[Senate Hearing 112-749]
[From the U.S. Government Publishing Office]
S. Hrg. 112-749
HOLDING THE CFPB ACCOUNTABLE: REVIEW OF SEMI-ANNUAL REPORT TO CONGRESS
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HEARING
before the
COMMITTEE ON
BANKING,HOUSING,AND URBAN AFFAIRS
UNITED STATES SENATE
ONE HUNDRED TWELFTH CONGRESS
SECOND SESSION
ON
A REVIEW OF THE CFPB SEMI-ANNUAL REPORT TO CONGRESS
__________
SEPTEMBER 13, 2012
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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
Michael Passante, Professional Staff Member
Andrew Green, Professional Staff Member
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
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THURSDAY, SEPTEMBER 13, 2012
Page
Opening statements, comments, or prepared statements of:
Senator Merkley.............................................. 1
Senator Shelby............................................... 2
Senator Menendez............................................. 3
Senator Akaka................................................ 4
WITNESS
Richard Cordray, Director, Consumer Financial Protection Bureau.. 5
Prepared statement........................................... 27
Responses to written questions of:
Senator Johnson.......................................... 28
Senator Shelby........................................... 28
Senator Reed............................................. 37
Senator Menendez......................................... 40
Senator Corker........................................... 41
Senator Johanns.......................................... 43
Additional Material Supplied for the Record
Semi-Annual Report of the Consumer Financial Protection Bureau... 47
(iii)
HOLDING THE CFPB ACCOUNTABLE: REVIEW OF SEMI-ANNUAL REPORT TO CONGRESS
----------
THURSDAY, SEPTEMBER 13, 2012
Committee on Banking, Housing, and Urban Affairs,
Washington, DC.
The Committee met at 10:05 a.m., in room 538, Dirksen
Senate Office Building, Hon. Jeff Merkley, presiding.
OPENING STATEMENT OF SENATOR JEFF MERKLEY
Senator Merkley. The hearing of the Committee on Banking,
Housing, and Urban Affairs will come to order.
I am delighted that we can have this chance to hear from
Richard Cordray, the Director of the Consumer Financial
Protection Bureau, and the occasion is his first, I believe,
Semi-Annual Report to Congress, so a tradition that we will
have ahead.
Chairman Johnson is unavailable to attend this morning's
hearing. He wanted me to personally thank you, Mr. Cordray, for
being here and to commend you and your team for all of their
superb work. He also asked that I submit his statement for the
record.
Today is September 13, two days short of the 4-year
anniversary of the collapse of Lehman Brothers and the
monumental efforts that started thereafter to prevent our
financial system, and with it our entire economy, from
collapsing, and I think it is appropriate to reflect on the
many causes that contributed to that, issues of financial
supervision, monetary policy failures, challenges with too big
to fail banks, issues with the GSEs, issues with predatory
mortgages with exploding interest rates, banks and nonbank
financial companies making high-risk bets, interlocking chains
of derivatives, regulatory shopping or regulatory arbitrage,
credit rating agencies with conflicts of interest,
securitization of products without adequate disclosure and in
some cases with substantial conflicts of interest with sellers
betting on the security or swap's failure. It is a long list.
But the point is short and simple. There were a large
number of serious flaws in our financial architecture that came
to light in 2008, serious flaws that the market by itself could
not correct. We have taken steps to set our Nation's economy
and regulatory system on a different path, but those steps
require continuous monitoring and improvements along the way.
No matter how you slice it, consumer protection failures
were at the heart of the last financial crisis. They were not
the only cause, and consumer protection is not the only
solution, but it is an essential part of the puzzle. And
consumer protection is right, simply on the grounds of treating
a family fairly, the way any one of us would want to be treated
when buying a home or car, paying our credit card bill, or
engaging in any other financial transaction where real money
for hard-working families is at stake.
The mission of the Consumer Financial Protection Bureau is
to do that, to establish a marketplace where firms compete
freely and fairly so that consumers can make intelligent
decisions for themselves. The point is that consumers--
students, families, older persons, veterans, servicemembers,
minority communities, all of us--ought to have a shot at
building a strong financial foundation for themselves and their
families. When we do this, the benefits of our consuming and
our saving multiply outwards to the economy, helping to build a
vibrant, broad-based economy in the 21st century. And when we
do not, the rest of the economy, built on the backs of the
financial actions of millions of ordinary families, becomes
unstable and unreliable, as we saw in 2008, outright hazardous.
I think your annual report suggests that we are well on our
way to building an agency that can fulfill its mission, a
mission that before its creation was too often ignored. I think
Members of the Committee look forward to digging in more deeply
on the points you will be making today and the important
challenge of empowering consumers and creating a financial
foundation on which families can thrive.
With that, I would like to turn over the microphone to
Ranking Member Shelby for his statement.
STATEMENT OF SENATOR RICHARD C. SHELBY
Senator Shelby. Thank you, Mr. Chairman. Good morning, Mr.
Cordray.
Today, as the Chairman has pointed out, we will hear from
Richard Cordray, the Director of the Bureau of Consumer
Financial Protection. The majority has titled this hearing,
``Holding the CFPB Accountable''. Nevertheless, Mr. Cordray
appears before us, as always, completely immune from
Congressional oversight, except, of course, we are permitted to
ask him questions, like today. Such questions are especially
important now because the Bureau's activities in its first year
likely overshadow its activities in the years to come.
Of particular interest here to me is how the Bureau has
exercised its authority thus far. For example, recently, the
Bureau issued a proposed rule on mortgage disclosures. Very
deep within its 1,100 pages, the Bureau expressed concern over
a particular disclosure required by Dodd-Frank. The Bureau said
that it found that the new disclosure, and I will quote,
``would be difficult to calculate and explain to consumers,
would not likely be helpful to consumers, and may distract
consumers from more important disclosures,'' their words. In
response to this finding, the Bureau is considering, as I
understand it, exempting companies from complying with this
requirement.
This problematic statute, however, raises a more
fundamental question, I think, about how the Bureau will
address statutes that it determines to be harmful to consumers.
In this case, the Bureau could ask Congress to amend a statute.
Instead, the Bureau has interpreted its exemptive authority, I
believe, so broadly that it believes it can just ignore the
statute, ignore the law. Congress needs, I believe, to clearly
understand the bounds of this authority as interpreted by Mr.
Cordray here. After all, if the Bureau can easily ignore a
statute, it raises the more serious question of whether
Congress or the Bureau has the final say over what the law is.
Today, I would also like to know more about the limitations
on the Bureau's spending authority. For example, Dodd-Frank
granted the Bureau the power to set its own budget and spending
priorities without any Congressional oversight. In addition to
the funds that it receives from the Federal Reserve, the Bureau
also controls the money in its Victims Relief Fund. Under Dodd-
Frank, the Bureau is authorized to disburse any money paid into
the fund that is not paid to the victims. Dodd-Frank only
requires that such money be used, quote, ``for the purposes of
consumer education and financial literacy programs.''
This is just another way that I believe that the Bureau is
structured differently from any other banking regulators. The
OCC, the FDIC, and the Federal Reserve do not have such a slush
fund. Instead, they turn over the civil penalties that they
collect to the United States Treasury. Accordingly, I would
like to know how the Bureau will decide how the money in the
fund will be allocated and whether such uses comply with the
mandate of Dodd-Frank. Unfortunately, without significant
reform, I believe there is little Congress can do, even if the
Bureau misallocates or misuses these funds. Until that time
comes, it appears that the most we can hope for is a hearing
like today where we can merely ask questions.
Thank you, Mr. Chairman.
Senator Merkley. Are there any other Members of the
Committee who wish to make a brief opening statement? Senator
Menendez.
STATEMENT OF SENATOR ROBERT MENENDEZ
Senator Menendez. Thank you, Mr. Chairman.
I want to take this opportunity to congratulate you,
Director, and Elizabeth Warren and the hundreds of dedicated
Consumer Financial Protection Bureau employees for the work of
protecting consumers against big Wall Street banks, credit card
companies, payday lenders, debt collectors. I think you and the
CFPB have accomplished a remarkable amount in a little over a
year of existence. You set up a whole agency, hired hundreds of
people, not an easy task. You got a very clean audit from the
Government Accountability Office, which is great for an agency
in only its first year of existence. You set up an important
process to take tens of thousands of complaints from the public
about credit cards, mortgages, student loans, and other
products. You created a simplified mortgage disclosure form so
consumers understand what kind of loan they are getting into
and whether it is good for them, and that was widely praised by
both borrowers and banks. You listened carefully to the
stakeholders, including Members of Congress, and have been
evenhanded in taking their concerns into account. And you began
enforcing consumer protection laws already with an enormous
benefit for consumers in the tens of millions of dollars in the
Capital One deceptive marketing practice.
So you have done that despite the fact that many Members
have fought tooth and nail against the Consumer Financial
Protection Bureau. They fought to ensure that the agency did
not exist. They fought for big carve-outs from it. They fought
to ensure that no one would even become a Director. Even now,
there are those who are fighting to defund or come up with new
ways to overrule the Bureau however they can.
But I know that the President and Congressional Democrats,
including myself, fought hard to create this agency, and
dismantling it or weakening it would be a terrible mistake. The
devastating financial crisis we just went through would not
have taken place if someone had been standing up for consumers
instead of just Wall Street. Great consumer protections would
have stopped the mortgage lending tricks and traps for
consumers. We should hold Wall Street lenders and providers of
financial services accountable for whether they treat consumers
fairly, and the Consumer Financial Protection Bureau is doing
exactly that by setting clear rules of the road in the future
and enforcing them where you have the power to do so.
So I look forward to this hearing about the progress as
well as about some issues that I want to raise and about you
continuing your important mission.
Thank you, Mr. Chairman.
Senator Merkley. Is there anyone else who would like to
make an opening statement?
Without it, then we have the chance to get directly--
Senator Hagan, do you have an opening statement you would like
to make?
Well, again, welcome, Mr. Cordray. We are delighted to have
you here and it is your opportunity to make your statement.
Senator Akaka. Mr. Chairman.
Senator Merkley. Yes? Oh, Senator Akaka, do you have a
statement?
Senator Akaka. Yes.
Senator Merkley. Excuse me.
STATEMENT OF SENATOR DANIEL K. AKAKA
Senator Akaka. Thank you very much, Mr. Chairman. Thank you
for holding this hearing on the Semi-Annual Report to the
Congress.
I must say that in its first year, the CFPB, the Bureau,
has made great, great strides in educating, empowering, and
also protecting our consumers in the financial marketplace.
There is still much work to do and this hearing will certainly
give us an opportunity to know what you have done, what you
have been doing, and maybe what can be done later on.
But I wanted to take the time here to tell you I truly
appreciate what you are doing and your staff, as well, in
helping the consumers from Hawaii as well as in the country. So
I look forward to hearing your testimony.
Thank you, Mr. Chairman.
Senator Merkley. I would like to remind my colleagues that
the record will be open for the next 7 days for opening
statements and any other materials that you would like to
submit for the record.
And 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. Thank you for inviting me
to testify today about the Semi-Annual Report of the Consumer
Financial Protection Bureau.
As I have said before, I still feel this way every chance
we have to come at your invitation and speak to you about our
work. We are eager to do that and we appreciate and respect and
understand the importance of the oversight.
Just over 1 year ago, the Consumer Bureau became the
Nation's first Federal agency focused solely on protecting
consumers in the financial marketplace. The Semi-Annual Report
we are discussing today covers our activities from January 1
through June 30 of this year.
As the report shows, we have been using all the tools at
our disposal to help protect consumers across this country. We
pledge to continue our work to promote a fair, transparent, and
competitive consumer financial marketplace.
Through our regulatory tools, we have proposed smarter
rules that will help fix the broken mortgage market with common
sense solutions. We are writing rules that simplify mortgage
disclosure forms and rules that make sure consumers do not
receive mortgages that they do not understand or cannot afford.
Our rules will also bring greater transparency and
accountability to mortgage servicing. And our careful process
is that before we propose a rule, a team of attorneys,
economists, and market experts evaluates its potential impacts,
burdens, and benefits for consumers, providers, and the market.
Our push for accountability extends beyond mortgage
servicing. We are holding both banks and nonbanks accountable
for following the law. Prior to my appointment, nonbanks had
never been federally supervised. The financial reform law
specifically authorized us to supervise nonbanks in the markets
of residential mortgages, payday loans, and private student
loans. We also have the authority to supervise the ``larger
participants'' among nonbanks in other consumer finance markets
as defined by rule. So far, we have added credit reporting
companies to this group.
It is important for us to exercise sensible oversight of
the consumer finance markets, but it is also important that we
empower consumers themselves to make responsible financial
decisions. Our ``Know Before You Owe'' campaign involves us
working to make mortgages, credit cards, and student loans
easier to understand. We also developed ``Ask CFPB,'' an
interactive online data base with answers to consumers' most
frequently asked questions. We also launched a first-ever data
base of individual complaints about financial products,
starting with credit cards. Consumers can use the Web site to
review and analyze information and draw their own conclusions
about the customer service provided with these financial
products.
We also think it is important to engage directly with
consumers so we know more about the struggles and frustrations
they encounter in their daily lives. The Bureau has held
numerous field hearings across the country so we can talk face
to face with consumers on a variety of topics. Our Web site has
a feature called ``Tell Your Story'', which encourages
consumers to share with us their personal stories to help
inform our approach in addressing issues in the financial
marketplace. And, perhaps most significantly, we help to
resolve consumer disputes with lenders by taking complaints on
our Web site at consumerfinance.gov, as well as by mail, fax,
phone, and by referral from other agencies. As of September 3,
we have received 72,297 consumer complaints about credit cards,
mortgages, and other financial products and services, and the
pace of complaints has been increasing over the past year.
All of these processes--rulemaking, supervision,
enforcement, and consumer engagement--provide us with valuable
information about consumer financial markets. We engage in
extensive outreach to large and small institutions, including
banks and nonbanks, to gather the best current information as
we make policy decisions. We pride ourselves on being a 21st
century agency whose work is evidence-based. So we also conduct
our own in-depth studies on consumer financial products, such
as reverse mortgages and private student loans. We have issued
public requests for information that seek input from consumers,
industry, and other stakeholders on issues such as overdraft
fees, prepaid cards, and the financial exploitation of seniors.
The new Consumer Bureau has worked on all these projects
while being fully engaged in startup activities to build a
strong foundation for the future. The Bureau has worked to
create an infrastructure that promotes transparency,
accountability, fairness, and service to the public. Our first
year has been busy and full, and this report reflects
considerable hard work done by people whom I greatly admire and
respect. They are of the highest caliber and they are deeply
dedicated to public service. We look forward to continuing to
fulfill Congress' vision of an agency that helps all Americans
by improving the ways and means of their financial lives.
Thank you. I will be glad to respond to all questions.
Senator Merkley. Thank you very much for your testimony,
and as we begin questions, I will ask the Clerk to put 5
minutes on the clock for each Member and I will jump in quickly
here.
You note that through those various ways that you solicit
consumer feedback, I believe there have been 55,000 or so
complaints. That is enough that I am sure you started to get a
picture of what is happening across the country. And out of
those complaints, if there were three or four issues that seem
to rise above the rest in terms of citizen concern, what would
those be?
Mr. Cordray. Thank you, Mr. Chairman, for the question.
Part of this reflects the fact that we have been staging in our
ability to receive consumer complaints on different types of
products. So we started with credit cards. We have added
mortgages. We have now added private student loans and deposit
accounts and a few other items, and we will be adding more as
we go.
In the areas of mortgages and credit cards and student
loans, which perhaps stick out the most, we have received the
most complaints about mortgages. Frankly, I think this probably
reflects the same thing you and your staff are finding, that
people who call and contact your offices in need of help,
sometimes desperately in need of help, are the same types of
people who contact us.
Lots of concerns about difficulties in paying their
mortgage, what is happening when that occurs, whether there is
any possibility of working out some sort of provision or plan
to deal with the problem and the urgent crisis that creates for
a family and a household. Various problems with mortgage
servicers, which are the same kind--I know your staff and we
experienced the frustration of dealing with some of the
mortgage servicers who have, frankly, provided poor customer
service. It is a mixed bag. Some of them actually do a decent
job and some of them have not done a decent job. Those have
been a lot of sources of complaints for us.
On credit cards, I actually think it is notable that, from
my standpoint, we have received fewer complaints than I would
have expected. I think some of this has to do with the effects
of the CARD Act. I think some of it has to do with a greater
emphasis on customer service by the credit card companies
themselves. I have been to a few of the processing centers
where they take consumer complaints and they are working them
very hard. And I would also say that they have been quite
responsive to the Bureau and to the consumers we have directed
to them in terms of providing relief. So I want to note that
for the record.
On student loans, it is similar to mortgages, where a lot
of people are falling behind on student loans. A lot of people
have crushing debt loads and they are finding it difficult to
work with the party on the other side to try to understand what
their payment options are, what their rights are, how they can
try to manage the situation, and how they can try to reach an
appropriate resolution.
Senator Merkley. Certainly, a piece of your work involves
getting the fair playing field and eliminating deceptive or
fraudulent practices. But another piece of it is on the front
end, financial literacy, financial education. I want to note
that my colleague, Senator Akaka, has been, I think, very
visible and aggressively working to tackle this topic for a
very long time and I thank you, Senator Akaka, for your
leadership in this area.
So now with your organization and your mission, which
includes financial education or literacy, do you have some
insights on what we should be concerned about or ways we can
proceed to help our consumers be better at judging the
opportunities they see in the marketplace?
Mr. Cordray. Thank you, Senator. This has been a particular
passion for me going back to when I was an official in Ohio and
we worked on getting it incorporated into the high school
curriculum in Ohio, that every student should have personal
finance education before they graduate from high school. That
is now law in Ohio, should be law across the country. It is
important for that to be the case. This is so important for
people being functioning citizens of our society, that they are
able to cope with their financial affairs. It should be a
passion of all of ours.
I have always been quick to say when I have been asked--
sometimes people ask me, I am the head of the consumer agency--
do you not think consumers bear responsibility for their own
decisions? I absolutely do. I think we all have to bear
responsibility for our own decisions. Having said that, there
are things we can do to make it more feasible for consumers to
cope with some of the complexity of this marketplace.
Our ``Know Before You Owe'' projects on mortgages, credit
cards, and student loans are directed at reducing the gap
between people's capability and the difficulty of the decisions
they are faced with. And I think that financial literacy
efforts around the country are something that this Nation and
the States and local school districts are going to have to pay
more attention to. I think it is in the interest of employers
to have employees who are not distracted by having various
financial problems that make them risks in the marketplace. And
I think we have the opportunity to work with churches and other
institutions that, again, care deeply about the well being of
their congregations and memberships and want to see them
succeed, both materially and spiritually. I think this is quite
important for this country.
Senator Merkley. Well, thank you very much, and with that,
I am going to invite Senator Shelby to continue.
Senator Shelby. Thank you.
Mr. Cordray, you used the word ``complexity'' just a second
ago. We will get into some of this now. The Bureau has proposed
eliminating the Dodd-Frank requirement that creditors disclose,
quote, ``total interest percentage'' on mortgage disclosures.
The Bureau states, as I understand it, that it is using its,
quote, ``exception and modification authority'' under TILA
Section 105(a) and (f) and Dodd-Frank Section 1032(a). Section
1032(a) does not, however, as I am sure you know this, contain
the exception and modification language that appears in TILA
Section 105(a) and (f). Do you believe that there is an
exception and modification authority in Section 1032(a)?
Mr. Cordray. It is a very good question, Senator, and it is
one that some of our lawyers have pored over, and I am sure
there are lawyers outside the Bureau who have pored over it, as
well. We do have exception authority under several different
provisions of the statutes we administer, I believe including--
--
Senator Shelby. No, my question was, do you have it under
Section----
Mr. Cordray. Yes.
Senator Shelby. ----1032(a)----
Mr. Cordray. Including 1032(a), yes.
Senator Shelby. And where is it in 1032(a)?
Mr. Cordray. In 1032(a)----
Senator Shelby. Because I want my staff here to be
listening to this, I know.
Mr. Cordray. That is fine. Ten-thirty-two (a)--I will just
read from the statute and try to annotate it as I go--says that
the Bureau--the title of the section is ``Disclosures'' and it
states that the Bureau ``may prescribe rules to ensure that the
features of any consumer financial product or service, both
initially and over its term, are fully, accurately, and
effectively disclosed to consumers in a manner that permits
consumers to understand the costs, benefits, and risks
associated with the product or service in light of facts and
circumstances.''
It then goes on to describe model disclosures. It describes
the basis for rulemaking. It describes safe harbor, that any
covered person that uses a model form included with the rule
issued under this section shall be deemed to be in compliance
with respect to such model form. And then it talks about trial
disclosure programs, which gives us some latitude to work up
disclosure programs to test how consumers actually respond and
address those issues.
Senator Shelby. Mr. Cordray, let me ask you----
Mr. Cordray. Yes.
Senator Shelby. ----this further question in this area.
In other words, I assume you believe that the Bureau's
authority, from what you were just quoting, to write rules
includes the authority to exempt and modify statutory
requirements. That is troubling----
Mr. Cordray. I think that it states----
Senator Shelby. ----because if a statute is clear----
Mr. Cordray. Yes.
Senator Shelby. ----I do not believe you can change that by
a rule.
Mr. Cordray. Yes. I think that----
Senator Shelby. Do you disagree with me on that?
Mr. Cordray. I think that the verbs you just----
Senator Shelby. No, I asked you a question.
Mr. Cordray. Yes.
Senator Shelby. Do you disagree that if the statute is
clear, unambiguous, that you cannot change that statute by
rule, you or anybody else?
Mr. Cordray. OK----
Senator Shelby. No, I asked you a question. Yes or no?
Mr. Cordray. May I answer and explain my answer?
Senator Shelby. I hope so.
Mr. Cordray. All right.
Senator Shelby. I first want you to answer it and then
explain.
Mr. Cordray. Sure. So this is one provision of our statute.
As you mentioned, the Truth In----
Senator Shelby. Well, you are not answering the question.
Mr. Cordray. The Truth in Lending Act has other provisions.
Some are more explicit than this. But what is clear is that
Congress intends us here to write rules around disclosures and
to clarify and interpret the laws that Congress has provided us
with. I absolutely do not think we should ignore statutes, nor
can we and we will be subject to judicial review----
Senator Shelby. Ignore or override----
Mr. Cordray. ----if we do that, so----
Senator Shelby. ----you cannot do that, can you?
Mr. Cordray. Well, I will say, interestingly enough, there
are many requests for us to consider using our exemption
authority or our modification authority to consider how
provisions of law actually apply in a practical manner to
different banks and other institutions, and part of our rule
writing function is to take comment from individuals and
stakeholders across the spectrum and to consider how best to
apply the law to the rules because we have that delegated
rulemaking authority.
I would absolutely agree with the premise of your question,
which is that the Consumer Bureau cannot ignore or rewrite the
law.
Senator Shelby. I hope you will not.
Mr. Cordray. We do not----
Senator Shelby. I hope you will not----
Mr. Cordray. We do not believe we have that authority.
Senator Shelby. It seems like that is what you are doing. I
hope that is not what you are doing. If you do, we are going to
hold you accountable.
Mr. Cordray. And you should do so and I fully welcome that,
yes.
Senator Shelby. I have got 9 seconds, I guess.
[Laughter.]
Senator Shelby. In your testimony on mortgage rules, you
state that the Bureau has proposed smarter rules that will help
fix the broken mortgage market with common sense solutions,
your words. The mortgage rules proposed by the Bureau will
impose huge compliance costs. Many of the rules number in the
hundreds of pages and one rule exceeds a thousand pages. These
costly and very complex rules present greater compliance
challenges for small banks than for large banks, which have, as
we all know, large compliance, have more money to fight and to
play.
Explain to us why these rules will not put small banks at a
competitive disadvantage, because they provide so much for the
American people, especially small business.
Mr. Cordray. I share your outlook on that, Senator, and I
have talked repeatedly to community bank groups and credit
union groups. And, in fact, we have just----
Senator Shelby. How are you going to deal with it, then, if
you share my concern?
Mr. Cordray. So, in a number of ways. First, we announced
yesterday that we have created a Community Bank Advisory
Council and a Credit Union Advisory Council to give them a
direct pipeline to us to talk about the kinds of concerns and
issues they have about any sort of burdensome regulations and
also about regulatory uncertainty, which is another issue that
they raise.
Second, we do have the authority, and this is the exemption
authority that you questioned earlier, to potentially exempt
smaller institutions from rules that do not necessarily make as
much sense to apply to them, given the community bank business
model, which is a very responsible, in my view, model of
lending and of dealing with customers. We have and will
exercise that authority where we hear from small providers that
they have great concern about the impact of potential rules and
they have a persuasive case to make about how their business
model does not implicate the concerns of that rule. We have
used that in our mortgage servicing rules. We have used it in
our mortgage loan origination rules. And we will use it where
that is appropriate, again, subject to oversight from the
Congress and subject to oversight from the courts.
I think that this is appropriate because I have
acknowledged and very much believe small providers did not
create the problems that led to the financial crisis. We should
not solve the financial crisis by heaping unnecessary burdens
upon them. Of course, the devil is always in the details of
that, and we are working hard on those details as we go.
We just exempted thousands of small providers from our new
remittance rule. They will not have to comply with it if they
do fewer than 100 transactions per year. That was interpreting
the ``normal course of business'' phrase that Congress used in
the law. And we will continue to listen carefully to them and
try to react and respond to them where we have authority to do
so.
That is our outlook and perspective and I am happy to come
and speak to you any time you and your colleagues have concerns
in that regard because I regard that as an important issue for
us.
Senator Shelby. Thank you, Mr. Chairman.
Senator Merkley. Senator Reed.
Senator Reed. Well, thank you very much, Mr. Chairman, and
thank you, Mr. Cordray, for your excellent work.
By my rough count, either you or your colleagues have been
before the Committee about 26 times. I mean, I know Holly
Petraeus has been here a number of times leading the section
with respect to military personnel, doing a superb job. So your
interaction with Congress is quite frequent and, I think,
represents your not only willingness, but understanding of the
need to communicate with us and our understanding of the need
to supervise your activities.
The second point I want to mention, that you mentioned, is
the ``Know Before You Owe'' program. One of the great powers
that you wield is the power of informing consumers about
choices they can make. When you go to ECON 101, one of the
assumptions is both buyers and sellers have, quote, ``perfect
knowledge'' of what is going on. And, frankly, one of the
observations that, obvious from the crisis of 2008, 2009, was
that it was a one-sided operation. Consumers had very little
knowledge of products. There was no real serious attempt to
inform them, et cetera. But I think what you are doing there is
actually going to make markets more efficient and more
competitive, and as a result, benefit not only the consumers,
but the markets in general. So with those points, let me get to
a specific question.
You recently settled your first major enforcement action,
which was with respect to the credit card operations of a bank,
refunded $140 million to potential victims. So consumers got a
rebate, essentially, from this mispractice. You required
additional penalties of $25 million to your agency and also $30
million to OCC. And you have also published a compliance
bulletin that puts other institutions on notice about deceptive
marketing practices.
Can you explain your approach to this enforcement action?
And since this is the first one, I think it is appropriate for
you to comment on it. And also, it appears to me and you might
confirm that the individual entity essentially agreed that what
they were doing was not consistent with the law. Is that fair?
Mr. Cordray. Thank you, Senator, for the question. Let me
talk a little bit about our approach to enforcement, and I
always have to be a little careful in this area because
specific investigations are nonpublic and it would not be fair
to companies that are being investigated to talk about those
investigations when they may not amount to anything in the end
and they do not have a chance to speak for themselves.
First, among the things that I think this first resolution
illustrates is our intention to give broad, but as specific as
possible notice to all participants in the market about the
concerns that we see that are potentially violations of law.
And this particular occasion involved deceptive and misleading
marketing of products, which is clearly in violation of
longstanding law. But what that actually means in marketing
particular products can be a little difficult or a gray area
sometimes for people. I do not think it was here. But that is
why we also issued a compliance bulletin to give people notice
that they should think about their own programs and look at
this in light of this. We also made the consent order very
specific about particular problems that were identified here so
that others would know whether they are running afoul of that
or not.
Second, I think this illustrates that we are trying to be
very cooperative with our fellow Federal agencies, the other
prudential regulators. I think it is important for us to go
hand in glove as we address institutions, and we do not want
institutions to have to be confused or have to deal with a
situation where somebody is saying one thing, somebody is
saying another thing. It is not good for any of us. It is not
good for them.
A third point I would make is that we attempted to shape
the restitution to consumers so it would be as easy as possible
for consumers to receive that restitution. There are many
instances where consumers are entitled to some sort of relief
but it is difficult for them to get to it. They are not aware
of it. It is a hard process to get through. We want to make
that easy.
The other thing I want to say, and I want to say this very
clearly and publicly because it got lost in the shuffle because
of the attention to our first enforcement action, the
institution here, Capital One, responded, in my view, extremely
responsibly to the problem when it was identified. When we
spoke to their leading officials about what we had found, they
were as distressed and concerned about it as we were and they
stepped up immediately to take it head on, not to try to deny
responsibility, not to try to minimize it, not to try to
suggest somebody else was to blame, even though it involved
third-party vendors. They addressed it. They resolved it. And
they also then reviewed their other practices. If I were the
head of such an institution, I would hope that is the way I
would have handled the situation. I thought it was quite
commendable. Some of that got lost in the shuffle. I wanted to
have a chance to say that publicly.
Senator Reed. So their responsible behavior has sort of set
a standard, also, with respect to this enforcement action. And
in addition, your hope, I presume, from what you said, is that
by identifying, this will give the opportunity for other
companies in the field to self-correct and to adopt the same
level of responsibility and business practice as Capital One.
Mr. Cordray. We very much want and intend them to do that.
They also are aware that we have supervisory authority and we
will be looking closely at similar issues at other
institutions, yes.
Senator Reed. Thank you.
Senator Merkley. Senator Crapo.
Senator Crapo. Thank you, Mr. Chairman, and Mr. Cordray.
I am hearing a lot of concern about how Dodd-Frank will
reduce the credit availability in the housing market because of
some of the proposed rules, particularly for a qualified
mortgage, the increased liability, and for the qualified
residential mortgage that requires the 20 percent downpayment.
What kind of analysis and coordination is being undertaken to
understand the impact of the cost and availability of mortgage
credit between the interaction of the QM and the QRM proposed
rules?
Mr. Cordray. OK. Thank you for asking the question. It is
an important question right now. It is one of the issues that
involves a lot of time and effort at the Bureau, but rightly
so. We are required by law--Congress passed the law, we
implement it--to write various mortgage rules that will attempt
to improve some of the problems that were perceived in the
mortgage market that helped lead to the financial meltdown and
the resulting recession and crisis. There is no question that
that was a problem, and part of the problem was you are
regulating part of the mortgage market, but nonbanks who were
very active in the market were not regulated. That was never
going to work as a model.
The rule you are asking about in particular, the qualified
mortgage rule, has to do with determining that there is an
assessment made, a responsible assessment, of the ability to
repay the mortgage before it is made. You would think that
might not be necessary. Why should a lending institution have
to be told to pay attention to whether the borrower who they
are lending money to is going to repay the loan? But in the
lead-up to the financial crisis, we saw many, many mortgage
loans made with no documentation, no assessment of the
financial situation, often falsification of that, in part
because there was not sufficient oversight and there were not
rules of the road in place that governed the whole market.
We are mindful of the fact that part of our charge in the
law is that we are supposed to and we want to pay attention to
access to credit for consumers. It does not do anybody any good
for us to develop an elaborate set of protections if nobody is
going to then lend money to consumers. That does not help
consumers and it would be a failure on our part.
That is part of the reason why, on the Qualified Mortgage
Rule, which we are due to finalize by January, we have slowed
down a little bit. We put it out for further comment. We have
sought more data upon which to make judgments. We absolutely do
not want to make a judgment that is going to freeze up or
further constrict credit in the mortgage market. We have gotten
more data, collaborating with FHFA and others, and we are going
to use that to make the assessment here.
The final thing I would say is we need to keep in mind that
the biggest hit to access to credit for consumers and for small
businesses and everybody in our economy has been the financial
crisis of 2007-2008. It has caused many institutions to fold.
It has dried up credit in our local communities. We need to
make sure that that does not happen again, to the extent we can
prevent it. And cleaning up the mortgage market, I think, is
critical to making sure that we accomplish that. At the same
time, we need to be mindful that people do not go overboard
here. We need to be able to give confidence to lenders that
they are able to lend, and we need to have a market that can
function. We still do not have a very good functioning market
today, 4 years after the financial crisis, and it is the crisis
that caused that. We need to remember that.
Senator Crapo. Well, I appreciate your attention to trying
to address these risks that we now understand were serious
problems. But again, getting back to the core issue, we do not
want to create a further problem in our effort to address the
risks. You know, you indicated this. In another way, Secretary
Geithner recently testified that as we move forward, we must
take care not to undermine the housing market, which is showing
signs of recovery but is still weak in many areas. So we do
need to address these risks, but we need to do so in a way that
does not restrict the availability of credit unduly.
I have asked you before to convene a Small Business
Advocacy Review Panel. I am going to ask you again. It seems to
me that to try to minimize the unintended consequences, that
the CFPB should convene a Small Business Panel to discuss the
impact of the proposed rule. And given the potentially
significant impact of the qualified mortgage rule, in
particular, on the housing market and the Bureau's recent
notice that you are going to step back and take a little more
time to look at this, it seems that this will be a perfect
opportunity to move ahead and do, as I think the statute
requires, and initiate a Small Business Advocacy Review Panel.
Mr. Cordray. That is a fair point. By the way, I very much
agree with the statement you quoted from Secretary Geithner and
I very much agree with your comments on the statement. In terms
of the QM rule, the SBREFA Panel does not apply because it
originated with the Fed, not with us. We did, though, hear the
concern and we recently convened an opportunity for many small
providers to give us direct input on the rule, especially for
that purpose. We also have the notice and comment period where
everybody can comment and many, many are doing so. So, again,
it is our intent that we write this rule carefully, that we be
mindful of the fragility of the mortgage market.
I also want to say, for the record, the 20 percent
downpayment that you mentioned, that is not part of our
proposal. It is nothing that we have proposed; that would not
make sense as some sort of rule that would be imposed on the
mortgage market. I am not supposed to speak too much about
proposals before we finalize them, but that will not be part of
our----
Senator Crapo. Well, I understand that the Federal
Reserve--because the Federal Reserve started the rule, that
there is a technical argument that the Small Business Advocacy
Review Panel requirement does not apply, but it just seems to
me that you have got the time. You should take the time. And I
do not understand why there is the resistance to going ahead
and conducting a Small Business Review Panel.
Mr. Cordray. Yes. We are not at all sure that we had the
time, given the January deadline, to engage in the entire
process. However, we did convene a panel to get the small
business community's input because we want to have the input,
and we have done that and continue to do that. We are trying to
meet the spirit of that without blowing past the January
deadline, which I think would be bad for the mortgage market
because we are trying to resolve some of the regulatory
uncertainty here. Congress has imposed the deadline. We take
that seriously. We intend to meet it. We consider that is law
that binds us. And I am happy to have our staff talk further
with your staff about that concern, if you would like.
Senator Crapo. Thank you.
Senator Merkley. Senator Akaka.
Senator Akaka. Thank you very much, Mr. Chairman.
Mr. Cordray, thank you so much for what you are doing. I
just wanted to talk about the unbanked and banked. What I have
been trying to do is to reduce the numbers of unbanked and
underbanked and have more of them work with the institutions.
Yesterday, the FDIC released its national survey of unbanked
and underbanked households. They reported that the percentage
of unbanked households increased from 2009 to 2011. I was
disappointed, of course, because of the increase, to learn the
number of unbanked households increased by more than 800,000.
Director Cordray, could you please discuss the Bureau's efforts
to increase access to mainstream financial institutions for the
Nation's nearly ten million unbanked and 24 million underbanked
households.
Mr. Cordray. Thank you, Senator. This is a very urgent
concern, I think, for anybody who is mindful of the real
consumer experience in the financial marketplace. There are
many millions of Americans who have no bank account or access
to the banking system. Some of them are actually barred from
the banking system because of previous difficulties. There are
many others who have a bank account but find for a variety of
reasons that they prefer to utilize many unbanked services in
order to get cash, in order to pay bills, in order to meet the
sort of necessities of life, and do not, therefore, have the
same protections in doing so that they would have within the
banking system.
I was present yesterday at the FDIC for the unveiling of
that report. Chairman Gruenberg, who is unfailingly thoughtful
in this regard, invited me and several of our staff who were
there to hear their presentation of the report. Unfortunately,
they only started doing the report in 2009. It would have been
interesting to see what the numbers might have been prior to
that. My sense is probably that the number of unbanked and
underbanked has increased in a significant way over the past 6
years because of the financial crisis and the difficult
situation that it put many people in.
But what is interesting here to me is the answer for many
individuals will be to find ways to get them into the banking
system and they will be better off in the sense that they are
more protected and those are somewhat more regularized
relationships, not one-off transactions. But there are going to
be millions of Americans, tens of millions of Americans, for
whom that is not likely to be the answer for any of a number of
reasons. We are trying to understand those reasons, but we are
also mindful at the Bureau that we do not only oversee banks.
We also oversee nonbanks, including some of those
providers, so payday lenders and other nonbank providers of
services to people that they are going to in large numbers, and
we want to be careful about what we can do to extend more
consumer protections to those many Americans, often low- and
moderate-income, and in what ways does the bank and nonbank
system sort of work together. We are not only looking at the
banking system. We are different from the other banking
agencies in that regard. We are looking across the spectrum and
we care about it all.
We have created an Office of Financial Empowerment at the
Bureau. Cliff Rosenthal is now heading that and he is a veteran
of the community development credit union movement, and is
taking a strategic approach to these issues. But for us, it is
going to involve cooperation, particularly with the FDIC, who
has taken a notable interest in this area, and others both here
in Washington and across the country.
It is a difficult problem. It will be a difficult problem
to address and solve, but it is one that we very much are
interested in making progress on.
Senator Akaka. Thank you very much. I am glad to hear your
efforts thus far on that.
Another area that I have been concerned about and very
close to my heart has been the servicemembers of our country--
--
Mr. Cordray. Yes.
Senator Akaka. and I want to say thank you so much for
having Mrs. Holy--Holly Petraeus come to Hawaii----
Mr. Cordray. Maybe ``holy.''
Senator Akaka. Yes, and she did an excellent job. The first
meeting we have had, we invited all the top officials of the
military and they appeared and she conveyed what she thought
needed to be done and my concerns for trying to protect the
service personnel who have been targets for some of the
institutions you mentioned. So I want to say thank you for
permitting her to do that, and she has done a great job.
At the Joint Base Pearl Harbor-Hickam, concerns were raised
about the impact of the Permanent Change of Station orders. My
question to you is, could you please provide us with an update
on the PCS--that is the Permanent Change of Station--issue and
let us know whether you have started to see any effects from
the interagency guidance released in June.
Mr. Cordray. Thank you, Senator, and thank you for your
very kind but, I am sure, accurate remarks about Director
Petraeus; everybody fights over her time within the Bureau and
we also try to share her with all of you. She has been to
dozens of military bases across the country since becoming the
Director of our Office of Servicemember Affairs. She has
brought back many concerns, not only to us, but to the
Department of Defense, and the Department of Veterans Affairs.
Many of these are being addressed, in part because of the
respect people have for her and her work.
On the Permanent Change of Station orders, in particular,
there has been some significant response to that. The problem
for anybody less familiar with it is that, in the military,
they face a particular problem at times. They get peremptory
orders that they have to move. Their Permanent Change of
Station moves from one place to another. They may or may not
have an easy time of selling their home to be able to make that
move. In this climate, it has been more difficult. Sometimes,
they are having to make very hard decisions about leaving their
family behind because the home is underwater and they cannot
easily sell it, going off alone--sometimes for years--or
selling the home at a considerable loss, and they have not been
able to qualify for some of the programs that are meant to try
to minimize some of those struggles for people.
So because of Mrs. Petraeus's efforts, the HAMP program was
recently modified to recognize the Permanent Change of Station
as a hardship that could qualify servicemembers and their
families for consideration in the modification programs. We
recently issued guidance and all of the Federal regulators
joined in that supervisory guidance to all institutions to be
mindful of their responsibilities under the law, both to
respect the Service Members Civil Relief Act, rights of
servicemembers, and also to be forthcoming in considering how
they can address this situation and that options are being
presented, that they are being presented early, that they are
working closely with the servicemembers, that they are clear
that they understand what can be done, and that they make
efforts to modify loans, as appropriate, in order to recognize
this peculiar hardship that servicemembers have that regular
civilians often do not have.
So she is a one-man gang on these issues. She has got a
good team behind her. And she is getting good cooperation from
other parts of the Government to address them.
Having said that, there is a lot of hard work going on
every day. We are doing that work in consumer response. I know
your offices are doing that work, where particular individuals
have a problem and we are trying to do our best to help them
deal with the problem.
Senator Akaka. Thank you. I really appreciate that. My time
has expired, Mr. Chairman.
Senator Merkley. Senator Corker.
Senator Corker. Thank you, Mr. Chairman, and thank you,
Director, for being here. I appreciate you answering our
questions.
I am continuing to read stories about the underbanked in
our country, and I know that we always have unintended
consequences when we pass legislation and, quote, try to
``help'' folks. I know another story came out today, things
like when we passed interchange rules here, it ended up
increasing costs for especially lower-income consumers. They
move out of banks into payday lenders and other kinds of
institutions, and I know that you have jurisdiction over both.
What are you doing inside the agency? I mean, all of us
want to make sure that people have appropriate credit
availability. What are you doing inside the agency to strike
that balance, because there is no question that we have passed
laws here that really hurt the very people that you are trying
to help in many cases, as you just mentioned, and that is the
low- and moderate-income citizens.
Mr. Cordray. So thank you, Senator. And as I said, it is a
difficult problem. It is one that we are trying to address with
some new tools that we now have. So among other things, we did
create, as I said, an Office of Empowerment, which is focused
very specifically on these problems and taking a wide range of
input and getting a wide range of perspectives from around the
country about how people are trying to deal with these problems
in different communities, often not always in coordination or
collaboration with----
Senator Corker. Let me just--and I do not want to spend too
much time, I know you talked a little bit with Senator Akaka
about this, but----
Mr. Cordray. Yes.
Senator Corker. ----when members of your agency are dealing
with the issues that they are dealing with, are they cognizant
of the fact that, many times, when they go into a certain
issue, they are really making people even more unbankable? Are
they aware of that? Without getting into a lot of actions, is
there an awareness within the agency that that can take place?
Mr. Cordray. Yes, and I would say it seems to me that we
are probably more aware of it than any agency has been before,
because once those people--if people leave the banking system,
they do not leave our jurisdiction and they are still subject
to our oversight and we still feel the responsibility to try to
address their problems. So if they have a short-term need and
they go outside of the banking system to resolve it with a
payday lender or a pawn broker or whomever it may be, that is
all within our realm. So it is not just that they go out of
sight, out of mind. That is relevant to us.
We are supervising both banks and nonbanks on a common
basis, say, in the short-term credit market and in other ways,
in the mortgage market, in the mortgage servicer market. So I
do think we are pretty mindful of that, although we are always
interested to hear if your staff have some issues that they are
seeing that they want to raise to our attention. We get those
issues through the consumer response area regularly, on a daily
basis----
Senator Corker. Let me ask you about the consumer response
area.
Mr. Cordray. Yes.
Senator Corker. I am glad you brought that up. I notice you
all have a Web site where people make complaints against
institutions and you list all of those complaints publicly, and
there is a huge list of those. And I understand how you would
want to have complaints registered. What is the purpose in
putting those up publicly, and in putting those up publicly, do
you all actually verify that they are real? I mean, all of us
as elected officials have people who make claims about us that
are untrue and they are on the Internet and all of that----
Mr. Cordray. We do, Senator----
Senator Corker. ----and it seems like to me that you are
encouraging that same kind of behavior, and I am just wondering
what the purpose of having that public Web site is.
Mr. Cordray. I am familiar with the phenomenon, as well,
Senator.
[Laughter.]
Mr. Cordray. But the purpose----
Senator Corker. Well, I thought all those things said about
you were true, but go ahead.
[Laughter.]
Mr. Cordray. I am sure, in someone's mind, they are.
[Laughter.]
Mr. Cordray. In terms of what we are doing with the data
base, we are receiving complaints by the thousands, and so that
is a certain snapshot of what is going on out there for
consumers. We share your concern. We do not want to be putting
up garbage data.
Senator Corker. Well, why are you putting it up, then?
Mr. Cordray. Well----
Senator Corker. I guess my question is, unless--do you go
out, when somebody sends a complaint and you put it up
publicly, which makes it real, are you first checking out that
complaint to make sure it is real, or are you just allowing it
to be a gossip board for people to take out their vengeance on
organizations that may well deserve it, but I am sure in some
cases do not?
Mr. Cordray. Right. And, of course, those gossip boards now
exist all over the Internet, so it is a different era than 20
years ago----
Senator Corker. But you are validating this.
Mr. Cordray. That is not what we are trying to do.
Senator Corker. Yes. Yes.
Mr. Cordray. So we do verify the customer relationship. We
remove duplicates----
Senator Corker. Before they go up?
Mr. Cordray. Oh, yes.
Senator Corker. Before the complaints go up?
Mr. Cordray. Yes.
Senator Corker. Good.
Mr. Cordray. And if it is not within our jurisdiction, it
is something we refer to another agency, we do not report it.
And the data we are reporting is aggregated data, so it is a
snapshot. It is a picture. There was some concern about it when
we first started to do it. It is something that other parts of
the Government have done to some degree, the Highway Safety
Administration and the Consumer Product Safety Commission. I
think people are starting to understand what we are trying to
do, which is that we find this information, and we do, very
useful to trying to understand and inform our work. We think
the public should have access to the information and it may
well inform them in terms of customer relationships and
customer service.
We do find it somewhat incentivizing for companies to think
harder about how they can serve their customers better. As I
said, we have gotten a tremendous response from the credit card
companies thus far in terms of responsiveness to consumer
problems, and, frankly, in some ways, they have showed very
well in this process.
Senator Corker. You are mentioning--you are really helping
me move along here--you mentioned referring to other agencies--
--
Mr. Cordray. Yes.
Senator Corker. ----and it made me recall that when you
were in here last, one of the things that hurts consumers is
bad behavior by other consumers, right? In other words----
Mr. Cordray. Yes.
Senator Corker. ----when we have fraud by one consumer, it
actually drives up the cost for another consumer. And you
mentioned last time you were here, I remember very explicitly,
that if you saw fraudulent behavior on behalf of consumers,
that you were going to report that to other agencies, because
you acknowledged when you were here that that is very damaging
to other consumers who play by the rules. How much of that have
you done?
Mr. Cordray. So in terms of referring matters for potential
criminal prosecution and the like, which we have the authority
to do, to the Justice Department--I cannot really speak
publicly about----
Senator Corker. Just give me sort of the range of order of
magnitude of those referrals.
Mr. Cordray. Well, I would say, first of all, there are a
number of situations involving fraud being committed by
individuals that we ourselves are investigating and will
address, and one of our other first enforcement actions that is
now public was against a few individuals that are engaged in a
fraudulent foreclosure rescue scheme that is covering people in
25 or more States, a very significant problem and the kind of
thing that we want to stamp out around the country. Not easy to
stamp it out, but we will work to do so.
So if we see instances of wrongdoing by anyone in the
course of our work, we have an obligation to report those that
rise to the level of being reportable and we will do that. I do
not have numbers for you and I do not think I am supposed to
discuss any individual cases in that regard.
Senator Corker. No, and certainly, I was not even asking
that. But I would just say that, again, it hurts consumers that
play by the rules when that activity takes place and----
Mr. Cordray. I agree.
Senator Corker. ----we have a situation right now where
foreclosures are taking 378 days. And again, if people are not
supposed to be foreclosed on, they should not. On the other
hand, that delay among those who are not paying is creating
issues for those consumers who play by the rules.
I know my time is up. I will say that, in closing, I do
hope that--I know you have put the qualified mortgage issue off
until after the election, so--agencies and politicians both put
things off until after the election, I have noticed. I hope
that as you look at that, I think it is important for consumers
to have lenders who have safe harbors. In other words, they
know that if they have done the things that they should do,
they do not end up with a rebuttable presumption down the road
that really ends up driving up costs. So I hope as you look at
that after the election, you certainly will take that into
account.
I thank the Chairman for being so generous with time.
Mr. Cordray. We are looking at it right now, Senator, and
we will take that concern into account as we are receiving the
same types of input and advice from many, many sources on the
safe harbor issue.
Senator Menendez [presiding]. Senator Akaka.
Senator Akaka. Thank you very much, Mr. Chairman.
Mr. Cordray, I have been working with the Indian Tribes and
many Tribal communities are concerned about the financial
literacy and financial empowerment of their Tribal members, and
I am so delighted to know that you are moving on empowerment,
as well. For the American Indians, I am trying to get them to
do more thinking about financial literacy. My question to you,
Mr. Cordray, is what could the CFPB do to promote financial
literacy to Indian Country, particularly with the flow of funds
from the Corbell and Keepseagle settlements that are occurring?
Mr. Cordray. Thank you, Senator, for the question. This is
an issue that has been brought to our attention by a number of
Senators and others. We regularly are engaging with Tribal
representatives to understand some of the particular issues for
Native Americans around the country.
We were alerted that there are issues. There are two fairly
large settlements, the two you referred to, where funds are
going to be flowing into Native Americans across the country
and there are already some scams that are popping up around
when people know that funds are flowing, they tend to try to
get their hands into them. We have been engaged in consumer
education and financial literacy efforts around where we know
those funds are going to be flowing. We have staff who, I
believe, next week are going to be in Arizona and New Mexico
working on that issue. And we are coordinating with others,
including others in the Federal Government and locally, to
figure out how we can best help avoid what would be a tragedy
of people who have fought to receive funds because they were
wronged and then find that those are going to be diverted to
fraudulent operators who are aggressive with their scams.
We also have been working through our Office of
Intergovernmental Affairs, which I think is the appropriate
level for us since Tribal Governments, that is an appropriate
respect and level at which to address those issues, on the
kinds of issues and problems they have raised with us that are
maybe unique to the Native American community. And we will
continue to listen. We will continue to try to address those
issues with them.
Senator Akaka. Thank you, also, for your earlier comment on
community banks and credit unions. I would like to say that
yesterday's announcement of the important appointment of Donna
Tanoue of Honolulu to the Consumer Advisory Board, and Bernard
Balsis of the HILO to the Credit Union Advisory Council, I am
pleased that they will help share their expertise and
experience. That includes years of working for Hawaii's banks
and credit unions. So I want to thank you very much for moving
in that direction, as well.
That is what makes me appreciate what you are doing. You
are moving in, for me, in a great direction to help all kinds
of consumers, and so it is growing on you and your staff, as
well, and your staff has been doing an excellent job, too.
So thank you, Mr. Chairman, for the time of these
questions.
Senator Menendez. Thank you, Senator Akaka.
Director, let me ask you, in the Capital One case, was
there about $150 million that consumers got in some form
reimbursed?
Mr. Cordray. Yes. There was $140 million that was covered
by the issues that we were addressing and addressing then
jointly with the OCC, and then there was a different issue that
the OCC had raised that was really outside of our jurisdiction
where there was additional relief gained, which is the benefits
of cooperation, both to address all of that together and from
the standpoint of the institution, to be able to put all of
that behind it at once.
Senator Menendez. But for your agency, do you think that
this action would have taken, consumers would have been saved
the $140, $150 million?
Mr. Cordray. I do not have any way of assessing that,
Senator, but I can say that I do think that----
Mr. Cordray. Was it your agency that pursued this in the
first instance?
Mr. Cordray. I do think it matters greatly to have an
agency whose sole focus is on consumer protection and not have
to balance that against other very significant
responsibilities, which is----
Senator Menendez. Was it your agency that pursued this in
the first instance?
Mr. Cordray. It was, yes.
Senator Menendez. You know, in your confirmation process,
your modesty is a challenge.
[Laughter.]
Mr. Cordray. I will have to work on that, Senator.
Senator Menendez. When we do something right, it is not a
problem to acknowledge it. So I raised that question simply
because, for those who are detractors of the agency, here is an
example of consumers being saved $150 million by the
instigation of this agency. And but for the agency, I
personally doubt--I will answer the question myself--very much
whether consumers would have been protected in that respect,
not to mention the message it sends to the rest of the industry
to do the right thing. So I appreciate that.
As you, I think, may know, I have introduced the Prepaid
Card Consumer Protection Act, and I want to applaud the agency
for starting the process of regulating prepaid cards and I look
forward to working with the agency to enact provisions similar
to those in my bill. But consumers' use of prepaid cards has
exploded in the past few years, especially among underbanked
consumers, and many of them--having already regulated credit
cards, debit cards, and gift cards--this area is largely
unregulated and many of them have incredibly excessive fees and
work to the detriment of consumers, particularly as it relates
to even knowledge of what they are getting in. So I would like
to get a sense from you of what progress you are making at the
Bureau analyzing this issue and when do you anticipate moving
forward on it.
Mr. Cordray. Good. I am glad to have that question. Prepaid
cards are actually a very actively innovative segment of the
financial market. There are, as you indicated and we have seen
already, a wide range of different product offerings that range
from pretty responsible and very possibly an improvement for
consumers over other options to pretty terrible and definitely
exploitative of consumers and it is a little wild and wooly
right now.
I also would say that in light of the dynamic where rules
were written to protect consumers more specifically on credit
cards and then Congress ended up passing the CARD Act, we are
quite interested in having a dialog back and forth. We have
actually taken an affirmative step. We are going to write rules
about prepaid cards. We have already issued an anticipatory
Notice of Proposed Rulemaking to begin to gather information on
that. We recognize that these cards are becoming quite
pervasive. A lot of people are using them, particularly some of
the people who are low- and moderate-income, but many people
are using them and they like the safety of knowing they will
not end up somehow in debt on such a card, although that is not
a given with some of the products being offered, and we are
going to move forward in that area.
It may be that we will implement this by rule. It may be
you will choose to move forward with legislation. We welcome it
all and we are glad to talk back and forth about what we are
trying to accomplish, what the base of knowledge is that we are
developing in terms of actual practices and concerns and have
that discussion.
We do intend that people who use prepaid cards--and I
think, for many people, they may not always know the difference
between a debit card, a prepaid card, a credit card, or an ATM
card, for that matter. They are all in their wallet. They all
have a shifting set of capabilities. And we want consumers to
be protected in the use of all of those.
Senator Menendez. Well, we certainly want consumers to be
protected and that is the focus of our legislation. And I agree
with you, many consumers do not know the difference between a
prepaid card and a debit card and a credit card, and so we will
look forward to working with your staff at the agency. I mean,
I am happy to see us achieve the goal, whether that goal can be
achieved through regulatory fashion, or if it must be
legislative, so be it. But we will look forward to working with
you.
I also have long advocated national standards for banks
that collect homeowners' mortgage payments, including, as the
Subcommittee Chair on Housing, chairing a hearing on that issue
about 2 years ago. What progress is the Bureau making in
creating national mortgage servicing standards?
Mr. Cordray. We are making, Senator, good progress on that
front. We have a proposed rule that is out for comment now that
would provide broad protections in this area, which has been
such a troubled area, and specific requirements for mortgage
servicers for how they need to address the kinds of problems
that we have all seen. Those rules will be finalized by
January. Some portions of the rules implement things that
Congress required us to do and others go beyond and are
attempting to provide the kind of protections, both process-
wise and substantively, that consumers need in this area. There
may be scope for yet further work in this area. We are getting
as much done as we can by January.
We also have begun examining mortgage servicers, sending in
teams to actually examine them on the ground, both bank
mortgage servicers and nonbank mortgage servicers. We have
taken the occasion to actually meet face to face with a number
of mortgage servicers to convey to them our seriousness about
this issue, our understanding that this has been one of the
major areas of consumer harm over the past 5 years and counting
for people who are suffering in these difficult circumstances,
and that they need to be improving their processes and coming
up to snuff now, not waiting for rules to take effect, not
waiting for us to come around on our examination schedule, but
getting it right themselves up front, and we are trying to
signal pretty specifically what kinds of things they are
supposed to be doing.
But none of this should come as any surprise to people.
These issues have been out there and have been surfaced for
years. The settlement discussions with the State Attorneys
General and the Justice Department surfaced them further. They
are all the same issues. They know what they need to do. It is
merely a question of whether they are going to invest the time
and effort and money and attention to do it. And if they do
not, we are going to be coming to look at them. They are all on
notice of that. And they need to, again, get up to snuff.
Senator Menendez. You are looking at this, also, in the
context of the AG consent settlement agreements and the OCC and
the Fed consent orders?
Mr. Cordray. Yes. One of the things we are mindful of is
that it is a complicated area where there has been a fair
amount of activity. So there is the AG-Justice Department-HUD
settlement, which imposes some requirements for a specific
amount of time on certain specific parts of the portfolio but
does not have general applicability. There are FHFA guidance to
Fannie Mae and Freddie Mac, which have been very helpful in the
area. There are the OCC, Fed, and banking orders that have been
very specific about improvements that need to be made and have
made an enormous difference.
We are trying to harmonize all of that and not end up going
in different directions, which would not be fair to servicers
and would not be beneficial to deliver value for consumers if
we simply create more confusion. There has been a lot of
interagency discussion and coordination on this. There will
continue to be. And I think we are going to have some good
results come January, and I think there may be further work to
be done after that, but we will see.
Senator Menendez. Good. Two final questions. One is the law
requires the Bureau to be cognizant of the regulatory burdens
of its action, specifically when it comes to smaller
institutions. And along these lines, can you tell the Committee
how your agency is crafting regulations and providing
regulatory guidance in a way that makes compliance simple and
workable, for example, community banks and small nondepository
regulated entities.
Mr. Cordray. So, Senator, I personally have been pushing
hard on this at the Bureau. I put myself way out on a limb
willingly in saying very loudly and clearly that smaller
community banks and credit unions did not cause the financial
crisis. They have a good, solid business model that has proved
itself by tradition and by experience and we want to be mindful
of that as we go about imposing, or implementing new rules.
We are trying to look at that on a rule-by-rule basis as to
what an appropriate threshold might be to set for--perhaps
certain institutions do not have to address the rules at all,
because below a certain level, it is more burden than it is
benefit to consumers. There may be ways in which we can tweak
some of the rules so certain things that they alert us to as
special burdens maybe can apply differently to the smaller
institutions.
We have to, at the same time, be mindful of the fact that
consumers deserve protection and they deserve protection across
the board. So it is a balance there, but it is one that we are
going to continue to take a lot of input on because of the sort
of philosophical approach that I just outlined that I have and
I think the Bureau has toward this.
On the remittance rule, we are going to have a small
provider guide that is attempting to boil this all down to sort
of plain English, straightforward, easier to follow guidance
than perhaps the kind of rules that get published in the
Federal Register. We are going to be hearing from them and
responding to them in terms of questions and concerns they
have. We are coming out with some pieces of guidance that they
have asked about.
And we are going to stay with it. We are not just going to
publish rules and then forget about it and say, that is
somebody else's problem now. It is our problem, too, that the
rules get implemented and they actually deliver value for
consumers and that they are balanced toward not providing undue
burden for providers where the benefit does not correspond.
Senator Menendez. I appreciate that view, I think which is
in the context of what the law specifically asks for.
Finally--this may have been asked, but I may have missed
it--how many complaints has the Bureau received from consumers
so far about mortgages, credit cards, banks, debt collection,
and other financial services?
Mr. Cordray. Well, as of September 3, I quoted a number in
my opening statement that was 72,000--I may not have it quite
right--72,297, something like that, complaints, which is, you
know--I got it right--that is a significant number and it is
also a number that is increasing over time. I think our
annualized rate of complaints, as of this moment, is 120,000
per annum. So it has been ramping up.
We have no idea when that will level off or where it will
level off. It could be several hundred thousand. It could be
over a million. We just do not know. There has never before
been a consumer-facing bureau like this and we are trying to be
aggressive about interacting with consumers, their advocates
and other stakeholders around the country. So we will see.
Right now, the most complaints are coming in on mortgages.
We are getting more mortgage-related complaints, including
servicing complaints, than we are credit card complaints and
than we are the other products. It makes some sense. The
mortgage market is the biggest consumer finance market out
there and those concerns are heart and soul to people. You have
the possibility they might lose their house or be in arrears on
their largest single financial obligation, ruining their
credit. It is obviously an urgent thing for people, so not
unexpected.
But the volume we are receiving is heavy. It is getting
heavier and it is hard work for us to keep up with it.
Senator Menendez. And, finally, how are you ultimately--I
do not know if you have a--can you describe the process when
you receive that consumer complaint? What exactly happens? Is
there a success rate, or can you give us the rate of when those
that are verified versus those that are not--do you have any
quantification of that?
Mr. Cordray. We have been working on how we report this and
how we understand it, and actually, we have made several
modifications along the way. We started off by reporting
``Complaints Closed With Relief'' and ``Complaints Closed
Without Relief''. We got a fair amount of input from industry
that they thought that was not specific enough and in some ways
was somewhat unfair because there is both monetary relief,
where sometimes the consumer gets dollars back, and there are
other kinds of relief that can also be meaningful to people,
such as clearing up the problem, removing the allegation that
there is a debt, getting the credit report cleaned up, which
sometimes matters a lot more to people than the $75 or $100,
although that matters to a lot of people. So we have tweaked
this and changed it a few times, including most recently June
1, and we are trying to go back and reapply those categories to
what happened before.
As we go, we are getting more and more data. It is better
data in the sense that it is more refined, more polished, and I
will be candid about that. We are better now than we were 6
months ago. We were better then than we were 6 months before
that. We will be better in 6 months than we are now. But those
are the kinds of things that we are trying to do.
In terms of how we handle the complaints, we began with a
very interactive back and forth between us and the institution.
There are many complaints that are resolved both positively and
negatively. The consumer then has an opportunity to contest
that resolution, which sometimes they do, sometimes they do
not, to provide more information. And we will then investigate
complaints that are not resolved at that point.
And we are also finding this is helpful to us because it
does identify some patterns of potential violations, which we
look at both in our examination role and in our enforcement
role. But we are pretty careful about that. We are not just
taking unverified, raw information--anybody can say anything
about anybody, as some of your colleagues identified earlier,
but we are trying to be careful about what does it really mean?
What does it actually tell us is going on in the marketplace?
I am told--our crack staff wanted me to tell you that we
believe we have received over 3,000 consumer complaints thus
far from the State of New Jersey. It is sometimes hard to tell,
because if they come by email, you do not always know where
they are from. But there is a robust appetite out there for
people who need and want and are seeking help and we are trying
to meet it.
Senator Menendez. Well, there certainly is a robust
appetite to sort of, like, level the playing field and have an
honest and transparent system and we believe you are well on
your way.
With the thanks of Chairman Johnson and the Members of the
Committee, we thank you for your testimony, look forward to our
continuing engagement with you.
And with that, the hearing is adjourned.
[Whereupon, at 11:30 a.m., the hearing was adjourned.]
[Prepared statements, responses to written questions, and
additional material supplied for the record follow:]
PREPARED STATEMENT OF RICHARD CORDRAY
Director, Consumer Financial Protection Bureau
September 13, 2012
Chairman Johnson, Ranking Member Shelby, and Members of the
Committee, thank you for inviting me to testify today about the Semi-
Annual Report of the Consumer Financial Protection Bureau.
Just over 1 year ago, the Consumer Bureau became the Nation's first
Federal agency focused solely on protecting consumers in the financial
marketplace. The Semi-Annual Report we are discussing today covers our
activities from January 1 through June 30 of this year.
As the report shows, we have been using all of the tools at our
disposal to help protect consumers across this country. We pledge to
continue our work to promote a fair, transparent, and competitive
consumer financial marketplace.
Through our regulatory tools, we have proposed smarter rules that
will help fix the broken mortgage market with commonsense solutions. We
are writing rules that simplify mortgage disclosure forms and rules
that make sure consumers do not receive mortgages that they do not
understand or cannot afford. Our rules will also bring greater
transparency and accountability to mortgage servicing. And our careful
process is that before we propose a rule, a team of attorneys,
economists, and market experts evaluates its potential impacts,
burdens, and benefits for consumers, providers, and the market.
Our push for accountability extends beyond mortgage servicing. We
are holding both banks and nonbanks accountable for following the law.
Prior to my appointment, nonbanks had never been federally supervised.
The financial reform law specifically authorized us to supervise
nonbanks in the markets of residential mortgages, payday loans, and
private student loans. We also have the authority to supervise the
``larger participants'' among nonbanks in other consumer finance
markets as defined by rule. So far, we have added credit reporting
companies to this group.
It is important for us to exercise sensible oversight of the
consumer finance markets, but it is also important that we empower
consumers themselves to make responsible financial decisions. Our
``Know Before You Owe'' campaign involves us working to make mortgages,
credit cards, and student loans easier to understand. We also developed
``AskCFPB,'' an interactive online database with answers to consumers'
frequently asked questions. We also launched the first-ever database of
individual complaints about financial products, starting with credit
cards. Consumers can use the Web site to review and analyze information
and draw their own conclusions about the customer service provided with
these financial products.
We also think it is important to engage directly with consumers so
we know more about the struggles and frustrations they encounter in
their daily lives. The Bureau has held numerous field hearings across
the country so we can talk face to face with consumers on a variety of
topics. Our Web site has a feature called ``Tell Your Story'', which
encourages consumers to share with us their personal stories to help
inform our approach in addressing issues in the financial marketplace.
And, perhaps most significantly, we help to resolve consumer disputes
with lenders by taking complaints on our Web site at
consumerfinance.gov, as well as by mail, fax, phone, and by referral
from other agencies. As of September 3, we have received 72,297
consumer complaints about credit cards, mortgages, and other financial
products and services, and the pace of complaints has been increasing
over the past year.
All of these processes--rulemaking, supervision, enforcement, and
consumer engagement--provide us with valuable information about
consumer financial markets. We engage in extensive outreach to large
and small institutions, including banks and nonbanks, to gather the
best current information as we make policy decisions. We pride
ourselves on being a 21st-century agency whose work is evidence-based.
So we also conduct our own in-depth studies on consumer financial
products, such as reverse mortgages and private student loans. We have
issued public requests for information that seek input from consumers,
industry, and other stakeholders on issues such as overdraft fees,
prepaid cards, and the financial exploitation of seniors. The new
Consumer Bureau has worked on all of these projects while being fully
engaged in start-up activities to build a strong foundation for the
future. The Bureau has worked to create an infrastructure that promotes
transparency, accountability, fairness, and service to the public. Our
first year has been busy and full, and this report reflects
considerable hard work done by people whom I greatly admire and
respect. They are of the highest caliber and they are deeply dedicated
to public service. We look forward to continuing to fulfill Congress'
vision of an agency that helps all Americans by improving the ways and
means of their financial lives.
Thank you.
RESPONSES TO WRITTEN QUESTIONS OF
CHAIRMAN JOHNSON FROM RICHARD CORDRAY
Q.1. Director Cordray, the Committee is interested in your work
relating to prepaid cards. On your agency's Web site, it states
that ``With very few exceptions, most prepaid card providers
who claim to offer a way to build your credit history report
your activities only to a lesser-used credit reporting agency,
not one of the three major credit reporting agencies used by
most lenders.'' Can you inform the Committee specifically who
are these exceptions and are they beneficial to consumers in
building their credit?
A.1. In the Advance Notice of Proposed Rulemaking (ANPR)
published in May 2012, the Bureau sought public input and data
concerning the efficacy of credit reporting features on prepaid
cards. In the same ANPR, the Bureau also expressed an interest
in understanding how such services are marketed to consumers.
In reviewing the responses to the ANPR and through meetings
with industry participants, the Bureau has found no evidence of
effective credit building through transactional use of a
prepaid card. None of the information we reviewed points to
demonstrable consumer success in building credit by transacting
on a prepaid card. Issuers that had been making such claims
have stopped marketing this feature completely, or caveat that
the use of transactional data for credit building is a test
program in pilot phase with one of the credit bureaus.
The language on our Web site reflects the nonexhaustive
nature of our market review and there may be providers that we
have not yet identified. However, in our analysis and review of
the prepaid market to date, the Bureau has major concerns about
the ``credit building'' service, and we remain unaware of any
effective solution that enables prepaid card customers to build
credit by using their prepaid card to transact in the
marketplace.
------
RESPONSES TO WRITTEN QUESTIONS OF SENATOR SHELBY
FROM RICHARD CORDRAY
Q.1. Mr. Cordray, during the hearing I stated that the Bureau
has proposed eliminating the Dodd-Frank requirement that
creditors disclose the ``Total Interest Percentage'' on
mortgage disclosures. In its proposed rule the Bureau states
that it is using its ``exception and modification authority
under TILA Section 105(a) and (f) and Dodd-Frank Section
1032(a)'' to eliminate this requirement. Section 1032(a) does
not, however, contain the ``exception and modification''
language that appears in TILA Section 105(a) and (f). I asked
whether you believe that the Bureau has exception and
modification authority under Section 1032(a) independent of
TILA Section 105(a) and (f). You responded yes to my question.
Please provide a legal analysis explaining the basis for
your belief that the Bureau has exception and modification
authority under Section 1032(a) of Dodd-Frank, independent of
any other statute, including TILA.
A.1. Section 1032(a) of the Dodd-Frank Act provides that the
Bureau may prescribe rules to ensure that the features of any
consumer financial product or service, both initially and over
the term of the product or service, are ``fully, accurately,
and effectively disclosed to consumers in a manner that permits
consumers to understand the costs, benefits, and risks
associated with the product or service, in light of the facts
and circumstances.'' Thus, section 1032(a) authorizes the
Bureau to prescribe rules to ensure the overall effectiveness
of disclosures regarding a product or service, which may result
in rules that alter, perhaps significantly, specific statutory
provisions.
In the TILA-RESPA integrated mortgage proposal, the Bureau
relied on a number of statutory grants of authority, including
section 1032(a), to support the proposed requirements,
including some that would have the effect of modifying
statutory requirements. The authority granted to the Bureau
under section 1032(a) is consistent with the goals of the TILA-
RESPA proposal, which combines two different mortgage
disclosure regimes into a single set of disclosures that fully,
accurately, and effectively inform consumers of the nature and
costs of mortgage loans in a manner that permits them to
understand the associated costs, benefits, and risks. Of
course, when prescribing rules under section 1032(a), the
Bureau will consider the available, relevant evidence (such as
consumer testing) about consumer awareness, understanding of,
and responses to disclosures or communications.
Q.2. Mr. Cordray, recently Lt. Governor of California, Gavin
Newsom, asked the U.S. Department of Justice to investigate and
prosecute groups representing Wall Street investors and the
mortgage industry for making statements that mortgage lending
may become costlier in parts of the country where
municipalities are weighing eminent domain proposals.
Do you believe that a company that refuses to make or buy
loans that are secured by properties in jurisdictions that
repudiate mortgage contracts has engaged in an abusive, unfair,
or deceptive practice or otherwise violated any of the
``Federal Consumer Financial Laws''?
A.2. Whether the refusal of a lender to make loans in a
particular jurisdiction violates any Federal consumer financial
law (including the prohibition on acts or practices which are
unfair, deceptive, or abusive) depends on a careful and
thorough assessment of all the relevant facts and circumstances
as well as legal precedents.
Q.3. Mr. Cordray, in the remittance transfers rule the Bureau
stated that it expects some businesses may stop offering this
service as a result of this rule. Unfortunately, it appears
that the Bureau's prediction will come to fruition. The ICBA
recently stated that the rule will ``force many community banks
to no longer offer remittance services to customers.''
Can you explain how a costly regulation that forces small
banks out of this market and concentrates market share in
larger financial institutions is good for consumers?
Will you consider phasing in the final rule to ensure that
the industry has time to provide meaningful information to
those consumers who would like to send remittances?
A.3. The Bureau is aware of concerns that the rule could lead
some remittance transfer providers to choose to exit the
business or significantly reduce their product offerings to
consumers. That is why we continue to take steps to alleviate
these concerns while maintaining the rule's valuable new
consumer protections. The Bureau addressed many institutions'
concerns through the authorization for estimates contained in
the original rule, as well as by the normal course of business
safe harbor adopted by the Bureau in August. Additional
compliance and implementation concerns were raised by industry
in requests for guidance and other communications after the
rule was finalized earlier this year. As a result, the Bureau
expects to issue a proposal next month to refine three narrowly
targeted elements of the rule. The proposal is expected to
address the following three topics:
Situations in which a sender provides an incorrect
account number to a remittance transfer provider. As
the Bureau announced during the Bureau's webinar on the
remittance rule on October 16, 2012, the CFPB plans to
propose revisions to the rule's error resolution
provisions. Specifically, the proposal will address the
way the rule applies to situations in which a sender
provides an incorrect account number to a remittance
transfer provider and that information results in a
remittance transfer being deposited into the wrong
account. The CFPB intends to propose that where the
provider can demonstrate that the consumer provided the
incorrect information, the provider would be required
to attempt to recover the funds but would not be liable
for the funds if those efforts are unsuccessful.
Disclosure of third party fees and foreign taxes.
The CFPB plans to propose revisions to the rule's
disclosure provisions concerning foreign taxes and fees
assessed by the financial institution receiving the
transfer. The proposal would provide additional
flexibility around these requirements, including by
permitting providers to base fee disclosures on
published bank fee schedules and by providing further
guidance on foreign tax disclosures where certain
variables may affect tax rates.
Disclosure of regional and local taxes assessed in
foreign countries. The CFPB also plans to propose that
the obligation for providers to disclose foreign taxes
imposed on remittance transfers is limited to taxes
imposed at the national level, and does not encompass
taxes that may be imposed by foreign, subnational
jurisdictions.
The Bureau expects to issue a notice of proposed rulemaking
next month to explain the changes in detail and to seek public
comment. After considering the public comments, the Bureau will
issue a final rule as quickly as possible. The Bureau
anticipates proposing to extend the effective date on the
original rule until 90 days after the supplemental rule is
issued. Based on current expectations, this would mean that the
proposed effective date for the remittances rule will be during
the spring.
The Bureau will continue to work with industry and others
to facilitate preparations for implementation during the
intervening period. The Bureau expects to move quickly once the
proposal is issued to ensure that the new consumer protections
afforded by the rule can be effectively implemented and
delivered to consumers as soon as possible.
Q.4. Mr. Cordray, in the remittance transfers rule the Bureau
requires the disclosure of foreign taxes, despite the fact that
this is not required by the Dodd-Frank Act.
What will be the cost to a community bank to figure out all
the foreign tax laws that might apply for every country around
the world?
A.4. As the Bureau stated in adopting the final rule, EFTA
section 919(a)(2)(A)(i) requires a remittance transfer provider
covered by the rule to disclose the amount to be received by
the designated recipient. Thus, the final remittance rule
requires providers to disclose all fees and taxes specifically
related to the remittance transfer, regardless of the entity
that charges them, as these elements have a direct impact on
the amount made available to the designated recipient. Many
community banks--those that perform fewer than 100 such
transfers per year--will qualify for the normal course of
business safe harbor and will therefore not need to provide
this information. For those that do not qualify for the safe
harbor, the Bureau understands that some remittance transfer
providers, including community banks, may face difficulties in
disclosing fees assessed by a recipient's financial institution
and foreign taxes applicable to a transfer. Therefore, the
Bureau plans to propose revisions to the rule's disclosure
provisions concerning foreign taxes and recipient institution
fees. The proposal would provide additional flexibility around
these requirements, including by permitting providers to base
fee disclosures on published bank fee schedules and by
providing further guidance on foreign tax disclosures where
certain variables may affect tax rates. Under the proposal,
disclosure of foreign taxes imposed on remittance transfers
would be limited to taxes imposed at the national level, and
would not encompass taxes that may be imposed by foreign,
subnational jurisdictions.
Q.5. Mr. Cordray, a recent rule by the Bureau would mandate
that loan officers offer a plain vanilla mortgage with no-
points and no-fees, unless ``consumers are unlikely to qualify
for such a loan.''
How will loan officers determine whether a consumer is
likely to qualify for a plain vanilla mortgage at the time of
the offer?
What are the penalties and legal liabilities for entities
that fail to offer the plain vanilla mortgage?
A.5. The Dodd-Frank Act contains a provision that would
generally prohibit the imposition of any upfront discount
points, origination points, or fees on consumers for mortgage
loans in which a creditor or loan originator organization
(i.e., mortgage brokerage firm) pays a loan originator a
transaction-specific commission. As an alternative to this
complete prohibition, the Bureau proposed in August 2012,
pursuant to authority granted by the Dodd-Frank Act, to allow
loans that include such points and fees if the creditor also
makes available to the consumer a comparable, alternative loan
that does not include those points and fees. The purpose is to
allow the consumer to compare two similar mortgage options--
i.e., one with points and fees, and one without but with a
higher interest rate--to see and understand the different ways
to pay for the same mortgage product.
To be comparable, the alternative loan would generally have
the same terms and conditions as the loan that includes points
and fees; however, the alternative loan would not necessarily
be ``plain vanilla'' because no restrictions would be imposed
on, for example, the loan term, the amount of the interest
rate, whether the rate is fixed or adjustable, or whether the
payments are fully amortizing.
As noted, the proposal provides that the creditor would not
need to make available the alternative loan if a consumer is
unlikely to qualify for that loan. Under the proposal, the
creditor would need to have a good faith belief that the
consumer is unlikely to qualify based on its own current
pricing and underwriting policy. In making this determination,
the creditor could rely on information provided by the
consumer, even if that information is subsequently determined
to be inaccurate. We specifically sought comment on how this
aspect of the proposal might be improved, and are in the
process of considering and evaluating the feedback received as
we develop the final rule.
If a creditor or loan originator were to fail to comply
with the applicable requirements of the final rule, liability
and penalties would be determined under sections 108 and 130 of
TILA, 15 U.S.C. 1607, 1640.
Q.6. Mr. Cordray, last month the Bureau released a mortgage
servicing rule that includes new rules on loss mitigation, even
though RESPA, the underlying statute, does not cover loss
mitigation. Instead, the Bureau relied upon a Dodd-Frank Act
amendment to RESPA, which allows the Bureau to write rules
``appropriate to carry out the consumer protection purposes of
this Act.''
Given the broad language of that amendment to RESPA, what
are the limits of your authority under RESPA?
Would the Bureau ever need Congress to amend RESPA in the
future, or can you exercise this new authority to make any
changes you deem necessary?
A.6. RESPA imposes obligations upon servicers when servicing
federally related mortgage loans that are intended to protect
borrowers. As amended by the Dodd-Frank Act, this includes a
prohibition against failing to take timely action to respond to
borrowers' requests to correct errors relating to ``avoiding
foreclosure, or other standard servicer's duties.'' RESPA
section 6(k)(1)(E) also states that a servicer of a federally
related mortgage shall not fail to comply with any obligation
found by the Bureau, by regulation, to be appropriate to carry
out the consumer protection purposes of RESPA.
Each of the provisions proposed in the mortgage servicing
rulemaking, including the loss mitigation procedures, addresses
the consumer protection purposes of RESPA as described in the
Notice of Proposed Rulemaking. The Bureau is limited to issuing
regulations consistent with the authorities granted by
Congress. The Legal Authority section to the Notice of Proposed
Rulemaking more fully describes the scope of the Bureau's legal
authority to amend RESPA.
Q.7. Mr. Cordray, the mortgage servicing rule released by the
Bureau last month expanded the obligations required for
mortgage servicers by amending RESPA. Since RESPA has a private
right of action, consumers will now have a Federal private
right of action against a servicer for any alleged failure to
engage in proper loss mitigation.
Do you have any concerns that exposing servicers to more
lawsuits will make banks less willing to lend, especially to
riskier consumers?
Did you conduct any economic analysis on how much this rule
will increase the cost of mortgages by exposing banks to more
lawsuits?
A.7. One of the clear lessons of the mortgage crisis has been
that good loss mitigation practices provide better outcomes for
consumers and mortgage investors. Despite this, many servicers,
who stand in between those parties, have not undertaken the
work necessary to implement good loss mitigation practices to
achieve those better outcomes.
To correct this problem, the Bureau proposed to establish
loss mitigation procedures, which are designed to ensure that
borrowers receive information about loss mitigation options
available to them and the process for applying for those
options. Under the proposed rule, borrowers would be evaluated
for all options for which they may be eligible, have an
opportunity to appeal decisions by the servicer regarding loan
modification options, and be protected from foreclosure until
the process of evaluating the borrower's complete loss
mitigation application has ended. Further, servicers would be
required to produce a record of decisions and, in the case of
loss mitigation, the reasons for denial. The Bureau's proposed
mortgage servicing rules would create reasonable, commonsense,
and transparent procedures that would be used to hold servicers
accountable. Under the proposal, a private right of action
would exist for failure to follow these procedures.
The Bureau carefully considered the benefits, costs, and
impacts of each significant provision of the proposed rule,
including the loss mitigation procedures. As stated in the
proposed rule, absent rules governing the loss mitigation
process, investors and guarantors may structure loss mitigation
efforts as vague discretionary activities, eliminate loss
mitigation efforts altogether, or worse, significantly reduce
mortgage market activity, potentially curtailing general access
to credit. The Bureau recognized the benefits, costs, and
impacts of the private right of action associated with the
proposed loss mitigation procedures and with certain other
proposed amendments to Regulation X. The Bureau notes that the
regulatory analyses in the proposal generally assume that firms
comply with a proposed rule and therefore incur the costs
associated with compliance. Any other approach would require
the Bureau to reduce the costs of compliance by a specified
factor. In other words, the costs of civil liability would
require the Bureau to determine the probability that a firm in
compliance with the proposed rule would face additional
lawsuits based on a violation of the loss mitigation
procedures. This probability would have to reflect both any
increase in lawsuits asserting violation of the proposed loss
mitigation procedures and any reduction in lawsuits asserting
violations of existing legal requirements to the extent that
such reduction were to result from compliance with the proposed
loss mitigation provisions.
For example, compliance with the proposed reasonable
information management procedures may reduce lawsuits asserting
that servicers have failed to comply with applicable law with
respect to sworn affidavits and notarized documents in
connection with foreclosure proceedings. Similarly, compliance
with the proposed loss mitigation procedures may reduce
lawsuits asserting claims based on a servicer conducting a
foreclosure sale when a borrower has accepted an offer of a
loss mitigation option and is performing pursuant to such
option. The Bureau lacked data with which to estimate this
probability at the time of the proposal, but specifically
sought comment and data on issues effecting its consideration
of benefits and costs and will evaluate the information
received and continue its own internal analyses in preparing
the final rule.
Q.8. Mr. Cordray, the recent settlement with Capital One
resulted in the Bureau and the OCC collecting civil money
penalties of $25 million and $35 million, respectively. By law,
the OCC must give its entire penalty to Treasury. In contrast,
the Bureau's civil money penalty will go to its own slush fund.
The Bureau will then have unilateral authority to decide how to
allocate the $25 million.
Will any portion of the $25 million obtained by the Bureau
go to Treasury?
A.8. In the Dodd-Frank Act, Congress authorized the Bureau to
use civil penalties only for payments to victims, and, in
certain circumstances, consumer education and financial
literacy programs. In particular, 1017(d)(2) provides:
Amounts in the Civil Penalty Fund shall be available to
the Bureau, without fiscal year limitation, for
payments to the victims of activities for which civil
penalties have been imposed under the Federal consumer
financial laws. To the extent that such victims cannot
be located or such payments are otherwise not
practicable, the Bureau may use such funds for the
purpose of consumer education and financial literacy
programs.
Q.9. Please provide a break-down of how the Bureau will
distribute these funds and the procedures the Bureau used to
decide how to allocate these funds.
A.9. The Bureau has made available on its Web site an overview
of the Civil Penalty Fund: http://files.consumerfinance.gov/f/
201207_cfpb_civil_penalty_fund_factsheet.pdf.
As that document notes, the Bureau has created a Civil
Penalty Fund Governance Board, which is responsible for
ensuring that the Civil Penalty Fund is administered in a
manner that is consistent with the Dodd-Frank Wall Street
Reform and Consumer Protection Act. In addition, the Civil
Penalty Fund Governance Board is responsible for developing
policies and procedures, including appropriate internal
controls, to ensure that money deposited in the Civil Penalty
Fund is distributed in a manner that:
Supports the Bureau's mission, responsibilities,
policies, and priorities;
Complies with the Dodd-Frank Act and all other
applicable laws and regulations, as well as internal
CFPB policies and procedures and legal opinions of the
CFPB's Office of General Counsel;
Protects against waste, fraud, and abuse;
Provides appropriate transparency regarding the use
of CPF monies, including the manner of distribution,
any associated administrative expenses, and, where
applicable, the mechanism for identifying individual
victims;
Ensures appropriate and robust oversight of
contractors; and
Enhances program efficiency through regular
operational analyses and development of appropriate
performance metrics.
The Bureau has also posted the criteria it will use in
making available Civil Penalty Fund monies for Consumer
Education and Financial Literacy programs: http://
files.consumerfinance.gov/f/
201207_cfpb_civil_penalty_fund_criteria.pdf. The Bureau will
use the Federal procurement process for these programs.
Q.10. Mr. Cordray, in past Congressional testimony you were
asked whether the CFPB is considering how several mortgage
rules are going to work together and the steps you are taking
to analyze and mitigate the cumulative impact of these rules on
the affected small businesses. In response you stated that you
have solicited for comment the potential impact of these
proposed rules and have asked for data illustrating the impact
on small business. Your response indicates that you believe
that small businesses will have the ability to respond to each
of these rulemakings. The TILA/RESPA rule alone, however, is
1,100 pages in length and contains 155 requests for comment or
additional data.
Do you expect that small- and medium-size banks will have
the ability to read and respond to all of these requests?
What will you infer if you do not receive a response to one
of these requests?
What additional data are you obtaining on your own during
the comment periods of each of these rules?
A.10. We recognized the challenge in responding to so many
mortgage rulemakings at one time, and developed summaries of
each proposal released this summer that were specifically
designed to help small- and medium-sized businesses identify
and respond to the most critical elements of each proposal. We
believe these were a useful complement to the longer documents,
which as required by law provide general background, a detailed
discussion of each element of the proposal, and our analyses of
its impacts on covered persons and consumers, in addition to
the proposed regulation text and commentary.
The Bureau received hundreds of comments in response to the
proposed rules that were issued over the summer, including
comments from small- and medium-sized banks and their trade
associations. The Bureau will base its final rules on a careful
evaluation of all available information.
In all of the proposals, the Bureau explicitly requested
data to support analyses regarding the impacts of the rules and
of specific provisions. Some commenters have provided
quantitative and qualitative information, although we have
received limited firm or transaction-specific data in response
to these requests. In addition, the Bureau described its own
efforts to gather additional data germane to several of the
rules: loan-level data from other Federal agencies; data about
closings from selected institutions; and data from a new
national database. We have received some of this data and,
where appropriate, the Bureau is using it to supplement other
existing sources as we continue to analyze the impacts of the
rules.
Q.11. Mr. Cordray, in conjunction with the Capital One
settlement you issued a compliance bulletin on the marketing of
credit card add-on products.
Why did the Bureau decide to issue a bulletin on the
marketing of credit card add-on products instead of issuing a
proposed rule?
Going forward, how will you determine whether to issue
guidance (whether through a bulletin or other announcement) or
a proposed rule?
A.11. The Capital One action was based on the conduct of that
institution. However, complaints received by the Bureau
indicate--and the Bureau's supervisory experience confirms--
that consumers have been misled by the marketing and sales
practices associated with credit card add-on products offered
by other institutions. Such practices violate current law.
Consequently, the Bureau issued a compliance bulletin as a
means of highlighting existing compliance requirements for the
industry and providing insight into Bureau supervisory
expectations. Notably, the bulletin does not impose any new
requirements. Going forward, the Bureau will continue to use
the rulemaking process for adopting new requirements, while
providing guidance through bulletins and other methods
regarding compliance with existing requirements.
Q.12. Mr. Cordray, the Bureau stated in a procedural rule that
the Bureau will supervise a nonbank company if the Bureau
determines that the company is engaging, or has engaged, in
conduct that poses a risk to consumers with regard to the
offering or provision of consumer financial products or
services.
What conduct do you believe would constitute a ``risk to
consumers'' that would warrant supervision by the Bureau?
What particular systems, policies or metrics have you
developed to determine whether a ``risk to consumers'' has
occurred and what are the metrics you have created to assess
such risks?
A.12. As an initial matter, we note that the Bureau has
published a proposed rule to establish procedures to implement
section 1024(a)(1)(C) of the Dodd-Frank Act; the Bureau has not
yet published a final rule establishing these procedures. Under
section 1024(a)(1)(C), Congress authorized the Bureau to
supervise a nonbank covered person when:
the Bureau has reasonable cause to determine, by order,
after notice to the covered person and a reasonable
opportunity for such covered person to respond, based
on complaints collected through the system under
section 1013(b)(3) or information from other sources,
that such covered person is engaging, or has engaged,
in conduct that poses risks to consumers with regard to
the offering or provision of consumer financial
products or services.
The Bureau is authorized to require reports from, and
conduct examinations of, nonbank covered persons subject to
supervision under section 1024.
Next, as you mentioned, the proposed rule is procedural; it
is not a substantive rule. The proposed procedures relate to,
inter alia, issuing the notice required by section
1024(a)(1)(C), providing a covered person with a reasonable
opportunity to respond, and establishing a framework for the
Bureau's consideration of any response. Congress did not define
``risk to consumers'' in the Dodd-Frank Act, thus, the Bureau
set forth, by statutory guidance, the factors it employs in
making 1024(a)(1)(C) determinations. This guidance includes,
for example, the Bureau's key objectives under the Dodd-Frank
Act, such as protecting consumers from unfair, deceptive or
abusive acts or practices; ensuring consistent enforcement of
Federal consumer financial law; and ensuring that markets for
consumer financial products and services are fair, transparent,
and competitive. \1\ Thus the Bureau may consider, among other
factors, whether a nonbank covered person has engaged in
conduct that would pose risk to consumers because it involves
unfair, deceptive, or abusive acts or practices, or because the
conduct otherwise violates Federal consumer financial law.
---------------------------------------------------------------------------
\1\ 12 U.S.C. 5511(b).
---------------------------------------------------------------------------
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RESPONSES TO WRITTEN QUESTIONS OF SENATOR REED
FROM RICHARD CORDRAY
Q.1. A recent U.S. PIRG report highlighted some troubling
practices with prepaid debit cards and other third party
distribution arrangements for student financial aid. Do you
have plans to look at such practices in more detail? Has the
CFPB received consumer complaints in this area?
A.1. The Bureau has been engaged actively in this issue on
multiple fronts by working closely with other agencies,
accepting consumer complaints, and producing information for
consumers.
The Bureau works closely with other banking regulators and
provided input to the Federal Deposit Insurance Corporation
(FDIC) about their oversight activities in the student lending
industry. In August, the FDIC reached a settlement with a
provider of third party distributors of student financial aid.
To coincide with the announcement of the settlement, the
Bureau issued a consumer advisory to all students expecting to
receive scholarship and student loan proceeds onto--what
appears to be--a school-endorsed debit card. For back-to-school
season, the Bureau released a ``Student Banking 101'' guide to
help newly enrolling students make smarter banking choices.
The Bureau also works closely with the Department of
Education, who administers loan programs under Title IV of the
Higher Education Act, on ways to enhance compliance and protect
consumers The Bureau will continue to provide technical
assistance on consumer financial markets for private student
lending to the Department of Education as necessary.
The Bureau receives complaints on deposit products,
including student checking accounts, through our consumer
response portal and we will continue to monitor these
complaints to identify risks in the marketplace.
Q.2. We continue to see student loan debt rise and borrowers
struggling with delinquency and default. How many borrowers
have sought assistance from the CFPB's Student Loan Ombudsman?
What have been the major problems for borrowers? How have they
been resolved?
A.2. A few weeks ago, the Bureau released the Annual Report of
the CFPB Student Loan Ombudsman detailing the problems reported
by private student loan borrowers. Since March 2012, the Bureau
has received approximately 2,900 complaints on private student
loans. With 95 percent of the complaints about servicing, the
report notes a strong resemblance to issues reported in the
mortgage servicing market. A breakdown of the complaints:
65 percent relate to servicing, including
complaints about fees, billing, deferment, forbearance,
fraud, and credit reporting.
30 percent are about problems consumers face when
they are unable to pay, including complaints about
default, debt collection, and bankruptcy practices.
5 percent concern getting a loan, including
problems with origination, marketing, and borrower
confusion about loan terms and conditions.
The median amount of monetary relief awarded, for those
cases in which a consumer received monetary relief, was $1,572.
Q.3. The CFPB recently introduced the second version of its
Financial Aid Comparison Shopper. What sort of feedback has the
CFPB received about this tool? Have families been able to take
advantage of the Shopping Sheet for this school year? If not,
when will it be fully functional?
A.3. In July, Education Secretary Arne Duncan and CFPB Director
Richard Cordray announced the final version of a ``Financial
Aid Shopping Sheet'', which assists families when making
comparisons between college financial aid offers. The final
version reflects the Bureau's close collaboration with the
Department of Education, as well as broad input provided
directly by consumers on the proposed form.
To help facilitate better decision making on student loans,
the Bureau developed a beta tool for testing that would allow
students and families to use their Shopping Sheets to estimate
their future debt burdens and other information. During the
beta test, the Bureau received a substantial amount of
constructive feedback from users. For example, a survey
conducted by an association representing college admissions
counselors found that over 80 percent of their members said the
tool was ``useful'' and that nearly half would recommend the
tool to students/families without any modifications.
Now that the final version of the Financial Aid Shopping
Sheet has been released, the Bureau plans to modify the beta
version of the tool to be compatible with the Shopping Sheet.
The Bureau hopes to produce a new version of this tool after
gathering further input from consumers and schools in the
upcoming year.
Q.4. The CFPB has been working with the prudential regulators
to address mortgage servicer practices that may pose risks to
military homeowners who receive Permanent Change of Station
(PCS) orders. Could you please provide an update on the PCS
issue? Has the Interagency Guidance on Mortgage Servicing
Practices Concerning Military Homeowners with PCS Orders
released on June 21, 2012, had any effect so far? Please
explain.
A.4. As a result of effective interagency work, the Bureau,
along with other Federal regulators, issued joint guidance that
addressed mortgage servicer practices that may pose risks to
military homeowners. The guidance helps ensure compliance with
consumer laws and regulations covering military homeowners who
have received Permanent Change of Station (PCS) orders. Holly
Petraeus and her staff in the CFPB's Office of Servicemember
Affairs also worked with the Department of Treasury to provide
more opportunities for mortgage assistance to military
homeowners under the Home Affordable Modification Program
(HAMP) and with the Federal Housing Finance Authority (FHFA) in
connection with Fannie Mae's and Freddie Mac's announcements
that Permanent Change of Station orders could be classified as
a qualifying hardship for mortgage loan modification or other
assistance. Additionally, the Bureau worked with the FHFA in
connection with Fannie Mae's and Freddie Mac's new short sale
guidelines for servicemembers with PCS orders. This policy,
which went into effect on November 1, 2012, allows
servicemembers who are being relocated due to PCS orders to be
automatically eligible for short sales, even if they are
current on their existing mortgages, and they will be under no
obligation to contribute funds to cover the shortfall between
the outstanding loan balance and the sale price of their
primary residences, if the property was purchased on or before
June 30, 2012.
Since the release of the Bureau's PCS guidance, we have
seen an increase in the volume of servicemember-related
mortgage complaints, possibly due to the publicity generated as
a result of the release. Upon investigating these complaints,
we have observed mixed results from mortgage servicers.
Although most servicers initially appeared uninformed regarding
this issue, once contact was made by the Bureau and the
guidance was provided to them, many became much more responsive
to this subset of consumers. We found that some servicers
created executive-level review boards dedicated to assisting
these consumers, manned by representatives who quickly became
familiar with the guidance. On the other hand, some servicers
continue to struggle to comply with the guidance even upon
subsequent recontact with the Bureau. As the guidance notes, if
the Bureau were to ``determine that a servicer has engaged in
any acts or practices that are unfair, deceptive, or abusive,
or that otherwise violate Federal consumer financial laws and
regulations, the [Bureau] will take appropriate supervisory and
enforcement actions to address violations that harm consumers
and seek all appropriate corrective actions, including
requiring the mortgage servicer to strengthen its programs and
processes.''
The Bureau will continue to monitor these complaints and
determine what additional steps can be taken to assist military
homeowners who receive PCS orders.
------
RESPONSES TO WRITTEN QUESTIONS OF
SENATOR MENENDEZ FROM RICHARD CORDRAY
Q.1. Director Cordray, I have long advocated national standards
for banks that collect homeowners' mortgage payments, including
chairing a hearing on that issue about 2 years ago.
Will the national standards include requiring early in-
person outreach to delinquent borrowers to try to help save
their homes?
A.1. As discussed in the proposed mortgage servicing rules, the
Bureau agrees that early contact with delinquent borrowers is
crucial to helping those borrowers understand options that may
be available to retain their homes, as well as the
ramifications of the foreclosure process.
The proposed rules would require servicers to provide
delinquent borrowers with two notices. First, under the
proposed rules, servicers would be required to notify or make
good faith efforts to notify a borrower orally that the
borrower's payment is late and that loss mitigation options may
be available, if applicable. Servicers would be required to
take this action within 30 days after the payment due date,
unless the borrower satisfies the payment during that period.
Second, servicers would be required to provide a written notice
with information about the foreclosure process, housing
counselors and the borrower's State housing finance authority,
and, if applicable, information about loss mitigation options
that may be available to the borrower not later than 40 days
after the payment due date, unless the borrower satisfies the
payment during that period. Servicers could incorporate in-
person outreach procedures to comply with these proposed
requirements. The Bureau continues to evaluate the proposed
timing and content of these notices in light of the numerous
comments it has received on the proposed rules.
The proposed notices were designed primarily to encourage
delinquent borrowers to work with their servicer to identify
their options for avoiding foreclosure. The Bureau recognizes
that not all delinquent borrowers who were to receive such
notices would respond to the servicer and pursue available loss
mitigation options. However, the Bureau believes that the
notices would ensure, at a minimum, that all borrowers have an
opportunity to do so at the early stages of a delinquency. We
believe it is generally more useful to borrowers to begin
discussions with servicers early, in order to identify which
options may be best for their families.
Q.2. The CFPB's draft loan origination rule includes provisions
that it claims would ``help level the playing field'' between
bank and nonbank mortgage origination employees. However, the
SAFE Act requires nonbank mortgage originators to take
prelicensing and continuing education courses and a licensing
exam--whereas the proposed rule includes none of these
requirements for people who work at banks. Why didn't the CFPB
establish prelicensing course requirements and an exam for
individuals that lack at least a few years of direct experience
in mortgage loan origination, particularly for individuals
doing substantive loan origination work? Why didn't the CFPB
require all mortgage loan origination employees complete at
least the 3 hours in continuing education courses in Federal
laws and regulations and the 2 hours in continuing education
ethics courses that are required of all nonbank employees
covered under the SAFE Act?
A.2. The proposed rule would require banks as well as other
entities that would be subject to this portion of the rule to
provide periodic training to ensure that each of its loan
originators has the necessary knowledge of State and Federal
legal requirements that apply to the loans that the individual
loan originator will originate. The training would have to
cover the particular responsibilities of the loan originator
and the nature and complexity of the loans that the particular
loan originator originates.
The intention of the proposed rule was to accomplish the
same goals as the prelicensing and continuing education that
the SAFE Act imposes for State-licensed loan originators, which
are to ensure that that loan originators have adequate
knowledge to perform loan origination activities, and that they
continue to update and refresh that knowledge. However, it was
also meant to reflect limitations in the Bureau's authority and
to respond to concerns of other Federal regulators that the
Bureau should not impose training requirements that are
duplicative of requirements the regulators already impose for
loan originators such as banks and credit unions. Accordingly,
under the proposed rule continuing education classes approved
for State-licensed loan originators are sufficient to meet the
proposed standard, but the proposed rule also permits other
training courses and methods that are tailored to the
particular loan origination activities of the bank loan
originator.
The proposed rule does not include a requirement for loan
originators employed by banks to pass the standardized test
that applicants for State licenses must pass. As the proposal
discussed, the Bureau has been seeking evidence to show whether
or not existing bank practices, as well as the proposed
training requirements, are adequate to ensure that the
knowledge of bank loan originators is comparable to that of
loan originators who pass the standardized test. This is an
issue the Bureau is considering as it develops the final rule.
------
RESPONSES TO WRITTEN QUESTIONS OF SENATOR CORKER
FROM RICHARD CORDRAY
Q.1. Dodd-Frank made a change, as you are likely aware, to the
definition of ``high cost loan.'' Under Dodd-Frank's new rules,
a high cost loan is any loan where the APR exceeds the average
prime rate by 6.5 percent for loans greater than $50,000 in
size, of 8.5 percent for loans under $50,000. Unfortunately for
many in the manufactured housing industry, the nature of how
these loans work means that the lenders are bumping up against
the triggers quickly. For example, many lenders will help a
borrower roll the upfront closing costs and document costs into
the underlying loan, but since these costs are fixed and the
loans are for low dollar amounts, it makes the APR high and so
these loans can't be made. As you know, the Bureau has
significant authority to raise the HOEPA APR and the points and
fees triggers. Is this something the Bureau is actively
considering? What steps do you anticipate the Bureau taking to
ensure that access to small balance loans, such as those needed
to purchase affordable and manufactured housing, is not
diminished? Are you concerned that these high cost loan
triggers are problematic for loans that are low balance? Should
Congress do something about this if it is a problem from a
statutory perspective?
A.1. We are carefully analyzing all of these questions as we
work on the final rule. Our proposal sought comment and data on
whether any adjustments should be made to the APR triggers for
HOEPA coverage generally. We also sought comment specifically
on whether adjustments should be made to the 8.5 percent APR
trigger or $50,000 size threshold for first-lien transactions
that are secured by a dwelling that is personal property, such
as certain manufactured housing loans. We note that the Bureau
generally has the authority to make adjustments to the
definition of ``high-cost mortgage.'' Additionally, the Bureau
has the authority to adjust the percentage points for the APR
triggers if such adjustments are consistent with the statutory
consumer protections for high-cost mortgages and are warranted
by the need for credit. The Bureau also has the authority to
adjust the definition of points and fees for the purposes of
determining whether a loan meets the points and fees threshold.
Before finalizing our proposal, we will consider the impact
of the proposed triggers on various types of loans, including
manufactured housing loans and small balance loans generally.
We are currently reviewing all of the comments, we are aware of
the concerns surrounding loans for manufactured housing and
small balances, and will closely review all available data to
determine whether any adjustments to the HOEPA triggers should
be made.
Q.2. RESPA/TILA was a subject of conversation at the hearing.
As Senator Shelby pointed out, the draft rule designed to
simplify these disclosures is 1,000 pages long. Are you
concerned that complying with a complex rule such as this will
prove challenging for community banks? In addition, if the APR
calculation is not helpful to consumers--and the CFPB has
indicated it might not be--should it be eliminated as a
requirement in disclosure?
A.2. We are confident that the final TILA-RESPA integrated
disclosure rule will ease compliance burdens for community
banks by eliminating duplicative forms and resolving long-
standing uncertainties that led the Department of Housing and
Urban Development (HUD) to issue hundreds of responses to
frequently asked questions. In fact, much of the proposal's
length results from the Bureau's provision of extensive
guidance on how to comply, including samples of completed forms
for a variety of different types of mortgage loans. Industry
repeatedly requested this guidance during our outreach and the
Small Business Review Panel process because knowing exactly
what they need to do can save time, energy, and costs. Once the
rule is finalized, we plan to publish a compliance guide and to
reach out to the banks and their service providers to help them
come into compliance.
The Annual Percentage Rate (APR) is intended to show
consumers the total cost of credit spread out over the entire
life of the loan and expressed as a percentage. Consistent with
prior research by the Federal Reserve Board and HUD, however,
the Bureau's qualitative testing indicates that the APR may not
be a helpful disclosure for many consumers because it is
difficult for consumers to understand and use effectively when
comparing loans. Nevertheless, the Bureau did not propose to
eliminate the APR disclosure, which is critical to determining
whether loans are subject to certain additional protections
under Federal and State law. Further, because we know consumers
face difficulties in using the APR disclosures to compare
mortgages, in part because not all charges are currently
required in these disclosures, the Bureau is proposing a more
inclusive definition of the finance charge, which would make
the APR a more accurate reflection the overall cost of credit.
For example, the APR would now include title insurance, which
is the largest charge for many consumers. The Bureau's intent
in including all charges in an APR is to enhance consumer
understanding and shopping with improved disclosures.
Q.3. I asked you about the complaints posted on the CFPB Web
site, which also contain information on the financial
institution that a customer is upset with. You said you verify
that there is a relationship between the customer and the
financial institution. Is this the only piece of information
you confirm? Or do you go any deeper in terms of due diligence
before posting these complaints online?
A.3. The Bureau maintains significant controls to authenticate
complaints. Each complaint is checked to ensure that it is
submitted by the identified consumer or from his or her
specifically authorized representative. Each submission is also
reviewed to determine if it is a complaint, an inquiry, or
feedback. (Submissions in the latter two categories are not
forwarded to companies for handling as complaints.) Further,
each complaint is checked to identify duplicate submissions by
a consumer who has already filed with the Bureau a complaint on
the same issue. Finally, complaints are only routed to
companies when they contain all the required fields, including
the complaint narrative, the consumer's narrative statement of
his or her fair resolution, and the consumer's contact
information. Companies view and respond to complaints using
their secure web portals, which they also use to notify the
Bureau if a complaint has been routed incorrectly, if they
suspect manipulation, etc. Companies have 15 days to provide a
response.
Complaints are only posted to the Consumer Complaint
Database after companies provide a response which confirms a
relationship with the consumer or after they have had 15 days
to review the complaint, whichever comes first.
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RESPONSES TO WRITTEN QUESTIONS OF SENATOR JOHANNS
FROM RICHARD CORDRAY
Q.1. Mister Cordray, I first want to offer thanks and an
acknowledgement of a bit of work well done that many bankers in
Nebraska very much appreciated. Acting in response to a
question from one of my bankers, your Assistant Director David
Silberman made the trek to Gothenburg, Nebraska--not a terribly
convenient place to get to, mind you--and spent an entire day
walking through the practices and procedures of a small
community bank, speaking with account managers, loan officers,
and customers to get a better feel for how a bank of that size
operates.
I think that was an above-and-beyond show of humility and
good faith, and the bankers in Nebraska wanted me to extend my
thanks to you and Mr. Silberman. With yesterday's announcement
of your Community Bank Advisory Council, I hope that more and
more of this occurs, so that when rules are written by the
Bureau, the operational differences between the biggest banks
and the community banks are fully appreciated and accounted
for. As I hope the visit to Gothenburg made clear, a one-size-
fits-all approach to banking rulemaking just does not work.
A.1. The Bureau is always pleased to meet with community
bankers, and we have held dozens of such meetings and
roundtables with community bankers around the country to hear
directly from them.
Q.2. I have concerns about the governance and quality control
procedures that the Bureau has in place. Let me give you an
example:
I spoke with a community banker from Alma, Nebraska, over
the August recess. He relayed to me at least three occasions in
the last 6 months where his bank received complaints from the
Bureau that should have been directed to other institutions.
Two were intended for Texas banks and another to the First
State Bank of St. Clair Shores, Michigan, some 979 miles from
Alma.
Even though these complains were erroneous, they still
require time and resources to identify, investigate and respond
to. Now, on their own, none of these are egregious, and none of
them too time-consuming for the banker on the other end, but
when the mistakes begin to add up, now we're wasting resources
that will otherwise be used serving small Nebraska communities.
As we all know, you are growing quite rapidly and paying
your employees quite a bit more than the typical Government
employee. With so many people getting paid great sums of money,
where are the basic quality controls? What procedures are in
place to make sure that a tiny institution like the First State
Bank in Alma, Nebraska, doesn't continue to get bogged down in
paperwork from erroneous complaints?
Is there a process in place to ensure that a complaint is
legitimate, and then that the legitimate complaints are
actually forwarded to the correct institutions?
A.2. The Bureau maintains significant controls to authenticate
complaints. Each complaint is checked to ensure that it is
submitted by the identified consumer or from his or her
specifically authorized representative. Each submission is also
reviewed to determine if it is a complaint, an inquiry, or
feedback. (Submissions in the latter two categories are not
forwarded to companies for handling as complaints.) Further,
each complaint is checked to identify duplicate submissions by
a consumer who has already filed with the Bureau a complaint on
the same issue. Finally, complaints are only routed to
companies when they contain all the required fields, including
the complaint narrative, the consumer's narrative statement of
his or her suggested resolution, and the consumer's contact
information.
Companies view and respond to consumers using their secure
Web portals, which they also use to notify the Bureau if a
complaint has been routed incorrectly. As we work to
continually improve our complaint routing accuracy, such
notifications from companies are key to routing complaints to
the correct companies and increasing routing accuracy over
time.
We regret the inconvenience caused by three complaints
being misdirected to First State Bank in Nebraska instead of
companies with the same name in Texas and Michigan. Once
notified by First State Bank in Nebraska that complaints had
been misrouted, the CFPB rerouted the complaints to the correct
First State Bank. We are committed to redoubling our efforts in
this regard as we strive to make our complaint resolution
process work for both consumers and companies.
Q.3. In June of this year, Bureau officials testified before
the House Financial Services Committee on the implementation of
the ``ability to pay'' rules for credit card lending that were
mandated under the CARD Act.
As you know, mandating that a credit card issuer only take
into account the applicant's individual income and not that of
a spouse or the entire household when evaluating ability to pay
can have many unintended negative consequences on folks like
military spouses or stay-at-home moms and dads.
While I understand that the original rules were written by
the Fed, they were part of the package transferred to the
Bureau. In that appearance, Associate Director Hillebrand
testified that the Bureau hoped to announce next steps in
reforming these harmful rules by the end of summer. I was
hoping you could shed some light on the progress you're making
on this front?
A.3. The Bureau recently issued a Notice of Proposed Rulemaking
in which it seeks to make it easier for spouses and partners
who do not work outside the home to qualify for credit cards
and establish their own credit histories. The comment period
for the proposal will end 60 days after the notice is published
in the Federal Register.
The proposal would generally eliminate the independent
ability-to-pay requirement for consumers and applicants age 21
or older and instead permit credit card issuers to consider
income and assets to which the consumer or applicant has a
reasonable expectation of access. For spouses and partners
under the age of 21 (including military spouses), the proposal
seeks comment on whether to make adjustments to the existing
rule in light of the statutory requirement that underage
consumers without a cosigner, guarantor, or joint applicant
demonstrate an independent ability to pay.
Q.4. The Bureau's RESPA/TILA rule creates substantial
uncertainty regarding who prepares and delivers the final
disclosure information to the consumer. The proposed rule, by
permitting the lender to deliver the final disclosure, removes
the independent, third-party closing agent from the settlement
process. The independent agent deals with many different
lenders, giving them a glimpse of the best practices employed
by a broad cross-section of the industry.
What was the intent behind removing this informed and
independent check at the closing table? Is it your opinion that
this will ultimately benefit the consumer?
A.4. Settlement agents provide crucial services, and we have no
desire to exclude them from the closing process. Real estate
closings are very complicated, and involve much more than just
completing a disclosure and watching the buyer sign documents.
There is a reason why an entire profession, which is over a
century old, exists to perform closings. Our proposal only
addresses who provides the disclosures. It will not regulate
the other important functions performed by settlement agents.
The Dodd-Frank Act requires us to combine disclosures that
are currently provided by lenders with disclosures that are
currently provided by settlement agents. Much of the
information on the combined disclosure relates to the terms of
the loan and is therefore in the possession of the lender. In
addition, the Dodd-Frank Act amends TILA to make the lender
responsible for much of the information. For that reason, the
proposal contains one alternative which makes the lender
responsible for providing the combined disclosure. The proposal
includes another alternative, which would allow settlement
agents to provide the combined disclosure. The proposal
solicited comment on other methods of dividing responsibility
between creditors and settlement agents, provided that such
other methods ensure that consumers are provided with prompt,
accurate, and reliable disclosures.
Additional Material Supplied for the Record
SEMI-ANNUAL REPORT OF THE CONSUMER FINANCIAL PROTECTION BUREAU
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]