of specific MOUs.
Q.9.a. On May 6, 2010, on the floor of the Senate during the
debate of the Dodd-Frank Act, Senator Dodd, then the Chairman
of the Senate Banking Committee, stated ``I have never claimed
our proposal on consumer protection is perfect. I acknowledge
the word `abusive' does need to be defined, and we are talking
about striking that or making it better.'' However, the term
``abusive'' was not removed from the final text of the Dodd-
Frank Act, and the definition was never changed from that which
appeared in the Senate bill described by Chairman Dodd. The
Bureau includes a review for ``abusive'' practices as part of
its supervisory manuals. Section 1031(b) expressly permits the
Bureau to prescribe rules applicable to a covered person or
service provider identifying as unlawful abusive acts or
practices in connection with a consumer for a consumer
financial product or service, and such rules may include
requirements for the purposes of preventing such acts or
practices.
As the former Chairman of the Senate Banking Committee
acknowledged that the definition of the term ``abusive'' is
inadequate, will the Bureau conduct or engage in any
supervisory or enforcement actions with respect to ``abusive''
acts or practices before the term ``abusive'' is defined by
regulation?
A.9.a. In Section 1031(d) of the Dodd-Frank Act, Congress
clearly and expressly limited the meaning of ``abusive'' acts
or practices to those that:
(1) Lmaterially interfere with the ability of a consumer to
understand a term or condition of a consumer financial
product or service; or
(2) Ltake unreasonable advantage of a consumer's:
(a) Llack of understanding of the material risks, costs,
or conditions of the product or service;
(b) Linability to protect his or her interests in
selecting or using a consumer financial product or
service; or
(c) Lreasonable reliance on a covered person to act in
the consumer'sinterests.
The Bureau will be vigilant in observing and adhering to the
limits of its authority under this provision.
Q.9.b. Is it possible for an identical product to be abusive
for one consumer and not for another? If so, how will you enact
clear rules for market participants?
A.9.b. The statutory provision provided by Congress is clear.
Its application will depend on specific facts and
circumstances. We will carefully consider any opportunity to
provide greater clarity and specificity to markets regarding
the definition of ``abusive'' acts or practices, whether under
our rulemaking authority, by providing guidance through our
supervisory function, through enforcement actions, or
otherwise.
Q.9.c. You have stated that for a practice to be abusive it
``would have to be pretty outrageous practice'' and ``if you in
your business stays away from pretty outrageous practices, you
should be pretty safe.'' Please provide examples of what an
abusive or ``pretty outrageous practice'' would look like in
each of the following areas: mortgage lending, automotive
finance, student lending, and payday lending.
A.9.c. Determining which specific acts or practices are abusive
is best left to a careful consideration of the specific
circumstances of the acts or practices in question, considered
in the context of all the facts, and in light of the language
of 1031(d).
Q.10.a. On the designated transfer date many regulations that
were previously under the jurisdiction of other Federal
agencies transferred to the jurisdiction of the Bureau. Many of
these agencies had issued informal guidance (including, but not
limited to, bulletins, guidelines, opinion letters, FAQs,
articles, etc.) (``Informal Guidance'') that related to each of
these rules.
Is each of the Informal Guidance that was in effect as of
the designated transfer date still in effect?
A.10.a. On July 21, 2011, the CFPB published a list of rules
and orders that will be enforced by the CFPB. As set forth in
that notice: ``For laws with respect to which rulemaking
authority will transfer to the CFPB, the official commentary,
guidance, and policy statements issued prior to July 21, 2011,
by a transferor agency with exclusive rulemaking authority for
the law in question (or similar documents that were jointly
agreed to by all relevant agencies in the case of shared
rulemaking authority) will be applied by the CFPB pending
further CFPB action. The CFPB will give due consideration to
the application of other written guidance, interpretations, and
policy statements issued prior to July 21, 2011, by a
transferor agency in light of all relevant factors, including:
whether the agency had rulemaking authority for the law in
question; the formality of the document in question and the
weight afforded it by the issuing agency; the persuasiveness of
the document; and whether the document conflicts with guidance
or interpretations issued by another agency. The CFPB will seek
over time to improve the clarity and uniformity of guidance
regarding the laws it will administer as necessary in order to
facilitate compliance with the Federal consumer financial
laws.''\2\
---------------------------------------------------------------------------
\2\ See 76 Federal Register 43569, 43570.
Q.10.b. If your answer to 10(a) is no, please provide a list of
each and every Informal Guidance that the Bureau considers to
no longer be in effect, with an appropriate reference or
---------------------------------------------------------------------------
citation to such Informal Guidance.
A.10.b. Not applicable.
Q.11.a. Collaboration among Federal banking agencies is of
critical importance now that safety and soundness oversight has
been split from consumer protection oversight.
To what extent will guidance received by covered persons
from the Bureau be honored by or any of the FDIC, OCC, Federal
Reserve Board, FTC, or other applicable agency?
A.11.a. While the answer to this question is ultimately within
the province of the prudential regulators and other agencies,
the Dodd-Frank Act makes clear that the CFPB has various
rulemaking and interpretive authorities under the Federal
consumer financial laws, as well as the supervisory and
enforcement jurisdiction provided by Title 10 of the Dodd-Frank
Act. Consequently, we anticipate that other agencies will honor
CFPB guidance intended to clarify responsibilities under the
Federal consumer financial laws. The CFPB will consult with the
other Federal banking agencies regularly to help ensure that
CFPB guidance is informed by safety and soundness perspectives.
For example, as required by the Dodd-Frank Act, we will
coordinate our supervisory activities with the prudential
regulators, and follow the process outlined in the Dodd-Frank
Act to resolve conflicting supervisory determinations. The
CFPB's membership on the Federal Financial Institutions
Examination Council (FFIEC) and the Director's participation on
the FDIC and FSOC provide opportunities to facilitate and
broaden such consultation.
Q.11.b. To what extent will guidance received by covered
persons from the FDIC, OCC, Federal Reserve Board, FTC, or
other applicable agency, be honored by the Bureau?
A.11.b. With respect to guidance involving safety and soundness
matters, we expect that, in most cases, Federal banking agency
guidance that relates to the financial condition of supervised
institutions will complement CFPB guidance on consumer
protection issues. For example, prudential regulator guidance
that encourages institutions to maintain strong internal
controls as a general matter may also promote strong compliance
management programs in particular. Similarly, we do not expect
that other agencies' consumer protection guidance will conflict
with the Bureau's interpretation of Federal consumer financial
law. Our ongoing collaboration with the other agencies will
promote consistency in the application of these laws.
Q.12.a. During the debate over the Dodd-Frank Act, the
Administration advocated the provision of ``plain vanilla
financial products''. This one-size-fits-all approach would
have reduced the diversity of financial products consumers can
choose from.
Is it a priority of the Bureau to steer consumers into
``plain vanilla''-type products?
A.12.a. No.
Q.12.b. Is ensuring that consumers have access to a variety of
financial products from which a consumer can determine that
product which best fits the consumer's individual need a
priority of the Bureau?
A.12.b. The Bureau has been working from day one to help put
consumers in a better position to choose products that best
serve their needs. The Bureau's work to ensure that markets for
consumer financial services are fair and transparent--two of
the Bureau's statutory purposes--facilitates consumer choice.
Fairer and more transparent markets are also more likely to
promote access and innovation, which are also statutory
objectives of the Bureau.
Q.12.c. In what ways would a consumer credit market which only
offered ``plain vanilla'' products be harmful to consumers,
small businesses, and the wider economy?
A.12.c. The Bureau would not speculate on this hypothetical but
notes that the quality of consumer credit markets depends on
numerous factors, of which consumer choice is merely one.
Q.13.a. The Bureau recently published a final rule on
remittance transfers. In this final rule you certified that a
small business panel was unnecessary because it would not have
a significant impact on a substantial number of small
businesses. The Small Business Administration, however, found
that the proposed rule vastly underestimated the size of the
industry affected by this rule. Further, in a comment letter
the Credit Union National Association stated:
[t]hese new liabilities could require the credit union to as
much as double the fees it charges for international wires,
which now range between $20 to $35 per transaction, in order
for the program to remain economically sustainable . . . Credit
unions also believe that the estimate of 1.5 hours a month to
address reported `errors' underestimates the true regulatory
burden of these requirements, at least in the context of wire
and ACH transactions, by at least a factor of 10.
Do you agree with the SBA analysis of the number of
entities that will be affected by this rule? If not, please
explain why not.
A.13.a. The Bureau's final rule on remittance transfers
regulates remittance transfer providers. There are three
primary groups of entities that are likely to be remittance
transfer providers under the rule: depository institutions,
credit unions, and nondepository institutions that are often
known as ``money transmitters.'' Money transmitters often
operate through agents. Agents are not necessarily remittance
transfer providers under the rule, but may nevertheless work
with remittance transfer providers to implement the rule.
The SBA stated in its comment letter that there were
200,000 to 300,000 money transmitters and their agents (large
and small) in the United States. The SBA stated that this
estimate was based on a telephone conversation with a trade
association, the National Money Transmitters Association
(NMTA). The SBA did not address the estimates in the proposal
for the number of depository institutions or credit unions
affected by the rule.
In response to SBA's comments, the Bureau reviewed and
updated the estimates presented in the Initial Regulatory
Flexibility Analysis to the proposed rule. The Bureau reviewed
the NMTA's estimate of the number of money transmitters, which
the NMTA provided in a comment letter and stated was based on
State licensing data. The Bureau concluded that other data
provided a more precise estimate of the number of agents.
The Bureau reviewed several data sources and concluded that
the best estimate of the number of money transmitter agents in
the United States was based on an estimate prepared for the
Financial Crimes Enforcement Network (FinCen), of the U.S.
Treasury, which regulates money transmitters, their agents, and
other money services businesses for compliance with the Bank
Secrecy Act. In 2005, KPMG LLP prepared for FinCen an estimate
of the size of various money services markets. The estimates
were based on a methodologically sophisticated survey of the
money services business.\3\ For reasons explained in the final
rule, the Bureau regards the estimates in this study as
preferable to those provided by the SBA. The KPMG study found
that there were 67,000 money transmitters and agents in the
United States in 2005. In order to account for the seven
intervening years, the Bureau considered adjusting this figure
by the percentage that employment changed in the broader sector
to which money transmitters belong. The most recent data is for
2010, and employment fell 19 percent in this sector from 2005
to 2010. The Bureau kept the 67,000 figure rather than possibly
underestimate the number of entities that may be affected by
the rule.
---------------------------------------------------------------------------
\3\ KPMG, 2005 Money Services Business Industry Survey Study,
September 2005.
Q.13.b. Please describe the process you used to make the
determination that the remittance transfer rule would not have
a significant impact on a substantial number of small
---------------------------------------------------------------------------
businesses.
A.13.b. As stated in the Final Regulatory Flexibility Analysis
to the remittances rule, the Bureau did not certify that the
final rule will not have a significant economic impact on a
substantial number of small entities. Therefore, as required by
statute, the Bureau performed a final regulatory flexibility
analysis as part of the final rule. Certain agencies (including
CFPB) are required to convene an interagency panel under the
Small Business Regulatory Enforcement Fairness Act (SBREFA)
prior to proposing certain types of rules. SBREFA requirements,
however, do not apply to final rules, and the SBA did not
suggest otherwise. By the time the Bureau assumed authority for
the remittances rulemaking, the proposed rule had already been
published by the Federal Reserve Board, and small businesses
had had 2 months to submit comments. The Bureau carefully
considered and addressed the SBA's concerns when performing its
own analysis of the final rule on small businesses.
Q.13.c. You stated during the hearing that the cost of this
final rule will be $0.25 per $100. How did you calculate this
cost?
A.13.c. The Bureau estimated that the ongoing burden of the
rule for purposes of the Paperwork Reduction Act is 4.253
million burden hours. To convert this number into dollars, the
Bureau used a weighted average of burden hours and associated
labor costs taken from agencies from which the Bureau assumed
administrative enforcement authority for the Electronic Fund
Transfer Act to derive an hourly wage rate of $29.62. The
product of 4.253 million burden hours and $29.62 per hour is
$126 million dollars. There is no available estimate of the
volume of remittance transfers, as defined in the Dodd-Frank
Act and the January 2012 rule. Based on its review of several
estimates of related sets of financial flows, the Bureau
estimated that consumers in the United States send
approximately $50 billion in remittance transfers every year,
which may be a conservative estimate of such volume. The ratio
of $126 million to $50 billion is $.0025 per dollar sent, or
equivalently, $.25 per $100 sent.
Q.13.d. Do you believe that certain institutions will stop
offering remittance transfers? If so, how did you factor the
abandonment of offering remittance services into your cost
analysis?
A.13.d. The Bureau cannot predict, at this stage, whether
certain institutions will stop offering remittance transfers.
The Bureau did, however, discuss the possibility that some
providers would face challenges in compliance, and that as a
result, some providers may choose to exit the business and has
factored the possible abandonment of certain specific
remittance transfer services into the qualitative consideration
of benefits, costs, and impacts of the rule.
For example, the final rule generally requires remittance
transfer providers to provide senders with accurate information
about the exchange rate, fees, and taxes applicable to the
transaction, and the amount to be provided to the designated
recipient. The final rule, however, provides a temporary
exception to insured depositories and credit unions from the
requirement to provide accurate disclosures and instead permits
these institutions to estimate certain values. The Section 1022
analysis recognized that institutions that do not have the
temporary exception may cease offering products for which they
do not have the ability to estimate. Industry stated in comment
letters that such products exist, but did not provide the
Bureau with any data on the volume of transactions using such
products.
The Section 1022 analysis also recognized that the
temporary exception granted to insured depositories and credit
unions may not be sufficient to ensure that all of these
institutions will continue to provide remittance transfers. The
analysis noted that consumers benefit from having access to
both open network products like wire transfers and the closed
network products provided by money transmitters. The analysis
specifically noted that there may be a tradeoff between the
accuracy of disclosures and access to remittance transfers and
that estimated disclosures and accurate disclosures strike a
different balance between accuracy and access.
Q.14.a. Recent payday lending guidance issued by the Bureau
includes a footnote that specifies that overdraft lines of
credit are not covered by the guidance, even though they are
economically equivalent to traditional payday loans. You noted
the similarity between overdraft protection and payday loans,
but you said that ``we were trying to focus our exam guidance
on a particular type of product in the nonbank sector.''
Will you use your authorities to differentiate examination,
enforcement and supervision based on the type of financial
institution providing the product, rather than on what the
product is?
A.14.a. We generally will not use our authorities to
differentiate examination, enforcement, and supervision based
on the type of financial institution that is providing the
product. Indeed, leveling the playing field for all industry
participants to create a fairer marketplace for consumers and
the responsible businesses that serve them is a key goal of the
Bureau.
A small number of depository institutions, for instance,
offer a variant of a payday loan. Although most payday lending
activity continues to occur in the nonbank sector, the CFPB's
recently released Small-Dollar, Short Term Lending Procedures
expressly apply to products offered by both banks and nonbanks.
By standardizing the procedures across business type, we will
work to ensure a more consistent supervisory approach across
the consumer financial services industry.
Q.14.b. If the products are economically equivalent, why would
you discriminate based on the type of financial institution
providing the product?
A.14.b. The CFPB is examining equivalent products using the
same standards. For example, our payday procedures apply to
short-term, small-dollar loans that include some form of access
or claim to a customer's deposit account, regardless of whether
the product is offered by an online payday lender or a
depository institution.
Q.15.a. States regulate both banks and nonbanks, and
consequently, there will be a tremendous amount of overlap
between State regulators and the Bureau. Any action taken by
the Bureau is likely to raise preemption issues. Previously
when asked about State preemption you stated that some States
have ``significant and robust oversight'' and that ``we have no
intention at this point to preempt State law in these areas.''
Do you believe that the dual banking system should be
preserved?
A.15.a. The dual banking system has deep historical roots in
the United States, and the Dodd-Frank Act fits within this
tradition. Under section 1025 of the Act, the Bureau has
supervisory jurisdiction over very large banks, thrifts, and
credit unions (and their affiliates), whether they are
federally or State-chartered.
Q.15.b. How will you determine which State laws need to be
preempted?
A.15.b. Under section 1041 of the Dodd-Frank Act, State laws
are preempted by Title X of the Act only to the extent they are
inconsistent with that title, and then only to the extent of
the inconsistency. Further, a State law is not considered
inconsistent with Title X because the State law affords
consumers greater protection than provided by Title X. This
type of preemption standard has been used in a variety of
Federal consumer protection laws for decades. The Bureau would
undertake any preemption determination with care and with due
recognition of the important role of State law in protecting
consumers.
Q.15.c. In what instances will the Bureau act independent of
State regulators? In what instances will the Bureau partner
with State regulators?
A.15.c. The Bureau is committed to and welcomes collaboration
with State regulators, and various provisions of the Dodd-Frank
Act speak to the importance of this collaboration.
Collaboration ensures that we best leverage our limited
resources to protect consumers and that we seek to minimize the
regulatory burden felt by industry. Working with State
regulators allows us to better understand their perspectives,
which informs and enriches our work. The Bureau also recognizes
that it has a duty to enforce Federal consumer protections and
will act independently to do so when the circumstances warrant.
Q.15.d. Do you have any concerns that State attorneys general
will interpret Federal consumer financial laws and/or
regulations in an inconsistent way? Do you have any obligation
to ensure consistent application of Federal consumer financial
laws and regulations?
A.15.d. As a former State attorney general, I appreciate the
important role that State attorneys general can play in the
enforcement of consumer protection requirements. Section 1042
of the Dodd-Frank Act contains safeguards to minimize the risk
of inconsistent application of Title X of the Act and
regulations issued under that Title. That provision generally
provides for State attorneys general and State regulators to
consult with the CFPB before initiating enforcement actions
under these authorities. Last summer, the Bureau issued
regulations to clarify this process. Advance notice of State
enforcement actions will help the Bureau and the States work
together to avoid inconsistent interpretations of Title X.
Similar consultation requirements can be found in other Federal
consumer financial laws.
Q.15.e. If a State chooses not to regulate a financial product
or service, will you view that as harmful to consumers?
A.15.e. There could be many reasons why a State might choose
not to regulate a consumer financial product or service. The
Bureau's mission is to ensure that Federal consumer protections
are followed regardless of the State in which the consumer
lives. Under section 1024(b)(2) of the Dodd-Frank Act, the
extent to which State authorities provide oversight to nonbank
entities that provide consumer financial products or services
is one of the factors that the Bureau will consider in deciding
whether to exercise its supervisory authority over that entity.
Q.16.a. As a voting member of the Financial Stability Oversight
Council, you are charged with identifying threats to the
financial stability of the United States.
In your view, what is currently the most serious threat to
the financial stability of the United States?
A.16.a. Congress has charged the Council with the
responsibility for identifying threats to the financial
stability of the United States. In the Council's annual report
for 2011, the Council identified several vulnerabilities in the
financial system, including the significant market uncertainty
in Europe and real-estate related exposure for many U.S.
financial institutions. In my role as a member of the Council,
I look forward to contributing to the Council's ongoing work to
identify, monitor and respond to emerging threats to our
Nation's financial stability.
Q.16.b. What metrics do you use to identify systemic risks?
A.16.b. In the Council's 2011 report, the Council noted that it
is in the combination of imbalances, shocks, and
vulnerabilities that threats to financial stability arise. The
Council's process to assess threats is a collaborative one, and
is driven by the best information available from the markets,
institutions, industry, and academia, as well as the expertise
and information of its member agencies. The Council created its
Systemic Risk Committee to gather information from the member
agencies and to use this information to assist the Council in
monitoring and assessing risks.
RESPONSE TO WRITTEN QUESTION OF SENATOR JOHANNS FROM RICHARD
CORDRAY
Q.1. Mister Cordray, I worry about the costs to our economy and
to our financial institutions of complying with rules and
supervisions undertaken by the Bureau, only for those rules,
regulations and enforcement actions to be set aside in the
future by a Court that passes judgment on the validity of your
appointment and the scope of your authority. By statute, the
Bureau is required to analyze the costs, benefits and impacts
of its rules, and the Semi-Annual Report makes clear that the
Research, Markets and Regulations Division is conducting that
analysis. As that analysis is being performed, is the Research
team weighing at all the possibility that your rules will be
vacated by a court? If the rules are eventually challenged and
set aside, implementation would result in cost to the economy
which is not offset by any realized benefit.
If this evaluation is not being performed, why not? It
strikes me that this determination is not just a remote
possibility, so it should be accounted for. Do you feel it
would be appropriate to begin doing so?
A.1. The Bureau analyzes the benefits, costs, and impacts of
rules as required by statute. In its analyses thus far, the
Bureau has not addressed the possibility that rules will be
vacated by a court. This approach is consistent with the
Bureau's understanding of the approach followed by other
agencies.
[GRAPHIC] [TIFF OMITTED] 74650.112
[GRAPHIC] [TIFF OMITTED] 74650.113
[GRAPHIC] [TIFF OMITTED] 74650.114
[GRAPHIC] [TIFF OMITTED] 74650.115
[GRAPHIC] [TIFF OMITTED] 74650.116
[GRAPHIC] [TIFF OMITTED] 74650.117
[GRAPHIC] [TIFF OMITTED] 74650.118
[GRAPHIC] [TIFF OMITTED] 74650.119
[GRAPHIC] [TIFF OMITTED] 74650.120
[GRAPHIC] [TIFF OMITTED] 74650.121
[GRAPHIC] [TIFF OMITTED] 74650.122
[GRAPHIC] [TIFF OMITTED] 74650.123
[GRAPHIC] [TIFF OMITTED] 74650.124
[GRAPHIC] [TIFF OMITTED] 74650.125
[GRAPHIC] [TIFF OMITTED] 74650.126
[GRAPHIC] [TIFF OMITTED] 74650.127
[GRAPHIC] [TIFF OMITTED] 74650.128
[GRAPHIC] [TIFF OMITTED] 74650.129
[GRAPHIC] [TIFF OMITTED] 74650.130
[GRAPHIC] [TIFF OMITTED] 74650.131
[GRAPHIC] [TIFF OMITTED] 74650.132
[GRAPHIC] [TIFF OMITTED] 74650.133
[GRAPHIC] [TIFF OMITTED] 74650.134
[GRAPHIC] [TIFF OMITTED] 74650.135
[GRAPHIC] [TIFF OMITTED] 74650.136
[GRAPHIC] [TIFF OMITTED] 74650.137
[GRAPHIC] [TIFF OMITTED] 74650.138
[GRAPHIC] [TIFF OMITTED] 74650.139
[GRAPHIC] [TIFF OMITTED] 74650.140
Additional Material Supplied for the Record
[GRAPHIC] [TIFF OMITTED] 74650.004
[GRAPHIC] [TIFF OMITTED] 74650.005
[GRAPHIC] [TIFF OMITTED] 74650.006
[GRAPHIC] [TIFF OMITTED] 74650.007
[GRAPHIC] [TIFF OMITTED] 74650.008
[GRAPHIC] [TIFF OMITTED] 74650.009
[GRAPHIC] [TIFF OMITTED] 74650.010
[GRAPHIC] [TIFF OMITTED] 74650.011
[GRAPHIC] [TIFF OMITTED] 74650.012
[GRAPHIC] [TIFF OMITTED] 74650.013
[GRAPHIC] [TIFF OMITTED] 74650.014
[GRAPHIC] [TIFF OMITTED] 74650.015
[GRAPHIC] [TIFF OMITTED] 74650.016
[GRAPHIC] [TIFF OMITTED] 74650.017
[GRAPHIC] [TIFF OMITTED] 74650.018
[GRAPHIC] [TIFF OMITTED] 74650.019
[GRAPHIC] [TIFF OMITTED] 74650.020
[GRAPHIC] [TIFF OMITTED] 74650.021
[GRAPHIC] [TIFF OMITTED] 74650.022
[GRAPHIC] [TIFF OMITTED] 74650.023
[GRAPHIC] [TIFF OMITTED] 74650.024
[GRAPHIC] [TIFF OMITTED] 74650.025
[GRAPHIC] [TIFF OMITTED] 74650.026
[GRAPHIC] [TIFF OMITTED] 74650.027
[GRAPHIC] [TIFF OMITTED] 74650.028
[GRAPHIC] [TIFF OMITTED] 74650.029
[GRAPHIC] [TIFF OMITTED] 74650.030
[GRAPHIC] [TIFF OMITTED] 74650.031
[GRAPHIC] [TIFF OMITTED] 74650.032
[GRAPHIC] [TIFF OMITTED] 74650.033
[GRAPHIC] [TIFF OMITTED] 74650.034
[GRAPHIC] [TIFF OMITTED] 74650.035
[GRAPHIC] [TIFF OMITTED] 74650.036
[GRAPHIC] [TIFF OMITTED] 74650.037
[GRAPHIC] [TIFF OMITTED] 74650.038
[GRAPHIC] [TIFF OMITTED] 74650.039
[GRAPHIC] [TIFF OMITTED] 74650.040
[GRAPHIC] [TIFF OMITTED] 74650.041
[GRAPHIC] [TIFF OMITTED] 74650.042
[GRAPHIC] [TIFF OMITTED] 74650.043
[GRAPHIC] [TIFF OMITTED] 74650.044
[GRAPHIC] [TIFF OMITTED] 74650.045
[GRAPHIC] [TIFF OMITTED] 74650.046
[GRAPHIC] [TIFF OMITTED] 74650.047
[GRAPHIC] [TIFF OMITTED] 74650.048
[GRAPHIC] [TIFF OMITTED] 74650.049
[GRAPHIC] [TIFF OMITTED] 74650.050
[GRAPHIC] [TIFF OMITTED] 74650.051
[GRAPHIC] [TIFF OMITTED] 74650.052
[GRAPHIC] [TIFF OMITTED] 74650.053
[GRAPHIC] [TIFF OMITTED] 74650.054
[GRAPHIC] [TIFF OMITTED] 74650.055
[GRAPHIC] [TIFF OMITTED] 74650.056
[GRAPHIC] [TIFF OMITTED] 74650.057
[GRAPHIC] [TIFF OMITTED] 74650.058
[GRAPHIC] [TIFF OMITTED] 74650.059
[GRAPHIC] [TIFF OMITTED] 74650.060
[GRAPHIC] [TIFF OMITTED] 74650.061
[GRAPHIC] [TIFF OMITTED] 74650.062
[GRAPHIC] [TIFF OMITTED] 74650.063
[GRAPHIC] [TIFF OMITTED] 74650.064
[GRAPHIC] [TIFF OMITTED] 74650.065
[GRAPHIC] [TIFF OMITTED] 74650.066
[GRAPHIC] [TIFF OMITTED] 74650.067
[GRAPHIC] [TIFF OMITTED] 74650.068
[GRAPHIC] [TIFF OMITTED] 74650.069
[GRAPHIC] [TIFF OMITTED] 74650.070
[GRAPHIC] [TIFF OMITTED] 74650.071
[GRAPHIC] [TIFF OMITTED] 74650.072
[GRAPHIC] [TIFF OMITTED] 74650.073
[GRAPHIC] [TIFF OMITTED] 74650.074
[GRAPHIC] [TIFF OMITTED] 74650.075
[GRAPHIC] [TIFF OMITTED] 74650.076
[GRAPHIC] [TIFF OMITTED] 74650.077
[GRAPHIC] [TIFF OMITTED] 74650.078
[GRAPHIC] [TIFF OMITTED] 74650.079
[GRAPHIC] [TIFF OMITTED] 74650.080
[GRAPHIC] [TIFF OMITTED] 74650.081
[GRAPHIC] [TIFF OMITTED] 74650.082
[GRAPHIC] [TIFF OMITTED] 74650.083
[GRAPHIC] [TIFF OMITTED] 74650.084
[GRAPHIC] [TIFF OMITTED] 74650.085
[GRAPHIC] [TIFF OMITTED] 74650.086
[GRAPHIC] [TIFF OMITTED] 74650.087
[GRAPHIC] [TIFF OMITTED] 74650.088
[GRAPHIC] [TIFF OMITTED] 74650.089
[GRAPHIC] [TIFF OMITTED] 74650.090
[GRAPHIC] [TIFF OMITTED] 74650.091
[GRAPHIC] [TIFF OMITTED] 74650.092
[GRAPHIC] [TIFF OMITTED] 74650.093
[GRAPHIC] [TIFF OMITTED] 74650.094
[GRAPHIC] [TIFF OMITTED] 74650.095
[GRAPHIC] [TIFF OMITTED] 74650.096
[GRAPHIC] [TIFF OMITTED] 74650.097
[GRAPHIC] [TIFF OMITTED] 74650.098
[GRAPHIC] [TIFF OMITTED] 74650.099
[GRAPHIC] [TIFF OMITTED] 74650.100
[GRAPHIC] [TIFF OMITTED] 74650.101
[GRAPHIC] [TIFF OMITTED] 74650.102
[GRAPHIC] [TIFF OMITTED] 74650.103
[GRAPHIC] [TIFF OMITTED] 74650.104
[GRAPHIC] [TIFF OMITTED] 74650.105
[GRAPHIC] [TIFF OMITTED] 74650.106
[GRAPHIC] [TIFF OMITTED] 74650.107
[GRAPHIC] [TIFF OMITTED] 74650.108
[GRAPHIC] [TIFF OMITTED] 74650.109
[GRAPHIC] [TIFF OMITTED] 74650.110
[GRAPHIC] [TIFF OMITTED] 74650.111
[GRAPHIC] [TIFF OMITTED] 74650.001
[GRAPHIC] [TIFF OMITTED] 74650.002
[GRAPHIC] [TIFF OMITTED] 74650.003