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



 
                    LEGISLATIVE PROPOSALS TO IMPROVE

                    TRANSPARENCY AND ACCOUNTABILITY

                              AT THE CFPB
=======================================================================

                                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

                             SECOND SESSION

                               __________

                              MAY 21, 2014

                               __________

       Printed for the use of the Committee on Financial Services

                           Serial No. 113-82
                           
                                  
                                  
                                  
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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. VELAAZQUEZ, New York
PETER T. KING, New York              BRAD SHERMAN, California
EDWARD R. ROYCE, California          GREGORY W. MEEKS, New York
FRANK D. LUCAS, Oklahoma             MICHAEL E. CAPUANO, Massachusetts
SHELLEY MOORE CAPITO, West Virginia  RUBEEN HINOJOSA, Texas
SCOTT GARRETT, New Jersey            WM. LACY CLAY, Missouri
RANDY NEUGEBAUER, Texas              CAROLYN McCARTHY, New York
PATRICK T. McHENRY, North Carolina   STEPHEN F. LYNCH, Massachusetts
JOHN CAMPBELL, California            DAVID SCOTT, Georgia
MICHELE BACHMANN, Minnesota          AL GREEN, Texas
KEVIN McCARTHY, California           EMANUEL CLEAVER, Missouri
STEVAN PEARCE, New Mexico            GWEN MOORE, Wisconsin
BILL POSEY, Florida                  KEITH ELLISON, Minnesota
MICHAEL G. FITZPATRICK,              ED PERLMUTTER, Colorado
    Pennsylvania                     JAMES A. HIMES, Connecticut
LYNN A. WESTMORELAND, Georgia        GARY C. PETERS, Michigan
BLAINE LUETKEMEYER, Missouri         JOHN C. CARNEY, Jr., Delaware
BILL HUIZENGA, Michigan              TERRI A. SEWELL, Alabama
SEAN P. DUFFY, Wisconsin             BILL FOSTER, Illinois
ROBERT HURT, Virginia                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              STEVEN HORSFORD, Nevada
ROBERT PITTENGER, North Carolina
ANN WAGNER, Missouri
ANDY BARR, Kentucky
TOM COTTON, Arkansas
KEITH J. ROTHFUS, Pennsylvania
LUKE MESSER, Indiana

                     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           RUBEEN HINOJOSA, Texas
PATRICK T. McHENRY, North Carolina   CAROLYN McCARTHY, New York
JOHN CAMPBELL, California            DAVID SCOTT, Georgia
KEVIN McCARTHY, California           AL GREEN, Texas
STEVAN PEARCE, New Mexico            KEITH ELLISON, Minnesota
BILL POSEY, Florida                  NYDIA M. VELAAZQUEZ, New York
MICHAEL G. FITZPATRICK,              STEPHEN F. LYNCH, Massachusetts
    Pennsylvania                     ED PERLMUTTER, Colorado
LYNN A. WESTMORELAND, Georgia        MICHAEL E. CAPUANO, Massachusetts
BLAINE LUETKEMEYER, Missouri         JOHN K. DELANEY, Maryland
MARLIN A. STUTZMAN, Indiana          DENNY HECK, Washington
ROBERT PITTENGER, North Carolina     KYRSTEN SINEMA, Arizona
ANDY BARR, Kentucky
TOM COTTON, Arkansas
KEITH J. ROTHFUS, Pennsylvania


                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on:
    May 21, 2014.................................................     1
Appendix:
    May 21, 2014.................................................    41

                               WITNESSES
                        Wednesday, May 21, 2014

Chapman, Rob, President, the American Land Title Association 
  (ALTA).........................................................    10
Mierzwinski, Edmund, Consumer Program Director, U.S. Public 
  Interest Research Group (U.S. PIRG)............................    11
Peirce, Hester, Senior Research Fellow, Mercatus Center, George 
  Mason University...............................................     8
Pincus, Andrew, Partner, Mayer Brown LLP, on behalf of the U.S. 
  Chamber of Commerce............................................     6

                                APPENDIX

Prepared statements:
    Chapman, Rob.................................................    42
    Mierzwinski, Edmund..........................................    52
    Peirce, Hester...............................................    63
    Pincus, Andrew...............................................    68

              Additional Material Submitted for the Record

Capito, Hon. Shelley Moore:
    Written statement of the Credit Union National Association 
      (CUNA).....................................................    80
    Written statement of the National Association of Federal 
      Credit Unions (NAFCU)......................................    83
Ellison, Hon. Keith:
    ``Protect the Rule of Law: Support H.R. 1844, the Arbitration 
      Fairness Act of 2013''.....................................    85
    Written statement of Fair Arbitration Now....................    86
    Letter to Representative Shelley Moore Capito from 
      Representative Henry C. ``Hank'' Johnson, Jr., and 
      Representative John Conyers, Jr., dated May 21, 2014.......    88
    MarketWatch article by Catey Hill entitled, ``You won't 
      believe your bank's newest fee. Suing your bank? Prepare to 
      pay up,'' dated April 9, 2014..............................    91
    Washington Times article by Paul Samakow entitled, ``When 
      Mandatory Arbitration Replaces Litigation, Consumers 
      Lose,'' dated June 16, 2013................................    93
    Written responses to questions submitted to Rob Chapman......    95
    Written responses to questions submitted to Edmund 
      Mierzwinski................................................   100
    Written responses to questions submitted to Andrew Pincus....   114


                    LEGISLATIVE PROPOSALS TO IMPROVE

                    TRANSPARENCY AND ACCOUNTABILITY

                              AT THE CFPB

                              ----------                              


                        Wednesday, May 21, 2014

             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 2:03 p.m., in 
room 2128, Rayburn House Office Building, Hon. Shelley Moore 
Capito [chairwoman of the subcommittee] presiding.
    Members present: Representatives Capito, Duffy, McHenry, 
Pearce, Posey, Fitzpatrick, Westmoreland, Luetkemeyer, 
Stutzman, Pittenger, Barr, Cotton, Rothfus; Meeks, Maloney, 
Hinojosa, Scott, Green, Ellison, Capuano, and Sinema.
    Also present: Representatives Stivers and Mulvaney.
    Chairwoman Capito. The subcommittee will come to order. 
Without objection, the Chair is authorized to declare a recess 
of the subcommittee at any time. And by way of warning, we are 
expected to be called for one vote here very, very shortly. So 
I am going to go ahead and start, maybe get our opening 
statements out of the way, and then we will recess for a short 
period, for just one vote.
    I now recognize myself for an opening statement. This 
afternoon's hearing is a continuation of this committee's 
efforts to make the Consumer Financial Protection Bureau (CFPB) 
a more transparent and accountable agency. I would like to 
thank the sponsors of the legislation before us for their hard 
work in crafting commonsense reforms to the Bureau.
    I would also like to highlight that some of the bills are 
the product of bipartisan efforts.
    One of the items that we will consider today is the 
legislation that I have drafted that puts the Bureau on a level 
playing field with the other banking regulators. Much like the 
other Federal banking regulators, the Bureau is provided with 
the power to assess fines on supervised entities that are in 
violation of Federal laws or regulations. These fines are an 
important tool to discourage other market participants from 
engaging in similar practices.
    Traditionally, these fines have been remitted to the United 
States Treasury, benefiting all taxpayers. However, unlike the 
other banking regulators, the Dodd-Frank Act requires the 
Bureau to retain these fines in a ``civil penalty fund,'' and 
allows the Bureau to use these funds for consumer education 
financial literacy programs. To date, the Bureau has collected 
nearly $125 million in fines.
    Last year, we learned that the Bureau earmarked $1.6 
million of these funds for administrative costs. My issue is 
not that the Bureau is collecting these fines. My issue is that 
the taxpayers would be better served if these fines were 
remitted to the Treasury to pay down the historic national 
debt.
    My legislation simply states that funds currently held in 
the Civil Penalty Fund should be remitted to the Treasury, and 
all future fines levied by the Bureau should be remitted 
directly to the Treasury. This approach maintains the ability 
of the Bureau to fine the bad actors while providing a direct 
benefit to the taxpayers.
    At this time, I would like to yield to the ranking member 
of the subcommittee, Mr. Meeks, for the purpose of making an 
opening statement.
    Mr. Meeks. Thank you, Madam Chairwoman.
    And let me just say this first off. I just hope, as I 
review some of the bills, that we are not trying to, in certain 
ways, undermine or weaken or cripple the CFPB. I don't think 
that is the way to go, because if we are trying to slow it down 
or undermine the Consumer Financial Protection Bureau or the 
rights of average Americans to be protected from fraud or 
predatory or discriminatory financial practices, we will find 
that we are back to where we were.
    I think that context does matter, and we need to learn from 
the past, from past matters. Just a few years ago, I can't 
forget that we were in the middle of a great recession because 
the financial sector had remained one of the major sectors of 
our economy where consumer rights had been neglected and 
treated as a stepchild among other financial regulatory issues. 
You don't have to go into how many foreclosures, et cetera, 
that we had.
    I am always willing to work together. And I think that the 
CFPB has done some things, for example, like the small and 
rural lenders have received significant relief, and the QM 
rules, and nonprofit and philanthropic organizations, such as 
Habitat for Humanity, received relief for their financial 
products. Those are ways that the CFPB has worked continually 
to try to help and work together.
    And with the internal process, there are ways that I am 
looking at. For example, I agree with the intent of H.R. 4262 
from Representative Duffy and H.R. 4383 from Representative 
Pittenger to require the CFPB to establish a Small Business 
Advisory Board.
    So my caution is that I feel concerned that some of my 
colleagues are looking to just undercut the CFPB. I have 
confidence in Director Cordray. And I want to congratulate the 
CFPB, for example, for last week's announcement with the 
Justice Department that it had reached a settlement against 
Sallie Mae for violating the legal rights of U.S. 
servicemembers in student loan servicing. And Sallie Mae was 
ordered to pay $96.6 million in restitution and penalties. This 
is just an example of how the CFPB works every day to protect 
vulnerable Americans and bring relief to them.
    Chairwoman Capito. Thank you.
    I now recognize Mr. Pittenger for 1 minute, please, for an 
opening statement.
    Mr. Pittenger. Thank you, Madam Chairwoman, for calling 
this hearing, and I appreciate the time to address this 
distinguished group.
    At this time, we are to discuss H.R. 4383, the Bureau of 
Consumer Financial Protection Small Business Advisory Board 
Act. As the Consumer Financial Protection Bureau works to 
promulgate and implement new regulations affecting the American 
economy, it is vital that small businesses within the financial 
services sector have a seat at the table to voice their 
opinion.
    That is why I have joined with Congressman Denny Heck to 
establish a Small Business Advisory Board within the CFPB. The 
mission of this Board will be to advise and consult with the 
CFPB on any new regulations coming forth and their effect on 
the small business community. The CFPB Small Business Advisory 
Board will consist of at least 12 members from the financial 
services community and will be appointed by the CFPB Director. 
In order to be selected to serve on the Board, members must 
represent a small business dealing with financial service 
products.
    This is a bipartisan, common-sense piece of legislation 
that all Members should support. And I thank Congressman Heck 
for his strong support.
    I yield back the balance of my time.
    Chairwoman Capito. Mr. Green is recognized for 2 minutes 
for an opening statement.
    Mr. Green. Thank you, Madam Chairwoman. And I thank the 
ranking member as well, and would associate myself with his 
comments.
    I, too, am concerned about the possibility of our going too 
far. I do believe that there is room for improvement. But I am 
very much concerned about overreach. I recall what duration of 
time it took for us to get a Director for the CFPB in place. 
And I am always concerned about consumers, and I want to make 
sure that as we do this, we strengthen the CFPB. Transparency 
is great, and I look forward to helping with this, but I want 
to make sure that we strengthen the entity, that we don't 
eviscerate or emasculate it.
    And with that, I will yield back the balance of my time.
    Chairwoman Capito. I now recognize Mr. Stutzman for 1 
minute for an opening statement.
    Mr. Stutzman. Thank you, Madam Chairwoman.
    I want to thank the Chair for holding this hearing to 
explore legislative proposals to improve transparency and 
accountability at the Consumer Financial Protection Bureau.
    I also want to thank each of the witnesses for taking the 
time to lend their expertise today.
    Today, we consider H.R. 4684, the Bureau Guidance 
Transparency Act, the bill that I have introduced to increase 
accountability when the CFPB issues guidance.
    While guidance is supposed to be merely a restatement of 
law or a further explanation of a rule, there have been recent 
examples where the CFPB has gone outside of this scope. This 
bill requires a notice-and-comment period prior to the issuance 
of guidance at the CFPB and also has the CFPB show its work by 
providing any data or other analysis on which they relied. 
These are fair and reasonable adjustments to avoid informal 
guidance substituting for formal rulemaking.
    I want to thank Mr. Chapman for his testimony on possible 
further action we can take to make feedback on bulletins or 
guidance public on CFPB's Web site. I wholeheartedly support 
his idea, and I currently have draft language to do just that.
    So I look forward to working with all of my colleagues to 
make this possible.
    With that, Madam Chairwoman, I will yield back.
    Chairwoman Capito. Thank you.
    Mr. Ellison is recognized for 2 minutes.
    Mr. Ellison. Let me thank the chairwoman and the ranking 
member.
    I am deeply proud of the creation of the Consumer Financial 
Protection Bureau. I believe Americans should have access to 
fair and appropriately priced financial products. And we know 
that information gaps between consumers and a financial product 
firm can be very large, and that can be to the disadvantage of 
consumers.
    Let's also remember that the crash of 2008, that the root 
of it was a lack of consumer protection as relates to people in 
the mortgage market. And it is that problem that the Consumer 
Financial Protection Bureau was designed to solve, and many 
others.
    So as we move forward with all of these bills, I hope we 
don't get the misimpression that the problem is the Consumer 
Financial Protection Bureau. The problem is the bad, 
irresponsible behavior that led to its creation.
    There is a particular bill that I am concerned about, and I 
would like to point out first that more than $3.8 billion has 
been refunded to the 12.6 million consumers as a result of CFPB 
enforcement actions. This $3.8 billion is compensation to 
consumers who have been subjected to illegal practices.
    Unfortunately, one of the bills--I think it is the Slush 
Fund Elimination Act--that we will consider today will prevent 
consumers from receiving financial redress and also stop 
providing funding for financial education. This would be very, 
very unfortunate. I would like to talk to my colleagues about 
this bill and others. But I certainly hope that at the end of 
the day, we don't find ourselves dismantling what is helping 
literally millions and millions of Americans, some of whom are 
not sophisticated people in the financial markets, some of whom 
are workaday folks who are just trying to save a little bit of 
money and get by and not get ripped off by people with 
considerably more resources than they have.
    So I am looking forward also to having some dialogue about 
mandatory arbitration clauses. I would like to ask the members 
of the panel today about that. I yield back. Thank you.
    Chairwoman Capito. I now recognize Mr. Westmoreland for 1 
minute.
    Mr. Westmoreland. Thank you, Madam Chairwoman. And thank 
you for including my bill, H.R. 4604, in the hearing today.
    Last week, it came to my attention that contrary to 
testimony from the committee, CFPB will be collecting 
personally identifiable information, including Social Security 
numbers, financial account numbers, telephone numbers, race, 
gender, religion, and even the GPS coordinates of your home.
    My bill, H.R. 4604, the CFPB Data Collection Security Act, 
once again tries to stop some of CFPB's massive data collection 
by allowing consumers to opt out of all CFPB data collection. 
The provision has been modeled after the successful National Do 
Not Call Registry. H.R. 4604 also requires the CFPB to purge 
data after 60 days, and requires CFPB employees accessing 
personal data to obtain a confidential security clearance.
    I don't know if the CFPB has intentionally misled this 
committee about the scope of their data collection, but I hope 
this committee will soon mark up H.R. 4604.
    And thank you again, to the chairwoman and the ranking 
member.
    Chairwoman Capito. For our next opening statement, we will 
go to Mr. Barr for 1 minute.
    Mr. Barr. I want to thank Chairwoman Capito for including 
my discussion draft, the Preventing Regulatory Abuse Act, in 
this important hearing.
    In talking with community bankers throughout Kentucky, one 
thing has been made clear to me, and that is the anxiety and 
frustration with the inconsistencies and uncertainties in bank 
examinations. I know the chairwoman is very familiar with this 
issue, having introduced the Financial Institutions Examination 
Fairness and Reform Act, and I appreciate her leadership on 
that important legislation.
    I hope that we would all agree that a foundation of 
effective examination and enforcement and ultimately protecting 
consumers from unscrupulous behavior and preserving access to 
affordable credit is making sure that standards for what is 
permissible and not permissible are clearly defined and 
understood.
    Unfortunately, Section 1031 of Dodd-Frank has added 
confusion to this area by broadening the longstanding UDAP 
standard to now include the ambiguous ``abusive'' term without 
providing clear guidance on its meaning. My proposed 
legislation is a good faith effort to try to provide 
constructive boundaries to this currently undefined ``abusive'' 
standard. And I would appreciate any thoughtful feedback on 
this discussion draft.
    Thank you.
    Chairwoman Capito. Thank you.
    I now recognize Mrs. Maloney for 2 minutes for an opening 
statement.
    Mrs. Maloney. First of all, I would like to thank you, 
Madam Chairwoman, and the ranking member.
    In just 3 years, the CFPB has made huge strides on a number 
of important consumer protections, from mortgage disclosures to 
helping veterans, seniors, credit cards, to remittance 
transfers. In the process, the CFPB has established itself as a 
thoughtful and data-driven agency. Its rule-writing process has 
won praise from industry and consumer advocates, Republicans 
and Democrats. The Bipartisan Policy Center described the 
CFPB's QM rule-writing process as ``open, driven by data and 
research, and focused on practical application in the mortgage 
market.''
    So I am concerned and a little surprised, given the 
Bureau's record and their willingness to be open-minded, that 
some of the bills we are discussing today would hinder the 
Bureau's ability to conduct the necessary analysis to inform 
its rules. I describe it as a death by a thousand cuts, cut 
here, cut there, but put it all together and it will hinder 
tremendously the ability of the CFPB to be effective.
    For instance, forcing the Bureau to define ``an abusive 
financial practice'' in just 15 days strikes me as almost 
reckless, that we all want them to be as careful and as 
thoughtful as possible in defining such an important term.
    Additionally, I am concerned about proposals that would 
prevent the CFPB from producing high-quality research, because 
these research papers have helped to inform both the Bureau's 
own rules and our debates here in Congress.
    So I am interested in hearing more from our witnesses about 
these proposals. And I yield back. Thank you.
    Chairwoman Capito. Mr. Fitzpatrick is recognized for 1 
minute.
    Mr. Fitzpatrick. Thank you, Chairwoman Capito.
    Any government agency that is purporting to be a data-
driven organization should welcome the opportunity to operate 
in a more transparent manner. I have introduced the Bureau 
Research Transparency Act, which simply requires that research 
papers released by the CFPB include the studies, the data, and 
the analysis on which the paper was based. This is especially 
important in light of a pattern that has emerged in which the 
Bureau is engaging in rulemakings based on this research.
    If the research is sound, and the need for a regulation is 
evidence-based, then let the Bureau make available the 
supporting data and methodology so that the public and also 
interested parties have the opportunity to review the CFPB's 
work. This legislation improves the CFPB's rulemaking process 
by ensuring that its policy prescriptions are supported by 
objective and unbiased research.
    I look forward to the testimony. And I yield back.
    Chairwoman Capito. That concludes our opening statements.
    We have just been informed that votes are now pushed back 
another 5 or so minutes, so we are just going to soldier on 
here. And I appreciate your indulgence and your patience.
    Each of our witnesses 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.
    Our first witness is Mr. Andrew Pincus, who is a partner at 
Mayer Brown LLP. Mr. Pincus?

STATEMENT OF ANDREW PINCUS, PARTNER, MAYER BROWN LLP, ON BEHALF 
                OF THE U.S. CHAMBER OF COMMERCE

    Mr. Pincus. Thank you, Chairwoman Capito, Ranking Member 
Meeks, and members of the subcommittee. Thank you very much for 
the opportunity to appear before the subcommittee on behalf of 
the Chamber of Commerce's Center on Capital Markets 
Competitiveness.
    Consumer protection is of course important for consumers, 
but it also is important for businesses. Legitimate companies 
are hurt when fraudsters lure away customers by using deceptive 
claims and other marketing techniques that violate the law. And 
unfair practices can make consumers skeptical about all 
businesses and reluctant to participate in the market at all.
    The fundamental job of a consumer protection agency is of 
course to protect consumers, but to do so in a way that allows 
law-abiding companies to understand the rules and to comply 
with them. That is the only way to promote competitive, 
efficient, and innovative markets, which of course provide 
crucial benefits to consumers. Particularly important, given 
the state of our economy, is that is the only way to ensure the 
availability of credit that is essential for small businesses 
to create jobs, for consumers to buy a home or a car, and for 
them to send their children to college.
    I think everyone would agree that several years after the 
end of the recession, we continue to suffer from a lack of 
credit availability, particularly for small businesses.
    Congress recognized the reality of this dual goal in the 
Dodd-Frank Act itself, authorizing the CFPB to exercise its 
authorities for the purpose of protecting consumers against 
illegal practices, and also for the purpose, and I am quoting, 
``of ensuring that markets for consumer financial products and 
services operate transparently and efficiently to facilitate 
access and innovation.''
    Sadly, in its nearly 3 years of existence, the CFPB's 
actions have not met this standard. First, for a number of 
critical legal standards, the Bureau simply refuses to provide 
clear rules of the road that would allow law-abiding companies 
to conform their conduct to the law. The subcommittee is very 
familiar with the Bureau's secret legal standard for indirect 
auto lending and its refusal to provide any clue about what 
makes a business practice abusive or the extent of supervision 
needed to protect a company against vicarious liability for the 
acts of a service provider. And the Bureau has consistently 
refused to implement a process enabling companies to obtain 
advisory opinions or other forms of informal advice, even 
though other Federal agencies have long had that method 
available.
    Second, the Bureau frequently announces broadly applicable 
legal standards in guidance or in enforcement actions without 
first obtaining public comment to inform its decisions. The 
Bureau's view appears to be: seek public comment only when 
absolutely required to do so. That inevitably leads to bad 
decision-making, as the Bipartisan Policy Center explained in 
its recent report criticizing the Bureau for this practice.
    Third, the Bureau seems to view statutory requirements as 
burdens to circumvent rather than restrictions that must be 
recognized. By using guidance rather than rulemakings, the 
Bureau can avoid the requirements of the Small Business 
Regulatory Enforcement Fairness Act that otherwise would apply, 
and require the Bureau to seek out and take into account the 
views of small businesses regarding the impact of its actions. 
And the Bureau has refused to employ the Small Business 
Regulatory Enforcement Fairness Act (SBREFA) process in 
guidance and other contexts, even though the impact of those 
actions on small business is significant.
    By targeting indirect auto lenders, the Bureau can try to 
alter the practices of auto dealers, notwithstanding Congress' 
specific decision to expressly exclude auto dealers from the 
Bureau's jurisdiction. By seeking data from 9 companies on 
credit cards rather than 10, the Bureau can circumvent the 
notice and comment and other requirements of the Paperwork 
Reduction Act.
    Given this pattern of conduct, enactment of reasonable 
measures imposing clear rules designed to promote transparent, 
informed decision-making by the Bureau, such as the bills now 
before this committee, appear to be the only way to force the 
Bureau to follow the regulatory approach that Congress 
expressly specified in Dodd-Frank, and practices that are 
utilized as a matter of course by many, many other Federal 
regulatory agencies.
    Thank you. And I look forward to answering the 
subcommittee's questions.
    [The prepared statement of Mr. Pincus can be found on page 
68 of the appendix.]
    Chairwoman Capito. Thank you.
    Our next witness is Ms. Hester Peirce, Senior Research 
Fellow at the Mercatus Center at George Mason University.
    Welcome.

 STATEMENT OF HESTER PEIRCE, SENIOR RESEARCH FELLOW, MERCATUS 
                CENTER, GEORGE MASON UNIVERSITY

    Ms. Peirce. Thank you. Chairwoman Capito, Ranking Member 
Meeks, and members of the subcommittee, it is an honor to be 
here today to talk about the Bureau's consumer financial 
protection.
    The Bureau's logo is a spotlight. Unfortunately, the Bureau 
itself likes to operate in the dark. This penchant for darkness 
is in part a result of Dodd-Frank, which sought to make the 
Bureau independent of both Congress and the President. More 
fundamental changes, such as replacing the Director with a 
commission and putting the Bureau under congressional 
appropriations, would be necessary to address those problems 
fully. But incremental reforms can go a long way to help the 
Bureau do a better job of what its mission is, which is 
protecting consumers. And so, I would recommend holding the 
Bureau to standards of accountability and transparency and 
putting some constraints on their statutory discretion.
    One way to add some accountability would be to put an 
inspector general in place who is devoted solely to the 
Consumer Financial Protection Bureau instead of sharing the job 
with the Federal Reserve. The Fed got a lot of new powers under 
Dodd-Frank, and so taking care of the Fed itself is a big job, 
let alone also covering the Bureau.
    Another area in which the Bureau has been problematic is 
that its general approach is an enforcement-minded approach, 
and that is how it has approached its examinations as well. So, 
putting constraints on how the Bureau conducts its 
examinations, and reminding the Bureau that the purpose of an 
exam is not to find an enforcement action, the purpose is to 
work with well-intentioned companies to improve their 
compliance processes so that they work better and so that they 
protect consumers.
    In the area of transparency, it is very important for the 
Bureau to be clear about what its intentions are so that again, 
well-intentioned businesses know what is expected of them and 
know what to expect from the Bureau. And the public, too, 
should be able to have an eye into the Bureau to see whether it 
is doing the job of protecting consumers with which it was 
charged.
    One thing that changed this week is that now the Bureau 
will be making public its Advisory Council meetings, which is a 
good change. In the past, they have been having these meetings 
behind closed doors. And that is very troubling, that other 
agencies all have to have these meetings in public, and they 
should do the same thing.
    Another area where I have noticed problems is small banks 
have mentioned that one of their really big concerns is the 
lack of transparency at the Bureau. They are never sure what to 
expect from the Bureau. The Mercatus Center did a survey of 
small banks, and that was one of the big complaints that we got 
in the survey.
    And another area in which transparency is necessary is the 
area of what data, what studies is the Bureau relying on in 
making its regulations. That is just good government, for an 
agency to let people know, here is what we looked at, here are 
the assumptions we made, here are the things we are uncertain 
about. And that leads to better public comment and leads 
ultimately to better rulemaking.
    Because the Bureau has such wide statutory discretion, 
putting some restraints on how they exercise that is very 
important, whether that would be making them define terms 
before they start enforcing them, or whether that would be 
telling them, no, you can't set up a penalty fund that 
essentially is an extension of your budgetary authority. That 
is highly unusual, and it leads to very bad incentives for the 
agency. The agency's incentives then become collecting 
penalties because they can enhance their budget that way rather 
than collecting penalties because they have figured out that is 
the right penalty amount to collect.
    And then another area in which constraints are necessary is 
the Bureau has been very aggressive in collecting data about 
individual consumers. And so, they are amassing huge amounts of 
data, very personal data, and data that is able to be tracked 
back to particular consumers. That practice should be reined 
in.
    In addition--and the Bureau is not alone in this--the 
Bureau has not developed a good track record so far in using 
non-APA rulemaking methods to make rules. And that practice 
should be stopped early in the Bureau's existence.
    So I would just close with the idea that holding the Bureau 
to high standards of accountability and transparency doesn't 
harm the Bureau's mission; it will make the Bureau a more 
credible regulator. It will make it more possible for the 
Bureau to go out and hold the industry to those same high 
standards. Thank you.
    [The prepared statement of Ms. Peirce can be found on page 
63 of the appendix.]
    Chairwoman Capito. Thank you.
    Our next witness is Mr. Rob Chapman, president, American 
Land Title Association.
    Welcome.

 STATEMENT OF ROB CHAPMAN, PRESIDENT, THE AMERICAN LAND TITLE 
                       ASSOCIATION (ALTA)

    Mr. Chapman. Chairwoman Capito, Ranking Member Meeks, and 
members of the subcommittee, good afternoon. My name is Rob 
Chapman, and I am the president of the American Land Title 
Association, and executive vice president and chief information 
officer for Old Republic National Title Insurance Company. I 
joined the company 18 years ago.
    There is no doubt that the Dodd-Frank Act has increased the 
complexity of regulatory compliance. As we implement all of 
these rules and regulations, it has become clear that Congress 
needs to work in a bipartisan way to improve the regulatory 
process. The end result will be better compliance by businesses 
and stronger protections for consumers.
    We agree with the Bipartisan Policy Center's report last 
year that when the Bureau operates in a transparent, open, and 
iterative manner, the results are generally positive. However, 
when the Bureau makes unilateral decisions, rolls out 
initiatives, rules, or processes in a more closed deliberation, 
the results are far more likely to be problematic.
    Our industry experienced this with CFPB Bulletin 2012-03. 
It restated longstanding Federal guidance that banks and 
nonbanks must oversee their vendors. But unlike other 
regulators, the Bureau offered no additional direction to help 
banks and nonbanks effectively oversee the action of their 
vendors and left many open, unanswered questions about how to 
demonstrate compliance.
    How this bulletin applies to our industry is also unclear 
because unlike a traditional bank vendor, consumers primarily 
choose their real estate settlement providers. To help our 
members fill this void, ALTA created a best practice framework 
for title and settlement companies. These are reasonable, 
prudent business practices. However, lots of uncertainty, 
varying practices and vetting procedures are predominant in 
lender-vendor management. We fear that some lenders will limit 
the number of vendors with whom they are willing to work, which 
will limit competition and hurt consumer choice.
    A better outcome would have been a process where CFPB 
consulted to reduce these unintended consequences. An example 
of a more open and transparent process that worked well is the 
Bureau's rulemaking for integrated mortgage disclosure under 
Section 1032 of the Dodd-Frank Act. This includes a nine-round 
iterative process and a one-time small business review panel to 
ensure that the regulation was not overly burdensome on small 
business. My written statement outlines six commonsense ways 
the Bureau can make small business review panels more 
effective.
    Other Bureau rulemakings did not use the small business 
review process, but probably would have been better off if they 
had, including the Qualified Mortgage rule. These panels 
encourage collaboration to produce better outcomes for 
consumers and business.
    Another good example of how a transparent and open process 
results in better outcomes for business and consumers is the 
Bureau's recently released study entitled, ``Mortgage Closings 
Today: A Preliminary Look at the Role of Technology in 
Improving the Closing Process for Consumers.'' Released last 
month, this highly credible research identifies four key pain 
points for consumers and industry and was the result of ample 
input, including interviews, an opportunity for public comment, 
and demonstrations with technology vendors. Open and 
transparent processes like this one led to a good outcome for 
consumers and our members.
    Based on these experiences, ALTA recommends that Congress 
work in a bipartisan way to improve outcomes for consumers and 
businesses in three ways.
    First, Congress should pass H.R. 4383. This bipartisan 
legislation by Representative Pittenger and Representative Heck 
would establish a Small Business Advisory Board at CFPB, 
similar to those already established for community banks and 
credit unions. They provide clear, formal, and open channels of 
communication between the Bureau and the industry.
    Second, direct the CFPB to issue advisory opinions. An 
advisory opinion provides greater certainty to those of us who 
comply with Federal consumer financial law in real-life 
situations. Consumers will see better outcomes if the Bureau 
spends more time advising people in industry how to best follow 
the law.
    Finally, encourage public feedback on draft policy 
statements, bulletins, and other guidance documents. Public 
comments ensure the final documents are useful and 
understandable to industry, provide a safety valve to reduce 
unintended consequences, and produce better policy outcomes for 
consumers and industry.
    Thank you for inviting me to testify. I am happy to answer 
any questions that you may have.
    [The prepared statement of Mr. Chapman can be found on page 
42 of the appendix.]
    Chairwoman Capito. Thank you.
    Our final witness is Mr. Ed Mierzwinski, who is the 
consumer program director of the United States Public Interest 
Research Group.
    Welcome.

  STATEMENT OF EDMUND MIERZWINSKI, CONSUMER PROGRAM DIRECTOR, 
    UNITED STATES PUBLIC INTEREST RESEARCH GROUP (U.S. PIRG)

    Mr. Mierzwinski. Thank you, Chairwoman Capito, Ranking 
Member Meeks, and members of the subcommittee.
    U.S. PIRG, by the way, is the witness today. But I want to 
point out that Americans for Financial Reform and six or seven 
other consumer groups recently sent up a letter that I would 
like entered into the record, if possible, that opposes all the 
bills on this docket today.
    U.S. PIRG opposes all 11 proposals before the committee. We 
do not think they are necessary to protect consumers. None 
provide any necessary oversight function. Some roll back 
important authorities of the CFPB, particularly the McHenry 
proposal, giving the CFPB the authority to ban or regulate 
forced arbitration. And finally, others will subject the Bureau 
to enormous regulatory burden and litigation risk and raise the 
cost of government.
    Also, most of the bills only--in fact, I think all of the 
bills only apply to the CFPB. None apply to the other 
regulators. And we don't think that is a good idea.
    Instead of enacting these bills, we would urge you to take 
a look--why don't you have a hearing on the achievements of the 
CFPB? It would be a long hearing because they have done 
tremendous work. They have saved billions of dollars. They have 
helped military families. They have educated students. They 
have helped families wanting to send money overseas. They have 
done tremendous work. It is just a very successful agency, and 
I would encourage you to look at that side of the agency at 
some point.
    At the same time, the CFPB is a work in progress. It is a 
baby agency. It is a startup, and it is less than 3 years old, 
still growing. It has growing pains. In response to some 
legitimate oversight by this committee, it has announced new 
changes on staff evaluations; new changes, as noted by other 
witnesses, on its disclosure of information and the openness of 
its committee advisory board. So we don't think the agency 
needs new legislation to continue to do the good work that it 
is doing.
    I am going to quickly do the lightning round on all of the 
bills. I want to spend a little bit of time on the Bureau 
Arbitration Fairness Act, which of course should not be 
confused with Representative Henry Johnson's Arbitration 
Fairness Act. Consumer groups support that bill because it bans 
arbitration.
    We don't oppose all arbitration. We only oppose forced 
arbitration. Let me make that clear. Consumer groups allow for 
the choice of arbitration after a dispute has already arisen. 
In the CFPB's research on arbitration, research that contrary 
to the Chamber's testimony has been open and transparent and 
many members of the Chamber, many members of industry have 
marched in and out of the CFPB as part of the research into 
that bill, the CFPB looked at some major class action lawsuits 
involving bank fraud, where banks were tricking consumers into 
paying extra overdraft fees. And the CFPB found that class 
action lawsuits on behalf of consumers had recovered hundreds 
of millions of dollars for consumers.
    The CFPB also looked and found that only two consumers--two 
consumers--had actually used the arbitration process 
individually to try to protect themselves. So arbitration on 
the one hand is a system that favors corporate wrongdoers, and 
the private rights of consumers to go to court buttress the 
work of the CFPB, the work of Federal laws, and the work of 
State attorneys general to make markets work. So we oppose that 
bill.
    Regarding your bill, Madam Chairwoman, I have to disagree. 
We oppose the CFPB Slush Fund Elimination Act. The purpose of 
the CFPB's authority to take extra civil penalty money and use 
for it other purposes is twofold. First, when you have a 
financial fraudster who spends all the money that he stole, the 
CFPB can make his victims whole. And that is what it has done 
with the money. Second, if you have extra money left over, the 
CFPB has targeted the money to another important constituency 
that this Congress has given it: to protect military widows and 
widowers. That is financial literacy. That is what the CFPB 
wants to spend this extra money on. It doesn't want to spend it 
on anything to aggrandize the purpose of the agency.
    I think that they are a remedial agency, and they should 
have the authority to do remedial things. They are different 
than other agencies because they were set up to protect 
consumers.
    The rest of my testimony goes through all the other nine 
bills. I am happy to answer questions to talk about any of 
them. I respect the committee's authority to conduct oversight. 
Again, your oversight has already resulted in the CFPB doing 
things to make changes as you have requested.
    And finally, I would just close by saying, to quote the 
late environmentalist Edward Abbey, I think the idea of the 
CFPB needs no defense, only more defenders. Thank you.
    [The prepared statement of Mr. Mierzwinski can be found on 
page 52 of the appendix.]
    Chairwoman Capito. Thank you.
    I want to thank you all for your testimony. And I will 
begin the questioning. But before I do, I will take the 
letters, Mr. Mierzwinski, and ask that they be entered into the 
record. Without objection, it is so ordered.
    And without objection, the following statements will be 
made a part of the record: the National Association of Federal 
Credit Unions; and the Credit Union National Association. 
Without objection, it is so ordered.
    I would like to talk about my bill, the Slush Fund 
Elimination Act. There is $96 million in that fund right now.
    And I would like to clarify for Mr. Ellison, we are kind of 
talking about two different things here. Not kind of. We are. 
And my bill would not eliminate at all any ability for the CFPB 
to remunerate or make restitutions to any victims. That is 
explicitly written into the bill. It is the rest of the money 
that I am concerned about. It is sort of sitting there, 
accounted for, yes, but with the only specific purpose to go to 
financial literacy.
    I am not opposed to financial literacy. We had a financial 
literacy hearing just, what, 2 weeks ago, and we found that 
there are financial literacy programs throughout the government 
that have no coordination, some accountability, but it is sort 
of diluted resources. And I think we can do a much better job 
in that in coordination with the private sector. There is lots 
going on the private sector in the arena of financial literacy, 
and I certainly agree there is much more that we can do.
    So I would like to see whatever is left in that civil 
penalty, rather than be in what I am calling a slush fund, 
because that is how I identify it, to go to help to eliminate 
the enormous debt that we have, after all of the victims have 
been paid, after a certain period of time, and all that is 
cleared out.
    So I would like to ask Mr. Pincus if you have an opinion on 
the Civil Penalty Fund and what it is used for and the 
transparency, because the Bipartisan Policy Center issued a 
report last fall that was critical of the transparency and 
suggested that it be used for other purposes. So do you have a 
comment on that?
    Mr. Pincus. I do. Thank you, Madam Chairwoman.
    A couple of things. I think, first of all, it is important 
to point out how unique this is in an agency that is already 
unique. First of all, the CFPB's budget is already quite unique 
because it gets a $600 million-plus check from the Federal 
Reserve without any oversight or prior approval by the Congress 
or the President about how it is spent. The Director has sole 
discretion to decide how to spend all of that money, escalated 
for inflation.
    So the CFPB already has a lot of money that it decides for 
itself without prior approval by anybody how to spend. And what 
is happening here is yet another pot of, as you say, almost 
$100 million that is sitting around waiting for them to decide 
how to spend it.
    And I think it is just troubling that in an era of fiscal 
scarcity and deficits, as you said, there is this money that 
will be disposed of not to compensate victims, but for other 
purposes, without any review by the Congress, by the President, 
coordination with other programs, just as the CFPB decides. 
That is quite extraordinary.
    And I think it is also quite extraordinary, as one of my 
fellow witnesses said, when you think of the fact that civil 
penalty decisions, which have a lot of discretion in them, 
should be based on whether the punishment fits the crime. They 
shouldn't be revenue-raising devices. But if it is a fund that 
the Bureau has the ability to spend for all kinds of different 
purposes, that creates a very skewed incentive system that is 
dangerous.
    Chairwoman Capito. I would make note, too, that in the 
accounting from the CFPB, they have used this for 
administrative costs of $1.5 million.
    Mr. Ellison. Would the chairwoman yield? I'm sorry, Madam 
Chairwoman. I seek recognition because you specifically 
mentioned me.
    Chairwoman Capito. Okay.
    Mr. Ellison. I just wanted to note that in the bill, your 
bill, the slush fund bill, which I think is very unfortunately 
named, from that--
    Chairwoman Capito. Could you make it quick? Because I only 
have a minute.
    Mr. Ellison. I will. From the fund that you want to 
eliminate in your bill, on November 29, 2013, in accordance 
with the Civil Penalty Fund rule, the Bureau allocated 
$499,000-plus to two eligible classes of victims from the 
American Debt Settlement Solutions, Inc., case, and $2 million-
plus to eligible class victims from the National Legal Help 
Center case.
    Chairwoman Capito. Okay.
    Mr. Ellison. I mention that because you seemed to imply 
that all this money is only for education purposes.
    Chairwoman Capito. I would like my time back.
    Mr. Ellison. But the victims have been compensated from 
this fund. I yield back.
    Chairwoman Capito. If you were listening to me, I said 
specifically that the money goes to the victims and what is 
left after that, which is now $100 million--
    Mr. Ellison. Well--
    Chairwoman Capito. I am going to claim my time here, 
because I don't have much left. So, that is what I am getting 
at.
    Mr. Ellison. You are incorrect, Madam Chairwoman.
    Chairwoman Capito. I have the accounting right here.
    And in any event, I would also note that--and I started on 
this--the administrative cost for this has already been $1.5 
million. If the Bureau has $600 million to operate on, why do 
they need to take out of the Civil Penalty Fund another $1.5 
million for their administrative costs?
    With that, I yield back.
    Mr. Meeks is recognized for 5 minutes.
    Mr. Meeks. Thank you.
    Let me first find out and ask Mr. Pincus, do you think 
there is a need for the CFPB?
    Mr. Pincus. I think the purpose of consumer protection is 
important. I think Congress could have done it different ways.
    Mr. Meeks. That is not my question.
    Mr. Pincus. It established the CFPB. And I think the 
consumer protection role that it is performing is important.
    Mr. Meeks. That is not my question. My question is a simple 
one, you can say yes or no. Do you think there is a need for 
the CFPB? Yes or no?
    Mr. Pincus. Yes.
    Mr. Meeks. Ms. Peirce?
    Ms. Peirce. No. Its functions could be done by other 
agencies.
    Mr. Meeks. Mr. Chapman?
    Mr. Chapman. Yes.
    Mr. Meeks. Mr. Pincus, since you think that there is a 
need, are there any objections you have to any of the proposed 
bills, the nine bills that are before us, do you agree with all 
of them or disagree with any of them?
    Mr. Pincus. I think there are some details on some of them 
that I think we would like to talk about. But if I could just 
expand on my yes-or-no answer to your prior question, I think 
there is a need for the CFPB. The unfortunate thing that 
happened when it was created, the original proposal of course 
was that there would be one Federal agency that would deal with 
consumer protection for all kinds of businesses that engaged in 
financial activities. We didn't have that, as it turned out. 
The FTC kept all of its authority over this activity.
    Mr. Meeks. Reclaiming my time, let me just say this. 
Because we have talked about all of the consumers who have been 
protected now, some reimbursed because of the bad practices. 
And we should have learned, because, you know what? Had there 
not been the fraud and the misleading that took place in the 
first place that caused us to have the financial crisis that we 
have had, we wouldn't be talking about a CFPB now. We are 
talking about it because of what we learned. And that is the 
reason for it. That is why I am shocked Ms. Peirce has 
indicated there is no need for it when, in fact--
    Mr. Pincus. If I could say, Congressman, I said there was a 
need for it.
    Mr. Meeks. Well, Ms. Peirce said there is no need for it.
    Ms. Peirce. May I elaborate on that?
    Mr. Meeks. In a second. Because when we look at what has 
taken place, if everything was fair then I would agree. But we 
have witnessed individuals where, in fact, people lost--there 
were over 10 million foreclosures, 8 million jobs lost, 
trillions of dollars of wealth lost. And nobody was there to 
protect these individuals. That is why we have the CFPB.
    And I am trying to find out, and if anybody says that they 
are for it, yet there is not one of these bills that is being 
proposed, which is clearly cuts that is intended to get rid of 
the CFPB, as Mrs. Maloney said, it gets into what the 
motivation is. Do we want to protect consumers?
    Mr. Pincus. May I elaborate? I think I can answer your 
question. These bills basically impose on the CFPB practices 
that are routine for other Federal agencies. Every agency has 
their own IG, every agency except for the Federal Reserve and 
the CIA has to abide by FACA. Many other agencies have advisory 
opinion processes that are in place. The FTC and the SEC are 
role models of getting input before they issue guidance. The 
CFPB doesn't do any of these things.
    Mr. Meeks. I am running out of time.
    Mr. Pincus. These are procedural changes that would bring 
it into line with those other agencies.
    Mr. Meeks. I am running out of time.
    Because all of those agencies existed, yet still the 
consumers did not have a voice. They did not have a voice until 
we had the CFPB.
    Let me just ask really quick, Mr. Mierzwinski, I am just 
looking at H.R. 464, for example. How feasible would it be for 
the Bureau to comply with a requirement to not collect 
personally identifiable information about a consumer if the 
consumer chooses to opt out of being eligible for data 
collection? Doesn't that go against the very nature of how the 
CFPB is supposed to work and collect data to protect the most 
vulnerable? Isn't it the same information that most banks have?
    Mr. Mierzwinski. Absolutely. The banks already have that 
information. I am unaware of any of the studies that the other 
Representative pointed out that claim that the CFPB is 
collecting all this detailed information. In most cases, the 
CFPB does not collect personally identifiable information 
unless the consumer has opted in, for example, in a complaint.
    Mr. Meeks. I see I am running out of time, and I heard the 
bells ring. We are going to have a vote.
    So let me just ask again: You talked about the Civil 
Penalty Fund. How would that impact consumers if they didn't 
have the money to pay out to the consumers for their being 
defrauded?
    Mr. Mierzwinski. May I answer?
    Chairwoman Capito. Yes. Quickly, please.
    Mr. Mierzwinski. Very briefly, it is my understanding that 
Section D eliminates civil penalty funds and requires them all 
to be put into the general fund. That is my reading of the 
bill. And I would be happy to talk to your counsel about their 
reading of the bill, Madam Chairwoman.
    Chairwoman Capito. Okay. With that, this is what I am going 
to do, if we can work this out. I want the full attention of 
the membership. Since we only have one vote, what I would like 
to do is keep this rolling. So Mr. Duffy is going to come to 
the Chair. I will go vote and come back. Is that satisfactory 
to the rest of the committee?
    So we are going to go with Mr. McHenry. Do you want to 
question?
    Mr. McHenry. Yes. Am I now recognized? I will take that as 
recognition.
    My bill is a very simple one. And I want to ask you, Mr. 
Pincus, a few questions about arbitration and the utilization 
of arbitration. We have a fairly long history in this country 
with arbitration being in statute, in Federal statute. So why 
is arbitration important?
    Mr. Pincus. Arbitration is important because it is a 
quicker, cheaper, and more efficient way of resolving many 
kinds of disputes, especially, as members of the Supreme Court 
have said, the kind of small, individualized disputes that many 
consumers have.
    As you know, our courts, especially small claims courts, 
have incredible budget pressure, are overcrowded. They are just 
not a realistic option for real people who have real disputes 
and are trying to get someone to decide them. You have to go to 
court, you have to file papers. You almost always have to have 
a lawyer. Arbitration today you can do online or over the 
phone. It doesn't have to be done in person. It is an informal 
process. And it is a way for people to get their disputes--
    Mr. McHenry. Is arbitration harmful to consumers?
    Mr. Pincus. I think arbitration is beneficial to consumers 
because it gives them a way to get their disputes to a 
decision-maker and courts don't.
    Mr. McHenry. Okay. So, is this a constitutional question? 
Is it a debatable constitutional or dubious under the 
Constitution for arbitration to exist? Or is this a policy 
debate?
    Mr. Pincus. This is a policy debate. The current law is 
clear. The Federal Arbitration Act protects the enforceability 
of arbitration agreements. The reason we have this policy 
debate is that Dodd-Frank gave the Bureau the power to first 
investigate arbitration and then regulate it. But this is 
totally a policy question.
    Mr. McHenry. So is the Dodd-Frank Act a departure when it 
comes to arbitration?
    Mr. Pincus. Yes, it is a significant departure in terms of 
creating the possibility that these claims will be placed off 
limits to arbitration as opposed to the Federal Arbitration 
Act's rules which apply generally across-the-board.
    Mr. McHenry. So it is a departure of longstanding Federal 
policy? Is that correct?
    Mr. Pincus. There have been a few other areas in Federal 
law where Congress has taken that step, but a very, very few.
    Mr. McHenry. Okay. Is there an incentive for the CFPB to 
release a study on arbitration that shows that consumers are 
harmed by arbitration?
    Mr. Pincus. If the Bureau wants to eliminate arbitration, 
obviously the way to do it is to conduct a study that concludes 
that arbitration is bad for consumers. And what is troubling 
about the preliminary results that the Bureau released at the 
end of last year is that it seemed as if they were focused on a 
lot of the wrong questions and not on a lot of the right 
questions, which is, for a consumer, what is a realistic way of 
getting a dispute resolved, as opposed to what is good for 
lawyers, what is sort of the traditional way things have been 
done in the legal system?
    Mr. McHenry. Okay. So you undertook a study on arbitration. 
And what did that study find?
    Mr. Pincus. We undertook two studies. We undertook to 
gather as much of the outstanding information about arbitration 
that we could find. And what we found was the results, which 
seemed to be the most important thing, do consumers or people 
situated like them get as good results in arbitration as they 
do in court. And the answer from the studies was a resounding, 
yes, they do.
    Is arbitration supervised to make sure that a maliciously 
minded company couldn't construct an unfair arbitration clause? 
And it is, under generally applicable contract 
unconscionability rules. Courts invalidate unfair arbitration 
clauses all the time. If the company general counsel is going 
to be the arbitrator, guess what? That arbitration clause isn't 
going to be enforced.
    The other study we did, because a lot of the debate about 
arbitration comes down to class actions, frankly--
    Mr. McHenry. And the trial bar.
    Mr. Pincus. And plaintiffs' lawyers who embark on class 
actions. And so the question is, even if arbitration gives more 
justice for individualized claims, because arbitration is one 
by one, you are taking away class actions, and that outweighs 
the expanded justice for individual claimants.
    And so we looked at a neutrally selected group of class 
actions and found, of the ones that had decided, two-thirds 
gave nothing to the class. The one-third that were settled, and 
they were all settled, produced settlements that, frankly, you 
couldn't trace because the big secret in class actions is there 
is a headline that says $250 million settlement, but as we all 
know from getting those forms in the mail or seeing them in the 
paper, you have to file. And what is never revealed is how many 
people file and how much of that $250 million is distributed to 
real people, how much goes either back to the defendant or to 
some charity that the judge and the defendant and the 
plaintiff's lawyer all pick together. And the sad fact is, of 
the ones we could find, a huge percentage, 99.9 percent in some 
cases, does not go to the consumers.
    Mr. McHenry. Thank you.
    Mr. Duffy [presiding]. The gentleman yields back.
    The Chair recognizes Mr. Ellison from Minnesota for 5 
minutes.
    Mr. Ellison. I thank the Chair and the ranking member.
    Let me start by asking you this, Mr. Mierzwinski. Does the 
Civil Penalty Fund, which would be eliminated by Chairwoman 
Capito's bill, does that bill help consumers when the business 
that has taken advantage of them and been found to be wrong 
doesn't have the wherewithal to pay out?
    Mr. Mierzwinski. That is absolutely the purpose of the 
fund. And the way that it has worked so far is it has given, I 
think, about $13 million to customers of bankrupt financial 
fraudsters who otherwise would not receive any money.
    So in the examples of this big credit card add-on cases, 
the CFPB has sued five big credit card companies for misleading 
add-on identity theft and debt cancellation products. In the 
most recent Bank of America case just a month or so ago, they 
recovered $727 million for consumers directly.
    But there have been a number of other cases where they have 
imposed civil--and then they had about $100 million civil 
penalty on top of that. That civil penalty goes into the fund 
because there are a number of small-time financial fraudsters 
who might have ripped off 10,000 or 50,000 consumers but don't 
have the money like Bank of America has. That is the main 
purpose of the money.
    The secondary purpose is to help military widows and 
widowers and others at risk of being financially at risk, and 
so they are going to increase their financial literacy.
    And by the way, Mr. Ellison, it is not a unique fund. The 
Department of Justice has a similar fund.
    Mr. Ellison. Now, if that fund were eliminated, as it would 
be with Representative Capito's bill, what would happen to 
those consumers in the case where the people who defrauded them 
or the business that defrauded them doesn't have the money to 
be paid out? What relief would they have?
    Mr. Mierzwinski. I respect the purpose of her bill to put 
money to help taxpayers. But it would hurt victims.
    I would urge, instead of her bill to help taxpayers, a 
better solution is something that my organization supports. And 
we have met with many agencies, including the CFPB. When an 
agency signs a settlement agreement, it should prohibit 
companies from taking a tax write-off on any settlement 
agreement with the government.
    Mr. Ellison. We need to pursue that in any case.
    Now, if a business is able to take advantage of consumers 
and then just doesn't have the money to pay them out, what 
message does that send to other people who might be looking to 
make a quick buck at the expense of consumers with fraud and 
deception?
    Mr. Mierzwinski. These are so-called last-dollar scammers. 
They even often go after people who are already in financial 
trouble. They don't care, and they will be encouraged.
    Mr. Ellison. Let me just say that I would like to introduce 
for the record an article entitled, ``You won't believe your 
bank's newest fee. Suing your bank? Prepare to pay up. Thought 
ATM, overdraft and bounced-check fees were bad? Banks want to 
fine for you beating them in court.''
    Mr. Pincus, I would like to just ask you a general question 
before we run out of time. I mean, we are at bottom talking 
philosophy here. And I am a person who owned a business, and 
was very proud to be a business owner. And I just thought that 
if I did a good job for my consumers and I charged them a fair 
price, then that would be good. And the other businesses that 
are trying to get over on consumers and not do a good job, I 
don't want them in the business. I want to get rid of these 
people.
    But you seem to be arguing for the bad guys. Why don't you 
want to have a business community with people who want to give 
a good product at a fair price and get rid of all the other bad 
ones? Why don't you want that?
    Mr. Pincus. As I said in my opening statement, Congressman, 
I absolutely agree with you. And that is why I think consumer 
protection is important, that the CFPB's purpose is important. 
But the problem is, if you are a legitimate company--
    Mr. Ellison. Wouldn't you agree that we are here today 
because we had a massive financial collapse in part due to 
people being taken advantage of in bad mortgaging, bad consumer 
practices? Would you agree with that, in part?
    Mr. Pincus. I think, in part, we could quarrel about that 
part. But if I could finish my other answer. I think what is 
critical here for legitimate businesses is what they want to 
know is what do I have to do to be law-abiding? I don't want to 
engage in an abusive practice. What is abusive? So I can build 
a compliance system that doesn't violate the rules. What can I 
do--
    Mr. Ellison. Thank you, Mr. Pincus. I got my red light. I 
do need to try to get some things in for the record. I 
appreciate your answer, sir.
    There are three articles I would like to introduce into the 
record, without objection: a Washington Times article, 
``Mandatory Arbitration Replaces Litigation, Consumers Lose;'' 
and ``Protect the Rule of Law and Arbitration Now.''
    Mr. Duffy. Without objection, it is so ordered.
    Mr. Ellison. I think my time is up, so thank you, Mr. 
Chairman.
    Mr. Duffy. The gentleman yields back. The Chair now 
recognizes himself for 5 minutes.
    I had one of the bills up today that provides access for 
the public to the Consumer Advisory Committee meetings. I tried 
to attend one of those meetings and was advised, per the staff 
of the CFPB, that Congressman requests would not be 
accommodated.
    We just found out yesterday that the CFPB has changed 
course and thought that transparency would be the best course 
and are now going to allow the public access to those meetings. 
They are diverting from the course of the CIA and the Federal 
Reserve. So I am sure you all know that, but I am pleased.
    But I guess, Ms. Peirce, to you, do you think we still need 
to go forward with legislation? I guess I would tell you, I 
have some concerns that it took us this much effort and this 
long to get the CFPB to agree to open up these meetings. Do you 
think we still need to go forward with legislation or do you 
think now they have seen the light and this issue is behind us?
    Ms. Peirce. Even before yesterday, they said that they 
complied with the FACA in spirit. And so, that seems to be a 
selective compliance. The problem with an agency that is run by 
a single director is that it runs on the whim of the director, 
so what they felt yesterday might not be what they feel next 
week.
    Mr. Duffy. So you would agree that a legislative fix is 
still warranted? I don't think it is necessary, but based on 
their interpretation.
    Ms. Peirce. If you put something in legislation, it is 
harder for them to ignore, although they might try.
    Mr. Duffy. I would agree.
    I want to change course to Mr. Westmoreland's bill. I have 
a real concern on data and the information that has come out in 
regard to the CFPB's collection of data, but more recently, 
what has been told to us by the FHFA on the kind of information 
and data they are going to be collecting in conjunction with 
the CFPB.
    I guess, Mr. Mierzwinski--hopefully I didn't slaughter your 
name--do you agree that if we want to empower consumers, we 
should give consumers an opt-out provision to make sure that 
government doesn't have information on how they spend, when 
they spend, their race, their religion, their kids, that the 
government should not have all this data without their 
permission or consent? Do you agree with that premise?
    Mr. Mierzwinski. Mr. Duffy, I don't know any consumer or 
privacy organization that has endorsed the proposals to rein in 
the CFPB's use of data. I think nobody is concerned about the 
government agency's use of data. They are confident that it 
will protect it.
    Mr. Duffy. Let me stop you there.
    Does anyone else on the panel have a concern about the data 
collection going on by the FHFA and the CFPB?
    Ms. Peirce. I am absolutely concerned, and I think, given 
the amount of information the Bureau already has, and the 
amount that the FHFA wants to add to that pile, they are going 
to have very specific, very personal information about a lot of 
Americans. And I think a lot of Americans would want to opt out 
of that.
    Mr. Pincus. Yes, just last week the Chamber filed comments 
with the FHFA raising these issues. And I am surprised to hear, 
given everything that has happened with the NSA and data 
collection, that anybody wouldn't be worried about a government 
agency collecting a lot of data, especially one where there 
have been concerns by the GAO and others about data security.
    Mr. Duffy. And I have to tell you, what surprises me is 
usually we see liberal outrage. Traditional liberals see 
government and its expansion, especially into the privacy of 
others, that is an affront to liberal principles. And 
oftentimes we see liberals now coming forward and saying, no, 
this is actually a good thing, that the government should have 
this kind and this amount of information on Americans.
    I guess I would submit a question to the panel. Doesn't it 
change the fundamental relationship that the citizenry has with 
the government when the government has this much information on 
them?
    Mr. Pincus?
    Mr. Pincus. I think it is concerning, and I think it is 
very worrisome. Obviously, there are some targeted reasons that 
government needs targeted information.
    Mr. Duffy. I agree.
    Mr. Pincus. The construction of very large databases that 
are going to be permanent and accessible by a lot of people, I 
think, is very worrisome.
    Mr. Duffy. I am going to rephrase my question as I have 45 
seconds left. If we are here to protect consumers--and that is 
the objective of the Consumer Financial Protection Bureau--why 
wouldn't you give the consumer an opt-out if that is who you 
are here to protect?
    Ms. Peirce?
    Ms. Peirce. I agree with that. I think the standards that 
the Bureau wants applied to itself are very different than the 
standards it wants applied to anyone else.
    Mr. Duffy. Very good.
    And, Mr. Mierzwinski, why does the CFPB need to know a 
consumer's religion?
    Mr. Mierzwinski. I wouldn't venture to guess why the CFPB 
needs to know that except to say that the CFPB is not trying to 
study individual consumers. The CFPB is trying to study 
markets, and it feels that information could help it.
    Mr. Duffy. And what does religion have to do with markets? 
No good answer, right? You shrug your shoulders?
    Mr. Mierzwinski. As far as I know, Congressman, there are 
many faith-based organizations that are in the market and there 
are many companies that are faith-based, so it might matter.
    Mr. Duffy. Very well. My time has expired. I don't see that 
we have any Democrats.
    We will now go to the gentleman from North Carolina, Mr. 
Pittenger.
    Mr. Pittenger. Thank you, Mr. Chairman.
    Mr. Chapman, you have been in business for 18 years, I 
believe I heard?
    Mr. Chapman. Yes, sir.
    Mr. Pittenger. Small business. You have seen a lot of 
transitions, I am sure, in the role of the Federal Government. 
Do you believe that the voice of small business is sufficiently 
represented at this time on the Bureau?
    Mr. Chapman. I do not.
    Mr. Pittenger. What would you recommend could be done to 
ensure that small business does have a voice?
    Mr. Chapman. In the industry that I represent, the majority 
of those members of our association are small business people. 
And they need to have a voice in which they can communicate 
their concerns with the Bureau and be able to articulate the 
real world activities that are brought down.
    Mr. Pittenger. What actions taken by the Bureau, Mr. 
Chapman, have impacted your business?
    Mr. Chapman. As an example, when the first CFPB 2012-03 
came out, we didn't know directly how it affected our business. 
So we are out here trying to slay dragons with no idea of what 
we are trying to thwart off. So from the title insurance 
settlement world, we are not directly regulated by the CFPB, 
but those that we serve, the lender community, have a great 
deal of regulatory environment that we need to be adherent to. 
So it was very, very hard for us to try to understand how we 
would keep our members relevant and continue to have them be 
applicable with the new regulations.
    Mr. Pittenger. So do you feel, Mr. Chapman, that you and 
other members of ALTA are sufficiently represented, then, on 
the Bureau before they took these kind of actions?
    Mr. Chapman. I think we have a great relationship with the 
Bureau, but I think there could be better representation if 
there was a small business panel.
    Mr. Pittenger. Thank you.
    Ms. Peirce, it has been argued that small businesses have a 
voice into the CFPB's decision-making processes through the 
SBREFA process. Are you aware of occasions that CFPB has 
ignored this requirement based upon a technicality?
    Ms. Peirce. I think it was on the QM rulemaking that they 
said they didn't need to have a panel because the original 
proposal was done by the Fed as opposed to the Bureau. And to 
me, that indicates just a willingness to live and die based on 
technicalities rather than really seeking the input of small 
businesses, which should be what you would think the Bureau 
would want to have.
    Mr. Pittenger. Did the CFPB agree to convene a SBREFA 
panel?
    Ms. Peirce. They did not for that rulemaking. They have for 
others. But, again, it is not something that they do willingly.
    Mr. Pittenger. Ms. Peirce, if the CFPB has the power and 
the authority to ignore the law requiring that it listen to 
small businesses, should we provide small businesses with 
another avenue to ensure that their voices are heard at the 
Bureau?
    Ms. Peirce. I think that giving small businesses more 
avenues to speak to the Bureau will lead to their concerns 
being taken into account.
    Mr. Pittenger. Thank you.
    Mr. Chapman, one more time. Are small businesses exempt 
from the CFPB's supervision and examination?
    Mr. Chapman. Yes, they are.
    Mr. Pittenger. Then, how do the decisions of the CFPB that 
are intended for the largest companies end up affecting small 
business?
    Mr. Chapman. Unintended consequences of not having 
representation.
    Mr. Pittenger. So you would be in support of the bill that 
we have offered, H.R. 4383, the Bureau of Consumer Financial 
Protection Small Business Advisory Board Act?
    Mr. Chapman. Yes.
    Mr. Pittenger. Thank you, sir.
    Mr. Pincus, do you have any comments to offer on this?
    Mr. Pincus. While the Chamber is also very supportive of 
increasing the voice of small business at the Bureau, as I said 
in my written statement and in my opening statement, there is a 
lot of concern that because the Bureau's approach has been to 
only use rulemaking when it is absolutely required, and because 
SBREFA only applies to rulemaking, there are a lot of decisions 
that the Bureau is making in its so-called guidance and other 
areas where there is no voice of small business heard at all, 
and that is a terrible problem.
    Mr. Pittenger. Thank you.
    Mr. Mierzwinski, I think you would have to agree, as well, 
that it surely doesn't hurt to have the input from small 
business and concerns that they express. That makes sense, 
doesn't it?
    Mr. Mierzwinski. Congressman, I think that through the 
existing panels, the SBREFA panels and the Consumer Advisory 
Board which small businesses are eligible to sit on, through 
the Office of Financial Institutions and Business Liaison--
which by the way, was set up by the CFPB--
    Mr. Pittenger. Sir, I am running out of time. What we are 
hearing from these small business--
    Mr. Mierzwinski. I just--
    Mr. Pittenger. --they have not had that access.
    Mr. Mierzwinski. --I respect the purpose of your bill, but 
I don't think your bill is necessary to provide the input.
    Mr. Pittenger. According to the people who are in the real 
world, it is.
    I yield back my time.
    Chairwoman Capito. The gentleman yields back.
    Mr. Fitzpatrick?
    Mr. Fitzpatrick. I thank the Chair.
    Ms. Peirce, on November 4th the Mercatus Center released a 
commentary entitled, ``CFPB Study of the Overdraft Program.'' 
And according to the commentary, the authority found several 
aspects of the White Paper that raise concerns, including the 
following: first, general statements that are not supported by 
rigorous analyses; second, selective quotations that do not 
provide context that would accurately portray the meaning as 
intended by the original source; third, leading statements in 
the body of the White Paper that are then modified in 
footnotes; fourth, lack of discussion of the economic welfare 
overdraft protection provides to a population with few other 
options; and finally, no discussion of the democratization of 
providing overdrafts to low- to moderate-income consumers.
    Who wrote that study at the Center?
    Ms. Peirce. That was by my colleague Todd Zywicki, and he 
wrote it with someone else, as well.
    Mr. Fitzpatrick. Do you agree with those findings?
    Ms. Peirce. I read the study, and I think it was a good 
study.
    Mr. Fitzpatrick. Do you believe that these flaws support 
the need for the Bureau to make the research that it relies 
upon public?
    Ms. Peirce. I think that is just good government, that you 
should make the data that you use, the assumptions that you 
make, the uncertainties that you have, you should make those 
all public. You are not trying to weaken your case, you are 
trying to draw in as much information from the outside as you 
can. And that leads to better rulemaking. This is not about the 
Bureau specifically. This is what all agencies are supposed to 
do. This is just good government.
    Mr. Fitzpatrick. Mr. Pincus, are you familiar with the CFPB 
study on the prevalence and use of payday loans and deposit 
advance products?
    Mr. Pincus. Yes, somewhat.
    Mr. Fitzpatrick. Do you believe that the research that 
underlies the study should be made public?
    Mr. Pincus. Absolutely. I agree with Ms. Peirce. There is 
no reason not to make the underlying data public of almost any 
study. Obviously, you don't want to make public confidential 
information or personally identifiable information and whatever 
is released has to be scrubbed to take care of that. But the 
agency depicts itself as being data-driven, and any good 
researcher will tell you that the best way to be sure that you 
are drawing the right conclusions from data is to not only put 
out your conclusions, but make the data available.
    Mr. Fitzpatrick. So you are saying you can think of no 
reason not to make--there might be some even peripheral or any 
reason at all?
    Mr. Pincus. I think you want to protect, as I said, 
personally identifiable information. There may be business 
confidential information that obviously would have to be 
protected from release, as that is under FOIA and other 
statutes. But if this is just statistical data that isn't being 
tied to anyone, that is being used to generate particular 
results, I think that is important.
    There is a lot of concern among many of the companies I 
talk to that, although the Bureau references data, a lot of 
what it does is often driven by anecdotes or sort of one-off 
information. And I think not only would releasing the data 
allow the Bureau's conclusions to be tested, but it would rebut 
the argument and the concern that these are really being 
driven, these regulatory decisions are being driven by things 
other than data. And I think that would make the Bureau more 
credible.
    Mr. Fitzpatrick. In your experience, what do other agencies 
do?
    Mr. Pincus. A lot of other agencies release data. I was 
struck by Ms. Peirce's comment generally about openness. A lot 
of other agencies are just much more open than the CFPB. For 
example, I have some experience with the FTC. And when the FTC 
is thinking about a problem, a policy problem, what it will do 
is put out a notice for comment, ask for public comments, and 
have a day-long symposium where different people can debate it. 
All of that is webcast and open to the public. And then it will 
follow up by using all of that information to make its 
decision.
    And the Bureau has sort of taken the opposite conclusion. 
In the arbitration study, for example, that Mr. McHenry was 
referencing, it is true that the Bureau will meet with people, 
but it won't tell anybody what it is studying. It never laid 
out the topics of the study and said, ``Please submit any 
information you have, please conduct other empirical studies. 
If you get them in by date X, we will use them. Here are the 
studies that we are relying on.''
    It is a very one-way process. You can give information, but 
you don't know if it is relevant at all to what the Bureau is 
doing, and you have no idea what the Bureau is using as its 
information base.
    Mr. Fitzpatrick. My time has expired. Thank you.
    Chairwoman Capito. Mr. Luetkemeyer?
    Mr. Luetkemeyer. Thank you, Madam Chairwoman.
    Thank you all for being here today, too. It is extremely 
important. I know that we have a lot of issues here, a lot of 
bills that try and find ways to improve CFPB's ability to do 
its job. Whether you agree with it or not, I think there is no 
perfect bill, there is no perfect agency, and to try and 
improve it is not something to be discounted.
    So I am kind of curious. All of you have, I assume, looked 
at the whole list of bills. Are there some in here that you 
think are fantastic or some that you think are a total waste of 
time? I would just be kind of curious about your feelings on 
them. I know we have read your statements and listened to your 
testimony. Give me a little heads-up. Give you one more shot, 
take a shot at the bill. How is that?
    Mr. Pincus. I think the Chamber's view is that all of these 
bills address areas that have to be addressed, that for the 
vast majority they deal with process issues in which the Bureau 
is following a path very different than other agencies, and I 
would just list off the IG. Every agency has an IG.
    As I was just saying, many other agencies before they issue 
guidance will have a process for getting public comment. Many 
other agencies have a process for getting advisory opinions or 
some kind of informal advice. Other agencies, because of the 
appropriations process, if for no other reason, don't have the 
ability to collect civil penalties and spend them on broad 
purposes.
    For example, the SEC has a procedure for depositing civil 
penalties that it collects into what is called a Fair Fund and 
distributing that to victims of securities fraud, but it 
doesn't get to use that money for any other purpose.
    Mr. Luetkemeyer. Okay. I don't want to cut you off, but I 
would like to have Ms. Peirce get a chance here.
    Ms. Peirce. I can't endorse specific bills, but I will say 
that Mr. Mierzwinski said something about how the Bureau is 
still young. And so I think that is the point: that the Bureau 
is a young agency and this is the time to fix the problems, 
because otherwise they develop into pathologies that are very 
difficult to correct. So anything you can do to kind of get 
them on the straight and narrow now will benefit consumers down 
the road.
    Mr. Luetkemeyer. Mr. Chapman?
    Mr. Chapman. It looks like the bill should be supported. I 
think the jury is out at this juncture, and we will still need 
some more time to answer that question specifically.
    Mr. Luetkemeyer. Okay.
    Mr. Mierzwinski?
    Mr. Mierzwinski. Congressman, if you weren't here, I 
opposed all the bills, as did Americans for Financial Reform. I 
think the most problematic is Mr. McHenry's bill. The Chamber 
is losing in an open, fair transparent process on whether or 
not arbitration should be banned or regulated by the CFPB. That 
is why they support taking away the CFPB's authority.
    I haven't talked about a couple of the bills. Mandating 
advisory opinions by statute would be analysis paralysis, and 
subject the CFPB to numerous lawsuits. If one company's product 
is determined to be good and another company's is not so good, 
you are going to have a lot of litigation. You are going to 
have litigation over any statutory advisory opinion process. 
And defining the word ``abusive,'' it is clarified in the 
statute, and there are several cases that the CFPB has brought 
using the abusiveness prong.
    Mr. Luetkemeyer. Okay. Mr. Mierzwinski, I have a couple of 
questions for you, then. I have a situation where I had a local 
bank, a small bank, and the director called me and said, ``Hey, 
we just got out of the CFPB meeting, we just got fined $107,000 
because the entity, the small mortgage lending company that we 
purchased had taken out a lease that they believed, the CFPB 
believed was $300 per month above what the market is and over 
the course of 9 months overpaid $2,700.'' They fined them 
$107,000. Do you think that is abusive?
    Mr. Mierzwinski. I don't know about that case, Congressman.
    Mr. Luetkemeyer. That is a true story, by the way.
    Mr. Mierzwinski. $300 and $1,700, I don't know about that 
case.
    Mr. Luetkemeyer. My question is, do you think that is 
abusive by the CFPB?
    Mr. Mierzwinski. I would have to look at the case.
    Mr. Luetkemeyer. $300 above market. Their reasoning for 
fining the bank was it is going to have to raise the cost of 
doing business on the rest of the clients, $2,700, make up the 
$2,700. Is that a rationale you can support?
    Mr. Mierzwinski. I would have to look at the case.
    Mr. Luetkemeyer. Thank you.
    Another situation we are aware of is I had a group of 
bankers who went to the CFPB to talk to them about the QM rule. 
They were told by the CFPB folks that they were the 42nd group 
who had come there to talk about this, and yet they continued 
down this path to issue a rule that everybody in the whole 
industry told them will not work and is going to be abusive.
    I think it is time that they were reined in. I understand 
that they are new, but that is a good time also to make some 
changes to make sure they stay on the right path.
    With that, I yield back. Thank you, Madam Chairwoman.
    Chairwoman Capito. Thank you.
    Mrs. Maloney for 5 minutes.
    Mrs. Maloney. I want to thank all the panelists, and the 
chairwoman and ranking member for calling this important 
hearing. I was ranking with Mrs. Capito in other Congresses and 
it is an incredibly important committee.
    I agreed very much with Mr. Pincus' opening statement that 
industry should support consumers because that helps industry, 
and if consumers don't trust industry, then the investment in 
our products doesn't happen. And I would venture to say that 
every member of industry would accept the Dodd-Frank reforms if 
they had known before and known that could have prevented what 
we lived through.
    We lost roughly $18 trillion of wealth in this country. I 
remember one weekend I went to bed, and by the time I woke up, 
there were about 10 companies that went under in the district 
that I have the privilege of representing. The amount of human 
suffering and corporate loss was unprecedented.
    And what is so staggering to me about that crisis is that 
it could have been prevented. Testimony after testimony before 
the Joint Economic Committee has been that it was the only 
financial crisis in our history that could have been prevented 
if we had regulated products better, mainly the subprime crisis 
that hurt so many homeowners and hurt so many people and hurt 
the financial industry of our country.
    So the Consumer Financial Protection Bureau, a lot of 
people have the responsibility to speak up for consumers as 
many on the panel pointed out, but oftentimes they don't do it 
because they have other responsibilities, such as safety and 
soundness or the bottom line or whatever. They have other 
responsibilities that come before the consumer.
    So, I support the CFPB. I think it is good for the country 
and good for business to have an agency that focuses on 
protecting consumers, because when we are protecting consumers 
we are basically protecting businesses in our country. And when 
you take all of these items that are before us and you put them 
together, in my opinion, it is death by 1,000 cuts to the CFPB. 
And by all accounts, industry in my district has been 
complimentary to the CFPB in their openness to listen and their 
responsiveness to it.
    Now, there is one that if I were industry, I would be 
objecting to. And that is the one calling upon the CFPB to 
issue a thoughtful and workable rule defining the term 
``abusive'' in just 15 days, as one of these bills would 
require. And it appears to me that forcing the Bureau to rush 
to such an important definition, the definition of abusive 
financial practices, would open the final rule to litigation by 
industry, because if I didn't like the rule, boy, I would be 
suing that it is capricious and not thoughtful to come forward 
with a rule within 15 days that would have a serious impact on 
my bottom line as an industry.
    So I just would start on this end and go down the line on 
whether you think 15 days to come out with such an important 
rule--does that make any common sense to you whatsoever?
    Mr. Mierzwinski. I think, Congresswoman, that bill is very 
poorly drafted in that regard. And it also--I raised the 
question that if the CFPB did that proposed rule, then held the 
notice and comment, then issued a final rule, does the bill 
allow it, if new abusive practices that aren't defined by the 
rule occur later, does it allow them to have a second 
rulemaking? I don't think it does.
    Mrs. Maloney. But anyone else, do you think 15 days--let's 
just go down the row, Mr. Chapman, Ms. Peirce, and then Mr. 
Pincus, is 15 days enough time to come back with a rule on 
abusive practices? It is a term that is used by the Fed all the 
time. But is 15 days enough time? I would be objecting if I 
were a member of industry. I am just curious as to your 
response.
    Mr. Chapman?
    Mr. Chapman. Specific to that, I am sorry, I can't give you 
a factual comment. But I can say I think that the CFPB is doing 
a wonderful job. It just needs to look at some different 
transparency and different communications to those that it 
regulates. So by the nature of creating the Small Business 
Advisory Committee--
    Mrs. Maloney. Actually, I support that. What is wrong with 
that? Everybody should have an advisory committee. Who cares, 
you know? There are other advisory committees all over the 
place. So I think that is a good recommendation, quite frankly.
    Mr. Chapman. Thank you.
    Mrs. Maloney. But to write a rule, a major rule in 15 days, 
I think is unreasonable.
    Ms. Peirce?
    Ms. Peirce. They are already using the term in their 
enforcement actions, so they already know what it means, and it 
shouldn't be hard for them to write a rule.
    Mr. Pincus. I think the particular timeline may be too 
short, but I think that the bill gets at a problem, which is, 
again, going back to the legitimate businesses that want to do 
the right thing, they don't know how--
    Mrs. Maloney. But Mr. Pincus, you are very knowledgeable. 
This is a term that has been used by all the regulators. Every 
rule I see coming out of the Fed uses ``abusive practices,'' so 
why have they not been called upon to define it?
    Mr. Pincus. It has not been a term previously used in the 
consumer protection area, and I think that is the concern. And 
the greater concern is that what the Bureau has done, rather 
than create a process to at least get some input on what the 
consequences might be of different interpretations, is it has 
used enforcement actions where it also has made claims under 
its ``unfairness and deceptive'' authority to put out very, 
very broad definitions of ``abusive.'' The cases are settled. 
They are never challenged. And companies don't know what to do 
because what the--
    Mrs. Maloney. The cases can be challenged.
    Chairwoman Capito. The gentlewoman's time has expired.
    Mr. Barr?
    Mrs. Maloney. They can be challenged and rules put out by 
the Fed have used the term ``abusive.''
    Mr. Barr. Thank you, Madam Chairwoman.
    Since we are on the topic of the proposed legislation that 
I have offered relating to defining abusive practices, whether 
it is 15 days or 30 days or 60 days to develop the rule, it is 
important to note that there is a notice-and-comment period 
that would give regulated parties and other interested parties 
the opportunity to weigh in on the proposal, a very 
deliberative process. The problem is that the CFPB is not going 
through that process. There is no timetable now.
    And so the issue is, if we want some timetable, some 
deliberative process to give notice to regulated parties, what 
the rules actually are, let's give them at least 15 days, maybe 
more, and then give them more time to have a notice-and-comment 
rulemaking process. I think it goes to the good testimony of 
Mr. Pincus and Ms. Peirce that the regulated parties here don't 
know what the rules of the road are.
    And so to that point, let me go beyond the argument Ms. 
Peirce makes about, this is just good government and that we 
want to eliminate legal uncertainty. Is there legal authority 
for the CFPB to simply ignore the Administrative Procedure Act 
and just engage in ad hoc, after-the-fact rulemaking? It is 
almost as if you say there is a reasonable speed limit, we are 
not going to tell you what it is, but here are the keys, go out 
on the road, and the police officer who pulls you over is going 
to decide there on the spot whether or not you get a ticket.
    Is that a proper analogy here, Ms. Peirce?
    Ms. Peirce. I think it is. In fact, that is what Director 
Cordray has said. He said, ``Well, you will know it when I see 
it and when I tell you I have seen it. And that is just not an 
acceptable way for a regulator to work, and that, to your 
point, is the reason that we have the Administrative Procedure 
Act. It is so that we have rulemaking done in a very careful 
way with input and then people will know which standards they 
are subject to.
    Mr. Barr. Mr. Pincus, in defining the boundaries of what 
the abusive standard actually should be, obviously the draft 
legislation has a 60-day notice and comment period. Does 
providing that period give the public sufficient opportunity to 
provide input so that the rule and the definition of abusive 
can be the right standard?
    Mr. Pincus. Yes, I think it does.
    Mr. Barr. And what would be the consequences of lack of 
public input?
    Mr. Pincus. What happens when there is no public input is 
that regulatory standards get devised without the agency 
knowing what the consequence is and also get sort of elaborated 
on in a way that companies that absolutely want to be law 
abiding don't know what the rules are, can't build compliance 
systems that screen out what has been determined to be bad 
behavior.
    And the other problem that we have here is that the Bureau 
seems to be going down a path of defining ``abusive'' in just 
the way Congress said--to do just what Congress said the Bureau 
couldn't do, which is to impose suitability requirements for 
financial services and products. Because what it said in these 
few settlements where it is mentioned abusive is that what was 
abusive, it appears to be, it is very oblique, but what it 
appears to be is that the company could have known if it had 
put a bunch of information together that this product wasn't 
right for this consumer, and because the product was offered to 
these consumers, that was abusive. And that obviously goes 
directly contrary to Congress' intent in removing suitability 
authority when Dodd-Frank was being legislated.
    Mr. Barr. And does after-the-fact enforcement and ad hoc 
enforcement without a clear rulemaking that gives advance 
notice to regulated entities also increase the likelihood of 
inconsistent enforcement?
    Mr. Pincus. It increases the likelihood of inconsistent 
enforcement, and what it does is chill companies from entering 
the market. If you don't know what the rules of the road are, 
the only safe thing to do is don't do anything new or 
different, don't try and serve a market that is underserved, 
because you may get into trouble.
    Mr. Barr. Yes. And, Mr. Mierzwinski, Director Cordray said 
that we expect a marketplace where companies are honest and 
clear so that consumers know the key terms and conditions of 
financial products up front. Shouldn't that same philosophy 
apply to the regulator, that the regulator should be honest and 
clear and provide what the rules are up front so that the 
American people know what the rules are before they are asked 
to comply with the rules?
    Mr. Mierzwinski. Congressman, I would simply say that if 
the companies that had lost the abusiveness cases thought they 
had a case, their learned counsel would be down at the D.C. 
Circuit Court appealing those decisions.
    Mr. Barr. One final question. You had mentioned in your 
testimony, sir, that this is a start-up agency going through 
growing pains. Should the CFPB apply a more relaxed scrutiny to 
start-up banks or financial institutions or lenders that are 
experiencing growing pains?
    Mr. Mierzwinski. I think it does. I think it does already. 
I think it is a very flexible agency, sometimes much more 
flexible than people on the Hill really know. And you should go 
down there. They will have you in for a visit.
    Mr. Barr. Thank you. I yield back.
    Chairwoman Capito. The gentleman's time has expired.
    Mr. Green?
    Mr. Green. Thank you, Madam Chairwoman.
    I thank the witnesses for appearing. I am intrigued by the 
style of the hearing which deals with transparency and 
accountability, and I think it is appropriate to have 
transparency and accountability. But I am intrigued because 
H.R. 4662--and I am pleased that the sponsor is present--would 
have a statement issued that is confidential. It deals with the 
advisory opinions.
    And I am willing to yield to my friend to have him give 
me--Mr. Duffy, if you would. Mr. Duffy?
    Chairwoman Capito. Mr. Duffy?
    Mr. Green. I'm sorry. I didn't mean to interrupt you. I 
just wanted to ask you about your bill. Might you and I have a 
polite exchange?
    Mr. Duffy. Oh, absolutely.
    Mr. Green. Because I do commend you and compliment you on a 
good many of your accomplishments, especially seven children.
    Mr. Duffy. Thank you.
    Mr. Mulvaney. That is actually what we were talking about.
    Mr. Green. All girls?
    Mr. Duffy. Five girls, two boys. He wanted to know if I 
know what caused that, and I said Catholicism.
    Mr. Green. Okay. But I am very serious and this is with the 
best of intentions that I ask: Why would we have a confidential 
opinion given as opposed to an opinion that all could benefit 
from, given that we are seeking transparency? And honestly, my 
question is with the best of intentions. And I would ask you to 
give me your response.
    Mr. Duffy. Are you talking about my bill--
    Mr. Green. I think it is--H.R. 4662 is yours, isn't it?
    Mr. Duffy. The consumer advisory bill?
    Mr. Green. Right. Yes, sir.
    Mr. Duffy. And I'm sorry, your question again is?
    Mr. Green. My question has to do with the confidentiality 
associated with the opinion that is requested, and I am asking 
why would it be confidential? We are talking about 
transparency. Why would you want an opinion that others can't 
benefit from?
    Mr. Duffy. I don't know that I have a confidentiality 
portion of my bill.
    Mr. Green. Unless I have a bad copy, I am assuming this is 
H.R. 4662.
    Mr. Duffy. I am going to move down here, as we talk, to my 
materials.
    Mr. Green. Okay. Great. It is titled, ``the Bureau Advisory 
Opinion Act.'' Is that yours?
    Mr. Duffy. That is Mr. Posey's bill.
    Mr. Green. Mr. Posey's.
    Mr. Duffy. You were confusing me there for a moment.
    Mr. Green. All right. Sorry about that. He is not the guy 
with the kids. Okay. He is not here.
    I didn't want to bring this up without the person who 
actually is the sponsor being here. And the bill does deal with 
confidentiality.
    So with that said, let me just ask the panel, why would we 
have a confidential opinion? And I am asking with the best of 
intentions. Why would we want to have opinions issued that are 
not available for others to benefit from given that we are 
placing transparency on a pedestal? Why would we do this?
    Mr. Mierzwinski. If you are starting at the left end, I 
would say, Congressman, I don't know why we would do that bill 
because I think that it puts the Bureau into very complicated, 
murky legal terrain. There would be challenges.
    And the other thing about it is that it is a tremendous 
resource drain. The Bureau has to write rules, the Bureau has 
to conduct enforcement, it has to study markets, it has to 
provide information to consumers, and now it has to deal with 
every single request from any company for an advisory opinion 
that is private. It doesn't make sense to me.
    Mr. Green. Would someone else like to respond?
    Mr. Chapman. I think the opinion should be open and 
available to the public, redacted where appropriate.
    Mr. Green. Yes.
    Mr. Pincus. I think the practice of many agencies is that 
they are open. I think the question is, if a company has a 
business confidential, a new idea that it doesn't want to share 
with the rest of the world but wants to get some advice, is 
there a way to redact the confidential information, which other 
agencies do, so that the advice is there but the idea remains--
the company that is seeking to do the right thing keeps the 
ability to capitalize on its idea?
    Mr. Green. Have you read this bill?
    Mr. Pincus. I have.
    Mr. Green. You have? Do you believe that is what is 
accomplished with this bill?
    Mr. Pincus. I am not sure that this language does exactly 
that. I think there probably is a way to provide for opinions 
to be published or to be put up on the Web site, which is what 
people do now, but to provide that business confidential 
information as it is in other circumstances is redacted so that 
is protected.
    Mr. Green. Thank you, Madam Chairwoman.
    Chairwoman Capito. Thank you.
    I now recognize Mr. Westmoreland.
    Mr. Westmoreland. Thank you, Madam Chairwoman.
    Mr. Mierzwinski, I want to follow up on an answer that you 
gave Mr. Duffy earlier. I'm sorry, I was not here. But you said 
that the CFPB should collect information about religion because 
the CFPB is monitoring markets and not individuals. Was that 
your statement?
    Mr. Mierzwinski. Generally, yes.
    Mr. Westmoreland. Okay.
    Mr. Mierzwinski. Could they collect the information, but I 
said it is not important to study the consumer. They want to 
study markets. And in follow-up, I said to the Congressman--he 
asked me why, and I said, well, I think there are a lot of 
companies that target people of different faiths and it might 
be something you want to study because of that.
    Mr. Westmoreland. Okay. Then, why would they need to 
collect Social Security numbers or GPS locations of somebody's 
house if they were just doing market research?
    Mr. Mierzwinski. Market research today involves trying to 
figure out what companies are doing with information. What this 
has to do with is--
    Mr. Westmoreland. I know, but what would that have to do 
with an individual?
    Mr. Mierzwinski. I'm sorry, they are trying to find out 
whether or not you, at your location, are being treated 
differently than me, at my location, all other things being 
equal, and how companies are marketing to people in three 
dimensions.
    Mr. Westmoreland. With a GPS system, not just a ZIP code? 
Don't most people do it by ZIP code?
    Mr. Mierzwinski. Most companies, Congressman, are now 
tracking you on your mobile phone. They want to know where you 
are at any time of the day.
    Mr. Westmoreland. So you think that is appropriate, for the 
CFPB to track you on your mobile phone?
    Mr. Mierzwinski. The CFPB, I understand, is collecting data 
sets that include it. I don't think they are tracking people in 
the way that the companies are tracking people. I think that if 
they are collecting, and I would have to look at this FHFA 
study, if they are collecting data, they are collecting data on 
what the companies are doing with GPS data. They are not 
tracking you.
    Mr. Westmoreland. Okay. You also, I think, said that 
consumers trust the CFPB?
    Mr. Mierzwinski. Oh, I think the consumers do.
    Mr. Westmoreland. Now, have you done a poll on that or what 
have you done to prove that? Just talk to people in your 
neighborhood?
    Mr. Mierzwinski. Congressman, Americans for Financial 
Reform has conducted surveys, legitimate statistical studies; 
Celinda Lake's organization, Lake Research, has done them for 
us. I would be happy to enter them into the record. But I don't 
know if we have a question, do we trust the CFPB's use of 
privacy? But we absolutely have questions, do you trust the 
CFPB and do you see a need for an agency that has only one job, 
protecting consumers? Absolutely.
    Mr. Westmoreland. It is interesting that their one job is 
to protect consumers, yet they have more information than the 
NSA does or any other agency in the government on these 
consumers, and the people who have as a repository for this 
information do not have a security clearance other than just a 
background check.
    So do you think that gives the consumer any type of sense 
of protection, and do they understand when they answer one of 
these surveys that somebody sends out that they have all this 
information and that the people who hold it do not have any 
type of security clearance?
    Mr. Mierzwinski. I am unaware, and I would be interested in 
the committee's background memos, because I don't have them, 
and I was asked to testify just a few days ago. I haven't found 
out whether any agency that collects personally identifiable 
information (PII) requires a security clearance of all the 
employees who have a chance to look at it. But I don't think 
that the American public is concerned right now. The CFPB is 
responsive to OMB's requirements on protection of data and they 
are doing it.
    Mr. Westmoreland. I don't think there is a lot of faith in 
the IRS that they are keeping that data confidential either. 
And it is just amazing to me that this start-up agency has the 
access to all of somebody's personal information. I just think 
that is of great concern to the American people that these 
folks have nothing but a background check, no security 
clearance, no confidential clearance, nothing else, but yet to 
be a Consumer Financial Protection Board one breach, one thing 
from them, it could be--and identity theft is the worst crime 
that we can have for somebody's credit right now.
    So with that, ma'am, I know my time is up, and I yield 
back.
    Chairwoman Capito. Mr. Scott?
    Mr. Scott. Thank you. I just got back from voting.
    I have a couple of questions. Ms. Peirce, I think it was 
you who said that you didn't think there was any need for the 
CFPB. Is that correct?
    Ms. Peirce. It is correct that I said that. My thinking is 
that the functions that the Bureau performs could be performed 
by existing agencies.
    Mr. Scott. What existing agencies?
    Ms. Peirce. The banking regulators could have performed the 
functions that were given to the Bureau. And there are good 
arguments--
    Mr. Scott. You are very much aware that the banking 
regulators could not provide the function to prevent the Wall 
Street crash?
    Ms. Peirce. I agree with you that they did not do a good 
job, and so giving regulators more authority is not the answer 
that I would have written.
    Mr. Scott. That is very revealing what you said. The CFPB, 
without question, is needed, there is no question about that, 
to protect consumers. Adjustments, perhaps, in certain cases, 
yes. There is no law that is perfect. There is no approach that 
is perfect. But it just struck me as rather odd that you were 
the only one who said that and would refer to agencies when 
those agencies didn't do the job, the main job, that caused the 
need for the CFPB in the first place.
    Ms. Peirce. I think that we are all here today to see that 
the Bureau that does have those authorities is doing the job 
right, and I think that is why additional protections are 
needed on how they do that.
    Mr. Scott. Yes, I agree with you, and I agree with you 100 
percent on that statement. What I don't agree with you on is 
that we didn't need it. But I am glad to hear you say that what 
you want to do is make it work and make it apply. But let there 
be no question, we need this. And I work with the CFPB. There 
are areas there that I am working with them on where we can 
fashion and we make the industry.
    There is no law we have on the books, there is no policy we 
have on the books that is foolproof. We are still working with 
things like Medicare, Social Security, whatever it is, you are 
constantly working with. But, again, I am glad I clarified 
that, and I certainly welcome your work with us to fix the 
ailments that may come up with the CFPB.
    I wanted to talk about something that hadn't been talked 
about, though, and that is Mr. Stivers' bill on inspector 
general reform. Now, that gives me some problems, too.
    And, Mr. Mierzwinski--I hope I didn't murder your name, but 
Mierzwinski, I think, all right--what is going on here? It 
seems to me the IG that we have in place is basically working. 
Why do you think we need a new one? Do you agree with this, 
that we need a new IG in there?
    Mr. Mierzwinski. I am always surprised when the majority 
party asks to make government bigger. It does surprise me. And 
I would point out in my testimony I have a letter, excerpts 
from a letter that the Inspector General for the Fed and the 
CFPB sent to the Bipartisan Policy Center, the group that 
organized and supported in their report this notion of an 
independent IG, and the Inspector General found mistakes in 
that BPC report, and he asked for them to be retracted. And he 
also said we absolutely have all the authorities, all the 
power, and all the resources we need to continue to do this 
job. So, again, I don't see the need for the legislation.
    Mr. Scott. Do you or any of you on the committee, is there 
any evidence that even would suggest that the current IG has 
failed to conduct rigorous and adequate oversight of the CFPB? 
So no evidence, nothing--
    Ms. Peirce. I would argue that there certainly is more work 
that they could have done. And I think the other half of that 
problem is that the Federal Reserve got a lot of new powers 
under Dodd-Frank, and I think the Federal Reserve is woefully 
underinspected by their Inspector General. So I think that 
there is work to be done on both agencies that is not getting 
done.
    Mr. Scott. All right. But you don't have any specific 
examples or evidence where--
    Mr. Stivers. Would the gentleman yield?
    Mr. Scott. Sure.
    Mr. Stivers. I don't know if you are aware, and it is in 
the committee's report, but in the 15 reports that the Fed's IG 
was supposed to do on the CFPB, there were 35 delays. And if 
you find that acceptable, then maybe you are okay with the 
current situation, but I don't find that acceptable.
    Mr. Scott. I also think if you would look at several other 
IGs in several other agencies, the Veterans Affairs IG comes to 
mind, you can come up with some examples of that. But I am 
talking about rigorous enforcement, a need to overhaul and 
replace them with a totally new IG, correct that malfunction, 
and move on. I don't see where there is a need for the entire 
new IG.
    But anyway, Madam Chairwoman, thank you.
    Mr. Stivers. Would the gentleman yield again?
    Chairwoman Capito. The gentleman's time has expired.
    Mr. Scott. Yes, I already yielded.
    Mr. Stivers. I will make my points during my time, then.
    Chairwoman Capito. Mr. Mulvaney?
    Mr. Mulvaney. Thank you, Madam Chairwoman. Thank you to 
both you and the ranking member for letting me participate in 
this subcommittee today.
    Mr. Pincus, when you started off, one of the very first 
things you said was that one of the difficulties that many of 
the companies that are regulated by the CFPB are facing is that 
they just don't know what the rules are. They want to abide by 
the rules, but they just don't know what the rules are because 
either they don't exist or they are not clearly defined.
    Mr. Mierzwinski, you did not get a chance to comment on my 
proposed legislation in the long list of ones that you talked 
about at the beginning, but let's talk about that now if we get 
a chance. Because I understand that one of the complaints I 
hear is that it takes too long to get these rules put in place. 
The examinations take too long. It takes too long to get the 
final reports. I think that the CFPB actually has internal 
goals on its own, they are not statutory, for 65 days for 
supervisory letters, 110 days for depository institutions' 
final reports.
    So one of the things my proposed bill does, the Bureau 
Examination Fairness Act, is to codify those deadlines and to 
give the CFPB 60 days to do the initial investigation, and 120 
days to actually come up with the final decision, which could 
be extended to 180 days one time.
    What is wrong with that, Mr. Mierzwinski?
    Mr. Mierzwinski. Congressman, first of all, on your bill, I 
think that the Bureau has already accepted the basic premise of 
your bill. They are no longer doing ride-alongs for the 
enforcement staff in the examination process. So, examiners are 
not being accompanied by enforcement staff.
    But I think it should be made clear in your bill that if an 
examiner finds evidence of continuing mistakes or problems at a 
company, they ought to be able to call an expert enforcement 
official to discuss it with them, and it is unclear from your 
bill whether you can do that.
    But getting to the part you are talking about, I think 
Congress imposing deadlines like that on examiners and with so 
many of the terms undefined for the coordinated examinations 
and the overlapping examinations and that limit of $50,000--by 
the way, I think that would benefit the bigger banks at the 
expense of the smaller banks--
    Mr. Mulvaney. Let's stay on the number of days first, 
because you have touched on a couple of things, and I want to 
try and touch on all of them in 2 minutes and 40 seconds. But 
let's stay on just the number of days. If 60 and 120 days 
aren't the right numbers, what are?
    Mr. Mierzwinski. Again, I don't know that the other bank 
regulators--some bank regulators have permanent examiners at 
banks.
    Mr. Mulvaney. That is not my question. What is the number?
    Mr. Mierzwinski. When there is a permanent examiner at a 
bank, what is the number they are using? I don't know.
    Mr. Mulvaney. Are 60 and 120 days the right number, Mr. 
Pincus? Ms. Peirce? Anybody? Do you have any thoughts on this?
    Mr. Pincus. I think it is the number the Bureau itself came 
up with, so that sort of indicates that it is the right number. 
And I think, talking to a lot of companies, this is a huge 
difference between Bureau examinations and examinations by the 
safety and soundness regulators, is that the Bureau 
examinations never end. Even if safety and soundness regulators 
are on the premises, the examinations have a time period, there 
are lots of different ones, and you get a closing letter at the 
end that tells you how you did or what you have to fix.
    And the frustration for many, many, many banks and other 
institutions that are being examined is they never get the end. 
It is just everything is held open forever. There is no 
closure. Again, people don't know what the rules of the road 
are so that they can implement what other changes they have to 
implement. And meanwhile, some other examination on another 
topic has started and is overlapping and that is a huge 
consumption of resources.
    Mr. Mulvaney. Let's come back to the enforcement agents, 
the ride-alongs, because you are exactly right, Mr. 
Mierzwinski, you mentioned that the CFPB has stopped doing 
that. What is wrong, then, with codifying that? Again, all I 
think I am doing with my 60 and 120 days is codifying what the 
Bureau says is its best practice? And I would like to codify 
that for the enforcement agency, as well. Do you have a 
difficulty with that?
    Mr. Mierzwinski. Again, as I said, I am not sure that 
applies to other agencies as well, does it? Do the other 
agencies have a prohibition on ride-alongs in statute?
    Mr. Mulvaney. Some of them do, yes.
    Mr. Mierzwinski. Then, again, the question is could an 
enforcement agency take a phone call from an examiner under 
your bill?
    Mr. Mulvaney. I don't know the answer to that question. But 
generally speaking, do you have difficulty with codifying these 
rules? Do you think that an agency should operate under defined 
rules from Congress, or do you think they should be able to 
make up their own rules on how they want to function?
    Mr. Mierzwinski. I have always felt that agencies are 
expert and Congress should provide overriding general statutes, 
but putting numbers into statutes is always problematic.
    Mr. Mulvaney. And I guess doing what you have just 
suggested then would be overly problematic because the 
oversight ability we have is extraordinarily limited. If they 
get to make up their own rules on how long they want to take--
or not make up any rules--I don't know what oversight is 
available to us.
    I had some other questions about the 50,000, but I am out 
of time. So I appreciate the opportunity.
    Chairwoman Capito. Thank you.
    Mr. Stivers?
    Mr. Stivers. Thank you, Madam Chairwoman. I really 
appreciate the chance to have this hearing, and I appreciate 
the witnesses being here today.
    I want to talk a little bit about the bill that the 
gentleman from Georgia brought up earlier, my bill, that is a 
bipartisan bill to create an independent Inspector General for 
the CFPB.
    As everybody in the room knows, the CFPB has no budget that 
is approved by Congress. They are not a board. It is one 
individual who runs the organization, and they draw down their 
money from the Federal Reserve. And unlike the 50 other 
agencies that have independent Inspectors General--and when I 
say independent, I mean appointed by the President, confirmed 
by the Senate--the CFPB has an Inspector General who is 
appointed by the head of the Federal Reserve, but not confirmed 
by the Senate. It does not make sense.
    And so, I think they should be on the same plane as the 
SEC, the CFTC, the FHFA, the FDIC, and the Treasury. That is 
all we are asking for here. This is a bipartisan bill. It is a 
bipartisan solution. And one of the witnesses suggested that 
they don't like it when Republicans want to grow government. I 
just want to make government work better. There is nothing 
wrong with having transparency and accountability for 
everybody.
    Does anybody on the panel know of any reason why the CFPB 
should be created or treated any differently than the other 50 
agencies that have an Inspector General who is appointed by the 
President of the United States and confirmed by the United 
States Senate?
    I will take that as a no.
    So is there anybody on the panel who believes that 
transparency is a bad thing, accountability is a bad thing?
    Is there anybody on the panel who believes that 
transparency is a good thing?
    Mr. Pincus. Yes.
    Mr. Stivers. I will note that every witness is shaking 
their head that transparency is a good thing.
    Now I will, Mr. Mierzwinski--is that how you pronounce your 
name, sir?
    Mr. Mierzwinski. Very good.
    Mr. Stivers. Is that correct?
    Mr. Mierzwinski. Correct.
    Mr. Stivers. You had a dialogue earlier with the gentleman 
from Georgia to which I interjected that the CFPB--the Fed 
Inspector General has had 15 reports relating to the CFPB, and 
they have had 35 delays on just 15 reports. Do you find that 
acceptable?
    Mr. Mierzwinski. I don't find that necessarily acceptable, 
but I would have to compare it to other IGs.
    Mr. Stivers. So you don't want to compare it against any 
sort of regular standard that when they make their work plan 
they report their work plan to our oversight committee every 
quarter. You don't think it should be that they get to make 
their own work and plan their work and they should generally 
meet the deadlines they set. Nobody set these deadlines for 
them; they missed their own deadline 35 times on 15 reports.
    So you could compare that and say, well, everybody else is 
really bad so it is okay for them to be really bad. But I think 
for accountability and transparency and for the taxpayers, we 
want them to meet their own deadlines. And you may or may not 
know that they have over twice as many people, the Fed 
Inspector General oversees double the number of employees as 
overseen at the Federal Trade Commission, the Consumer Product 
Safety Commission, the NCUA, or the CFTC. The problem is they 
oversee a lot of folks, and that is a problem.
    I guess the other question I would have for Ms. Peirce is, 
so the Fed Inspector General serves the Federal Reserve Board 
and the Consumer Financial Protection Bureau. Do the missions 
of these two agencies differ?
    Ms. Peirce. They differ significantly.
    Mr. Stivers. Can you serve two masters in two missions 
easily?
    Mr. Peirce. That is my big concern, is the Inspector 
General should get to know the agency for which he or she is 
Inspector General. And having to know both the Fed and the CFPB 
is a very difficult task.
    Mr. Stivers. And, Mr. Pincus--is that how you pronounce it?
    Mr. Pincus. Yes.
    Mr. Stivers. Mr. Pincus, the CFPB is a start-up agency. It 
now has over 1,300 employees. In your experience, when is the 
time that you can make the most mistakes in an agency, is it 
when you are a mature agency or when you are a start-up agency?
    Mr. Pincus. I think mistakes are possible all the time. But 
certainly when you are a start-up, the growing pains can often 
lead to problems. And it is also the time when bad practices 
can get institutionalized or--rooted out right at the 
beginning, which is obviously preferable.
    Mr. Stivers. If the CFPB were to have their own Inspector 
General, Mr. Pincus, don't you believe that they could root out 
those potential institutional policies? For example, the CFPB 
just, I believe--I don't know if it is public--had an issue 
with discrimination. And they are only 2\1/2\ years old. And 
they paid out millions of dollars related to that. Does that 
sound like it could have been something that could have been 
prevented if they had their own Inspector General?
    Mr. Pincus. Absolutely. The Inspector General would have 
been looking at what was going on and giving independent 
advice.
    One of the problems for the CFPB, as Ms. Peirce mentioned 
earlier, is unlike all the other agencies you mentioned that 
have multimember commissions, it is just one Director. So the 
opportunity to have input from others who might have a 
different perspective just isn't there. And an IG would supply 
that.
    Chairwoman Capito. The gentleman's time has expired.
    Mr. Stivers. Thank you, Madam Chairwoman.
    Chairwoman Capito. In conclusion, I would like to thank all 
of you. Thank you for your patience. I know we were a little in 
and out here. But I think we got a lot of good information, and 
I appreciate everybody's opinion.
    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.
    Without objection, this hearing is adjourned.
    [Whereupon, at 4:05 p.m., the hearing was adjourned.]
    
    
                            A P P E N D I X

                              May 21, 2014
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