    [House Hearing, 113 Congress]
    [From the U.S. Government Publishing Office]

                        EXAMINING LEGISLATIVE PROPOSALS
                        TO REFORM THE CONSUMER FINANCIAL
                               PROTECTION BUREAU

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

                                    HEARING

                                   BEFORE THE

                     SUBCOMMITTEE ON FINANCIAL INSTITUTIONS
                              AND CONSUMER CREDIT

                                     OF THE

                        COMMITTEE ON FINANCIAL SERVICES

                         U.S. HOUSE OF REPRESENTATIVES

                        ONE HUNDRED THIRTEENTH CONGRESS

                                 FIRST SESSION

                                   __________

                                OCTOBER 29, 2013

                                   __________

           Printed for the use of the Committee on Financial Services

                               Serial No. 113-48

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                     HOUSE COMMITTEE ON FINANCIAL SERVICES

                        JEB HENSARLING, Texas, Chairman

    GARY G. MILLER, California, Vice     MAXINE WATERS, California, Ranking
        Chairman                             Member
    SPENCER BACHUS, Alabama, Chairman    CAROLYN B. MALONEY, New York
        Emeritus                         NYDIA M. VELAZQUEZ, New York
    PETER T. KING, New York              MELVIN L. WATT, North Carolina
    EDWARD R. ROYCE, California          BRAD SHERMAN, California
    FRANK D. LUCAS, Oklahoma             GREGORY W. MEEKS, New York
    SHELLEY MOORE CAPITO, West Virginia  MICHAEL E. CAPUANO, Massachusetts
    SCOTT GARRETT, New Jersey            RUBEN HINOJOSA, Texas
    RANDY NEUGEBAUER, Texas              WM. LACY CLAY, Missouri
    PATRICK T. McHENRY, North Carolina   CAROLYN McCARTHY, New York
    JOHN CAMPBELL, California            STEPHEN F. LYNCH, Massachusetts
    MICHELE BACHMANN, Minnesota          DAVID SCOTT, Georgia
    KEVIN McCARTHY, California           AL GREEN, Texas
    STEVAN PEARCE, New Mexico            EMANUEL CLEAVER, Missouri
    BILL POSEY, Florida                  GWEN MOORE, Wisconsin
    MICHAEL G. FITZPATRICK,              KEITH ELLISON, Minnesota
        Pennsylvania                     ED PERLMUTTER, Colorado
    LYNN A. WESTMORELAND, Georgia        JAMES A. HIMES, Connecticut
    BLAINE LUETKEMEYER, Missouri         GARY C. PETERS, Michigan
    BILL HUIZENGA, Michigan              JOHN C. CARNEY, Jr., Delaware
    SEAN P. DUFFY, Wisconsin             TERRI A. SEWELL, Alabama
    ROBERT HURT, Virginia                BILL FOSTER, Illinois
    MICHAEL G. GRIMM, New York           DANIEL T. KILDEE, Michigan
    STEVE STIVERS, Ohio                  PATRICK MURPHY, Florida
    STEPHEN LEE FINCHER, Tennessee       JOHN K. DELANEY, Maryland
    MARLIN A. STUTZMAN, Indiana          KYRSTEN SINEMA, Arizona
    MICK MULVANEY, South Carolina        JOYCE BEATTY, Ohio
    RANDY HULTGREN, Illinois             DENNY HECK, Washington
    DENNIS A. ROSS, Florida
    ROBERT PITTENGER, North Carolina
    ANN WAGNER, Missouri
    ANDY BARR, Kentucky
    TOM COTTON, Arkansas
    KEITH J. ROTHFUS, Pennsylvania

                         Shannon McGahn, Staff Director
                        James H. Clinger, Chief Counsel
           Subcommittee on Financial Institutions and Consumer Credit

                 SHELLEY MOORE CAPITO, West Virginia, Chairman

    SEAN P. DUFFY, Wisconsin, Vice       GREGORY W. MEEKS, New York,
        Chairman                             Ranking Member
    SPENCER BACHUS, Alabama              CAROLYN B. MALONEY, New York
    GARY G. MILLER, California           MELVIN L. WATT, North Carolina
    PATRICK T. McHENRY, North Carolina   RUBEN HINOJOSA, Texas
    JOHN CAMPBELL, California            CAROLYN McCARTHY, New York
    KEVIN McCARTHY, California           DAVID SCOTT, Georgia
    STEVAN PEARCE, New Mexico            AL GREEN, Texas
    BILL POSEY, Florida                  KEITH ELLISON, Minnesota
    MICHAEL G. FITZPATRICK,              NYDIA M. VELAZQUEZ, New York
        Pennsylvania                     STEPHEN F. LYNCH, Massachusetts
    LYNN A. WESTMORELAND, Georgia        MICHAEL E. CAPUANO, Massachusetts
    BLAINE LUETKEMEYER, Missouri         PATRICK MURPHY, Florida
    MARLIN A. STUTZMAN, Indiana          JOHN K. DELANEY, Maryland
    ROBERT PITTENGER, North Carolina     DENNY HECK, Washington
    ANDY BARR, Kentucky
    TOM COTTON, Arkansas

                                C O N T E N T S

                                  ----------
                                                                       Page
    Hearing held on:
        October 29, 2013.............................................     1
    Appendix:
        October 29, 2013.............................................    31

                                   WITNESSES
                           Tuesday, October 29, 2013

    Sharp, Jess, Managing Director, Center for Capital Markets
      Competitiveness, U.S. Chamber of Commerce......................     7
    Silvers, Damon A., Policy Director and Special Counsel, American
      Federation of Labor and Congress of Industrial Organizations
      (AFL-CIO)......................................................    12
    Smith, Lynette, President and Chief Executive Officer, Washington
      Gas Light Federal Credit Union, on behalf of the National
      Association of Federal Credit Unions (NAFCU)...................    11
    Tissue, Robert S., Chief Financial Officer, Summit Financial
      Group (Summit), on behalf of Summit, and the West Virginia
      Bankers Association............................................     9

                                    APPENDIX

    Prepared statements:
        Sharp, Jess..................................................    32
        Silvers, Damon A.............................................    43
        Smith, Lynette...............................................    51
        Tissue, Robert S.............................................    61

                  Additional Material Submitted for the Record

    Capito, Hon. Shelley Moore:
        Written statement of the Credit Union National Association
          (CUNA).....................................................    70
        Written statement of the Financial Services Roundtable (FSR).    76
        Written statement of the Independent Community Bankers of
          America (ICBA).............................................    77
    Posey, Hon. Bill:
        Written responses to questions submitted to Lynette Smith....    79
        Written responses to questions submitted to Damon A. Silvers.    80

                        EXAMINING LEGISLATIVE PROPOSALS
                        TO REFORM THE CONSUMER FINANCIAL
                               PROTECTION BUREAU

                                  ----------

                           Tuesday, October 29, 2013

                 U.S. House of Representatives,
                 Subcommittee on Financial Institutions
                                   and Consumer Credit,
                               Committee on Financial Services,
                                                       Washington, D.C.
        The subcommittee met, pursuant to notice, at 3 p.m., in
    room 2128, Rayburn House Office Building, Hon. Shelley Moore
    Capito [chairwoman of the subcommittee] presiding.
        Members present: Representatives Capito, Duffy, Bachus,
    Pearce, Westmoreland, Luetkemeyer, Stutzman, Pittenger, Barr,
    Cotton, Rothfus; Meeks, Green, and Lynch.
        Chairwoman Capito. The subcommittee will come to order.
    Without objection, the Chair is authorized to declare a recess
    of the subcommittee at any time.
        The ranking member is on his way, but I am going to go
    ahead and give my opening statement.
        This morning's hearing begins a very important discussion
    about the structure of the Consumer Financial Protection Bureau
    (CFPB). Although the CFPB is in its third year of existence,
    members of this committee have significant concerns about the
    structural flaws in the leadership of the CFPB. We are here
    this morning to gain insight on proposals to reform the CFPB so
    that it is better suited to provide a stable regulatory
    environment for consumer credit.
        Consumer protection is not a partisan issue, and the
    proposals before this committee do not attempt to weaken the
    CFPB in any way. Rather, these measures attempt to provide more
    accountability and transparency to an agency whose structure
    makes it susceptible to regulatory overreach and unbalanced
    rule-writing.
        The first reform that we will discuss today is moving the
    leadership of the CFPB from a single director to a five-member
    commission. This change will provide the CFPB with greater
    accountability and diversity of opinion. These are positive
    steps for consumers, who will best be served by regulations
    developed by consensus among commissioners of various
    professional and educational backgrounds. This diversity of
    opinion is critical to ensuring that regulations are drafted in
    a manner that strikes an appropriate balance between protecting
    consumers and preserving a variety of ways for consumers to
    access financial products.
        Another proposal before us today is to modify the threshold
    for the Financial Stability Oversight Council (FSOC) to review
    a CFPB rule. Under the Dodd-Frank Act, the threshold for
    reviewing a rule is so high that it is unlikely it will ever be
    triggered. An FSOC review of CFPB rules is critical because for
    the first time, a Federal agency is solely responsible for
    developing consumer credit rules without any concern for the
    relationship these rules will have with the safety and
    soundness of the financial institutions governed by the rules.
        The tension between safety and soundness and consumer
    protection is essential to the health and safety of our
    Nation's financial system. Legislation before us today to
    restore that tension by lowering the threshold for FSOC reviews
    is of critical importance.
        Finally, we will discuss other legislative proposals to
    modify the manner in which the CFPB draws its funding.
    Currently, the CFPB is an independent agency housed within
    another independent agency, the Federal Reserve. The CFPB draws
    its funding from the Federal Reserve's operating expenses
    without any consultation from Congress. This arrangement is
    unprecedented and a fundamental flaw in the structure of the
    CFPB. It is virtually impossible for Congress to carry out its
    oversight responsibilities without the ability to reshape the
    agency's budget.
        In previous cases, this has been the only way for Congress
    and the public to rein in an agency that has stepped beyond its
    bounds. Given the CFPB's core mission of regulating consumer
    credit product, it is essential for Congress to have oversight
    over the budget.
        I would like to thank the authors of the legislation before
    us today for their leadership: Chairman Emeritus Bachus;
    Representative Neugebauer; Representative Duffy; Representative
    Posey; and Representative Westmoreland. I look forward to
    hearing from our witnesses on these proposals.
        And until the ranking member gets here, I will yield
    Congressman Duffy 2 minutes for the purpose of making an
    opening statement.
        Mr. Duffy. Thank you, Madam Chairwoman. I appreciate the
    panel coming in. And I am grateful that you called this very
    important hearing. I would echo your comments, Madam
    Chairwoman, in that the CFPB is a large and powerful agency
    which is unaccountable. It is unaccountable to Congress, which
    means it is unaccountable to the American people. It is
    unaccountable to the appropriations process. We are concerned
    about the accountability as it relates to a director versus a
    board governing the agency. And we are concerned about the
    review process as set out in FSOC for rules that come out of
    the CFPB.
        But one of my main concerns as we have looked at the
    American people's relationship with its government is in regard
    to data collection. We have learned a lot about what the NSA is
    doing with regard to Americans' phone records. We have a lot of
    concern about what the IRS is doing in regard to political
    activity with our financial information that is given to them.
    We are concerned about our health records and Obamacare.
        But now we are concerned about the CFPB and its collection
    of our credit card information and our mortgage information.
    And when the government has access to so much of America's
    information, it truly changes the dynamic between the people
    and their government. And I would like to hear the panel's
    views on the amount of information that the CFPB is collecting
    in regard to credit card data--it is our understanding that
    they are collecting almost a billion cards or more--and whether
    that is necessary or not. Oftentimes, we hear how effective
    sampling can be in regard to garnering a pretty good
    perspective of what is happening in the whole as opposed to the
    CFPB and its near 100 percent collection on information in the
    credit card space.
        I think this is a very important topic in regard to an
    agency that has very limited accountability to the American
    people and Congress. And again, I thank the chairwoman for
    calling this hearing, and I yield back.
        Chairwoman Capito. Thank you.
        Mr. Luetkemeyer for 1 minute.
        Mr. Luetkemeyer. Thank you, Madam Chairwoman.
        As I have said in the past, it is important that Congress
    examine the CFPB at every opportunity, particularly given that
    there are still considerable structural challenges at this
    agency. The legislative proposals we will examine today take
    great steps toward creating a Bureau that is responsible,
    transparent, and as has been testified to here today,
    accountable. These reforms are reasonable, take steps to
    protect taxpayer dollars, and represent good government,
    something that should gain support on both sides of the aisle.
        This agency has been given some of the broadest, most
    unchecked authorities in the history of our Federal Government.
    It can wade into nearly any territory and operate without any
    meaningful oversight from Congress. I believe we need reform at
    the CFPB and these legislative initiatives we are discussing
    today are steps in the right direction. I thank the chairwoman,
    and I look forward to a productive hearing. I yield back the
    balance of my time.
        Chairwoman Capito. Thank you.
        Mr. Westmoreland for 1\1/2\ minutes.
        Mr. Westmoreland. Thank you, Chairwoman Capito, and thank
    you for having this hearing. And I am grateful to you for
    including the bill that I introduced, H.R. 3183, in this
    hearing.
        Today, it seems that government agencies like the CFPB know
    more about me than I do. H.R. 3183 is designed to give
    individuals control of their financial data. To me, H.R. 3183
    is a simple bill, but so powerful because it allows individual
    consumers oversight over the agency that is supposedly looking
    out for them.
        Simply put, H.R. 3183 would allow an individual, once a
    year, to request from the CFPB all the information CFPB has
    collected and stored on them. This bill has been modeled on the
    very successful program allowing individuals to acquire one
    free annual credit report. This bill hopes to apply this
    success to your CFPB data file.
        Since the bill attempts to apply commonsense reforms to the
    CFPB, my guess is that the CFPB won't like it. I am sure we
    will hear that they don't have the money, or the staff, or the
    ability to implement this commonsense legislation. Let me just
    say to the CFPB, do not obstruct commonsense, bipartisan
    legislation. The CFPB collects the data, analyzes the data, and
    uses the data for supervision and enforcement.
        My question to the CFPB is, if you don't want to disclose
    it to the individuals that you were supposedly created to
    protect, then what do you have to hide?
        With that, I yield back.
        Chairwoman Capito. The gentleman yields back.
        Mr. Bachus for 2 minutes.
        Mr. Bachus. I thank the Chair.
        When school groups come to the Capitol, most Members of
    Congress get to host them and sometimes we get our picture
    taken on the steps of the Capitol. And many of us pull out a
    copy of the Constitution, and we say, this is your Capitol and
    this is your Constitution. And it is all based on the
    Constitution. It starts with the three branches of government.
    And we talk about checks and balances, and that is what we are
    talking about here, that no branch of government would have an
    overriding power over another.
        And when we form government agencies, we carried this a
    step further. They are not elected. Members of Congress, we
    have an additional check that is written into Article I, and
    that is we have to run for reelection. But with government
    agencies, the Constitution said that the Legislative Branch
    will make an appropriation. Well, that didn't happen with the
    CFPB. So we don't have that check and balance. But with every
    other agency, with the exception of the EPA, which is actually
    under our power, our budgetary power, all the others were
    commissions, bipartisan commissions. And I think we have seen
    in the past few weeks when we don't have compromise, when we
    don't try to build consensus, we see that things get badly off
    track.
        That is why I have introduced a bill which was not an
    original thought in my mind, but it was what this committee
    passed originally in Dodd-Frank, and that was for a bipartisan
    commission of five people. There was agreement on both sides of
    the aisle that it is what we need to do. That is what we have
    done in the past. It helps build consensus. Bipartisanship, we
    say we are starved for that.
        That bill has already been introduced again, and this
    committee will get the right to do the same thing it did back
    when we originally passed Dodd-Frank in 2009, and that is to
    create a check and balance. And that is for protection of the
    people, not for Members of Congress, or not for any one group,
    but for the people.
        Thank you.
        Chairwoman Capito. Thank you.
        We are going to go to another Member on the Republican
    side, Mr. Pittenger, for 1 minute, and then I will yield to the
    ranking member.
        Mr. Pittenger. Thank you, Madam Chairwoman, for yielding me
    the time.
        We are here today to highlight the structural problems with
    the CFPB. This has already been touched upon throughout several
    hearings this year, but with the immense power that the CFPB
    yields, it is vital the American people know the scope and the
    reach of this government agency. One of the major causes for
    concern is that the CFPB lacks internal checks and balances
    because it has a sole director with absolute and unchecked
    control rather than a multimember, bipartisan commission.
        Another major issue of concern is their budget is not
    subject to the appropriations process. The CFPB receives its
    funding from the Federal Reserve, which presents robust
    congressional oversight. These defects, along with others, make
    the CFPB one of the most unaccountable agencies in American
    history. As a result, the CFPB will continue to be extremely
    susceptible to the bureaucratic pathologies that manifest
    themselves in overly burdensome regulation and overly
    aggressive enforcement action, which will harm consumers by
    making credit scarce and more expensive.
        This regulatory onslaught will only end when people
    recognize the harm that has been done. We have already seen
    this with the IRS. I look forward to hearing the witnesses'
    testimony on how we can reform the CFPB for the betterment of
    the American people. I yield back the balance of my time. Thank
    you.
        Chairwoman Capito. Thank you.
        I would now like to yield to the ranking member for the
    purpose of an opening statement.
        Mr. Meeks. Thank you, Madam Chairwoman.
        Ever since legislation was enacted in 1872 to protect
    consumers from frauds involving the U.S. mail, the Congress,
    and the Executive Branch have been increasingly aware of the
    responsibility to make certain that our Nation's economy fairly
    and adequately serves consumers' interests.
        In certain sectors of our economy, we have done pretty
    well. Today, American consumers enjoy the safest products and
    services in the world in various sectors such as agriculture,
    health care, aviation, construction, manufacturing, and the
    list goes on and on. In fact, throughout the history of our
    Nation, consumers have depended on the government to ensure the
    safety and quality of the products and services we consume on a
    daily basis. And the success we have had in doing so has led to
    the biggest consumer-based economy in the world. Each
    succeeding generation has enjoyed a greater variety of goods
    and services due to our strong consumer rights laws and
    culture.
        But our success has not been evenhanded in all sectors, nor
    has it been present at all times in the history of our Nation.
    Just a few short years ago, we found out the hard way that the
    financial sector remained one of the major sectors of our
    economy where consumer rights were still treated as a stepchild
    among other issues. The philosophy was that banks and other
    market participants were conscientious and logical
    institutions, and that they would never do something which
    would undermine their own survival or lead to their self-
    destruction.
        As former Fed Chairman Greenspan later recognized, boy,
    were we wrong. Not only were they able to do great harm to
    themselves, they were also capable of bringing the whole
    financial sector and economy down the drain with them. In other
    words, the lesson learned was that consumer rights remain and
    will continue to remain government's business and ultimate
    responsibility. And when left unchecked, the damage can be
    devastating for everyone.
        And devastating it was: 10 million foreclosures; 8 million
    jobs lost; and trillions lost in wealth. Between November 2008
    and April 2010, about 39 percent of households had either been
    unemployed, had negative equity in their house, or had been in
    arrears in their house payments. Thirty-nine percent of all
    American households. Indeed, we paid a heavy price for not
    putting consumer rights at the top of our priorities.
        Fortunately, Congress acted to address this flawed
    philosophy with the creation of the CFPB. Just like we have
    with the FDA for the safety of the food and drug industry, or
    the Federal Aviation agency for the safety of our aviation
    industry, we now have the CFPB for protecting consumer rights
    in the financial services industry. Consumers shopping for
    mortgages, applying for credit cards, or simply using their
    checking account can now do so with a little more confidence
    that someone is looking out for their rights.
        Furthermore, because we have the CFPB, it is my hope that
    we will never see another financial crisis resulting from the
    massive abuse of consumers being misled into products and
    services they neither understand nor can afford. With two-
    thirds of our economy depending on consumer spending, our
    Nation simply can't afford any attempt to weaken or undermine
    consumer rights protections. I know that my constituents in
    southeastern Queens can't afford it, after having suffered one
    of the highest rates of fraudulent mortgages in the country,
    resulting in an overwhelming number of people with mortgages
    underwater or facing foreclosure. And if the financial crisis
    taught us anything, it is that we need a strong, independent
    agency to focus on predatory lending practices.
        In fact, let me share with you a quote from a well-
    recognized consumer advocate: ``Strong regulatory standards,
    adequate review of new products, and transparency to consumers
    are all good things. Indeed, had there been stronger standards
    in the mortgage markets, one huge cause of the recent crisis
    might have been avoided.'' That was Jamie Dimon, the CEO of
    JPMorgan, addressing his shareholders a few years after the
    crisis.
        Yet today, we sit here considering a number of bills to
    defang the consumer bureau that even Wall Street supports. I
    wonder why and when we keep choosing to pick on the most
    crucial part of financial reform in an agency that my
    constituents and all Americans desperately need and desire.
        Thank you. I yield back the balance of my time.
        Chairwoman Capito. Do either of the gentlemen on the other
    side have an opening statement?
        Mr. Green. Yes.
        Chairwoman Capito. Yes. Mr. Green is recognized for how
    many minutes, sir?
        Mr. Green. Two minutes will be fine.
        Chairwoman Capito. Two minutes.
        Mr. Green. Thank you, Madam Chairwoman. And I thank the
    ranking member as well.
        And thank you for the appearing, witnesses.
        We have a Consumer Financial Protection Bureau because we
    went through some very difficult times. It is not something
    that materialized out of thin air. We had a circumstance
    wherein the economy was pulled down because of some what were
    called toxic assets. We had these 2/28s, and 3/27s. We had no-
    doc loans. We had negative amortization.
        All of these things became what were called exotic
    products, and as a result we had them packaged and sent into a
    secondary marketplace; they were securitized. And it made quite
    an impact on the economy. It shocked the economy. And as a
    result of this, we decided that consumers didn't get a fair
    shake, and that we would try as best we could to put in place
    an agency that could benefit consumers. Obviously, the
    prudential regulators have had some impact on regulations and
    laws that could help consumers, but this agency is there for
    consumers.
        I think, quite candidly, as I reflect on it now, that it is
    a little bit short of a miracle that we were able to do it. Mr.
    Dodd and Mr. Frank ought to be canonized. Perhaps we should
    name a small State after them. I am just not sure what we can
    do to adequately recognize the accomplishment of the Consumer
    Financial Protection Bureau. So I am one of the supporters of
    it, as you might guess, and my hope is that we will not lose
    something that was nearly impossible to achieve.
        I yield back.
        Chairwoman Capito. Okay. The gentleman yields back.
        And with that, we conclude our opening statements, and I
    would like to welcome our panel of distinguished witnesses.
    Each of you will be recognized for 5 minutes to give an oral
    presentation of your testimony. And without objection, each of
    your written statements will be made a part of the record.
        I also ask unanimous consent to submit statements for the
    record from the Independent Community Bankers of America, the
    Credit Union National Association, and the Financial Services
    Roundtable. Without objection, it is so ordered.
        Our first witness is Mr. Jess Sharp, managing director,
    U.S. Chamber Center for Capital Markets Competitiveness.
        Welcome, Mr. Sharp.

    STATEMENT OF JESS SHARP, MANAGING DIRECTOR, CENTER FOR CAPITAL
           MARKETS COMPETITIVENESS, U.S. CHAMBER OF COMMERCE

        Mr. Sharp. Thank you, Chairwoman Capito, Ranking Member
    Meeks, and members of the subcommittee. Thank you for having me
    here this morning before the subcommittee to testify on behalf
    of the hundreds of thousands of businesses that the U.S.
    Chamber represents. The Chamber firmly supports sound consumer
    protection regulation that deters and punishes financial fraud
    and predation. But consumer protection, like every other
    government function, must be carried out in a fair, transparent
    manner consistent with the principles embodied in the
    Constitution.
        The CFPB, by design, fails these basic tests. Structural
    reforms such as those specified in the bills now before the
    subcommittee are urgently needed to incorporate the controls
    and oversight that apply to other Federal regulatory agencies,
    which will, in turn, ensure far greater stability over the long
    term for those who provide and rely on consumer credit.
        As the Chamber and others have pointed out on many
    occasions, the CFPB places extraordinary unchecked power in the
    hands of a single individual. Some agencies have single
    directors, that is true, and the heads of independent
    regulatory agencies generally do serve for fixed terms. And a
    few agencies are even funded outside the appropriations
    process. But there is no other entity in the Federal Government
    that combines all of these features in one place. And together,
    they render the Bureau virtually immune from the checks and
    balances that normally constrain agency action.
        Moreover, the regulatory and enforcement authority
    exercised by the Director is extraordinarily broad. It has the
    power to regulate a number of consumer products and services
    that are common sources of financing for Main Street
    businesses, and in some cases to regulate the service providers
    to those companies. And it has a very broad standard to enforce
    as well, the prevention of unfair, deceptive, or abusive acts
    or practices.
        So what are the real-world consequences of giving up some
    of these important oversight tools? Here are just a couple of
    examples. You begin to lose transparency, we believe, and we
    are very concerned about that. The Bureau frequently argues
    that it is subject to unprecedented oversight, pointing to
    hearings before this committee, sort of the budget
    documentation they submit and their semiannual reports as
    evidence of that. But the number of hearing appearances and
    reports is irrelevant if little or no information is conveyed
    in the testimony or those documents. To this day, for example,
    despite multiple congressional appearances, the Bureau has
    never coherently explained the legal justification for its data
    collection programs, discussed the reasons why the collection
    is necessary, or adequately responded to concerns about the
    security of consumers' financial data. And the Bureau certainly
    has not explained why it believes the benefits of these
    collection programs outweigh the costs being imposed on the
    affected companies.
        Businesses want to comply with government regulations, but
    they need the government to set clear rules. But rather than
    following the rulemaking process, the CFPB prefers to set
    standards through enforcement actions and brief informal
    guidance memos. For example, the Bureau issued a bulletin
    explaining that when a service provider violates an applicable
    law or regulation, ``Depending on the circumstances, legal
    responsibility may lie with the supervised entity as well as
    with the supervised service provider.'' This vague language
    provides no real information to companies wishing to exercise
    appropriate oversight of service providers, and we are hearing
    this is already leading companies to limit the number of
    vendors with which they work. The Bureau has declined to
    provide any additional information.
        Similarly, the Bureau has issued guidance regarding
    possible unfair, deceptive, or abusive acts or practices in
    connection with debt collection. The guidance document includes
    descriptions and examples of conduct that the Bureau deems
    unfair or deceptive, but provides no guidance regarding the
    meaning of ``abusive'' other than simply reciting the statutory
    definition. If ever a term required a notice and public comment
    rulemaking process to establish a workable transparent
    standard, it is ``abusive.'' But the CFPB expects companies to
    do for themselves what the CFPB is unable to do, and that is to
    define the term.
        Finally, at least two separate letters from members of this
    committee have raised questions about the CFPB's actions with
    regard to indirect auto lending in compliance with ECOA.
    Members have asked for more information about the CFPB's
    methodology and the Bureau's apparent choice to create new
    legal standards that will fundamentally alter the economics of
    the market through enforcement rather through notice and
    comment rulemaking. Thus far, the Bureau has not meaningfully
    clarified its approach.
        The CFPB operates this way because it is fast and because
    it maximizes their flexibility, but this approach is enabled by
    the Bureau's structure, which makes this strategy virtually
    impossible to second-guess. And we just think that is not a way
    to design or to run a transparent regulatory agency.
        Even the Bipartisan Policy Center just last month said that
    the CFPB succeeds when it writes rules, and I think there is
    good evidence to illustrate that point. The Qualified Mortgage
    rule, I think there is substantial support for where that
    process ended up. The remittances rule had some false starts,
    but I think it ended up in a reasonable place. When you have a
    notice-and-comment process that is informed by the public and
    there is collaboration among the parties, you end up with
    better results.
        So we believe there is urgent need for reform on the
    structural side, including the transition to a commission,
    including bringing the CFPB under appropriations, and we have
    also heard that there may be consideration of a dedicated
    Inspector General, which we also think is a terrific idea. So
    with that, thank you for the opportunity to testify, and I am
    happy to answer your questions.
        [The prepared statement of Mr. Sharp can be found on page
    32 of the appendix.]
        Chairwoman Capito. Thank you.
        Our next witness is from my home State of West Virginia,
    and I appreciate him driving over the mountains into the
    traffic to help us out here today. Mr. Robert S. Tissue is the
    chief financial officer of Summit Financial Group, and is
    testifying today on behalf of Summit, and also the West
    Virginia Bankers Association.
        Welcome, Rob.

    STATEMENT OF ROBERT S. TISSUE, CHIEF FINANCIAL OFFICER, SUMMIT
      FINANCIAL GROUP (SUMMIT), ON BEHALF OF SUMMIT, AND THE WEST
                      VIRGINIA BANKERS ASSOCIATION

        Mr. Tissue. Good afternoon, Chairwoman Capito, Ranking
    Member Meeks, and members of the subcommittee. My name is Rob
    Tissue. I am the chief financial officer of Summit Financial
    Group. Summit is a financial holding company headquartered in
    Moorefield, West Virginia, and provides banking and insurance
    services to the communities located in the eastern panhandle
    and south-central regions of West Virginia, as well as in the
    Shenandoah Valley and northern regions of Virginia. I
    appreciate the opportunity to present my views on legislation
    that we believe would improve the accountability of the CFPB.
        But let me begin by first emphasizing that the banking
    industry fully supports effective consumer protection.
    Americans are best served by a financially sound banking
    industry that safeguards deposits, lends those deposits
    responsibly, and processes payments efficiently. My bank's
    philosophy has always been to treat our customers right and do
    whatever we can to make sure that they understand the terms of
    their loans and their obligations. Fair service to our
    customers is inseparable from sound management of our banks.
        Despite this, Dodd-Frank erected a Bureau that divides
    consumer protection regulation from safety and soundness
    supervision. As such, we must ensure that this new Bureau is
    accountable to the fundamentals of safe and sound operation, to
    the gaps in regulating nonbanks that motivated financial
    reform, and to the principles of consistent regulatory
    standards.
        There are several features of the Bureau that make improved
    accountability imperative. Dodd-Frank gave the Bureau expansive
    new quasi-legislative powers and the discretion to rewrite
    rules of the consumer financial services industry based on its
    own initiative and conclusions about the needs of consumers.
    The resulting, practically boundless grant of agency discretion
    is exasperated by giving the head of the Bureau sole authority
    to make decisions that could fundamentally alter the financial
    choices available to consumers.
        Not only has the Bureau been given these extraordinary
    powers, but it also lacks the accountability that comes with
    budgetary oversight. Funding for the Bureau comes not from
    Congress, but from the Federal Reserve as a fixed portion of
    its total operating expenses. This lack of oversight means that
    the Bureau is free to direct its nearly $600 million budget
    towards any issue it sees fit, without input from Congress.
    Because of its pivotal role, the CFPB must be held accountable
    for the consequences of its actions, which includes the
    availability of, or the lack thereof, of credit and financial
    services to deserving people.
        There were a number of bills proposed that begin to address
    the accountability of the CFPB. For example, Representatives
    Bachus and Duffy begin to address the issue of the structure of
    the Bureau in their bills, while Representatives Posey and
    Duffy address what the oversight and source of funding should
    be in their bills. These bills are a few of many options to
    address concerns about the role of the Bureau and its exercise
    of power.
        An important principle that underlines these and other
    bills is that there needs to be an effective check and balance
    on the Bureau's authority. We must also ensure that the
    Bureau's funds are used effectively and disclosed fully.
        I support this principle of accountability and balance and
    applaud the congressional efforts to ensure an effective
    mechanism is in place to achieve it for the Bureau.
        Finally, the improved oversight of the Bureau should be
    utilized to guide it to better accomplish its mission.
    Specifically, Congress should ensure that nonbanks receive
    equal regulation and that new mortgage rules do not prevent
    qualified borrowers from obtaining loans. Too often, the focus
    seems only to be on banks and other regulated financial
    institutions, which are already subject to significant
    regulation. This focus will inevitably push customers to less
    regulated nonbanks that were one of the major key offenders
    leading up to the crisis.
        In summary, Congress must take steps to ensure the CFPB is
    held accountable or it risks allowing it to harm the very
    consumers it is designed to protect. Congress must be vigilant
    in overseeing that the actions of the Bureau do not restrict
    access to good financial products by responsible American
    families.
        Thank you, and I welcome the opportunity to answer your
    questions.
        [The prepared statement of Mr. Tissue can be found on page
    61 of the appendix.]
        Chairwoman Capito. Thank you.
        Our next witness is Ms. Lynette Smith, president and chief
    executive officer, Washington Gas Light Federal Credit Union,
    on behalf of the National Association of Federal Credit Unions.
        Welcome.

       STATEMENT OF LYNETTE SMITH, PRESIDENT AND CHIEF EXECUTIVE
     OFFICER, WASHINGTON GAS LIGHT FEDERAL CREDIT UNION, ON BEHALF
      OF THE NATIONAL ASSOCIATION OF FEDERAL CREDIT UNIONS (NAFCU)

        Ms. Smith. Thank you. Good afternoon. Chairwoman Capito,
    Ranking Member Meeks, and members of the subcommittee, my name
    is Lynette Smith, and I am testifying today on behalf of NAFCU.
    I serve as the president and CEO of Washington Gas Light
    Federal Credit Union in Springfield, Virginia. Washington Gas
    Light has more than 7,200 members and $90 million in assets.
    NAFCU appreciates the opportunity to participate in this
    hearing today concerning legislative proposals to improve the
    structure of the Consumer Financial Protection Bureau.
        Credit unions were not the cause of the financial crisis,
    and yet we are still greatly impacted by a number of provisions
    contained in the Dodd-Frank Act. For example, all credit unions
    are subject to the rulemaking authority of the new CFPB. The
    requirements in Dodd-Frank have created a number of new and
    unnecessary compliance burdens for small credit unions like
    mine.
        NAFCU believes consumer protection is important, and
    supported new regulations for the unregulated bad actors during
    the financial crisis. Because consumer protection provisions
    already existed in the Federal Credit Union Act, that laws
    other governing institutions did not have, NAFCU was the only
    financial services trade association to oppose credit unions of
    any size being placed under the CFPB's direct regulatory
    authority.
        Unfortunately, our concerns have proven to be true. A
    recent survey of NAFCU members found that 94 percent have seen
    their regulatory burden increase since enactment of the Dodd-
    Frank Act. We believe that the CFPB's focus should be on
    regulating the unregulated entities that contributed to the
    financial crisis, not increasing the regulatory burden on good
    actors.
        While the current CFPB leadership has been open to
    listening to credit unions' concerns, NAFCU believes that some
    fundamental structure changes at the CFPB could be helpful in
    the long term. We believe changes could improve operations,
    give it the proper oversight, and result in better
    understanding between the Bureau and the entities it regulates.
        First, NAFCU supports the concept of creating a five-person
    board or commission to govern the CFPB. No matter how qualified
    and competent a single individual is, a commission setup would
    allow multiple consumer perspectives to be brought to the table
    in the CFPB's decision-making process. This would allow for a
    healthy debate on new proposals before they are issued.
        Second, NAFCU supports legislation that would modify the
    threshold needed for the FSOC to veto a proposed rule, and that
    clarifies the standard of what can be considered.
        Third, NAFCU supports legislative efforts to help ensure
    that the government, including the CFPB, does everything
    possible to take great care in handling member financial
    information.
        Fourth, NAFCU believes that Congress should change the
    funding mechanism for the CFPB to require annual congressional
    appropriation. We believe that subjecting the Bureau to the
    traditional appropriations process would allow for better
    oversight of this powerful agency.
        Finally, there are a number of other areas where CFPB
    operations could be improved and the regulatory burden on
    credit unions could be lessened. These are outlined in my
    written testimony and in NAFCU's five-point plan for regulatory
    relief.
        In conclusion, I continue to remain at a loss as to why my
    credit union has been placed under a new regulatory regime.
    While consumer protection is important, credit unions like mine
    were good actors before the crisis and now face overwhelming
    regulatory burdens post-crisis. Thank you for the opportunity
    to participate in this discussion today as the subcommittee
    debates possible changes to improve the structure and the
    operations of the CFPB. I would welcome any questions that you
    may have.
        [The prepared statement of Ms. Smith can be found on page
    51 of the appendix.]
        Mr. Duffy [presiding]. Thank you, Ms. Smith.
        The Chair now recognizes Mr. Silvers, the policy director
    and special counsel for the AFL-CIO, for 5 minutes.
        Mr. Silvers.

      STATEMENT OF DAMON A. SILVERS, POLICY DIRECTOR AND SPECIAL
         COUNSEL, AMERICAN FEDERATION OF LABOR AND CONGRESS OF
                   INDUSTRIAL ORGANIZATIONS (AFL-CIO)

        Mr. Silvers. Yes, good afternoon, Chairwoman Capito and
    Ranking Member Meeks. My testimony today is given on behalf of
    the AFL-CIO and on behalf of Americans for Financial Reform
    (AFR), a coalition of more than 250 national, State, and local
    organizations with a membership of close to 50 million people.
        Congress created the Consumer Financial Protection Bureau
    as part of a comprehensive set of reforms designed to address
    the causes of the financial crisis of 2008, which cost the
    world economy in excess of $60 trillion, according to the Bank
    of England. After the crisis, a clear consensus emerged that
    consumer protection regulation was fragmented and essentially a
    stepchild within the various bank regulatory agencies that had
    jurisdiction over it.
        In response, Congress designed the Consumer Financial
    Protection Bureau to unify the consumer protection work of the
    Federal Government in the financial services sector in one
    government body and to clearly define that body as part of the
    overall bank regulatory system. Thus, Congress located the CFPB
    within the Federal Reserve System, one of the three bank
    regulators. The Bureau, like the other bank regulators and the
    FHFA, has a budget that is not set through the congressional
    appropriations process. This is not unusual in bank regulation.
        The CFPB, again like the other bank regulators, is able to
    offer higher salaries, above the General Schedule for Federal
    employees, in recognition of the need to offer salaries that
    are at least somewhat competitive to people with experience in
    the banking sector.
        Finally, the CFPB, like the Comptroller of the Currency and
    the regional Federal Reserve banks which do the actual
    regulating for the Fed, is headed up by a unitary executive.
    None of these provisions in Dodd-Frank with respect to the CFPB
    are unusual for a bank regulator.
        At the same time, in response to some of the concerns that
    appear to motivate this hearing, Congress placed a number of
    unique constraints on the CFPB. The CFPB is the only financial
    regulatory agency whose rules may be overturned by a vote of
    the FSOC--the only one. The CFPB must consult with other bank
    regulators when engaging in rulemaking and those bank
    regulators have no such obligation to consult with the CFPB
    when they do their own rulemaking.
        The other bank regulators have access to CFPB inspection
    reports and the CFPB does not have access to theirs. The CFPB
    is subject to mandatory cost-benefit analyses in doing
    rulemaking--the other bank regulatory agencies are not--with a
    particular requirement to assess the effects of its rules on
    small banks, credit unions, and rural consumers. Compared to
    other bank regulators, the CFPB is actually substantially more
    accountable to Congress and to its fellow regulators.
        Nonetheless, since its establishment the CFPB has succeeded
    in returning over $700 million to consumers in improperly
    assessed fees and charges, including $300 million from JPMorgan
    Chase alone. The CFPB has also established standards of conduct
    leading to greater transparency and more consumer-friendly
    financial markets, including in the critical mortgage market,
    as some of my fellow witnesses have attested. These rules have
    been hailed by industry leaders, such as David Stevens of the
    Mortgage Bankers Association, who said of the mortgage rule
    that it accomplished Congress and the CFPB's goal of
    ``eliminating the risky products and features that once plagued
    our industry.''
        Today, the subcommittee takes up a series of measures--I
    believe there are 9 bills, but perhaps there are now 10, I'm
    not sure--each of which is designed to weaken the CFPB, to
    deprive the CFPB of its status as a genuine bank regulator, and
    to effectively subordinate the CFPB politically to the too-big-
    to-fail banks that dominate the markets the CFPB regulates. The
    AFL-CIO and Americans for Financial Reform strongly oppose
    weakening the CFPB in comparison to other bank regulators by:
    (A) replacing the Director of the CFPB with a five-member
    board; (B) reducing the required vote at the FSOC to a simple
    majority; (C) making the CFPB's budget subject to congressional
    appropriation; and (D) requiring the CFPB to pay its employees
    less than other bank regulators or limiting the CFPB's
    inspection powers.
        To put it simply, each of the nine bills before this
    subcommittee has no merit. I would make an exception for the
    bill that I just heard about a moment or two ago around
    disclosing information to consumers who request it. I haven't
    seen it and I can't give an opinion about it. The AFL-CIO and
    the AFR strongly oppose all nine of these bills. Each is an
    effort to weaken the CFPB, will make America's consumers more
    vulnerable, will benefit too-big-to-fail banks at the expense
    of the public interest, and will make our financial system more
    vulnerable to systemic crises.
        I appreciate being invited to testify today, and I look
    forward to your questions.
        [The prepared statement of Mr. Silvers can be found on page
    43 of the appendix.]
        Mr. Duffy. Thank you, Mr. Silvers.
        The vice chair will now recognize himself for 5 minutes.
        Just to note, Mr. Silvers, I have to respectfully disagree.
    I look at several of the bills here, one being taking the CFPB
    from a single director to a board and claiming that undermines
    the CFPB's effectiveness when you have a bipartisan commission
    that is actually working together on the behalf of consumers, I
    don't think holds water. And to think that empowering Congress
    through the appropriations process for the CFPB in some way
    diminishes the CFPB's effectiveness, I have to tell you, I
    disagree with that completely.
        But I want to go in a little different direction here. I
    have a bill that tries to address many of my constituents'
    concerns about the CFPB collecting credit card information.
    They are concerned about their privacy. And I have a bill that
    would actually make the CFPB, under the auspices of protecting
    consumers, ask the consumer's permission before they take their
    credit card financial data.
        Does anyone on the panel disagree that if we are going to
    protect consumers, the CFPB should ask the consumer before
    monitoring and collecting their financial credit card data? Mr.
    Sharp?
        Mr. Sharp. No, I don't disagree. I think if the CFPB is
    going to be collecting personally identifiable information in
    particular, I think everybody has--I think that people have an
    obligation to do that sort of eyes wide open, make sure that
    people are consulted.
        Mr. Duffy. Mr. Tissue?
        Mr. Tissue. As the vice chair is well aware, the banks and
    all financial institutions are subject to very strenuous
    privacy laws, primarily most recently from the Gramm-Leach-
    Bliley Act, and we take privacy very seriously. It is very
    important. And obviously, our regulators should be held to
    similar standards to protect privacy.
        Mr. Duffy. Ms. Smith?
        Ms. Smith. Yes, I do also believe that. The CFPB cannot be
    too careful with personal information. There is reputation risk
    to my credit union members. And NCUA's part 748, which is a
    regulation that I have to adhere to which includes member
    information and how I have to protect it is a law that I have
    to live by every day, and I have to spend thousands of dollars
    making sure that my members' information is protected, and I
    feel that the CFPB should be held accountable for doing the
    same thing. Thank you.
        Mr. Duffy. Mr. Silvers?
        Mr. Silvers. Yes, I disagree with the proposal you put up
    there, and I think that in certain respects my fellow witnesses
    have not articulated clearly what the issue is here. If this
    information was not held by anyone other than the consumer, Mr.
    Vice Chairman, I think you would have a point. But this is
    information that already is in the hands of the consumer's bank
    or other financial services provider. And in total, all of that
    personal, private information in the hands of these commercial
    institutions give those institutions an ability to design
    intentionally exploitative products using the computer power of
    big data.
        Mr. Duffy. And I want to interrupt you for one moment. Now,
    if I am doing business with Ms. Smith in her credit union, I
    have knowingly given Ms. Smith and her institution access to my
    financial information. And we have a relationship together to
    which I have consented. Where would I as a consumer have
    consented to the CFPB taking my information?
        Mr. Silvers. Are you suggesting that you have knowingly
    given, for example, Jamie Dimon and his staff the ability to
    take your information and figure out how to cheat you with it?
    Because you haven't.
        Mr. Duffy. What I am saying is if I bank with Wells Fargo
    or a credit union--
        Mr. Silvers. Because you haven't. And my members would
    appreciate being protected against that type of exploitation,
    and there is no way to do it without giving the CFPB access to
    the same information that Jamie Dimon has.
        Mr. Duffy. And so my point to the panel is, and I think
    most of the panel would agree that we should actually give
    permission before the CFPB collects this information.
        My time is running out. The CFPB has admitted that it is
    taking 80 percent or more of our credit card information. There
    are about a billion credit cards out there. Americans
    oftentimes have more than one. Does the panel, Mr. Sharp maybe
    to you specifically, do you see a need to collect near 100
    percent of all of this information or can the same data be
    collected and extrapolated by sampling, let's say, 8 or 10
    percent of the information as opposed to 80 to 100 percent?
        Mr. Sharp. Yes, I guess the way I would answer that is,
    this is the conversation the CFPB should be having with the
    public. If they want to make the case that they need every
    credit card transaction or account data on every cardholder,
    let them make that case, and maybe there is a reasonable case
    they can make. But we are not having that conversation.
    Instead, we are sort of finding out in dribs and drabs that
    this collection program exists.
        And so, sort of our top-line position is that the CFPB
    needs to be much more transparent about what they are doing and
    engage the public in a debate about what a reasonable program
    looks like and what the costs and benefits are.
        Mr. Duffy. Thank you.
        My time has expired, so I now recognize the distinguished
    ranking member, Mr. Meeks, for 5 minutes.
        Mr. Meeks. Thank you, Mr. Vice Chairman.
        Let me start out by first, I guess, asking Ms. Smith: I was
    listening to your testimony very carefully, and you started out
    by saying, which I completely agree with, that the credit
    unions are not or were not the cause of the financial crisis.
    But you acknowledged that there was a financial crisis, and
    that there were bad actors that helped cause that financial
    crisis. And you also acknowledge the fact that there is a need
    to protect consumers. It is just that you feel that credit
    unions shouldn't be part of it, is that correct?
        Ms. Smith. That is correct.
        Mr. Meeks. So if the credit unions were not covered under
    the CFPB, then the credit unions would agree, I would assume,
    to protect the good actors, that you would have a CFPB that is
    strong and independent so that it could do its job as other
    independent regulators do that are not subject, so they could
    have the freedom to do what they need to do as far as their
    jobs. Would that not also be correct?
        Ms. Smith. That would be correct.
        Mr. Meeks. Okay. And let me just--and I am just wondering
    on this theme of appropriations, especially coming out of what
    we just came out of with reference to a government shutdown and
    utilizing the appropriation process to somewhat hold the CFPB
    or others somewhat hostage to Congress, as opposed to allowing
    them to do what they were designed to do when we passed Dodd-
    Frank, would be substantial. So, for example, and I will just
    ask you again, Ms. Smith, and then I will leave you alone.
        Ms. Smith. Sure.
        Mr. Meeks. But you did say in your testimony that the CFPB
    should be subject to the traditional appropriation process to
    allow for better oversight of this powerful agency. Would you
    extend that statement to the Federal Reserve, for example, or
    the FDIC, or the OCC, and/or the National Credit Union
    Administration?
        Ms. Smith. No, I would not.
        Mr. Meeks. Those are very powerful financial institutions
    or regulators, and in fact I would argue that many of those are
    even more powerful than the CFPB. The CFPB is probably less
    powerful than these organizations. So my only concern is why
    single out the CFPB, with this requirement, and we are not
    talking about all the others. But I am not going to ask you to
    answer that question at this time.
        Let me just ask Mr. Silvers a question. Our Republican
    friends have suggested that the Bureau's budget be set through,
    again, this congressional appropriations process. Can you
    explain to us why most of the great lessons from the financial
    crisis taught us that bank regulators' lack of attention to
    consumer protection was one of the major causes of the crises,
    leading to more than 10 million families losing their homes. In
    fact, the former Fed Chairman himself admitted that regulators
    had been mistaken for not paying more attention to consumer
    protection issues in the mortgage lending industry. Do you
    agree with him or don't you?
        And so, can you just simply answer the question then, do
    you believe that if the appropriations process was covered
    under the CFPB, would the CFPB have the independence to perform
    its duties?
        Mr. Silvers. Congressman, since the 1870s, as I think you
    began your opening remarks, it has been well-understood on a
    bipartisan basis that bank regulators need to be insulated from
    the appropriations process, because the nature of that process
    tends to interfere with them making hard calls around issues of
    safety and soundness. That is a 150-year-old lesson that every
    time we back away from, we reap a catastrophe.
        The particular lesson of the last 10 years is that if you
    allow bank regulators who are largely focused on safety and
    soundness and who have an ideological belief, as Chairman
    Greenspan did, that markets are inherently self-correcting, if
    you give them authority over consumer protection, then they
    will essentially ignore consumer protection. And the failure to
    do consumer protection effectively will lead to the
    proliferation of exploitative financial products such as the 2/
    28 mortgage that you referred to, that the proliferation of
    those products will effectively undermine the safety and
    soundness of the financial system.
        The two lessons put together are this. First, you must have
    a regulatory agency within the banking regulation system that
    is exclusively focused on consumer protection, because
    otherwise it will be ignored to the Nation's peril. And second,
    that like the other bank regulatory agencies, the consumer
    protection agency must be insulated from the appropriations
    process, like other bank regulators are, because it is an
    essential part of bank regulation. It is not merely a sort of
    sop for consumers. It is critical to whether or not we will
    preserve the safety and soundness of our financial system.
        Chairwoman Capito. Thank you. The gentleman's time has
    expired. I am going to recognize myself for 5 minutes for
    questions.
        We have had a lot of rulemaking by the CFPB here over the
    last 3 years, and it seems to me we have a really important one
    coming out in January, the Qualified Mortgage (QM). And you
    have seen some of the projected squeezing down of the number of
    mortgages that are going to be able to fit into this QM box, so
    that the unintended consequences are still yet to be seen.
        So my question would be on the structure of a singular
    director as opposed to a committee or a commission of five, can
    you speak to how you think regulations could be better
    formulated and better refined under a system of a commission as
    opposed to a singular director? And I will start with Mr.
    Sharp.
        Mr. Sharp. Thank you for the question. I think first and
    foremost if we were talking about a CFPB that was run by a
    commission, I think we would have, and I will explain myself
    here, more rulemaking and less sort of shoot-from-the-hip
    regulation by press release.
        Again, one of our major concerns here is, the CFPB is
    required to write certain rules. Qualified Mortgage is an
    example; remittances is another example. But otherwise, where
    they are not required by Congress to write rules, they have
    opted to use sort of nonrulemaking channels to set standards.
    They put out guidance memos. They bring enforcement cases,
    which may be absolutely meritorious, and I don't want to say
    anything good or bad about the particular enforcement cases.
    But that is the way they have chosen to set standards, and the
    concern is that it is not a transparent process, there is no
    opportunity for notice and comments. We just think that is not
    the way to run a regulatory agency and we think if we had the
    benefit of a commission, we think there would be much less of
    that, much more regular order, which we think is to the good
    for everybody, consumers and the business community.
        Chairwoman Capito. Mr. Tissue?
        Mr. Tissue. Madam Chairwoman, I am not a government
    organization specialist. I am, to paraphrase a former Member of
    Congress very loosely, just a country banker.
        It seems to me that we have talked about what appears to me
    is that we have a commission of one is the way that the CFPB is
    set up, that the model for the regulatory bodies of having the
    commission is to have the collegiality, the discussion. I know
    there is going to be political partisanship both ways, but just
    that interaction, that debate, that process, in my view, it is
    only commonsensical it is going to arrive at a better product,
    as opposed to a dictatorial--I hate to use such a harsh term,
    but that is all that comes to mind.
        So it seems to me common sense. I think we all would agree
    the QM/ATR standard was challenging for the CFPB to deal with.
    And I will say on behalf of my folks in the banking industry,
    we are very pleased that particularly banks my size were given,
    with the small lender rule, some reprieve from the most
    onerous, that we can still do what we do best.
        Chairwoman Capito. Ms. Smith, let me ask you a little bit
    different question. The original point of the CFPB was to put
    all of the consumer protection under one umbrella, and that all
    of the other prudential regulators would ostensibly fold their
    consumer protection function into the CFPB umbrella. But it
    doesn't seem to be pulling forth that way. You have a
    regulator. Are you finding at the Federal Credit Union that you
    are having to answer to for one consumer protection and then
    the overlay of the CFPB in a duplicative, or maybe even
    sometimes conflicting way?
        Ms. Smith. Yes. If you look at the upcoming laws and rules
    from the NCUA, and from the Consumer Financial Protection
    Bureau, the laws are lists long and very overwhelming for a
    credit union my size.
        I don't have the infrastructure in place at my credit
    union. I don't have a department of lawyers who can analyze
    everything. So it really makes it difficult for me.
        But if I can answer the board versus the single director
    question that you asked, the board would offer more diversity
    of opinion and continuity over time given the change in the
    Administration. And I also feel that board terms could be
    staggered over a period, and that would ensure continuity to
    leadership and be fair to all participants, which the credit
    union is a participant. I feel it would be fair.
        Chairwoman Capito. Thank you. My time has expired.
        Mr. Green?
        Mr. Green. Thank you, Madam Chairwoman.
        I have an idea. Why don't we a have a board of about 435
    and let's give them the authority to work together and
    harmonize, and let's give them the opportunity to negotiate. I
    think that would yield some sort of work product, one that I
    rarely see, but I think we could get a work product out of
    that.
        I am just curious about this idea of having a board. In
    another life, this is a true vignette, without giving a lot of
    details, we were confronted, members of this organization, with
    something that we wanted to slow down. And someone said, well,
    let's slow it down by placing it with a committee, because
    obviously you have a number of people to make a decision. And
    then someone else said, no, we don't want to kill it, we just
    want to slow it down, so we don't want to send it to the
    committee.
        Friends, if we give the authority to five people, why would
    I conclude that these five people, appointed at some point in
    time by various different Presidents, are going to be on the
    same accord and are going to be able to work and give us a work
    product? We have one agency right now that is stalled, has been
    stymied for some time, without going into names, because they
    can't reach any kind of agreement. This is the protection of
    consumers.
        Mr. Silvers, give me your thoughts on the one person versus
    the five people and why you see the one the better or the five
    the better.
        Mr. Silvers. I think--
        Chairwoman Capito. You need to put your microphone on.
    Excuse me, you need to put your microphone on.
        Mr. Silvers. I'm sorry, Madam Chairwoman. Is it on now?
    Yes.
        There are agencies in the Federal Government that have
    five-person boards and three-person boards, and then there are
    agencies with singular directors. In the bank regulation area,
    which is what the CFPB is in, there I think has been an
    understanding on the part of Congress and observers of policy
    for a long time that day-to-day bank regulation is best in the
    hands of a unitary executive who can move quickly. And I think
    part of the understanding of Dodd-Frank that you spoke so
    complimentarily about earlier was that we needed that type of
    approach in the consumer financial protection area as well.
        What I am referring to is that the Comptroller of the
    Currency is a unitary executive. And it is also the case,
    although not well understand, that the Federal Reserve's
    regulation of bank holding companies is really undertaken at
    the regional level by regional banks with unitary executives,
    the President of each Federal Reserve Bank. The Board here in
    Washington rarely undertakes the kind of market-specific acts
    that the CFPB does routinely.
        There is no question in my mind that the effort to move
    from a unitary director to a five-person board is motivated by
    the knowledge that it will always be possible to have a
    blocking member controlled by the industry on a five-member
    panel, and that regardless of whether it is a predominantly
    Republican panel or a predominantly Democratic panel, there
    will always be that swing vote that the industry themselves
    controls.
        Mr. Green. Now, let's talk about the appropriations process
    with the little time that we have left. Are you absolutely
    convinced that Congress is going to appropriately appropriate
    funds for the CFPB, given that the SEC is understaffed,
    underfunded, and we can't come to terms in terms of what the
    needs are for the SEC? Mr. Silvers, would you kindly comment?
        Mr. Silvers. Congressman, I think you have hit on the most
    critical set of facts to appreciate in this debate. We have two
    kinds of financial regulatory agencies in our government. One
    kind is subject to an annual appropriation by Congress; the
    SEC; the Commodity Futures Trading Commission. The other kind
    are the bank regulators we talked about earlier: the CFPB; the
    Fed; the FDIC; and the Comptroller of the Currency.
        The agencies that are subject to annual appropriation are
    extremely unhappy with that phenomenon, because they will tell
    you it is used to yank their chain and to block them from
    effective enforcement. If you can get them to speak to you
    candidly, that is what they will tell you; that is what I have
    been told on numerous occasions. The reason why we don't have
    bank regulators subject to annual appropriation is because it
    has been known since the 19th Century that if you do it that
    way, you will endanger the safety and soundness of the U.S.
    financial system because you will make the decisions of the
    bank regulators subject to the political process.
        And this is exactly what the realization that consumer
    financial protection is at the heart of systemic safety and
    soundness led to in Dodd-Frank, the understanding that if we
    don't insulate consumer financial protection from the back and
    forth of day-to-day politics in Washington, we will endanger
    the health of the U.S. economy, as we just did in the financial
    crisis of 2008.
        Mr. Green. Thank you very much, Mr. Silvers.
        And thank you, Madam Chairwoman.
        Chairwoman Capito. Thank you.
        Mr. Bachus for 5 minutes.
        Mr. Bachus. Thank you.
        Mr. Silvers, the other three panelists have indicated
    pretty strongly that they believe in a bipartisan commission
    for the CFPB. Has the AFL-CIO taken any formal position on a
    single director as opposed to a bipartisan commission?
        Mr. Silvers. Yes, Congressman. I am here representing the
    AFL-CIO. It is our position that it should remain a single
    director.
        Mr. Bachus. They have taken that formal position?
        Mr. Silvers. That is a position the AFL-CIO has stated
    formally, yes, sir.
        Mr. Bachus. Okay, thank you.
        Just looking at your experience as their legal counsel, can
    you think of any agencies that have issued regulations which
    have negatively affected your members and their livelihood?
        Mr. Silvers. Congressman, I am sure you know at various
    times in an institution as old as ours, I am sure we have had
    that view of pretty much everybody at one time or another.
        Mr. Bachus. Yes, just over maybe the past 2 or 3 years, can
    you think of any that really have been criticized by some of
    the labor unions?
        Mr. Silvers. Congressman, I think that in the past 2 or 3
    years, we have seen a variety of decisions by a variety of
    agencies. I am not quite sure which one--you are referring to
    somebody in particular, I gather, but I am not sure which--
        Mr. Bachus. One comes to my mind, and that is the EPA,
    particularly in the coal industry. Do many of your members
    believe that some of their decisions as they relate to coal
    have been adverse to your interest?
        Mr. Silvers. Congressman, I can say there is a wide range
    of opinion on that subject within the AFL-CIO. Currently, we
    are in--
        Mr. Bachus. What is your opinion?
        Mr. Silvers. Currently, the AFL-CIO is in dialogue with the
    EPA on coal rules, and we have not come out with a final
    opinion about their current coal rules.
        Mr. Bachus. All right. The EPA and the CFPB are the only
    two with single directors.
        Mr. Silvers. Congressman, that is not the case. As my
    earlier testimony indicated, the Comptroller of the Currency,
    which is far more relevant to this conversation than the EPA,
    is a single-director agency.
        Mr. Bachus. The Comptroller of the Currency can be recalled
    at any time. So he almost instantaneously can be replaced, and
    he is under supervision by the Secretary of the Treasury, who
    is appointed by the President.
        Mr. Silvers. It is rarely done.
        Mr. Bachus. They are under the appropriation process.
        Mr. Silvers. As a matter of custom, as I said, it is rarely
    done.
        Mr. Bachus. It can be done.
        Let me ask you this. In your testimony, you start out
    talking about the financial crisis of 2008. You cited those
    figures we have all heard, which we agree with, that the cost
    to the economy was devastating, and to jobs. Do you recall what
    companies were failing then?
        Mr. Silvers. All too well, Congressman.
        Mr. Bachus. AIG probably was the biggest failure, as well
    as Bear Stearns, Lehman, Washington Mutual, Wachovia.
        Mr. Silvers. Congressman, if you want my opinion, I would
    add Citigroup, Bank of America, and potentially more.
        Mr. Bachus. Absolutely. They were shaky. They were in
    trouble.
        Mr. Silvers. I would suggest that 2 years ago, Citigroup
    was bankrupt if not for the Federal Government.
        Mr. Bachus. I think a lot of people share that opinion.
    What do all of those have in common? They are not your mom-and-
    pop or your Main Street bank or credit union, are they?
        Mr. Silvers. Congressman, what those banks have in common
    is that they totally dominate the markets the CFPB regulates.
        Mr. Bachus. That is right. They absolutely. They are a
    dominant position, they control over 70 percent of the assets
    of all financial institutions.
        What do you think about the proposals by NAFCU and others
    to raise that $10 billion threshold on direct examinations? If
    you raised it to 25, it would still cover 75 percent of the
    banking assets. Do you all have an opinion on whether the
    smaller institutions ought to be exempted not from the
    jurisdiction, but simply from the direct examinations?
        Mr. Silvers. Congressman, I have thought about this
    question a lot. I think you pose a very thoughtful question. I
    think one of the lessons of the financial crisis is that it is
    possible for large institutions to act through smaller
    institutions. If you go back and look at the situation in the
    private label mortgage market during the bubble, most of those
    mortgages were actually originated, the consumer interface was
    through very small institutions, storefronts.
        The import here is that if you are trying do consumer
    financial protection, it may be the case that the markets in
    fact are dominated by large institutions, but they essentially
    subcontract. So that if you exempt at too small a level, which
    you tried to do initially--
        Mr. Bachus. AIG didn't do that.
        Mr. Silvers. --you will miss the problem.
        Chairwoman Capito. The gentlemen's time--
        Mr. Bachus. Bear Stearns, Lehman didn't, Washington Mutual
    didn't.
        Chairwoman Capito. The gentlemen's time has expired.
        Mr. Bachus. All right. Thanks. Could I ask him, you don't
    believe that we ought to exempt some of the smaller
    institutions from some of these regulatory burdens?
        Mr. Silvers. You asked about the AFL-CIO. We have not taken
    a formal position on this question that I know of.
        Mr. Bachus. For or against?
        Mr. Silvers. But my view as policy director is that the $10
    billion number is about right.
        Chairwoman Capito. I am going to go to the next questioner,
    Mr. Lynch, for 5 minutes.
        Mr. Bachus. The others have already stated in their
    policies that they believe it ought to be raised.
        Ms. Smith. Absolutely. We think all credit unions should be
    exempt, regardless of the asset size.
        Chairwoman Capito. All right. Thank you.
        Mr. Lynch?
        Mr. Lynch. Thank you, Madam Chairwoman.
        Let's see. I do want to go back to the point that in
    looking at all the bank regulators prior to the collapse of the
    financial system in 2008, the SEC, the OCC, the CFTC, the FDIC,
    the Fed, those are all institutionally focused bank regulators.
    So after Congress voted to give $787 billion to the big banks--
    I voted against it, by the way--our thinking in the course of
    Dodd-Frank was that we need to have somebody out there looking
    out for the consumer. That is what the CFPB was established to
    do, to be the dog in the fight for the consumer, not looking
    out for banks or credit unions or institutions. And so, that is
    why we set it up.
        And since it has been established, there has been a
    relentless effort by my colleagues to varying degrees on the
    other side of the aisle to do away with the CFPB. We have bills
    sponsored by my colleagues on the other side of the aisle that
    would just flat out repeal Dodd-Frank, it would repeal section
    10. And so, you see, even though people say they are in favor
    of consumer protection, their actions really lead you to
    another conclusion.
        I just want to point out a couple of things. One is, as has
    been pointed out previously, the FDIC, the Fed, and the OCC are
    self-funded, they do their own thing, they don't have to rely
    on congressional appropriations. The two bank regulators that
    have to rely on us, the SEC and the CFTC, are grossly
    underfunded. And every time we have a debate in this hearing
    room over funding for the SEC or the CFTC, there have been
    relentless efforts to cut their funding so that they can't do
    their job. And I believe that the reason the folks want the
    CFPB, the Consumer Financial Protection Bureau, to be subject
    to appropriation is so you can kill it, so you can kill it like
    you try to kill funding for the SEC, like you try to kill
    funding for the CFTC, so that they can't carry out their
    obligations under Dodd-Frank either. That is just the way it
    is.
        And the issue of data, this is like a circular firing
    squad. Okay, on the issue of data there is a requirement in the
    bill that was advocated by my colleagues on the other side of
    the aisle, that was accepted, which said that the CFPB has to
    do a cost-benefit analysis and has to back up their policy
    decisions based on data. So they asked the banks give us the
    data that you are relying upon, let's say, for instance, in
    marketing credit cards to folks who shouldn't have credit
    cards, people who don't have the income for it. The only way we
    can actually have the CFPB verify whether they are gouging the
    consumer is to get the data from the banks so we can see
    whether they are red-lining certain consumers and taking
    advantage of them. So it has to be data-driven. But you are
    saying there are now major concerns and you don't want the CFPB
    to have the data that is already in the possession of the banks
    that are sending out the credit cards which are taking
    advantage of consumers.
        So you are setting up a system that is completely
    unworkable. The CFPB has to have the data that the bank uses to
    make their policy decisions. The CFPB needs to have the data so
    that they can protect consumers. Everybody is wringing their
    hands about what the one agency that is responsible for
    protecting consumers might do, God forbid, but yet we allow
    these banks to grow bigger and bigger and bigger.
        A week doesn't go by without another scandal either at Bank
    of America or JPMorgan Chase with billions and billions of
    dollars in penalties because they took advantage of Fannie Mae
    and Freddie Mac and average people who were trying to get
    mortgages. And yet, we have all this handwringing about this
    one agency, the only agency that we have in the government
    today that is really looking specifically at the interests of
    consumers. I think that it is disingenuous to suggest that this
    one agency is the root of our problems. This agency, if run
    properly, may be the salvation of the economy; it may finally
    protect American consumers.
        And I see my time has expired. I will yield back the
    balance of my time. Thank you, Madam Chairwoman.
        Chairwoman Capito. The gentleman yields back.
        Mr. Luetkemeyer?
        Mr. Luetkemeyer. Thank you, Madam Chairwoman.
        Mr. Sharp, thank you for being here today. In reading your
    testimony, one of the reforms that you suggest is support for
    the bipartisan five-member commission. And I would like to ask
    you a question with regards to the fact that data from the
    Federal Reserve shows that the finance companies, which fill an
    important lending niche and account for nearly a quarter of the
    Nation's $3 trillion of consumer credit, are important assets
    to our lending services. These companies will lend their own
    capital, not that of depositors, so that they are able to make
    loans to families with impaired or no credit. These companies
    have a very different business model and likely receive a lot
    of attention from the CFPB. Yet, the Bureau staff has limited
    experience overseeing these companies.
        Do you believe that the CFPB would benefit from a
    commission structure like what you are suggesting that would
    have at least one member having experience regulating consumer
    credit at the State level?
        Mr. Sharp. The short answer is, I do.
        Mr. Luetkemeyer. What other changes would you suggest or
    what other recommendations would you make with regards to
    people on that commission?
        Mr. Sharp. I think it makes sense to have someone from the
    banking regulatory community on the board, either from the FDIC
    or even from the OCC. Again, I think the goal of a commission
    is to a have a broad range of views represented, political
    views and sort of industry views, consumer views as well. So I
    guess I would be happy to get back to you to give you sort of a
    specific list of maybe how we would see a five-member
    commission constituted. But our view is have as many points of
    view assembled there as possible.
        Mr. Luetkemeyer. It would seem that one of the arguments
    that has been made, that some of the discussion we are having
    here is that a lot of other commissions they say don't work,
    yet in the financial regulatory area you have the FDIC, which
    has a commission. So I am not sure where they are going to go
    with that. It seems to work pretty well.
        One of the concerns that I have is with regards to the
    effectiveness of the rulemaking that goes on with the CFPB.
    And, Mr. Sharp, I would like to relate to you a little bit of a
    story that I had, a situation that I had come up in my office
    recently.
        I met with a group of bankers with regards to the Qualified
    Mortgage rule, and they had just been to the CFPB and had
    discussed with them the Qualified Mortgage rule that is being
    proposed. And the CFPB response was, from the official they
    talked to, that you are the 41st group to bring this to our
    attention, but we still aren't convinced that this is an actual
    problem.
        That is unbelievable, that they have 41 different groups
    that have brought to their attention this problem with the
    Qualified Mortgage, explaining the unintended consequences of
    what is going to happen when this thing comes out in January,
    and they are ignoring it. And then today in The Hill, Richard
    Cordray, the Director of the CFPB, says that, in addressing a
    group of lenders recently here in D.C., indicates that we are
    all in this together, our oversight of new mortgage rules in
    the early months will be sensitive to the progress made by
    those lenders and servicers who have been squarely focused on
    making good-faith efforts to come into substantial compliance
    on time. A little bit contradictory, isn't it?
        Mr. Sharp. Yes.
        Mr. Luetkemeyer. Where do we go?
        Mr. Sharp. I think this is a good example of why a
    commission makes sense. As it is now, you have one person to go
    make your case to. And if it doesn't work, if they are not
    convinced, then you are out of luck. With a commission,
    obviously, particularly a commission that would have members of
    different backgrounds and different expertise, there is a
    better chance that you are going to be able to make your case
    effectively to someone within the agency and find some sort of
    constituency there that understands your problem of your
    particular industry. So, I agree.
        Mr. Luetkemeyer. Mr. Tissue, would you like to comment on
    that? You are the banker on the panel today. I am sure you have
    some concerns with the QM rule and probably have already
    expressed to your local West Virginia Bankers Association your
    concerns. Here we have an agency that seems to be ignoring the
    problems, have a Director who says, well, we are going to work
    on it, hand in glove, we are not fitting here. What is your
    opinion?
        Mr. Tissue. Thank you, Congressman. I am representing the
    West Virginia bankers. My particular institution is under $2
    billion. As I stated earlier, the small lender exception or the
    small lender Qualified Mortgage standard, our biggest issues in
    my particular institution was the prescribed DTI of 43 percent
    as well as using certain of the Appendix Q standards. That, as
    you are aware, under the small lender QM, is not applicable to
    banks that are under $2 billion.
        That said, in West Virginia there are, in the West Virginia
    bankers, there is a large institution that is approaching 10
    billion. In fact, it will soon be going. And I talked to their
    CFO recently, and they are in the process of moving from the 9
    billion so to be over 11 billion. They indicated to me they
    have added 24 additional compliance staff people who were
    virtually prescribed to them by the regulatory authorities.
    Now, I don't know if that was particularly by the CFPB, but to
    meet those standards that they will have to now. And it is a
    variety, they are not just the QM rules. But it seems to me
    what is developing, and I think it is important, what I am
    seeing developing is there are two banking standards now. There
    are those that are under 10 billion and over 10 billion.
        Chairwoman Capito. The gentleman's time has expired.
        Mr. Luetkemeyer. I appreciate your perspective.
        Thank you, Madam Chairwoman.
        Chairwoman Capito. Mr. Rothfus?
        Mr. Rothfus. Thank you, Madam Chairwoman.
        We are hearing a good bit of debate today on the issue of
    having a commission as opposed to a single director. And we
    know that our other Federal financial regulators are indeed
    governed by a commission, the FDIC, the Fed, the CFTC, and the
    SEC, which includes as part of its mission the protection of
    investors. That fact alone demonstrates that these aren't just
    ``institution-focused entities.'' And of course, we have on the
    consumer side the FTC and the Consumer Product Safety
    Commission that are looking at consumer protection.
        Mr. Luetkemeyer raised the issue of the composition of what
    a commission might look like. Mr. Sharp, data shows that
    finance companies account for nearly a quarter of the Nation's
    consumer credit. Because these companies lend on capital, they
    are able to make loans to families with impaired credit or no
    credit history at all.
        From what I understand, though, the CFPB has limited
    experience overseeing this nonbank segment of the consumer
    credit marketplace. In an effort to maintain this important
    avenue of credit to these individuals, would the CFPB benefit
    from employing a multimember commission structure with at least
    one individual having experience regulating consumer credit at
    the State level, similar to how the FDIC board is structured?
        Mr. Sharp. Yes, I think that is a good idea. In some ways
    being lost here in this discussion is that the CFPB isn't just
    a bank regulator. They have domain over a large chunk of the
    financial services market that is not pure bank companies. And
    so, I do think that experience would be useful on a commission.
        Mr. Rothfus. Would you suggest that Congress would
    legislate that by statute, that a member of that part of the
    industry would be on the commission?
        Mr. Sharp. I think that would probably make sense.
        Mr. Rothfus. Mr. Tissue and Ms. Smith, I would like to
    direct this to you. On July 9th, the subcommittee held a
    hearing on the CFPB's data collection practices, and members on
    both sides of the aisle expressed concern regarding the CFPB's
    ability to maintain the confidentiality and security of
    personally identifiable information the Bureau collects about
    American consumers. In response, CFPB Deputy Director Atonakes
    testified that we have no reason to believe that there has been
    a breach. However, in response to questions for the record
    submitted to the CFPB by Members following the hearing, Mr.
    Atonakes later admitted to us that there have been no less than
    three privacy breaches involving the loss or compromise of an
    individual consumer's personally identifiable information held
    in the CFPB's Consumer Complaint Database. Given these
    breaches, how can your members be confident that the CFPB will
    safeguard sensitive information contained in the complaints
    that consumers submit to the Bureau?
        Mr. Tissue. Congressman, as stated earlier, banks hold very
    precious our reputation; it is really our lifeblood. And part
    of that is expected, the expectation of our customers or our
    consumers that we serve is to protect the utmost their privacy.
    And I would just say that we would be very troubled if that
    reputation is at risk in any way, because it would reflect not
    only on the CFPB, but on us as well, we believe.
        Mr. Rothfus. Ms. Smith?
        Ms. Smith. Yes. I do agree with Mr. Tissue that there would
    be reputation risks if our members' information was compromised
    due to flaws within the CFPB.
        Mr. Rothfus. In the context of our discussion today about
    the structure of the CFPB, what can be done to better protect
    your members or clients from the privacy risks posed by the
    CFPB?
        Mr. Tissue. I think that one of the bills we were
    discussing today is a disclosure, similar to that where the
    consumer has the right to inquire of the CFPB what information
    may or may not be held by them. I think our consumers would be
    very interested in that. Just as we are under the GLB privacy
    portion of the Privacy Act, we are required to inform our
    consumers or our customers annually what we are doing with the
    information that we are holding on their behalf.
        Mr. Rothfus. Mr. Sharp, do you see any reason why the CFPB
    should be treated differently from other consumer protection
    agencies, like the Consumer Product Safety Commission or the
    FTC or the SEC, that are subject to the congressional
    appropriations process?
        Mr. Sharp. No. Again, we think it makes all the sense in
    the world to have the CFPB subject to regular appropriations.
    We think, particularly as I laid out in my testimony, the
    combination of no appropriations, a single director who is
    unremovable except for cause, is not the way to set up an
    agency and a situation that is likely to lead to a place where
    every time we have a new director there is substantial change
    in the attitude and outlook and practices of the agency. So,
    yes, we don't think they should be treated differently.
        Chairwoman Capito. The gentleman's time has expired.
        Mr. Barr?
        Mr. Barr. Thank you, Madam Chairwoman.
        Mr. Sharp, you alluded earlier to the CFPB's guidance on
    dealer-assisted auto financing. I want to ask you a couple of
    questions about that. To your knowledge, did the CFPB take into
    account any input from auto dealers?
        Mr. Sharp. Not that I am aware of.
        Mr. Barr. What about consumers, are you aware whether or
    not they took into account any input from consumers?
        Mr. Sharp. Certainly nothing was taken into account on the
    record from anybody as far as I know.
        Mr. Barr. Were they required to?
        Mr. Sharp. I think that is a good question. I think they
    would certainly say that they are not required to.
        Mr. Barr. And obviously, as you testified, no notice and
    comment rulemaking occurred because it was guidance, informal
    guidance.
        Mr. Sharp. Right.
        Mr. Barr. Did the CFPB hear from Congress on this issue, to
    your knowledge?
        Mr. Sharp. Not to my knowledge. Not prior to.
        Mr. Barr. Did the CFPB disclose in any formal or informal
    way, to your knowledge, the analysis, the studies, the
    methodology that they used to justify their particular
    guidance?
        Mr. Sharp. No, not to my knowledge.
        Mr. Barr. Did the CFPB do anything at all that would
    indicate that it is a responsive, accountable, transparent
    agency in issuing this guidance?
        Mr. Sharp. Not as far as I can tell.
        Mr. Barr. Could the fact that this is a single director,
    noncommission agency, not subject to appropriations from
    Congress, have anything to do with the fact that this agency is
    not taking into account the regulated entities' input or even
    the consumers' input on this issue?
        Mr. Sharp. Yes, I think that, as I said in my testimony, I
    think the structure absolutely enables the agency to sort of
    skip steps wherever they feel like they can and should for the
    sake of expediency. I am not saying it is bad faith. I know
    they are trying to get to quick results. But in doing so I
    think they are leaving on the table a huge opportunity to hear
    from those who will be affected and to come to sort of a more
    reasonable outcome.
        Mr. Barr. Mr. Tissue and Ms. Smith, a quick question:
    Earlier this year, the CFPB published a final rule creating an
    additional category of QM, one for mortgages with balloon
    payments that are originated by small creditors in rural or
    underserved areas. But there is significant evidence that the
    CFPB's categorization of rural and nonrural areas for purposes
    of this QM category is flawed. For example, in my congressional
    district there is a place called Bath County, Kentucky, which
    is manifestly rural, there is nothing urban about it
    whatsoever, and yet the CFPB has classified Bath County,
    Kentucky, as nonrural.
        Is there anything about the CFPB's unaccountable structure,
    the fact that it is so completely out of touch with the
    counties that it is designating as rural or nonrural, that is
    contributing to the flaws in these rural and nonrural
    designations?
        Mr. Tissue. Congressman, I would point out that in our
    State as well, in the chairman's district is Clay County, West
    Virginia. This is identical, I believe, to the situation you
    refer to in Kentucky. I can't understand how areas like that
    would be deemed not to be rural. Perhaps if you had a
    commission and you had back-and-forth discussion by those that
    would point out the fact that just because a county borders a
    SMA, that it doesn't necessarily have to be--it is not a
    bedroom community of that SMA.
        Mr. Barr. And, Ms. Smith, I beg your pardon, I am going to
    move on to a final question, my time is expiring.
        Ms. Smith. Oh, okay.
        Mr. Barr. So to Mr Silvers, if I could, I do want to ask
    you a question. One of your arguments for shielding the CFPB
    from congressional appropriations in the budget process is that
    the agency needs extra-competitive salary structure to recruit
    people in the banking sector. Do you know how many employees
    are at the CFPB?
        Mr. Silvers. Congressman, I do not. I assume it is a large
    number.
        Mr. Barr. Do you know how many actually have a banking
    background?
        Mr. Silvers. Most of the individuals that I have dealt with
    on a relatively senior level in the CFPB have a banking
    background.
        Mr. Barr. You don't know the ratio of whether or not--
        Mr. Silvers. I do not.
        Mr. Barr. And is the fact that maybe that agency is not
    transparent that you don't know how many actually have a
    banking background which you say is the justification for not
    subjecting this agency to congressional appropriations?
        Mr. Silvers. Congressman, since my experience is that the
    senior people that I have dealt with at the agency typically
    have a banking background, it never occurred to me to ask what
    the ratio was.
        Mr. Barr. So the people on the ground, the regulators
    themselves, not senior, you don't know how many of them
    actually do have a banking background, and yet they are subject
    to this extra-competitive salary structure. Is that correct?
        Mr. Silvers. Congressman, all the bank regulators have this
    ability. It is impossible to be an effective bank regulator
    without the ability to hire competitively in the banking
    sector.
        Mr. Barr. Mr. Silvers, final question, do you think the
    Securities and Exchange Commission went easy on JPMorgan Chase
    in recent activities and the recent enforcement actions? Did
    they go easy on them because they were a commission?
        Mr. Silvers. Congressman, I serve in a pro bono capacity to
    the Attorney General of New York in this matter. I can't really
    comment on it.
        Chairwoman Capito. The gentleman's time has expired.
        Mr. Barr. I yield back.
        Chairwoman Capito. Mr. Stutzman?
        Mr. Stutzman. Thank you, Madam Chairwoman.
        And thank you to the panelists for being here today. I
    appreciate your testimony and your comments. I would like to
    talk a little bit about just the regulatory experience that you
    all have had in the past. I have been reading through some of
    the testimony. I actually had a couple of questions for Mr.
    Tissue first.
        You say in your testimony that recent rulemakings on
    remittances and mortgage financing and servicing will benefit
    consumers, providers in the market as a whole. The Bureau's
    willingness to respond flexibly rather than dogmatically has
    enabled these win-win outcomes. But then you say responsiveness
    is not of course a substitute for accountability. Could you
    follow up a little bit more on that, and what do you mean by
    that?
        Mr. Tissue. What I mean by that is that just having good
    intentions is not good enough, would be my response to that,
    that because we have a--circumstances can change and gets back
    to the idea of having the commission versus a single director,
    is that you have the continuity of administration of the
    agency. And I want to be clear here, the banking industry is
    not in favor of dismantling the CFPB. I think it has been
    asserted by some of the other members, and that is not our
    intent. It is in my testimony, when I say we support effective
    consumer regulation protection. And it troubles me as a banker
    that it would be questioned.
        Mr. Stutzman. Soon after that you talk about how there is
    more that the Bureau can do immediately, and you touch on
    Qualified Mortgages. And then towards the end of that paragraph
    you say, ``In order to do this, we need to extend the existing
    deadlines, as well as address outstanding issues to ensure that
    all creditworthy borrowers have access to credit.'' Can you
    give us a little bit more detail on the timelines that you are
    dealing with now?
        Mr. Tissue. Yes, Congressman. The QM/ATR rule goes into
    effect, I believe, on January 14th. We have to, as you know,
    train people. We have to put in place the systems, the
    processes, and have them up and running to a standard that is
    acceptable to them. We, unlike perhaps the healthcare folks,
    are held accountable and we will have to have that in place
    because we will be reviewed and there will be repercussions if
    we do not.
        Here again, we are fully in favor of moving forward. We
    think there are improvements that could be made. But we are
    interested in successfully implementing it, it is just that we
    have asked for a bit more time. There has continued to be
    changes to that. They say that they have given us a year. That
    was a year from the final, but there has been two or three
    finals since the final.
        Mr. Stutzman. Ms. Smith, would you like to comment on that?
        Ms. Smith. Yes. Oh, absolutely, I would like to comment on
    the Qualified Mortgage rule that will come into place next
    year. I am concerned about it. Over the last 3 years, since the
    inception of the CFPB, I have had to increase my compliance
    costs. My $100,000 is now going to be $250,000 next year. That
    is a lot, that is significant. And credit unions over the last
    several years have really had to struggle just to maintain a
    positive return on asset. And so, that has been a constant
    struggle for us.
        We were not the problem. If you look at the reports that I
    have, on pages 2 and 4, you will see that in delinquency
    ratios, we far outperformed the banks. We were still lending
    and my credit union still continues to lend, offer first
    mortgages on down.
        Mr. Stutzman. You don't have the large armies of lawyers
    that you mentioned that large Wall Street banks have to keep up
    with the pace of regulations. Can you give us a typical,
    average size credit union, how do they handle this? Are they
    hiring shared firms, are they sharing a firm, or how do they
    handle this?
        Ms. Smith. Yes, we do have an organization that assists us
    in underwriting our mortgage loans. We do review them, but we
    have someone to help us in that regard. And what we are seeing
    from them is because they are assisting with some of the
    underwriting, they are going to then increase their mortgage
    origination costs and pass that cost on down to my members. So,
    that is what I am seeing.
        Mr. Stutzman. Okay. Thank you very much. I will yield back.
        Chairwoman Capito. All right. The gentleman yields back. I
    think that concludes the hearing. No more questioners are here.
        The Chair notes that some Members may have additional
    questions for this panel, which they may wish to submit in
    writing. Without objection, the hearing record will remain open
    for 5 legislative days for Members to submit written questions
    to these witnesses and to place their responses in the record.
    Also, without objection, Members will have 5 legislative days
    to submit extraneous materials to the Chair for inclusion in
    the record.
        I want to thank all of our witnesses for being so
    forthright in your opinions, and I appreciate you taking time
    out of your day. And travel safe home back to West Virginia,
    Mr. Tissue. Thank you very much. This hearing is adjourned.
        [Whereupon, at 4:41 p.m., the hearing was adjourned.]

                                A P P E N D I X

                                October 29, 2013

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