[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


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            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 *
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     * 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\
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    \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 
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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.
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    \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 
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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.
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