[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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