[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

=======================================================================

                                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

                               __________

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





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            COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS

                  TIM JOHNSON, South Dakota, Chairman

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

                     Dwight Fettig, Staff Director

              William D. Duhnke, Republican Staff Director

              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

                              ----------                              

                      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).
---------------------------------------------------------------------------
                                ------                                


         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.
                                ------                                


       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


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