[Senate Hearing 113-16]
[From the U.S. Government Publishing Office]




                                                         S. Hrg. 113-16

 
         THE CONSUMER FINANCIAL PROTECTION BUREAU'S SEMI-ANNUAL
                           REPORT TO CONGRESS

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

                                HEARING

                               before the

                              COMMITTEE ON
                   BANKING,HOUSING,AND URBAN AFFAIRS
                          UNITED STATES SENATE

                    ONE HUNDRED THIRTEENTH CONGRESS

                             FIRST SESSION

                                   ON

          A REVIEW OF THE CFPB SEMI-ANNUAL REPORT TO CONGRESS

                               ----------                              

                             APRIL 23, 2013

                               ----------                              

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





                                                         S. Hrg. 113-16


                   THE CONSUMER FINANCIAL PROTECTION
                BUREAU'S SEMI-ANNUAL REPORT TO CONGRESS

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

                                HEARING

                               before the

                              COMMITTEE ON
                   BANKING,HOUSING,AND URBAN AFFAIRS
                          UNITED STATES SENATE

                    ONE HUNDRED THIRTEENTH CONGRESS

                             FIRST SESSION

                                   ON

          A REVIEW OF THE CFPB SEMI-ANNUAL REPORT TO CONGRESS

                               __________

                             APRIL 23, 2013

                               __________

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


                 Available at: http: //www.fdsys.gov /



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            COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS

                  TIM JOHNSON, South Dakota, Chairman

JACK REED, Rhode Island              MIKE CRAPO, Idaho
CHARLES E. SCHUMER, New York         RICHARD C. SHELBY, Alabama
ROBERT MENENDEZ, New Jersey          BOB CORKER, Tennessee
SHERROD BROWN, Ohio                  DAVID VITTER, Louisiana
JON TESTER, Montana                  MIKE JOHANNS, Nebraska
MARK R. WARNER, Virginia             PATRICK J. TOOMEY, Pennsylvania
JEFF MERKLEY, Oregon                 MARK KIRK, Illinois
KAY HAGAN, North Carolina            JERRY MORAN, Kansas
JOE MANCHIN III, West Virginia       TOM COBURN, Oklahoma
ELIZABETH WARREN, Massachusetts      DEAN HELLER, Nevada
HEIDI HEITKAMP, North Dakota

                       Charles Yi, Staff Director

                Gregg Richard, Republican Staff Director

                  Laura Swanson, Deputy Staff Director

                        Jeanette Quick, Counsel

                   Glen Sears, Deputy Policy Director

                    Phil Rudd, Legislative Assistant

              Jelena McWilliams, Republican Senior Counsel

                     Greg Dean, Republican Counsel

                       Dawn Ratliff, Chief Clerk

                      Kelly Wismer, Hearing Clerk

                      Shelvin Simmons, IT Director

                          Jim Crowell, Editor

                                  (ii)
?

                            C O N T E N T S

                              ----------                              

                        TUESDAY, APRIL 23, 2013

                                                                   Page

Opening statement of Chairman Johnson............................     1

Opening statements, comments, or prepared statements of:
    Senator Crapo................................................     2

                                WITNESS

Richard Cordray, Director, Consumer Financial Protection Bureau..     4
    Prepared statement...........................................    32
    Responses to written questions of:
        Senator Crapo............................................    33
        Senator Menendez.........................................   385
        Senator Hagan............................................   390
        Senator Moran............................................   392
        Senator Coburn...........................................   396

              Additional Material Supplied for the Record

Semi-Annual Report of the Consumer Financial Protection Bureau...   408

                                 (iii)


   THE CONSUMER FINANCIAL PROTECTION BUREAU'S SEMI-ANNUAL REPORT TO 
                                CONGRESS

                              ----------                              


                        TUESDAY, APRIL 23, 2013

                                       U.S. Senate,
          Committee on Banking, Housing, and Urban Affairs,
                                                    Washington, DC.
    The Committee met at 10:03 a.m., in room SD-538, Dirksen 
Senate Office Building, Hon. Tim Johnson, Chairman of the 
Committee, presiding.

           OPENING STATEMENT OF CHAIRMAN TIM JOHNSON

    Chairman Johnson. Good morning. I call this hearing to 
order.
    We have reviewed the CFPB's Semi-Annual Report and are here 
today to conduct regular oversight of the CFPB. This includes 
making sure that the agency continues to fulfill its mission of 
protecting consumers and empowering them to make responsible 
financial decisions, promoting fair competition in industry, 
and ensuring full access to financial services for all 
Americans.
    Director Cordray, welcome back to the Committee. I know you 
share my commitment to transparency and accountability. In 
fact, this is the 32nd time that a CFPB official has appeared 
before Congress in just over 2 years and your 13th appearance. 
Rightly so, your agency's outreach and engagement with both 
consumers and industry representatives has been widely praised.
    The CFPB has made significant progress in protecting 
consumers, including students, servicemembers, and older 
Americans. For example, the CFPB has developed a number of 
tools related to student lending, including the ``Financial Aid 
Shopping Sheet'', that will help students make the best choices 
as they pursue their dreams.
    And since the CFPB opened its doors, it has obtained $425 
million of consumer refunds. That is $425 million back into the 
hands of harmed consumers and back into the economy.
    Earlier this year, the CFPB finalized rules to strengthen 
mortgage standards. This includes the Ability to Repay 
provision, which requires lenders to make a good-faith effort 
to determine whether a borrower can make his or her payments. 
These rules have been generally well received by consumer and 
industry groups alike, and I applaud the care the CFPB 
undertook in writing these rules. However, we must ensure that 
these rules do not have adverse impacts on lending in 
underserved areas, including rural areas. I look forward to 
hearing from Director Cordray on how this rule will impact 
rural lending, which is an important issue for many in South 
Dakota.
    Finally, Director Cordray, you have made comments about 
reducing regulatory burden on community banks and credit 
unions. I continue to be interested in your plans to make sure 
that rules strike the right balance, protecting consumers while 
addressing legitimate concerns smaller institutions may have.
    You have proven day in and day out that you are well 
qualified for your position. Even my colleagues across the 
aisle concede this point. I hope we can provide the market the 
certainty it needs and consumers the cop on the beat they 
deserve by confirming you quickly. Thank you for your service, 
and I look forward to our ongoing work with you.
    With that, I turn to Ranking Member Crapo.

                STATEMENT OF SENATOR MIKE CRAPO

    Senator Crapo. Thank you, Mr. Chairman, and thank you, Mr. 
Cordray, for being here with us today. I appreciate it.
    Mr. Chairman, this semi-annual briefing by the Consumer 
Financial Protection Bureau is very important to us to gain 
insight into what the agency is doing. As I have consistently 
stated in past hearings, we still have concerns with the 
structural nature of the agency. We continue to seek a change 
from the sole directorship to a board-like structure. It is 
also essential that the agency be a part of the appropriations 
process. And, finally, we believe that the prudential banking 
regulators should have a formal input into the Bureau's action 
where those actions affect safety and soundness.
    And with regard to the President's recess appointment to 
the CFPB last year, my opinion has not changed. I continue to 
believe the recess appointment was unconstitutional.
    Recently, agency officials have pointed out that they have 
testified more than 30 times before Congress in the past few 
years. And while this does give Congress an opportunity to hear 
directly from agency officials and is appreciated, it does not 
necessarily facilitate the in-depth discussion of the specific 
issues and concerns that we need.
    Just last week, Bloomberg ran a lengthy article citing that 
the CFPB has allocated more than $20 million for collecting and 
tracking customer credit card and spending habits for more than 
10 million Americans. The size of this data collection and the 
amount of money being spent by the agency are a cause of 
concern for me--and should be for those Americans whose credit 
cards, checking accounts, and other financial data are being 
sent monthly to the CFPB.
    Last month, I specifically asked the agency about this data 
collection, but the responses I received downplayed the nature 
and extent of it.
    For example, I asked how many consumer accounts the CFPB is 
monitoring, and the agency declined to provide that 
information. Now we learn from the press that it is 10 million 
accounts, and perhaps even more.
    This lack of candor and transparency of what the agency is 
doing and how it intends to use this personal financial data is 
troubling. The Bureau was founded with a mission to watch out 
for American consumers, not to watch them.
    Given that the CFPB's Inspector General has already 
identified data security issues at the Bureau, how can the 
consumer be assured that this information is indeed safe?
    With regard to its regulatory role, in the past 2 years the 
Bureau has issued numerous new rulemakings, resulting in 
significant cumulative burden for affected institutions, 
especially our small and community banks that often have just a 
handful of employees.
    In January alone, the Bureau finalized over 2,500 pages of 
new rules relating to mortgages through seven different 
rulemakings. I am concerned that, without strong cost/benefit 
analysis and input from small business panels in crafting 
rules, even well-intentioned rules could make consumer credit 
more expensive and less affordable.
    That is why at two separate hearings last year I encouraged 
the CFPB to conduct a small business panel on the proposed 
qualified mortgage proposal to try to minimize unintended 
consequences. Many community bankers now warn that, despite 
limited QM exemptions for smaller institutions, they will no 
longer offer any mortgages outside the QM criteria, which will 
restrict their ability to meet the mortgage needs of the 
communities they serve.
    Another issue concerning the agency has been identified by 
the agency's own ombudsman who recommended the CFPB needed to 
review and clarify the role of enforcement attorneys who attend 
supervisory exams. I look forward to hearing from you, Mr. 
Cordray, about how you plan to address the community bank 
concerns with the QM rules and how the CFPB is implementing the 
overall ombudsman's recommendations.
    Specifically, I would like to hear how the Bureau is 
handling the examination concern raised by the ombudsman as 
well as whether the Bureau is concerned about the effect that 
the sheer presence of the enforcement attorneys may have on the 
integrity of the examination process.
    I firmly believe that if the structure of the agency were 
changed, then it would become more open and transparent, and 
many of these issues would not need to be raised by Members of 
Congress. It is my hope that the Congress will move quickly to 
address and pass these reforms so that the Bureau can do what 
it was designed to do, and that is, to protect the American 
consumer.
    Thank you, Mr. Chairman.
    Chairman Johnson. Thank you, Senator Crapo.
    Are there any other Members who wish to make a brief 
opening statement?
    [No response.]
    Chairman Johnson. I want to remind my colleagues that the 
record will be open for the next 7 days for opening statements 
and any other materials you would like to submit.
    Mr. Richard Cordray is Director of the Consumer Financial 
Protection Bureau. Welcome back to the Committee, Director 
Cordray. You may begin your testimony.

  STATEMENT OF RICHARD CORDRAY, DIRECTOR, CONSUMER FINANCIAL 
                       PROTECTION BUREAU

    Mr. Cordray. Thank you, Mr. Chairman, Ranking Member Crapo, 
and Members of the Committee. Thank you for inviting me to 
testify today about the Semi-Annual Report of the Consumer 
Financial Protection Bureau. My colleagues and I are always 
happy to testify before the Congress. Ranking Member, I would 
hope to have a chance to address each of the issues you raised 
in turn. If that requires several rounds of questioning, I am 
happy to do it. I think there are good answers to all of those 
issues that you raised.
    Born out of the worst financial crisis since the Great 
Depression, the Consumer Bureau is the Nation's first Federal 
agency whose sole focus is protecting consumers in the 
financial marketplace. We are dedicated to improving the lives 
of everyday Americans and to restoring trust in consumer 
financial markets. The Semi-Annual Report we are discussing 
today embodies our work over the last 6 months of 2012.
    The report illustrates the ways we are using the tools 
Congress has provided us to empower consumers and promote a 
fair, transparent, and competitive marketplace for consumer 
finance. We have taken steps to improve the workings of 
markets--particularly those in which consumers cannot choose 
their financial service providers.
    One such market is debt collection. Concerned about 
systemwide problems that pose risks to consumers, we gained 
authority at the beginning of the year to supervise debt 
collectors. The debt collectors covered by our supervisory 
authority account for over 60 percent of the industry's annual 
receipts in that market. Bad actors in this market are a 
detriment to consumers and to every debt collector that 
operates lawfully.
    We also expanded our supervision program to include the 
larger credit reporting companies. Credit reports have a 
profound impact on people's lives. Previously, these companies 
were not subject to any Federal supervision, and consumers 
often struggled to get errors resolved. In addition to our new 
supervision program, we began handling consumer credit 
reporting issues, all of which will open a clear window into 
the actual operations of these companies. As a result, the 
Bureau can now evaluate whether Federal consumer laws are being 
followed throughout the process, from credit origination to 
debt collection. By identifying problems and rooting them out 
early, we are working to try to minimize consumer harm.
    Our report also encompasses the Bureau's first enforcement 
actions, which were against credit card companies that deceived 
and misled consumers. In some cases, the companies targeted 
economically vulnerable consumers with low credit scores and 
low credit limits. We were able to secure $425 million in 
relief for 6 million consumers, and we also imposed penalties 
on the companies to deter such activity in the future. These 
actions will serve as a warning signal for anyone who seeks to 
profit by deceiving or misleading consumers.
    In the second half of 2012, we also tackled issues in the 
market for private student loan debt, which currently totals 
about $150 billion outstanding. Our studies detailed the 
struggles students and recent graduates are experiencing in 
that market. Together with Education Secretary Arne Duncan, we 
made recommendations to Congress on commonsense reforms to 
ensure that the risky underwriting practices of the past are 
not repeated.
    The work I am discussing here today is merely a snapshot of 
our efforts on behalf of consumers. We also are addressing 
consumer complaints on a growing number of financial products 
and services, totaling more than 130,000 to date. We have 
adopted comprehensive new mortgage regulations banning 
irresponsible lending practices that helped bring about the 
recent financial crisis. Our Ability-to-Repay rule, also known 
as the Qualified Mortgage rule, follows the simple principle 
that lenders should offer consumers mortgages they can actually 
afford to pay back. We have actively conducted outreach on 
various issues to older Americans, students, servicemembers, 
and others, and what we heard from them has guided the 
direction of our work.
    Each day, we take another step in pursuit of our vision to 
create a consumer financial marketplace where customers can see 
prices and risks up front and easily make product comparisons; 
in which no one can build a business model around unlawful 
practices; and that works well for individual consumers, 
responsible businesses, and the economy as a whole. We will 
continue to persist in this work, and we appreciate your 
oversight. As always, I will be glad to answer your questions.
    Thank you.
    Chairman Johnson. Thank you very much for your testimony.
    As we begin questions, I will ask the clerk to put 5 
minutes on the clock for each Member.
    Director Cordray, in both the CFPB's servicing rule and QM 
rule, you provide allowances for rural areas and community 
banks. I have heard from several constituents that the 
threshold for rural lending will limit lending by small banks 
and credit unions. How will those rules impact lending in rural 
or underserved areas? And what have you done to address these 
concerns? More specifically, why did you select a 5,000-loan 
threshold for defining small servicers?
    Mr. Cordray. Thank you, Mr. Chairman. One of the objectives 
Congress set for us and requires us to do with every new 
regulation, in addition to assessing costs and benefits, is to 
assess impacts on smaller providers and also rural areas. This 
is something that we paid close attention to with the Qualified 
Mortgage rule and the servicing rule, as you mentioned.
    That led us to write provisions into the rule that are 
specific and special to smaller providers and community banks 
that would recognize the role they play in some of the more 
challenging areas, such as rural areas and underserved areas, 
to underwrite loans. We provided a special provision for 
smaller institutions that has been reproposed, and will be 
finalized shortly, to recognize that if they are holding loans 
in portfolio and they are operating according to their 
traditional underwriting models, those are good loans. This is 
good lending, and it is sound lending that we want to 
encourage.
    We took the original proposal that was produced by the 
Federal Reserve, which had a narrow definition of rural, and 
would have covered about 2 percent of the population, and we 
expanded that tremendously to almost 10 percent of the 
population. We have heard further comments since then to 
suggest that we could have written that even bigger. That is 
something that we are looking at and thinking about as we get 
more comments, even after the rule has been finalized.
    On the servicing rule, we originally proposed an exemption 
for smaller servicers, many of whom have very few foreclosures 
and a high-touch customer model, which is something we want to 
encourage, frankly, as a model to the larger servicers. We 
originally proposed an exemption for those that service 1,000 
loans or fewer. After receiving comments from smaller 
providers--and we had SBREFA, a small business review panel, as 
Senator Crapo mentioned, on that rule--we ended up expanding 
that to those who service up to 5,000 mortgages. We estimate 
that this covers about 98 percent of the smaller providers. 
They are exempt from significant portions of that rule.
    We are trying to be careful and sensitive to not having a 
one-size-fits-all approach and to recognizing that smaller 
lenders, particularly in rural areas, are of interest to 
Congress, they are of interest to the market, and they are of 
interest to consumers.
    Chairman Johnson. Director Cordray, as you know, 
outstanding student loan debt now exceeds $1 trillion. The CFPB 
recently asked for suggestions from the public on how to make 
student loan repayment more affordable. What does the Bureau 
plan to do next with regard to student lending? And what do you 
view as the biggest risks in this market?
    Mr. Cordray. Thank you for the question. It has been an 
active area for the Bureau and for our Ombudsman of Students, 
which is a position that Congress created in the Bureau. There 
are several things. I will try to move through them quickly and 
am happy to have you follow up as you wish.
    First of all, for those who are undertaking the decision 
whether to go to college and how to pay for higher education 
now, we have created new tools, such as the Financial Aid 
Shopping Sheet, which you mentioned. That has all been folded 
into a broader Paying for College module that is on our Web 
site. We are rolling this out to guidance counselors, teachers, 
parents, and young people themselves across the country right 
now as they are beginning to make these financial decisions for 
the coming school year.
    Second, we have just put out a rule to be able to supervise 
student loan servicers, many of whom may be suffering some of 
the same problems that mortgage servicers had suffered as we 
hear from consumers around the country. We will be actively and 
directly examining them to make sure they are complying with 
the law.
    On the proposal that you mentioned that we put out to 
gather thoughts and ideas from the public about what could be 
done about the existing student loan problem--which is 
burdening the economy, as the Federal Reserve has recognized in 
the past month, and is slowing down housing purchases and care 
purchases and other things--we have received a tremendous 
amount of interest. We had over 28,000 comments submitted on 
that proposal, which we are going through. We are working with 
a number of other entities, including Treasury and other parts 
of the Government and, of course, the Department of Education 
to see what can be done to help address this problem. It is a 
work in progress.
    Chairman Johnson. Senator Crapo.
    Senator Crapo. Thank you, Mr. Chairman.
    I want to talk, first of all, Mr. Cordray, about the data 
collection issue that I raised in my opening statement. As I 
indicated, it appears that the agency is collecting data on at 
least 10 million Americans. In the Gramm-Leach-Bliley Act, 
Congress allowed consumers to opt out of having their personal 
consumer financial information shared with third parties. 
Shouldn't consumers be given the opportunity to opt out from 
having their financial information being shared with the 
Federal Government as a part of the CFPB's data collection 
efforts?
    Mr. Cordray. Thank you for the question, Ranking Member 
Crapo. The story you adverted to in Bloomberg, which I also 
read, I think misunderstood a number of things about what the 
Bureau is doing, and I am happy to have the chance to clear 
that up.
    Senator Crapo. Please do.
    Mr. Cordray. First of all, big data is the cutting edge of 
analysis and research right now in every field that involves 
analytics in this country. IBM, the big banks, and every 
company that deals with the public is gathering and crunching 
as much data as they can. I have seen figures that show that 90 
percent of the data that exists in the world was created in the 
last 2 years. This is happening in the private sector. It is 
the way of the world. The big banks know more about you than 
you know about yourself, and me, too, as a consumer. The notion 
that the regulators would not keep up with them in trying to do 
our job of overseeing them I think would be quite misguided.
    Now, what are we doing in terms of gathering data? First of 
all, I want to stress that the data we are talking about are 
anonymized. It is not personal identifiable information about 
individuals, so the notion that we are tracking individual 
consumers or somehow invading their privacy I think, is quite 
wrong.
    Many of the data sources that we are accessing are 
commercial data sources, of which many entities are buying and 
selling the data in order to be able to analyze what it shows 
about the markets. For example, our credit card data comes from 
Argus, which is a source that is used by a number of other 
regulators, as well as by companies themselves. The National 
Mortgage Database that we are putting together is all about 
having the data to be able to do the things that Congress 
requires us to do and that you talk to me about frequently. You 
want us to do careful cost-benefit analysis. We cannot do that 
without good data. And, frankly, for the mortgage rules, we 
found that we need to develop a National Mortgage Database so 
that data is even better in the future.
    Congress asked us to write reports. We have a report due 
later this year on the CARD Act and what the effect of the CARD 
Act has been. We cannot write a report like that and have it be 
meaningful and helpful to the Congress unless we can analyze 
the data to be able to see what the actual consequences have 
been.
    This is the work we are doing and it is important for us to 
have data so that we can analyze it and we are not dependent on 
asking the financial institutions what they think. That is not 
the proper role for a regulator. And, again, the data is 
typically anonymized. It does not go to you or me in 
particular, but it goes to consumers generally and is quite 
helpful and really essential to us to do our work.
    Senator Crapo. Well, I appreciate that response. Let us 
talk about the anonymity issue first. Again, my understanding 
from the Bloomberg article is that the CFPB has let a number of 
different contracts to different private sector entities to 
collect and store the enormous amount of data that the agency 
is collecting. Even if the data collected is not personally 
identifiable to the agency, isn't it possible for the CFPB to 
hire contractors to dig into this data and obtain personally 
identifiable information?
    Mr. Cordray. I do not know if that would be possible or 
not, Senator. I am not sure that it would be. It certainly is 
not what we are doing and not what we are going to be doing. We 
have no interest in--how did you phrase it?--watching 
consumers. We do have an interest in understanding how 
financial products and services are affecting consumers. We 
have an interest in being able to do the kind of very 
meticulous cost-benefit analysis you want us to do as we write 
rules so we can get them right. We have an interest in making 
sure that the studies and reports Congress is asking us to do 
to help inform your policy decisions, which is the law that we 
follow, are on sound grounds and that we can see over time 
whether the objectives you are trying to achieve are being 
achieved. That is the work that we are doing.
    Senator Crapo. Well, I understand your point about the fact 
that collection of data is occurring at phenomenal rates in the 
private sector. I and I think many Americans are concerned 
about that as well. And the notion that the Government needs to 
keep up with the big data trend is one that I understand your 
point in terms of wanting to be able to regulate those in the 
private sector who are themselves collecting this data, but it 
seems to me that there is a huge issue here about whether the 
Federal Government should now be getting in a big way into the 
kind of data collection that you are talking about.
    I see my time is up. I will come back to this in another 
round, and we can discuss it further.
    Mr. Cordray. I look forward to that. Thank you.
    Chairman Johnson. Senator Merkley.
    Senator Merkley. Thank you very much, Mr. Chair. And thank 
you so much for your testimony and your leadership of the CFPB.
    I wanted to first ask, following up on the data question, 
specifically about the complaints database. Can you just share 
a little bit about--first, I believe that there are no names 
attached to it, like who complained about what, that it is 
anonymous, but that it gives you kind of a--it gives everyone a 
sense of what consumers are most concerned about. If that is 
correct, can you confirm that it is anonymous? And, second, 
what are the top three or four concerns that you see coming out 
of that database?
    Mr. Cordray. Thank you for the question, Senator. The 
database of consumer complaints, which is something that I 
think people are gradually getting used to, is analogous to 
what has been done for 40 years by the National Highway Traffic 
Safety Administration. What they have done has led to 
tremendous improvements in auto safety, and the auto companies 
now embrace it, although they did not at first. It is also 
analogous to what the Consumer Product Safety Commission is 
doing to make sure that the public is aware of hazards of lead 
in toys and other types of things that maybe we were not aware 
of for 20 years, but are probably better off now to know about 
and be able to protect our children.
    Similarly, what we are doing is, as we receive complaints, 
we scrub the complaints and remove any duplicates. We verify 
that there is a customer relationship between the complainant 
and the institution being complained about. We do anonymize 
that data. It does not reveal personally identifiable 
information. That is something we are very careful about, we 
are required by law to be careful about it, but also I frankly 
think it would bring the agency into disrepute if we were not 
careful about it.
    There is a growing amount of information that that yields. 
I think at this point our consumer complaint database, when we 
broadened it a month ago, had 90,000 cumulative complaints. 
They are added day by day now, so the number of complaints may 
be closer to 100,000.
    I will say this is nothing novel around the world. In the 
United Kingdom, their Financial Services Authority has been 
publishing complaint data about banks for years. In the most 
recent 6-month period, they published 3.4 million complaints 
about the banks.
    Senator Merkley. I am a little worried about running out of 
time, so what are the three or four top issues, insights that 
have come from the database?
    Mr. Cordray. First of all--and, frankly, your offices could 
probably tell us the same thing with the kind of inquiries you 
get from constituents--there is tremendous concern about 
mortgage servicing and a tremendous number of complaints and 
consumer harm in that area.
    Secondly, on credit card complaints, I would say what it 
has actually showed us--this is somewhat surprising to me 
because I remember before the CARD Act this was a very 
controversial area for the public--that the complaints are 
down, I believe. This is showing better work by the companies, 
more careful attention to what the CARD Act now requires, and I 
think our report later this year will show that there has been 
real progress made there.
    An interesting one for us, and fairly new and too 
preliminary to have much conclusions yet to draw, are credit 
reporting complaints. People generally are not aware of how 
significant an effect on their lives their credit reports have, 
but those that are have found a variety of errors. They are 
having trouble getting those errors corrected, and we are 
starting to hear about it as we started taking those complaints 
earlier this year.
    This is information that is illuminating to us as we go 
about doing our work. We think, as a result, it is illuminating 
to companies about how they can better improve their processes. 
And I think it is illuminating to the public, who has a right 
to know this information and to make assessments accordingly. I 
think it is good all around and we should have more information 
rather than less.
    Senator Merkley. Thank you. And since you mentioned it, the 
mortgage servicing is continuing to be an area of significant 
consumer concern, and certainly I still see that through our 
case work--the calls our case work team gets. Some of the 
issues that have been raised in servicing are foreclosure 
mitigation discussions to try to make sure there is clear 
communication and all options have been pursued, and the dual 
track, which still exists to a degree. But any insights on the 
aspects of mortgage servicing that are particularly still 
troubling to consumers?
    Mr. Cordray. Senator, I think it is frustrating--it is 
frustrating to me, I am sure it is frustrating to you and your 
colleagues--that it is still the case--maybe less so and some 
servicers have clearly improved and others have yet to improve. 
There are still some fundamental issues--blocking and tackling, 
lost paperwork, people not answering the phone, not getting the 
single point of contact that has been promised. But I would say 
that the dual tracking is a great concern. The notion that 
somebody is working with you with the left hand and trying to 
get your loan modified while with the right hand, maybe 
unbeknownst to you, are proceeding to a foreclosure and 
undermining the work that you think you are accomplishing. That 
is very aggravating to people.
    The new rules that we have devised that are going to go 
into effect in January are going to make a significant 
difference in this respect, and they apply across the entire 
market, to both the servicers that are banks and the servicers 
that are nonbanks. That has never before been the case. We met 
face to face with the top executives from all of the large 
servicers, the top several dozen servicers, last year, to let 
them know this was coming. We also let them know the importance 
of this and to take this seriously and not to wait. And I would 
hope that over time your offices and our Bureau will hear less 
about these kind of complaints, but right now they remain very 
significant.
    Senator Merkley. Thank you very much.
    Chairman Johnson. Senator Johanns.
    Senator Johanns. Thank you, Mr. Chairman.
    Let me follow up on Senator Crapo's questions about data 
collection. Where do you go to get the data?
    Mr. Cordray. I would focus on three different areas: credit 
card data, which is critical for us to have in order to do 
things like prepare the CARD Act study that Congress has 
required us to produce----
    Senator Johanns. Right, but do you go to Visa or 
MasterCard?
    Mr. Cordray. Typically, on the credit card data--and it is 
a different answer for different categories, and I am reading 
from notes that my staff prepared for--we have been collecting 
this data through Argus, a known collector of data. It is used 
by any number of institutions and by other regulators, and so 
we are following very well plowed ground in assessing that 
data.
    Senator Johanns. So they go to Visa or MasterCard or 
whoever?
    Mr. Cordray. Or issuers themselves might be like Wells 
Fargo or Bank of America or JPMorgan Chase or any of those who 
issue cards.
    Senator Johanns. OK. You mentioned there are three. So 
there are two others. Where else would you go to get the data?
    Mr. Cordray. The second area, the National Mortgage 
Database that we are going to be creating together with the 
FHFA is essential, because what we have found as we were 
writing our mortgage rules is that the mortgage data that is 
extant is not as good as it should be. Loan origination data is 
often decoupled from loan performance data, and there are holes 
in the data, so that it is not necessarily representative of 
the entire market. That made it somewhat challenging for us as 
went to write those rules, and we did a pause on the QM rule 
where we went and got more data--we were able to get more data 
from FHFA. They were very cooperative and collaborative with us 
and helped us on that. Then we put out for more comment because 
we were going to be using new data that did not surface before, 
so that we made sure that the process was full and complete.
    Going forward, that data is being gathered over time in 
real time on mortgages. This will provide a much more 
representative sample of what the mortgage market is doing so 
that we see the problems in real time, which we could not do 
very well over the last decade, and it helped lead to the 
crisis.
    Senator Johanns. And one more place you mentioned.
    Mr. Cordray. The third category has to do with credit 
records, and in that case, we have been buying the data from 
credit reporting agencies, as the Federal Reserve Bank of New 
York has done for a number of years. They have used that data 
for a number of years to publish their report, a quarterly 
report on household debit and credit that is widely quoted.
    Again, we are following their lead in terms of this is good 
data on credit reporting. It is going to help us have the 
insights to help protect consumers and understand whether laws 
are being followed as well as what the effect on consumers is 
of different practices.
    Senator Johanns. So individuals' payment performance, 
whatever, is the basis upon which this mega data is created, 
obviously. So somehow, some way, the Government is getting 
control of information about how people pay their mortgage or 
their credit card bill or whatever.
    Mr. Cordray. I think this is an important difference, and I 
want to stress it. If by that you mean we are getting 
information about whether Richard Cordray is paying his 
mortgage and when and how, that is not the way the data works. 
What we are getting information about is consumers and how 
their mortgage performs over time. But it is anonymized. I do 
not have access to data about you or about myself. It is 
anonymized consumer data. But you have to have data about 
consumers if you are going to understand what is going on in 
the consumer marketplace. There is no two ways about it. You 
all want us to write rules where we have careful assessment of 
costs and benefits. If we do not have data and information 
about what the impacts in these markets are, we cannot do that. 
We cannot do our job. And I think you would be quite 
dissatisfied with us, and rightly so.
    Senator Johanns. I am out of time already, Mr. Cordray, but 
here is what I would say to you. To many people, this is going 
to sound downright creepy, to be honest with you. It is. And I 
just think people are going to be bothered by the fact that 
there is this Federal agency that is collecting data on the 
behavior of people like you and me and everybody else who is 
paying off a mortgage, who is paying credit card bills every 
month. I think it is a very uncomfortable situation for your 
agency.
    Mr. Cordray. I think if people want to misunderstand that, 
that it is somehow following them individually and somehow 
invading their privacy and tracking into their personal lives, 
that is not what it is. We have to have information about what 
is going on in these markets. What goes on in the markets is an 
aggregate of consumer behavior, consumer performance, consumer 
harm, and consumer benefit. If you do not have any information 
to do this work, then basically you are a know-nothing and you 
are not going to be able to do the work well. And I think you 
would rightly be very critical of us if we just operated based 
on speculation and did not make an effort to ground our policy 
judgments in such information as is widely available and widely 
used and anonymized--very importantly, anonymized.
    Chairman Johnson. Senator Reed.
    Senator Reed. Well, thank you very much, Mr. Chairman, and 
thank you, Director Cordray.
    Let me raise an issue that I think you and your colleagues 
that are looking after our military are aware of, and that is, 
there are military personnel who cannot immediately get on-post 
housing. They apply. It might take months as the list reaches 
them. In the meantime, they have entered into a rental 
contract, and in some States there is a severe penalty for 
breaking the contract. There are other States that I am aware 
of that actually have State laws that say if you are going on 
post, then the landlord cannot impose a penalty.
    Can you comment on how you are trying to deal with this? 
Because for many military personnel this is a real serious 
issue.
    Mr. Cordray. Thank you, Senator. I would say there are 
several different housing issues for servicemembers, both 
active duty and reservists, and their families, that we have 
encountered, as Holly Petraeus, our Assistant Director for 
Servicemember Affairs, has been around the country and talked 
to and brought back accounts from folks on the bases.
    One of the issues was the permanent change of station 
orders problem that I know you are very familiar with and that 
we worked with the Department of Defense and others, such as 
the Department of Treasury, to address last year was to qualify 
that as a hardship for the HAMP program.
    What you are raising is another great example of how there 
can be a general consumer problem, the issue of tenants who are 
renting and can be affected by some of these problems. A great 
example is when Congress dealt with the fact that tenants can 
be ousted from the place that they are living because the 
landlord is foreclosed upon even though the tenant may know 
nothing about that. It comes without warning, and they find 
their belongings on the street.
    For the military, again, this particular instance can do 
with change of station orders or it can do with, as you say, 
trying to improve your housing for lesser cost. If Congress is 
going to look at that issue, we would be happy to supply the 
experience that we have seen from around the country. That is, 
of course, a judgment for you all to make, but I would say it 
is another outstanding example of how you can have general 
consumer issues, and then you translate them into the military 
context. These still are general consumer issues, but they 
often are sharpened or aggravated by the particular situation 
of servicemembers who often have limited choice because they 
have to obey orders, they have to go where they are told, and 
they have to be there when they are supposed to be there.
    Senator Reed. Well, we would appreciate working with you. 
If it requires legislation, I think my sense is that we support 
this on both sides, because it has a huge impact on personnel. 
They could move from expensive rental quarters to on-post 
housing, more convenient, et cetera. And as you point out also 
another dimension, sometimes it is not just getting on-post 
housing. It is a complete change of station, and they have to 
go, and yet they pay a penalty. And we will do our--I would 
like to work with you on this.
    Let me turn to another subject, and that is, looking at the 
recent semi-annual report, I was disappointed to see your 
comments about the confusion that persists around the process 
and requirements for obtaining mortgage loan modifications. I 
do not have to tell you, because we spent a few sessions under 
the leadership of Chairman Johnson talking about this, the big 
deal, the modification deal, and now we have found out just 
recently that even some of the people who were owed checks, the 
checks bounced.
    So can you generally comment about what you are seeing and 
what you can do to help in this modification issue?
    Mr. Cordray. I think most importantly--and as Congress 
directed us to do--we have adopted new rules that are pretty 
comprehensive for the mortgage servicing market. They will take 
effect in January, and I think the companies--I know the 
companies are already at work implementing them now. Frankly, 
they should have come as no surprise. These problems have been 
surfaced and publicized not for months but for years. They are 
pretty common across the industry and yet they are galling 
because they affect individuals lead to bad results for 
individuals. They lead to people losing their homes, which is 
the most precious thing that people possess, and it upsets 
their personal finances tremendously, so I think that our rules 
will make a big difference.
    We are already also underway examining mortgage servicers 
onsite and looking at whether and how they are complying with 
the law. Some of them are doing a decent job. Many of them have 
problems, and for many of them, it is going to require 
corrections and compliance and perhaps enforcement actions as 
needed.
    Right now, we are now in a position, as this new Bureau 
that did not exist before, to examine the institutions 
directly, to ensure that they are complying with the new 
regulations--which went beyond what Congress required but was 
necessary to address the scope of the problems--and to enforce 
the law as needed to bring them into shape, which is long 
overdue.
    Senator Reed. Now, going forward, you are going to have a 
much better process and procedure, but we have a whole category 
of Americans that are still caught up in the old system.
    Mr. Cordray. Yes.
    Senator Reed. Let me ask a question, nonrhetorical. You are 
not involved with OCC and the Federal Reserve in this 
settlement that proposed to modify mortgages and compensate 
people for illegal foreclosures? Were you involved at all?
    Mr. Cordray. No, we were not involved. I will say that at 
the time all of that began to unfold, I started as Attorney 
General of Ohio, and we did see the problems--the robo-signing 
and all the rest. I then joined the Bureau, and we had a 
transition period where we were not yet an independent agency.
    Our role in this is a going-forward role. It is not so much 
a looking-backward role, but I want to stress, when I say going 
forward, everybody who is caught up in this situation, as soon 
as our rules take effect, are governed by those rules. It does 
not matter that the mortgage was entered into 3 or 5 or 8 years 
ago. The examinations that we are in the process right now are 
examining the problems right now. The other processes that are 
looking back to things from several years ago is a different 
issue. But for us, the present and the future is very much the 
agenda Congress has given us, and we are going to be aggressive 
about trying to fix these problems.
    I also wanted to thank you for the efforts you and your 
colleagues have made on the changes in the Military Lending 
Act. I know you and your staff have been inquiring of us how it 
is coming to implement those. It is coming well. We are working 
with multiple agencies, including, of course, centrally the 
Department of Defense, and I think we will implement those 
changes in the law in the manner in which Congress intended.
    Senator Reed. Thank you very much.
    Thank you, Mr. Chairman.
    Chairman Johnson. Senator Shelby.
    Senator Shelby. Thank you.
    Mr. Cordray, good morning.
    Mr. Cordray. Good morning.
    Senator Shelby. The Financial Stability Oversight Council, 
of which the CFPB Director is a member, was given broad 
authority to eliminate market expectations that any American 
financial firm is too big to fail. You are very familiar with 
this.
    Do you agree that as a member of FSOC, the CFPB director 
has a responsibility to contribute to these discussions and 
help identify threats to our financial system?
    Mr. Cordray. That is a responsibility Congress has given me 
by law, yes.
    Senator Shelby. So you believe you have that 
responsibility?
    Mr. Cordray. I believe I do, yes.
    Senator Shelby. Do you believe that all systemic risks have 
been contained and too-big-to-fail expectations that large 
institutions will not be allowed to fail have ended? Or still 
are there some threats out there?
    Mr. Cordray. Well, my perspective on this is sort of 
limited and more recent. I was not here in Washington and not 
directly involved in the events of the financial crisis. I was 
the treasurer of Ohio at the time overseeing billions of 
dollars in public finance. What I will say is what is clear to 
me from my work on the FSOC thus far. There is tremendous work 
in progress, tremendous strides have been made, and I think the 
framework is both there and being put in place more 
specifically to address those threats to the system.
    Senator Shelby. Do you basically support limiting the size 
of banks as proposed by Senator Brown and Senator Vitter?
    Mr. Cordray. I think that is a policy call for the 
Congress. My job under the law is to examine those banks for 
compliance with consumer protection laws, and that is what we 
are focused on doing. Whatever structure Congress would impose 
or influence in the banking industry, we will adapt to that and 
do our job. We do have $4 trillion dollar banking institutions 
that are challenging institutions. They are in multiple product 
lines, and we are pretty much continuous in our presence 
supervising them.
    But I would say that we are focused on doing our work, and 
I think those legislative debates will obviously proceed, and 
you all will make your judgments, and we will follow them.
    Senator Shelby. Do you basically believe that we should and 
you should as an insider eliminate systemic risk as much as 
possible?
    Mr. Cordray. I think we should do our best to minimize 
systemic risk. I do not know that you can eliminate it 
entirely, but I think you can certainly, by being conscious of 
it and being more prepared. I think that minimizes the risk, 
and from there you do the best you can.
    I will say that the wisdom of Congress in the law of 
placing me as a representative of my Bureau on the FSOC, which 
is, of course, the body that could veto our regulations if they 
strongly disagreed with them, I think it has been very helpful 
to me both in understanding the perspective of that body and in 
having the chance to work together with my colleagues. This has 
helped me understand their point of view and they can see and 
understand the work we are trying to do that Congress has 
tasked us with.
    Senator Shelby. Last Congress, I asked the Inspectors 
General of a number of financial regulators to review the 
economic analysis performed by the agencies under their 
supervision. The IGs reported back that, to the extent economic 
analysis is performed, it is often focused on compliance costs 
rather than looking at the effects the rules will have on 
economic growth and job creation.
    Determining compliance costs is critically important. We 
know that. But it is just one component of the overall economic 
impact.
    Do you believe it is important for regulators to understand 
the macroeconomic impact of rulemaking activities?
    Mr. Cordray. I do, and for us that has been in particular 
understanding the effects on access to credit and the effects 
on smaller providers and larger providers. But I would go back 
to my discussion with Senators Crapo and Johanns. We cannot 
have that understanding on data collection and we cannot do 
that work if we do not have the information on which to make 
those judgments, so I do think it is critical for us to do 
that, Senator, yes.
    Senator Shelby. Dodd-Frank expressly requires the CFPB to 
evaluate the costs and benefits of any proposed rule. You are 
familiar with that.
    Mr. Cordray. Yes.
    Senator Shelby. If your economic analysis determines that a 
rule's costs outweigh its benefits, do you think the rule 
should still be implemented, rewritten, withdrawn, redebated, 
or what?
    Mr. Cordray. My sense of why Congress tells us to do 
analysis of things like benefits, costs, impacts on smaller 
providers, impacts on access to credit, and impacts on rural 
areas, is because Congress intends, and I think has made it 
very clear, that we should take into account our judgments 
about deciding whether to proceed with a rule or how to write 
that rule. It may be that a rule in one form would have 
negative impacts there, but if you modify it a bit, then it 
improves. The specific provision is 1022 of Title 10 of Dodd-
Frank, and it specifies how we are to go about this. We have 
been very faithful to that. It does, again, require information 
and data in order to do that work properly. I think that the 
dilemma we might find is if Congress has required us to do a 
particular rule and we found that the costs and benefits, you 
know, were troublesome, then we can try to write the rule 
somewhat differently, but obviously within the confines that 
Congress gave us. Or we could always come back and talk to you 
all about it. That would be a troublesome area. But where we 
have discretion, the costs and benefits are something that I 
think should definitely guide our policy judgments.
    Senator Shelby. But in addition to analysis, for which you 
need data and everything, we understand that, to make a good 
judgment, you need objectivity of the whole situation, do you 
not?
    Mr. Cordray. You need to try to have that. I try to have 
that. I hope that we do. I think one way we can get there is by 
listening closely and being very accessible to all viewpoints, 
to using the processes that Congress gives us as much as 
Congress has done so, do the analysis, and do the notice and 
comment rulemaking where people have a lot of access to us--in 
our case, where appropriate, where the law requires to do the 
SBREFA panels, which we have found useful to us. All of those 
things--obviously the processes are provided, I assume--try to 
improve our rulemaking so we do not go off the rails and do 
something that is detrimental to the economy or detrimental to 
consumers. And I have no desire to do that. I want to carry out 
the tasks Congress has given us to the best of our ability. I 
want you all to feel, when you look and see what we have done, 
that you can be proud of what we have done and that our work 
reasonably reflects what your intentions were. And if it does 
not, I know I am going to hear from you.
    Senator Shelby. Thank you.
    Thank you, Mr. Chairman.
    Chairman Johnson. Senator Brown.
    Senator Brown. Thank you, Mr. Chairman.
    Mr. Cordray, it is nice to see you again. Welcome back in 
front of our Committee, your at-least-twice-a-year visit. We 
have talked about many of these things that never in our 
history has someone been in many ways held hostage a qualified 
nominee of the President because a significant number of 
Members of the Senate, pretty much all of one party, do not 
like the structure of the agency or wish the agency did not 
exist. I guess this is the second time in history--you were the 
first time in history a year or so ago. Senator McConnell said 
the other day, if he had his way, we would not have this agency 
at all.
    I want to talk about accountability, though, because they 
lay this all at the feet of the issue of accountability. 
Understanding that there is an FSOC veto over what you do, 
understanding, unlike most people in the agencies, that you 
come, you issue a report and come to this Congress at least 
twice a year, versus if you went through the normal 
Administrative Procedures Act, make that contrast for me, your 
accountability as this agency is set up, as the CFPB is set up, 
versus that kind of accountability that other similar agencies 
might have.
    Mr. Cordray. Senator, I think we are all accountable in 
very fundamental respects. I think we are all accountable to 
the Congress, which can, of course, always change the law and 
has provided the law that we are required to implement 
faithfully. We are all subject to court oversight. If we adopt 
rules, there are specific processes we have to follow, and the 
courts can look over our shoulder and make sure we did that. 
They can also review the rules for substance. And, we are 
subject to oversight by the Congress directly as in hearings of 
this sort.
    Now, in that regard, the Bureau is special. There were 
special concerns about the Bureau, and it showed up in special 
structural constraints on the Bureau.
    Number one, we are unique among the Federal agencies in 
that our rules can be subject to a veto by other agencies, even 
aside from also potentially being reviewed and overturned, if 
appropriate, by the courts.
    We are subject to a GAO audit of our finances as opposed 
to, in general, most agencies and departments, the GAO audit is 
of the Federal Government as a whole, not specific to their 
finances.
    We are subject to an independent audit annually of our 
operations. That is, again, not something that is done at other 
agencies. I am happy to say that those audits have been clean 
audits to date even as we are building up and trying to build 
the agency as well as perform our duties.
    We are subject, unlike the other banking agencies, to a 
hard budget cap and then told that, if we need additional 
money, we can come to Congress for an appropriation. So we are 
sort of quasi-appropriated as it is.
    We are required to produce a semi-annual report and to 
testify, therefore, twice a year in front of the Senate Banking 
Committee and the House Financial Services Committee as an 
oversight on that report.
    I want the Senators not to underestimate yourselves. This 
is meaningful oversight. When I sit here and have to answer 
your questions, it is not just fun and games for me. I take it 
very seriously. I am accountable to you, and if I cannot answer 
your questions and respond to your concerns in a way that is 
persuasive to you, then I have a problem and an issue, and it 
is a meaningful issue for me.
    There are many ways in which the Bureau is specifically 
constrained beyond other agencies. We accept that. We are doing 
our best to do our work within that. And, frankly, I do not 
mind having strong oversight. It helps me make sure that I can 
sleep at night that we are, for the most part, I hope, doing 
the right things.
    Senator Brown. Thanks. I do not think too many of us 
thought this was fun and games for you to come in front of 
these committees.
    [Laughter.]
    Senator Brown. Not the first term or phrase that came to 
mind.
    I want to follow up a moment in my last minute or so on 
Senator Johnson's questions about the private student loan 
market. The recent report by the student loan ombudsman has 
been important. My Subcommittee, as you know, held a hearing 
examining this issue last year. How will your new supervision 
of large private student loan servicers address some of the 
concerns described in these reports and these hearings?
    Mr. Cordray. I think, first of all, it is a meaningful 
change, Senator, to have an agency that goes in and examines 
very specifically for compliance with the law in an area. It 
means the institution has to be on their toes, and it means we 
have direct access to the information we need to assess whether 
the laws are being followed. That already changes attention and 
heightens the consciousness, and I believe changes behavior in 
these institutions and the examination function itself.
    On the private student loans, as I said, have put in place 
the mechanism to be able to now examine the student loan 
servicers, the ones who are actually dealing with the 
outstanding student loans and either getting the right 
information to people or not, either processing these loans 
properly or not. We hear a lot of complaints about that, so we 
will be aggressive about going in and making sure that things 
are being handled correctly, or if they are not, that they are 
put right.
    The whole student loan problem is a problem that should be 
of deep concern to this body. These are young people that we 
should care a great deal about. They are the ones with 
ambition, aspiration, and are getting saddled with debt that 
they do not understand, often. They tell us later that they 
wish they had known the difference between a private student 
loan and a Federal student loan. This is holding them back, and 
it is making them unable to rise and succeed and become leaders 
in our society, and it is a significant problem. We are going 
to be doing everything we can to address it at the Bureau.
    Chairman Johnson. Senator Warren.
    Senator Warren. Thank you, Mr. Chairman. Thank you, Ranking 
Member.
    I just want to say this is my first full day back in the 
U.S. Senate since the attacks on Boston, and that many here, 
many of my colleagues, the staff, members of the press, members 
of the public, have held Boston in your prayers for the last 
week. And on behalf of myself, on behalf of the people of the 
city of Boston, I want to say thank you very much. You know, it 
has been a hard week, but the people of Boston are fighters, 
and we are strong, and we will get through this. But thank you 
all.
    Director Cordray, for more than a year now, a minority in 
the Senate has been trying to block your nomination, trying to 
reopen a debate that was resolved 3 years ago. For 3 years, 
they have tried to kill that agency, and they lost that vote 3 
years ago. Then they fought to weaken the agency. They lost 
that fight because they did not have the votes. And today they 
know they still do not have the votes to undercut the agency, 
so they are determined to hold your nomination hostage.
    It seems pretty clear what is going on here. This is not 
about your qualifications or your performance. Your work has 
been praised by both consumer groups and by industry groups. 
This is about a minority that does not want a watchdog that 
will keep an eye on big banks to make sure they do not cheat 
their customers.
    Now, why would big banks and their friends not like the 
consumer agency? You know, I take a look at a few of the things 
you have done in just the last couple of years. You have 
recovered nearly half a billion dollars for consumers who were 
tricked by big credit card companies. You created a complaint 
system that has handled 91,000 complaints last year alone. You 
built a tool to help students and their families compare the 
costs of college, what you were just talking about, so they 
have better information when they are making a big financial 
commitment. You have put together a tough-as-nails office to 
look out for servicemembers and military families and help 
protect them from financial predators, including helping 
servicemembers whose homes were illegally foreclosed upon. And 
you issued new mortgage rules that have been widely praised as 
balanced and fair and that are clamping down on the kinds of 
sleazy practices that cost millions of families their homes.
    Now, that is an extraordinary set of accomplishments for an 
agency that has only been around for a few years. And I think 
it explains why this agency is so important. I commend you in 
your work.
    I think that enforcement of the law, particularly the laws 
to protect consumers, to make sure that big banks follow the 
rules, I think that is really important. And, Director Cordray, 
you have already proven that the consumer agency is independent 
and effective, that you can be fair and be tough. But before 
your current position, you were the head of enforcement at the 
Consumer Financial Protection Bureau and before that the 
Attorney General for the State of Ohio. So you know more than 
just about anyone else about strong enforcement of the laws.
    So in your experience as head of enforcement at CFPB and as 
Attorney General for Ohio, in order to enforce the law 
effectively, how important is it that you have adequate 
resources, adequate funding, and adequate information?
    Mr. Cordray. I would say all of those things are essential. 
I think if you do not have the information, you do not know 
what to do. If you have the information but you do not have the 
resources, you know what to do but you cannot do it. I think 
you also have to have the will to understand and be motivated 
by the desired result, which is people need to understand that 
they have to obey the law. As I used to say when I was Attorney 
General of Ohio--and I feel the same way now--nobody is so high 
and mighty that they are above the law, and nobody is so 
undistinguished that the law does not apply to them equally 
with everyone else. That is a bedrock of our society. It has 
been the strength of the American society and American system 
for more than 200 years, and we have to make sure that we 
maintain it. That is part of my responsibilities at this Bureau 
and it is part of the Congress' responsibility as well. You 
pass the laws; we are supposed to enforce the laws within our 
jurisdiction. I take it very seriously. To me it is a calling. 
I actually worked closely with criminal law enforcement, 
police, sheriffs, prosecutors as Attorney General of Ohio, and 
it is a very important responsibility to keep faith with the 
American people that we not only have a democratic system, but 
we have a rule of law and it is maintained.
    Senator Warren. Well, thank you very much, Director 
Cordray. I appreciate the work that you are doing and that you 
are out there to make sure that these large financial 
institutions do not just treat a fine as a cost of doing 
business, but that they actually change their behavior, and 
that consumers are entering a level playing field and they have 
a real chance in these markets. I appreciate that.
    Did you want to add something? We are out of time, but did 
you want to make a remark?
    Mr. Cordray. Yes, I would just say that when you are 
dealing with a particular situation where there has been a 
violation of law, there are sort of four pieces to it, as I see 
it from the standpoint of this Bureau.
    There is making sure that what is being done is not done in 
the future, stopping it, whether it is injunctive relief or 
banning someone from the marketplace for a period of time, both 
of which we have done.
    It means restitution to consumers so that they are as much 
as possible made whole for the harm that was done them, that 
should not have occurred and only occurred because of a 
violation of the law.
    There are penalties that can be imposed when restitution is 
not enough to sort of teach the lesson and see to it that 
people are deterred from doing this in the future, that they do 
not just feel like, ``I got caught this time, but when I get 
away with it, that does not cost me anything.''
    Finally there are cases where criminal referrals would be 
appropriate. We want to be very careful about that, but there 
are going to be cases of that sort.
    Senator Warren. Good. Thank you very much, Director 
Cordray. I am glad you are out there fighting on behalf of 
consumers, and there will be those of us here who will be 
fighting on your behalf and on behalf of this little agency. 
Thank you.
    Mr. Cordray. I appreciate that.
    Chairman Johnson. We will go briefly to a second round of 
questions.
    Director Cordray, I understand that the CFPB is conducting 
exams of larger institutions in coordination with other Federal 
or State regulators. What steps does the CFPB take to ensure 
that the exams and information requests are well coordinated 
with other regulators and not duplicative?
    Mr. Cordray. Thank you, Mr. Chairman. This is an area where 
I think the Bureau has done very well, and I will just say 
that. I think it is in part because, as the Bureau got 
underway, there was a point made to bring some people in who 
came from a State government background. I myself came from a 
State government background, but here I am thinking not of 
someone like myself from an Attorney General office, although 
that is important and relevant, but people who came from a 
State banking background or a State financial services 
background. We have had terrific relationships with the CSBS, 
the Conference of State Banking Superintendents and we have 
collaborated closely with them. There have been matters where 
we worked directly with them and where there has been a process 
of coordination and information sharing with them. At last 
count, I believe we have agreements with 61 different banking 
and financial service agencies in 49 States. Some States have 
multiple agencies. I think that that relationship is good. We 
lean on them in some respects and they can now lean on us in 
some respects. We bring joint resources to the problems, and I 
have been really pleased at their attitude toward working with 
us and I think our attitude toward working with them.
    Chairman Johnson. With regard to community banks and credit 
unions that are not subject to the CFPB's examination 
authority, what measures have you taken to ensure that your 
rules are clearly interpreted by the prudential regulators 
during their exams? Does the CFPB plan to continue releasing 
Small Entity Compliance Guides as has been done twice already? 
When might we expect to see more Small Entity Guides on the 
other mortgage rules?
    Mr. Cordray. Thank you, Mr. Chairman. I have got about 
three different answers to that question. I will try to go 
fast.
    On the Small Entity Compliance Guides, this is something we 
take very seriously, and we know it is important, and we have 
been told this over and over by both smaller institutions and 
the trade associations that represent them, like ICBA and NAFCU 
and CUNA. That means taking our rules--Senator Crapo initially 
mentioned 25,000 pages of rules issued in January. That is 
25,000 pages of text. A lot of that is preamble. A lot of that 
is cost-benefit analysis. I think when you actually translate 
it into the Federal Register, it was less than 100 pages of 
rules, and these were seven major mortgage rules that Congress 
directed us to do.
    Nonetheless, I do not think people enjoy reading the 
Federal Register. I do not, and I am a lawyer. We have been 
translating those into plain English and compliance guides--
what you need to know, what you need to do. That is becoming a 
standard for us on every rule that we publish, and we are doing 
Web and video things. Some people like to get the information 
that way.
    In terms of making sure that our regulations are 
administered and examined around in the spirit in which they 
are intended, we work closely through a body that I had never 
heard of before I came to this Bureau called the FFIEC, the 
Federal Financial Institutions Examination Council. With them, 
we are taking the lead on writing a first draft of what the 
examination work would look like around these rules and then 
collaborating with the other agencies to get that in place and 
to publish it so it is transparent to institutions. I think it 
is only fair to them, and they have a right to expect that and 
demand it.
    I was surprised to hear the other day we are well on track 
to having the examination modules, or whatever you would call 
them, ready by June of this year, even though the rules do not 
take effect until next January. That is light warp speed for an 
interagency group like that, and it will help us make sure that 
we are on the same page. As we publish them, if institutions 
have reactions or think we are not getting something quite 
right, they will have a chance to kibitz in on that.
    Finally, since we do not actually examine the smaller 
credit unions and community banks, I made it a point to create 
a Community Bank Advisory Council and a Credit Union Advisory 
Council so we do hear directly from them and fill in what 
otherwise is a gap in not having that day-to-day direct hands-
on experience with them, and that has been very helpful to us. 
It has been very insightful for our work.
    Chairman Johnson. Senator Crapo.
    Senator Crapo. Thank you very much, Mr. Chairman.
    Mr. Cordray, I want to go right back to the issues we were 
talking about before. I want to phrase or characterize the 
question I am asking with a bit of a statement first, because I 
do understand your point about needing to have data in order to 
make effective cost/benefit analysis and achieve the right 
balance in regulation. And I do understand that we have a 
dynamic developing in the world right now with regard to what 
has been called ``big data'' in terms of the phenomenal rate of 
collection of data about people going on in the private sector.
    Mr. Cordray. It appears to me, Senator, apparently it is 
the way of the world.
    Senator Crapo. It is, and it is happening. That being said, 
I think there still are some very serious and real questions 
that need to be answered as well as perhaps dealt with in terms 
of the way that the Federal Government involves itself in this 
entire process, if at all. Just a couple of observations.
    Nobody in the private sector has the right or the power 
that the Federal Government has to force the release of 
information. My understanding is that you are not just 
purchasing the data we are talking about from private sector 
collectors, but that in the examination process and in other 
aspects of the collection, banks and other financial 
institutions are being required to provide data that they could 
not be required to provide by a private sector operator. So, in 
other words, the power of the Government is being put behind 
this data collection effort, as I understand it.
    Just let me go, and, in fact, I am going to ask something 
at the end here that will definitely go beyond this hearing, 
but hopefully get us to a much fuller explanation of how and 
where we are going here.
    In another context, under Gramm-Leach-Bliley, as I 
mentioned, and in many of the interactions between financial 
institutions and their customers, there is an opt-out right, 
which does not appear to exist in the functions that are 
currently being undertaken by the CFPB. And the bottom line 
here, as I see it, is that although I understand the need to 
collect data, I am very concerned about the heavy hand and the 
power of the Government being brought behind a phenomenally 
new, big data collection effort.
    In your response to one of my first questions on this, you 
indicated that you were not sure whether the CFPB or some other 
actor or some other contractor could go back into all of this 
data and reconstruct it in a way that it was not anonymized. I 
actually am very concerned about that, and now we have a 
Government agency that is potentially capable, I think, of 
getting that kind of information that is currently anonymized, 
but we just have to take the word of the agency, like consumers 
today have to take the word of private sector people that they 
are buying their cell phones from or working with on the 
Internet or what have you, that they are not collecting this 
information in an individual-specific fashion. And, frankly, 
people do not have a high level of confidence that that is not 
happening. And I do not have a high level of confidence that it 
is not possible for the agency to get access to this 
information on a specific basis.
    So for all of these reasons about the data collection that 
is being undertaken, I simply ask you this question and then 
make this suggestion. Has the CFPB done an internal legal 
analysis about this whole data collection process? And what I 
am getting at here is that Dodd-Frank clearly prohibits the 
CFPB from collecting personally identifiable information, and 
if all of the pieces of information that the CFPB is collecting 
right now could be utilized to engage in personal 
identification, then perhaps that could violate the law. But 
more specifically, it would be helpful to know what steps--what 
potential is there. I am actually relying right now in this 
question on a Bloomberg article. That is the extent to which I 
know that we know as the public about what is happening.
    And so I think that it would be very helpful for us to know 
exactly how this data is being collected, not just who is being 
contracted to collect it or whether it is being collected in 
examination processes, but how it is being collected and how it 
might be used, and then I think the ultimate conclusion should 
be reached, and that is whether its collection is in violation 
of the Dodd-Frank prohibition. If you would like to comment, 
please.
    Mr. Cordray. I would, Senator. Thank you, Ranking Member 
Crapo. A long question, and I would like to give you only a 
medium-long answer, but there are a number of pieces in that 
question.
    First of all, it is not correct under the law that the 
Bureau cannot collect personally identifiable information. When 
somebody submits a consumer complaint to us, they put their 
name and address. The issue under the law is that we are not 
supposed to disclose personally identifiable information, and 
we have been very careful not to do that and not to violate 
people's privacy in that regard.
    I want to go back to what you said, and I think frankly a 
lot of what you just laid out is a very fair line of inquiry, 
and I share your concern. If I were looking from the outside at 
Government, I would share the concern as well.
    First of all, in terms of forced collection of data, that 
is for the most part not what the Bureau is doing. As I 
mentioned, the credit card data that we are talking about we 
get from Argus. We buy that. Many people buy that data from 
Argus and it is a very common thing. There is nothing really 
special about that, no new ground that the Bureau is plowing on 
that.
    We are buying the credit reporting data from the same 
source that the Federal Reserve Bank of New York has been 
buying it from for years and using to develop their reports 
that have been very insightful on credit reporting and credit 
in the economy.
    There are times where, as we examine institutions, we have 
to begin by getting a baseline of data from the institution in 
order to then calibrate what exactly is going on there. Are 
they complying with the law? What are they doing? There clearly 
have been times where we think we need a certain amount of 
information to do our job, and the institution may feel like we 
are asking for more information than we need to do our job. I 
think those are reasonable differences of viewpoint that have 
to get worked out as we work together, and I think for the most 
part they do.
    But I would say this: I think that you have fair issues you 
are raising. I would want to have the chance to have our staff 
get you a very specific answer to your question about whether 
the anonymized data could be somehow reverse engineered in a 
way that affects somebody's individual privacy. I do think that 
that is not an issue. If it were, it would have been an issue 
already with other agencies gathering that same information and 
using it, which they have been doing for years. It is new to 
the Bureau but not new to the process.
    I will have our staff spend time with your staff to dig 
into some of these issues, to try to understand in more detail 
what some of your concerns are. I am happy to do that with your 
colleagues as well or their staffs. I want to dispel any 
concern on this front. I think that what we are doing as an 
agency is we are trying to gather the kind of information we 
need to do our job the way you would expect us to do it, to be 
able to do careful cost-benefit analysis, which we cannot do 
without sufficient information, and to do the kind of reports 
to Congress that you expect from us that will be credible and 
that will give you a basis for going forward and making policy 
and making judgments about things like the CARD Act, which we 
are going to give you a report later this year on how that has 
been implemented and what some of the issues are with that, 
both factual and then perhaps normative. And I know you want 
that. You have required us to do that. We cannot do it without 
data and information.
    Again, all we are trying to do is to do our job. If there 
are concerns about some of the details of how that information 
is handled, our Inspector General looks at these things. The 
GAO audits look at our operations. You all are free to look at 
them. We want to be an open book, and if there are concerns, 
then we want to try to address them.
    Senator Crapo. Well, thank you. My time is obviously up, 
and so I cannot continue with this here. But I would like to 
continue this with you, and I would like to ask you to take 
seriously the request that I make that there be an internal 
legal analysis that is shared with us about all the details of 
how this project is operating or this operation is being 
undertaken and how it fits with the requirements of Dodd-Frank.
    Mr. Cordray. You tell us what you want, sir, and we will 
get it to you.
    Senator Crapo. Thank you.
    Chairman Johnson. Senator Hagan.
    Senator Hagan. Thank you, Mr. Chairman.
    Director Cordray, as I said before the hearing, it is 
always a pleasure to see you, and I feel like we see you quite 
a bit. Thank you for the job that you are doing.
    I want to associate myself with Chairman Johnson's question 
about the rural definition. I have heard questions and concerns 
about this definition. I was surprised to see in North Carolina 
several counties labeled ``nonrural,'' especially in the 
northeastern part of our State, which is quite rural--for 
example, Camden County and Currituck County. I appreciate the 
CFPB looking at this issue.
    I want to talk to you about financial literacy. I have 
always been a huge supporter of teaching financial literacy to 
our students in grades 6 through 12. As we have discussed in 
the past, I will be introducing legislation on this topic later 
this week. When I was in the State Senate in North Carolina, we 
passed a mandatory requirement that schools teach financial 
literacy. I keep saying this is not rocket science. We just do 
not teach it.
    I also serve on the Health, Education, Labor, and Pensions 
Committee, and I chair the Subcommittee on Children and 
Families. We will be having a hearing titled, ``The Economic 
Importance of Financial Literacy Education for Students'' later 
this week.
    Can you talk about what the CFPB is doing to improve 
financial literacy through the Consumer Education and 
Engagement Division and the Office of Financial Education? What 
improvements do you see taking place.
    Mr. Cordray. Thank you for the question, Senator. This has 
also been a personal passion of mine. I think it is hard to 
come face to face with these issues and see how they affect 
individuals and households and not be passionate about this 
subject.
    When I was a local official in Ohio, I had to deal with 
folks who were delinquent on their real estate taxes, and, you 
know, there is a perception among the public that people who do 
not pay on time are deadbeats, and some of them are and some of 
them just do not want to take their responsibilities seriously. 
For the most part, that is not the case. People are victims of 
either bad luck or bad decisions or poor choices, but often 
just bad fortune. Every day people die in families across the 
United States. You always hope it is not your family, but it is 
somebody's family. Or somebody gets injured where they cannot 
work or the marriage falls apart and there is a divorce, and 
now there are two households where there used to be one, and 
there may be expenses and arguing over the assets. All these 
things disrupt people's lives.
    What I saw was that in all those instances issues were made 
worse by the fact that people really did not understand, and 
they knew they did not understand, a lot of the financial 
decisions they were making, and keenly felt the self-
consciousness of not knowing what they were necessarily doing 
or recognizing a year later that they made a bad choice about 
that mortgage or about that student loan.
    I think that one of the things that we absolutely have to 
do as a Bureau--it is fundamental for us, and I am going to be 
much more aggressive in the coming year in using the bully 
pulpit and pushing on and collaborating with officials around 
the country--we have to teach people and make available to them 
the tools so that they can learn more about how to handle their 
personal finances. You cannot have a free market economy, which 
rests on individual decision making by millions and millions of 
Americans, in which they are not capable of making sound 
decisions for themselves. We do not want to have a society 
where people make decisions and several years later come to our 
Tell Your Story line, as they do every day, and talk about how 
they regret the decision they made, and if they had known the 
difference between a private student loan and a Federal loan, 
they would not have done what they did, but now they are stuck 
with it. It is a tragedy in this country that we would not 
consciously teach young people how to handle themselves when 
they go out in the world. They may not listen, they may not do 
it, but the fact that we do not, as you say, we do not even 
teach it, is just a scandal.
    In Ohio, I worked for the same thing. We have now a 
requirement in Ohio that you have to have personal financial 
education before you graduate. That was a struggle. The next 
struggle, of course, is what you said. What does that actually 
mean and how much is it? I was told just yesterday, when we had 
visitors in on this subject, by a woman from the University of 
Cincinnati, that in many districts that is going to be just a 
6-week thing folded into some other class, which is something. 
It is better than nothing, and 6 weeks is certainly better than 
zero, but we have to take this seriously. We mandate teaching 
of history. We mandate teaching of Government so people can be 
good citizens. We also have to mandate a basic understanding of 
finance and a recognition that there are going to be certain 
decisions you will come across in your life that will be life-
changing--what you do about that mortgage, what you do about 
trying to pay for education. Getting those right is really not 
a casual matter, and it is something we plan to be a trusted 
source for the resources for people to try to grapple with 
those decisions, as they are doing right now with our Paying 
for College module.
    I am sorry. I could talk for 20 minutes about this, and 
would if you did not stop me. But I think it is not a partisan 
issue. This was Home Economics in the old days, and it is just 
basics of being able to operate on your own. We all know, as I 
always like to put it, brothers and sisters, sons and 
daughters, cousins, nephews, and nieces that we know are not as 
well equipped as they should be and we have a responsibility 
for that.
    Senator Hagan. I think you should take the bully pulpit and 
really use it. I can see your passion. I have it too. I have 
seen so many people that have gotten into so much trouble 
because they simply were not educated. And when I say they were 
not educated, they are very, very smart people, but they did 
not understand the dynamics, and primarily they do not 
understand debt.
    Mr. Cordray. It is complicated for people, let us face it. 
I used to say when I was the State treasurer of Ohio and I was 
responsible for billions of dollars of public funds, and I 
hoped I was doing a good job at making decisions about keeping 
them safe. This was in the throes of the crisis of 2007-08. I 
would go out and talk about this issue, and I would say, 
frankly, there are many things I do not know that I wish I knew 
more about. Am I saving the right balance of savings toward 
retirement? Do I have the right balance of insurance on my car 
or home or life? You know, am I getting that right? Do we 
understand enough about our credit reports?
    There are just a lot of things that are complicated for 
people, and for us at the Bureau, it is about reducing the 
complexity. That is a big part of what we are trying to do, 
Know Before You Owe, and the kind of simplification and 
transparency of these decisions; and then building more 
capability among people and giving them the ability to have 
tools. Of course, people will make their own decisions for 
themselves. It is not going to be some nanny State deciding 
what you do with your mortgage, but you are the one that is 
going to have to live with it.
    Senator Hagan. I believe my time is up. Thank you.
    Chairman Johnson. Senator Moran.
    Senator Moran. Mr. Chairman, thank you very much.
    Mr. Cordray, thank you for being here. About a month ago, 
the CFPB released a statement stating that U.S. lenders could 
face litigation if they fund loans made by auto dealers that 
are later found to be discriminatory. It is a huge component of 
our economy. I think the number is about $90 billion. I would 
be interested in knowing--I do not have an opinion at this 
point about whether the finding is right or not, but tell me 
about the analysis that was done to arrive at that conclusion. 
Do you have the methodology of this decision available? If so, 
what would you be able to share with that process, either today 
or later with me in my office?
    Mr. Cordray. Thank you, Senator, for the question. The 
issue of indirect auto lending is one that, at this point, we 
addressed in a very general way with a legal analysis that 
leads to a legal conclusion. It is not yet a factual conclusion 
about any particular instance, although there is a lot to be 
heard about this area as you go around the country and listen 
to people, both lenders and borrowers.
    The legal point we made, which I think is straightforward, 
is that if you are a lender and you set up a lending program, 
which involves third parties making some decisions in the 
program, but it is your program and you are the one lending the 
money, then you remain responsible for complying with the 
Federal law. It is the same in the mortgage field. If you set 
up a lending program as, say, a bank lender of mortgages and 
you set it up so that some of the loans are made directly by 
your employees and some are made indirectly by brokers or 
others, you remain responsible for your program, and you have 
to comply with the law.
    I think it was a fairly straightforward point, but we were 
hearing from some folks who did not think that was necessarily 
so, that somehow if there is a third party involved, that 
somehow it becomes entirely their responsibility and not the 
lender's responsibility. I do not think that is right. We would 
be happy to share the legal analysis with your staff separately 
if you would like.
    Senator Moran. So at this point, it was just the legal 
analysis----
    Mr. Cordray. It was a bulletin that we put out, yes.
    Senator Moran. And you indicated earlier about cost/benefit 
analysis, and that would come later in determining whether or 
not there are enforcement actions or regulations to be written?
    Mr. Cordray. Yes, if we were to write regulations--and that 
is a possibility--there would be cost-benefit as required by 
1022 of our statute to have to do. If we are undertaking 
enforcement actions, that is a different issue. It is a matter 
of investigating the facts, setting them against the law, 
something I know you are very familiar with.
    Senator Moran. OK. That answers my question. Thank you very 
much.
    Mr. Cordray. Thank you.
    Senator Moran. Thank you, Mr. Chairman.
    Chairman Johnson. Senator Warren.
    Senator Warren. Thank you, Mr. Chairman.
    Director Cordray, I understand that the Consumer Financial 
Protection Bureau is required by Dodd-Frank to complete a study 
of mandator arbitration. Is that right?
    Mr. Cordray. It is, yes.
    Senator Warren. When do you anticipate you are going to 
have that finished?
    Mr. Cordray. I do not know that I can give you a specific 
date, but it is one of the things that Congress has 
specifically required of us and a task Congress had given us, 
so when we set our priorities, tasks Congress has given us tend 
to take priority over tasks we give ourselves.
    I would say we are already in process in putting together 
that study. What Congress said in our statute is two things. 
They said that we were to do a study of arbitration as it 
affects consumer financial products and services, and there are 
arbitration clauses, as I know you know, in a number of 
different types of consumer lending contracts, and it is 
something that has spread in the last couple of decades, 
certainly. Then if we are going to adopt policy, regulations, 
or some provision about what to do about arbitration clauses of 
that sort affecting consumers, it should be based on the 
results of our study.
    You could argue this as the same kind of thing Congress 
says do a cost-benefit analysis. Here they were much more 
specific. They said do a full study, really look at this, 
really dig into it, really try to understand how arbitration 
proceedings differ from court proceedings, what kind of rights 
they give to consumers, what kind of rights they may take away, 
what kind of results are gotten there, is that a fair system, 
is it reflective of the merits of the issues, or are there 
systematic procedural biases that make it difficult for 
consumers to get through them, who pays for the arbitration, et 
cetera, and that can vary.
    All of those things, study that carefully, and then do 
policy. They wanted us to be very rigorous about this, and we 
are going to do that.
    I would estimate--and I hate to estimate dates because then 
people hold me to it, but I feel quite sure--that we are going 
to have some of this analysis out publicly this year. Whether 
it will all be out publicly this year, I am not sure, but we 
are trying to be very careful as to what we are doing. We know 
that there is a lot riding on it because then it will be 
consideration of policy following immediately after.
    Senator Warren. I appreciate that you take this seriously, 
and I am looking forward to the study as soon as you can 
possibly get it out.
    I want to ask you about one other thing. I know that you 
have set up a consumer complaint process and that it has some 
quite innovative features, and you have also made it a quite 
transparent process. I wonder if you could tell us just a 
little bit about what you have set up at the Consumer Bureau 
and what you have found, what the response of the banks has 
been and how this information is being used.
    Mr. Cordray. I actually think we are tracking a precedent 
that has existed now for about 40 years, which is the National 
Highway Traffic Safety Administration. They started publishing 
data on auto safety back in the early 1970s, and it was 
resisted strenuously by the auto companies at the time. The sky 
was going to fall if people actually knew how safe or unsafe 
their vehicles were.
    Fast forward almost 40 years later now, and that is 
standard. It is accepted. It has become the basis for consumers 
making decisions. It has been the basis for companies thinking 
and looking more carefully at their own operations and doing 
recalls of products that are questioned. And it has been, I 
think, a success.
    I have seen discussion in the last year or two, as we were 
focusing on our work here, that the auto companies now not only 
accept it but embrace it. They think it has made their products 
better, and it has minimized litigation risk for them, which is 
another way it can save companies money by paying attention to 
how their customers are being treated. So I think it is the 
same thing in the financial services area.
    We get complaints. We are taking them on a range of 
subjects now, which is increasing--mortgages, credit cards, 
auto loans, student loans, bank accounts, and now credit 
reports and remittance transfers. We are publishing that data. 
We find it valuable in our work. It is informative to us. So we 
think it will be informative to companies. They can look at 
their competitors. Who is doing better than I am? Who is doing 
worse? Why are they doing better? How can I improve? That is 
the kind of competitive dynamic we want to foster.
    And, third, for consumers to be able to have this 
information and look at it and potentially make decisions on 
it. Maybe somebody will use that database and start rating 
financial products, as is done with cars on auto safety, as I 
think likely will be done over time with the Consumer Product 
Safety Commission as they put out information on which toys and 
other household products--cribs, toasters, you name it--are 
safe.
    This is the kind of information that if I am a consumer and 
I am a member of the public--and the members of the public 
really are the ones who should and do run our Government, not 
us--I would want to have that information. I would not want my 
officials to hoard it. I would want them to share it with me. I 
might use it, I might not. But if I can find some benefit in 
it, then I would expect them to share it with me.
    Senator Warren. And, Director Cordray, I know I am out of 
time, but let me just ask--you talk about the effects on the 
market overall, but for individual consumers who file 
complaints, those complaints are then forwarded to the 
financial institutions?
    Mr. Cordray. Yes.
    Senator Warren. Have some people actually gotten money 
back?
    Mr. Cordray. Many. You know, by no means all. You know, a 
complaint is just that. It is a complaint. Sometimes it is 
valid. Sometimes it is not. Sometimes people think it is valid, 
but it is based on a misunderstanding of the facts or the law. 
But there have been many situations where consumers have 
received relief. Millions of dollars have been returned to 
consumers through our consumer response line. And notably, and 
more important--this is something the companies wanted us to 
make a change, and we did to stress this--they often give 
nonmonetary relief. You cannot put a price tag on it, but if 
you get something cleared up in your credit report where you do 
not have to keep calling for another 3 months to get that thing 
fixed on your bank account, that is meaningful relief for 
people, and it is very satisfying to them.
    We have had many instances of both monetary and nonmonetary 
relief. We have had a lot of matters referred to us by Members 
of Congress and members of this panel that we have been able to 
resolve, and I think it has been very satisfactory. I know 
there are some that we have not been able to resolve, and I 
apologize for those. But we do our best, just as I know your 
staffs do their best, to help people, and that is part of what 
our job is.
    Senator Warren. Good. Thank you.
    Thank you, Mr. Chairman.
    Chairman Johnson. I will turn to Senator Crapo for a brief 
statement.
    Senator Crapo. Thank you, Mr. Chairman. I just wanted to 
follow up--Mr. Cordray, this is not going to be a question 
because we will get together with you afterwards on the issues 
that we said.
    Mr. Cordray. OK.
    Senator Crapo. First of all, we did not get into a number 
of the questions that I raised in my opening statement, which 
we talked about, and so I will submit those questions to you, 
if you would respond to them.
    Mr. Cordray. I sure will.
    Senator Crapo. But you and I, I think we may have a 
disagreement or a different understanding at least as to what 
the Dodd-Frank statute requires. As I read it--and I am reading 
the statute--it says, ``The Bureau may not use its authorities 
under this paragraph to obtain records from covered persons and 
service providers participating in consumer financial services 
markets for purposes of gathering or analyzing the personally 
identifiable financial information of consumers.''
    So those were the exact words of the statute. By the way, 
in other parts of the statute leading up to that, it talks 
about voluntary information being provided by consumers, and so 
I again refer to my opt-out suggestion. But I would like to get 
with you--and we will do that--and urge you to provide the kind 
of information as well as legal analysis about the department's 
processes here that can help us address some of these issues.
    Mr. Cordray. We will certainly do that. We would like to 
put your mind at ease on that. I do think what you read is part 
of the statute, absolutely. There are other ways in which the 
Bureau gets personally identifiable information such as, for 
example, when people file their consumer complaints.
    Senator Crapo. But that is a voluntary action by the 
consumer.
    Mr. Cordray. Yes. We are not really interested in 
personally identifiable information. For us, it is just a 
hassle. It means we have to make sure that it is being properly 
handled, that it is not being disclosed, that we have to devote 
a lot of time and attention to guarding it carefully and making 
sure it is handled the way every other agency under Federal law 
has to handle it.
    What is insightful to us is the anonymized information that 
tells us about consumer behavior, consumer harm, consumer 
benefit, and that is the information we need. We do not really 
want to know about you personally. We want to know about 
consumers in general.
    Senator Crapo. Well, I understand that, and I trust that 
that is exactly what you are all about. But I do not think just 
the assurance of the agency that they are not interested in it 
is really what we are trying to achieve here.
    Mr. Cordray. Understood, yes, and we will be happy to work 
through that to your satisfaction.
    Chairman Johnson. Mr. Cordray, I thank you for your 
testimony today and for your leadership of this important 
agency.
    This hearing is adjourned.
    [Whereupon, at 11:42 a.m., the hearing was adjourned.]
    [Prepared statements, responses to written questions, and 
additional material supplied for the record follow:]

                 PREPARED STATEMENT OF RICHARD CORDRAY
             Director, Consumer Financial Protection Bureau
                             April 23, 2013

    Chairman Johnson, Ranking Member Crapo, and Members of the 
Committee, thank you for inviting me to testify today about the Semi-
Annual Report of the Consumer Financial Protection Bureau. My 
colleagues and I are always happy to testify before the Congress, 
something we have done 32 times now.
    Born out of the worst financial crisis since the Great Depression, 
the Consumer Bureau is the Nation's first Federal agency whose sole 
focus is protecting consumers in the financial marketplace. We are 
dedicated to improving the lives of everyday Americans and to restoring 
trust in consumer financial markets. The Semi-Annual Report we are 
discussing today embodies our work over the last 6 months of 2012.
    The report illustrates the ways we are using the tools Congress has 
provided us to empower consumers and promote a fair, transparent, and 
competitive marketplace for consumer finance. We have taken steps to 
improve the workings of markets--particularly those in which consumers 
cannot choose their financial service providers.
    One such market is debt collection. Concerned about systemwide 
problems that pose risks to consumers, we gained authority at the 
beginning of the year to supervise debt collectors. The debt collectors 
covered by our supervisory authority account for over 60 percent of the 
industry's annual receipts in that market. Bad actors in this market 
are a detriment to consumers and to every debt collector that operates 
lawfully.
    We also expanded our supervision program to include the larger 
credit reporting companies. Credit reports have a profound impact on 
people's lives. Previously, these companies were not subject to any 
Federal supervision, and consumers often struggled to get errors 
resolved. In addition to our new supervision program, we began handling 
consumer complaints about credit reporting issues, all of which will 
open a clear window into the actual operations of these companies. As a 
result, the Bureau can now evaluate whether Federal consumer laws are 
being followed throughout the process, from credit origination through 
debt collection. By identifying problems and rooting them out early, we 
are working to minimize consumer harm.
    Our report also encompasses the Bureau's first enforcement actions, 
which were against credit card companies that deceived and misled 
consumers. In some cases, the companies targeted economically 
vulnerable consumers with low credit scores and low credit limits. We 
were able to secure $425 million in relief for 6 million consumers, and 
we also imposed penalties on the companies to deter such activity in 
the future. These actions will serve as a warning signal for anyone who 
seeks to profit by deceiving or misleading consumers.
    In the second half of 2012, we also tackled issues in the market 
for private student loan debt, which currently totals about $150 
billion. Our studies detailed the struggles students and recent 
graduates are experiencing in that market. Together with Education 
Secretary Arne Duncan, we made recommendations to Congress on 
commonsense reforms to ensure that the risky underwriting practices of 
the past are not repeated.
    The work I have discussed here today is merely a snapshot of our 
efforts on behalf of consumers. We also are addressing consumer 
complaints on a growing number of financial products and services, 
totaling more than 130,000 to date. We have adopted comprehensive new 
mortgage regulations banning irresponsible lending practices that 
helped bring about the recent financial crisis. Our Ability-to-Repay 
rule follows the simple principle that lenders should offer consumers 
mortgages they can afford to pay back. We have actively conducted 
outreach on various issues to older Americans, students, 
servicemembers, and others, and what we heard from them has guided the 
direction of our work.
    Each day, we take another step in pursuit of our vision to create a 
consumer financial marketplace where customers can see prices and risks 
up front and easily make product comparisons; in which no one can build 
a business model around unlawful practices; and that works well for 
individual consumers, responsible businesses, and the economy as a 
whole. We will continue to persist in this work and we appreciate your 
oversight. As always, I will be glad to answer your questions.
    Thank you.

        RESPONSES TO WRITTEN QUESTIONS OF SENATOR CRAPO
                      FROM RICHARD CORDRAY

Q.1. At the hearing, you testified that the CFPB has many 
different mechanisms for collection of lending and credit data 
including: (1) purchasing data from vendors, (2) collecting 
data pursuant to examination and supervisory authority, (3) 
collecting data from the CFPB's National Mortgage Database, and 
(4) collecting data from consumers' submissions to the CFPB's 
Consumer Complaint Database. Are there other ways that the CFPB 
collects data to compile its Big Data?

A.1. The phrase ``Big Data'' is generally used to refer to the 
vast amounts of personally identifiable information that is 
available with respect to individual consumers as the result of 
modern technology. The Bureau is not involved in such ``Big 
Data'' collection. To the contrary, except with respect to 
complaints (where consumers must provide their identity in 
order to allow the complaint to be investigated), the Bureau 
generally does not obtain any personally identifiable 
information. Rather, we secure anonymized data to enable us to 
assess compliance with Federal consumer financial laws and 
risks to consumers in consumer financial markets.
    To date, the Bureau has received data through each of the 
channels you mention: purchasing data from vendors, collecting 
data from supervised entities, and gathering data as part of 
the consumer complaint process. The Bureau also collects 
publicly available datasets, such as Census demographics, that 
are relevant to the Bureau's work.
    In some contexts, firms have voluntarily submitted data 
that the Bureau requested. For example, in connection with the 
Private Student Loan Report required by section 1077 of the 
Dodd-Frank Wall Street Reform and Consumer Financial Protection 
Act (Dodd-Frank Act), the Bureau met with major participants in 
the private student loan industry and offered them the 
opportunity to provide data on several of the 16 questions that 
Congress required the Bureau to answer by July 21, 2011. Nine 
lenders volunteered to provide their existing datasets to a 
single vendor that they selected. This vendor combined those 
data into a single database that did not include the identities 
of borrowers or lenders. This mechanism was an efficient way 
for the lenders and the Bureau to develop answers to Congress' 
questions.
    Congress also authorized the Bureau, in Section 1022(c)(4) 
of the Dodd-Frank Act, to collect information regarding the 
organization, business conduct, markets, and activities of 
covered persons and service providers. The Dodd-Frank Act 
authorizes the Bureau to gather this information from a variety 
of sources and using various methods including surveys. 
Information gathered in this way from covered persons would be 
subject to the protections that the Bureau affords to 
confidential supervisory information.

Q.2. At the end of the hearing, you stated that you would 
supply me with the legal analysis about the CPFB's process for 
Big Data? Please provide any and all legal analyses undertaken 
by CFPB staff and outside counsel hired by the agency regarding 
its Big Data collection.

A.2. As stated above, the Bureau is not engaged in ``Big Data'' 
collection. Rather, we are undertaking targeted collections of 
generally anonymized data to further our statutory purposes.
    The Bureau has not retained outside counsel to analyze the 
issues about which you inquire but, as explained below, the 
Bureau's staff has determined that we have the authority and 
indeed the obligation to gather and utilize data in order to do 
the work that Congress has directed us to perform.
    With respect to the market-monitoring activities that I 
discussed at the hearing, we believe that such information is 
essential for the Bureau to have a deep and thorough 
understanding of the markets we regulate. Congress recognized 
this by explicitly directing the Bureau to ``monitor for risks 
to consumers in the offering or provision of consumer financial 
products or services, including developments in markets for 
such products or services.'' 12 U.S.C. 5512(c)(1). To carry out 
this directive, Congress authorized the Bureau to ``gather and 
compile information from a variety of sources'' including, 
without limitation, information obtained in the course of our 
supervisory work, consumer complaints, surveys of consumers and 
market participants, and review of available databases. 12 
U.S.C. 5512(c)(4)(B)(i). Congress also authorized the Bureau to 
require covered persons and service providers to provide 
information ``necessary for the Bureau to fulfill the 
monitoring, assessment, and reporting responsibilities imposed 
by Congress[,]'' subject to the limitation that the Bureau may 
not use this authority ``for purposes of gathering or analyzing 
the personally identifiable financial information of 
consumers.'' 12 U.S.C. 5512(c)(4)(B)(ii), (C).
    Pursuant to 12 U.S.C. 5512(c)(6), the Bureau has published 
rules regarding the confidential treatment of information it 
collects pursuant to its various authorities, including its 
market-monitoring authorities. Under these rules, ``information 
provided to the [Bureau] by a financial institution to enable 
the [Bureau] to monitor for risks to consumers in the offering 
or provision of consumer financial products or services'' is 
included within the definition of ``confidential supervisory 
information.'' 12 CFR 1070.2(i)(1)(iv). As with all 
confidential information of the Bureau, the internal 
dissemination of confidential supervisory information is 
limited to those employees to whose duties the information is 
relevant, and the external dissemination is strictly limited to 
certain specified instances. 12 CFR 1070.41(a). The Bureau's 
rules permit the disclosure of materials derived from 
confidential supervisory information (e.g., reports to 
Congress), but only ``to the extent that such materials do not 
identify, either directly or indirectly, any particular person 
to whom the confidential information pertains.'' 12 CFR 
1070.41(c). The Bureau believes this limitation is consistent 
with Congress' direction to ``take steps to ensure that 
proprietary, personal, or confidential consumer information'' 
protected from disclosure by law is not made public. 12 U.S.C. 
5522(c)(8).
    In addition, the Bureau is subject to generally applicable 
laws governing its collection, use, and dissemination of 
personally identifiable information, such as the Privacy Act, 5 
U.S.C. 552a. Among other things, the Privacy Act requires the 
Bureau to ``maintain in its records only such information about 
an individual as is relevant and necessary to accomplish a 
purpose of the agency required to be accomplished by statute or 
by executive order of the President,'' and generally prohibits 
the maintenance of records describing how an individual 
exercises his or her rights under the First Amendment to the 
Constitution. 5 U.S.C. 552a(e)(1), (7). Pursuant to the Privacy 
Act, the Bureau has issued a System of Records Notice (SORN) 
that governs its collection and treatment of records in support 
of its market-monitoring function. See, System of Records 
Notice for CFPB.022--Market and Consumer Research Records, 77 
Fed. Reg. 67802 (Nov. 14, 2012). In this SORN, the Bureau makes 
clear that ``[i]n most cases,'' the records subject to this 
SORN ``will not contain personal identifiers,'' and that 
research and analysis will only be performed on de-identified 
data. Id.

Q.3. Does the CFPB differentiate data it obtains through its 
supervisory authority from data collected vis-a-vis different 
authority, and if so, how? Are there internal firewalls for 
storing and using consumer data CFPB collects for supervisory, 
enforcement, research, and regulatory purposes? Can the CFPB 
use the Big Data it collects for multiple purposes?

A.3. The Dodd-Frank Act tasks the Bureau with various missions 
that are distinct and yet interrelated in that information 
which the Bureau generates or obtains in fulfilling one of its 
missions, such as responding to consumer complaints, may be 
relevant to and inform the Bureau's work in fulfilling its 
other missions, such as supervision and law enforcement. 
Generally, Bureau employees may use information that the Bureau 
generates or obtains to the extent that such use is relevant to 
the performance of their duties. The Bureau manages its data in 
accordance with the authorities under which it is collected and 
in compliance with applicable law, including the Bureau's 
regulations on handling of confidential information, 12 CFR 
Part 1070.
    The Bureau does distinguish between different categories of 
information that it may generate or obtain. The Dodd-Frank Act 
and other statutes impose certain restrictions on the Bureau's 
use of information, and those restrictions may depend on the 
nature and sources of the information. Furthermore, the 
Bureau's regulations, at 12 CFR 1070.40 et seq., restrict the 
circumstances in which the Bureau may disseminate internally, 
share with other agencies, or disclose to the public certain 
categories of confidential information, including confidential 
supervisory information, confidential investigatory 
information, and consumer complaint information. To the extent 
that the Bureau obtains confidential information from other 
agencies, the Bureau's agreements with such agencies may also 
restrict the Bureau's use of the information.

Q.4. In your testimony, you mentioned that the CFPB needed to 
undertake a Big Data collection to help for economic and 
statistical analyses for rulemakings. Can data collected under 
CFPB's supervisory authority be used for rulemaking purposes 
related to the practices of the institutions being examined?

A.4. The Bureau is authorized to examine and require reports of 
supervised institutions for several purposes, including 
assessing risks to consumers in the consumer financial 
marketplace.
    Accordingly, the Bureau utilizes supervisory information 
both to assess compliance with Federal consumer financial law 
and, when appropriate, to assist the Bureau in research 12 
U.S.C. 5514(b)(1), 5515(b)(1), 5512(c)(4)(B).

Q.5. Does the CFPB inform institutions being examined for 
supervisory purposes when data are collected for purposes 
unrelated to the exam?

A.5. The Bureau has informed industry and the public at large 
that it does have authority to use its supervisory requests to 
obtain information to assess compliance with consumer financial 
laws, about the activities and compliance systems or procedures 
of supervised entities, and detect and assess risks to 
consumers and markets for consumer financial products. See, 
Dodd-Frank Act 1024(b)(1) and 1025(b)(1). The Bureau does not 
collect data that is unrelated to these purposes.

Q.6. How does the CFPB plan to utilize the Big Data it collects 
in each of the following areas: (i) research and analysis, (ii) 
supervision, (iii) enforcement, and (iv) regulation?

A.6. Congress has provided the Bureau with several tools for 
gathering information, including through examinations, civil 
investigative demands, publicly available sources, consumer 
complaints, and through the Section 1022(c)(4) authority 
discussed above. Data collected using one of these tools may be 
relevant to both the function for which it was collected and 
another related function.
    For example, one of the Bureau's primary functions is to 
collect, investigate, and respond to consumer complaints. 
Although the Bureau receives complaints in the course of 
performing this function, the complaints, and the data derived 
from them, also support other Bureau functions, including, for 
example, its consumer education function and its supervisory 
and enforcement functions. Similarly, data the Bureau gathers 
in examining institutions for purposes of detecting risks to 
consumers and to consumer financial markets will also often 
help the Bureau fulfill Congress' directive that it monitor the 
markets for risks to consumers.
    The Bureau utilizes the data it possesses for empirical 
analyses such as those included in our reports on private 
student loans (which relied entirely on anonymized data 
provided voluntarily to the Bureau by a number of lenders) and 
payday lending and deposit advance (which relied principally on 
data collected through supervisory exams). These analyses may 
include descriptive tabulations in addition to more formal 
econometric modeling, which together, support the Bureau's 
mission to understand consumer financial markets; to monitor 
for risks to consumers in the offering or provision of consumer 
financial products or services; and more generally to follow 
developments in markets for such products or services. These 
data and analyses also support policy development, including 
rulemaking and any related considerations of the benefits, 
costs, and impact of particular rules.
    The Bureau utilizes data--including data gathered during 
examinations, consumer complaints, and publicly available 
data--to prioritize its supervisory activities and to examine 
institutions' compliance with Federal consumer financial law, 
their compliance programs, and the risks their activities pose 
to consumers. The Bureau also uses information for enforcement 
purposes, such as assessing possible violations, evaluating the 
scope of consumer harm from such violations, and determining 
enforcement strategies.

Q.7. If consumer data is used in future rulemakings, will the 
CFPB explain in the rule what data it used and how such Big 
Data improved its analysis and the rulemaking process? Will 
CFPB provide sufficient information and necessary data in 
future rulemakings to allow the public to reach the same 
conclusions as the Bureau through independent analysis?

A.7. As an evidence-based agency, the Bureau seeks to gather 
data to inform the rulemaking process. Pursuant to the 
Administrative Procedure Act, the Bureau generally provides 
notice to the public regarding such data when it considers 
using them in notice-and-comment rulemaking. In some cases, 
confidential data are the best source of information on a given 
topic. In such cases, CFPB works to provide as much information 
to the public as possible, consistent with its obligations to 
maintain confidentiality.
    An example of our approach is the rulemaking to implement 
Dodd-Frank Act requirements concerning assessment of consumers' 
ability to repay mortgage loans, where the Bureau received 
additional loan-level data including, debt-to-income ratio 
information, from the Federal Housing Finance Agency in the 
course of the rulemaking regarding performance of loans 
purchased or guaranteed by Freddie Mac and Fannie Mae. The 
Bureau then reopened the comment period to provide notice to 
the public of the new data, to seek comment on its use, and to 
seek additional data particularly regarding performance of 
loans held in portfolio. In the preamble to the final rule, the 
Bureau then explained the results of the data analysis and how 
it impacted the Bureau's thinking about key issues in the 
rulemaking.

Q.8. Will the Bureau make its consumer Big Data collection 
available to researchers, consumers or others, as it has with 
the information in the Consumer Complaint Database? What 
information regarding its Big Data, if any, will the CFPB make 
public, and when?

A.8. The Dodd-Frank Act in some instances requires and in other 
instances authorizes the Bureau to make information public, to 
report it to Congress, or to share it with other agencies. 
Whenever the Bureau makes information public, reports it, or 
shares it with other agencies, the Bureau takes appropriate 
steps, consistent with applicable statutes, regulations, 
policies, and agreements, to protect any confidential 
information, including personally identifiable information in 
those rare instances in which the Bureau collects such 
information, confidential commercial information, supervisory 
information, law enforcement information, or confidential 
information that the Bureau has obtained from other agencies.

Q.9. How many financial institutions have been asked to provide 
consumer data to the CFPB, and how many of them are currently 
doing so? How many customer accounts is the CFPB following on a 
monthly basis with respect to Big Data it collects from data 
purchased from vendors, data collect from supervisory requests 
and examinations, from the CFPB's National Mortgage Database 
and from the data furnished by consumers to the CFPB's Consumer 
Complaint Database?

A.9. Most of the data that the Bureau has gathered directly 
from institutions has been as part of the supervisory process. 
Information about the number of institutions from which the 
Bureau receives data through the exercise of its supervisory 
authority is confidential supervisory information. Information 
about the number of accounts about which the Bureau receives 
data through exercise of its supervisory authority is also 
confidential supervisory information. For the Bureau's report 
on student loans, nine lenders voluntarily submitted data. The 
Bureau is not tracking individuals' loans.
    Regarding ongoing data efforts, the National Mortgage 
Database is based upon a de-identified sample of 5 percent of 
mortgages in the United States. Similarly, the Bureau's 
purchase of de-identified credit report data includes a sample 
of roughly 4 percent of consumers. These data are renewed 
monthly so changes in the market can be considered for research 
and policymaking and each update of the data is anonymous.
    Regarding data furnished by consumers when submitting 
complaints to the Bureau, the Bureau received approximately 
91,000 consumer complaints between January 1, 2012, and 
December 31, 2012. In total since beginning to accept 
complaints on July 21, 2011, the Bureau has received 
approximately 156,000 consumer complaints. A summary of the 
Bureau complaint process and related data can be found in the 
Bureau's most recent Semi-Annual Report to Congress (available 
at http://www.ConsumerFinance.gov/reports/semi-annual-report-2/
).

Q.10. At the hearing, you mentioned that the CFPB purchases 
data from Argus. Please name all of the outside, third-party 
vendors and contractors and their subcontractors used for the 
collection of Big Data.

A.10. The Bureau does not purchase data from Argus but rather 
contracts with Argus to maintain data collected by the Bureau 
through its supervisory processes.
    The following other contractors (and subcontractors) are 
used for the collection of data by the Bureau:

    Argus Information and Advisory Services LLC 
        (Transunion is a subcontractor)

    Blackbox Logic LLC (no subcontractors)

    Clarity Services Inc. (Experian is a subcontractor)

    Corelogic Information Solutions Inc. (no 
        subcontractors)

    Experian (no subcontractors)

Q.11. How many pieces of information (data points) has the CFPB 
collected to date? How many pieces of information (data points) 
is the CFPB collecting on a monthly basis?

A.11. The Bureau has purchased two commercially available 
datasets, widely used by regulators, investors, and other 
private entities, regarding mortgage loan performance. Those 
datasets contain fields that describe some of the basic 
characteristics of the loan, and on a monthly basis, the 
performance of the loan. These data do not contain personally 
identifiable information.
    As part of the National Mortgage Database and the credit 
record procurement, the Bureau is obtaining all of the data 
elements collected by the credit bureaus with respect to the 
records in the panel other than elements that reveal PII such 
as name or address or social security number. Additional data 
elements will be appended to the NMDB from other data sources 
such as HMDA; the number of such data elements is still being 
developed.
    For the credit card database collected under our 
supervisory authority, we are collecting a subset of the data 
elements maintained by the participating issuers. These data do 
not contain personally identifiable information.

Q.12. Currently, we are aware that the CFPB is collecting data 
on mortgages, home equity lines of credit, credit cards, 
checking accounts, overdrafts, student lending (private), 
student lending (Government), and deposit advances. What other 
areas does the CFPB collect, or plan to collect, consumer data?

A.12. As noted, the CFPB collects data on mortgages and credit 
records; we have done one-time data collection with respect to 
other products (student loans, payday, and checking accounts). 
As part of our ongoing supervisory work, we will, in the normal 
course of examinations, collect data from individual 
institutions in order to assess compliance with consumer 
financial laws, obtain information about the activities and 
compliance systems or procedures, and detect and assess risks 
to consumers and markets for consumer financial products.

Q.13. Is the data collected in the course of CFPB's supervision 
duplicative or overlapping with data collected by the 
institutions' prudential regulators.

A.13. Sections 1024 and 1025 of the Dodd-Frank Act directs the 
Bureau to coordinate its supervisory activities with those 
conducted by the prudential regulators and the State bank 
regulatory authorities in order to minimize regulatory burden. 
The Dodd-Frank Act also requires the Bureau to use, to the 
extent possible, reports that have been provided or required to 
have been provided to a Federal or State agency and information 
that has been reported publicly (see, Section 1024(b); 
1025(b)).
    The Bureau and the prudential regulators entered into a 
Memorandum of Understanding on Supervisory Coordination (MOU) 
on May 16, 2012, in order to facilitate this coordination of 
supervisory activities (available at http://
files.ConsumerFinance.gov/f/
201206_CFPB_MOU_Supervisory_Coordination.pdf). Section IV of 
the MOU commits the Bureau and the prudential regulators, as 
part of the requirement that examination be conducted 
simultaneously; to sharing with each other any information 
requests sent to covered institutions relating to covered 
examinations. Section V reiterates the requirement of Section 
1025 of the Dodd-Frank Act that the Bureau will, to the fullest 
extent possible, use reports pertaining to a covered 
institution that has been provided or required to have been 
provided to a Federal or State agency, and information that has 
been publicly reported.
    The CFPB's Supervision and Examination Manual (available at 
http://files.ConsumerFinance.gov/f/201210_cfpb_supervision-and-
examination-manual-v2.pdf) explains how examiners are to scope 
examinations. In accordance with the requirements of the Dodd-
Frank Act, the Manual directs examiners to gather as much 
information as possible from within the Bureau, other 
regulatory agencies, and third-party public sources.

Q.14. Please provide copies of all contracts that the CFPB has 
with outside, third-party vendors and contractors and their 
subcontractors engaged in or involved in any capacity with the 
Bureau's Big Data collection of consumer information.

A.14. Attached are contract copies (and modifications) for the 
prime contractors identified in the response to Question 10. 
Copies of subcontracts are not available since those agreements 
are between the prime contractor and their subcontractor.

    Argus Information and Advisory Services LLC (5 
        attachments)

    Blackbox Logic LLC (7 attachments)

    Clarity Services Inc. (4 attachments)

    Corelogic Information Solutions Inc. (3 
        attachments)

    Experian (4 attachments)

    Please be aware that the documents provided are contractual 
documents that may contain trade secrets and/or proprietary or 
confidential information of private entities. The companies 
should be consulted before any of this information is released 
publicly to avoid possible competitive harm to these private 
parties.

Argus Information and Advisory Services LLC



































































































































































































































































































































































































































































































Blackbox Logic LLC






















































Clarity Services Inc.
























































Corelogic Information Solutions Inc.
















































Experian













































Q.15. Please provide a copy of a representative data request 
that the CFPB has sent to financial institutions and others 
involved in the Bureau's consumer data collection efforts.

A.15. ``Any communications between the CFPB and a supervised 
financial institution or a Federal, State, or foreign 
Government agency related to the CFPB's supervision of the 
institution'' is ``confidential supervisory information.'' 12 
CFR 1070.2 (i)(1). Consequently, specific supervisory requests 
for information are subject to the prohibition against 
disclosure of confidential supervisory information set forth in 
12 CFR 1071.41.
    However, the Bureau uses a number of standard form 
information requests as part of its examinations. See, 
``Compliance Management System Information Request'', attached. 
Examiners modify these requests to customize them to the 
particular institution. In the information request, examiners 
are instructed to specify the review period and the information 
or documentation required, in order to reduce the burden on the 
institution and avoid receiving data not relevant to the 
examination. See page 6 of the CFPB's Supervision and 
Examination Manual, Examinations (Prepare and Send the 
Information Request) (available at http://
files.ConsumerFinance.gov/f/201210_cfpb_supervision-and-
examination-manual-v2.pdf).
    The Bureau avoids receiving personally identifiable 
information whenever possible. The Bureau protects all 
confidential supervisory information in accordance with the 
regulation governing the Bureau's handling of confidential 
information, 12 CFR Part 1070.

Q.16. Has the CFPB conducted any cost-benefit analysis to 
determine the cost of the data collection requests and 
production on the institutions? Has the CFPB solicited feedback 
from any institutions about the cost of these data collection 
requests and production?

A.16. The Bureau does not conduct an explicit cost-benefit 
analysis of supervisory data requests made in support of the 
examination function, as those requests are tailored to be 
consistent with the scope of information appropriate to carry 
out the purposes of supervisory activity. Pursuant to sections 
1024(b) and 1025(b) of the Dodd-Frank Act, the Bureau 
coordinates its examinations with the prudential regulators and 
the State bank regulatory authorities; and, to the extent 
possible, the Bureau uses reports provided or required to be 
provided to Federal or State agencies. Both practices tend to 
reduce the cost of supervisory activities. The Bureau also 
routinely discusses its supervisory information requests with 
supervised entities in advance in order to make the best use of 
existing data formats and content, decreasing the burden to 
supervised entities of providing information requested by the 
Bureau. These interactions provide insight about how to acquire 
information efficiently.
    On occasion, the Bureau has also obtained data outside the 
supervisory process. The information has all been provided on a 
voluntary basis, and the Bureau believes the companies that 
provided this information attempted to do so in an efficient 
and cost-effective manner. For example, in connection with the 
Private Student Loan Report required by section 1077 of the 
Dodd-Frank Act, the Bureau met with major participants in the 
private student loan industry and offered them the opportunity 
to provide data on several of the 16 questions that Congress 
required the Bureau to answer. Nine lenders volunteered to 
provide their existing datasets to a single vendor that they 
selected. This vendor combined those data into a single 
database that did not include the identities of borrowers or 
lenders. This mechanism was an efficient way for the lenders 
and the Bureau to develop answers to Congress' questions. Both 
the Bureau and the lenders continue to utilize that dataset to 
provide information to the public, to Congress, and to 
regulators about that industry.
    In some instances, the Bureau has requested financial 
institutions to provide a random sample of de-identified 
records rather than a full file. Sampling may add some cost to 
the financial institution but reduces the cost to the Bureau in 
handling larger files. In other instances, especially those 
involving ongoing data collections, the Bureau has determined 
that it would be more efficient for the financial institution 
to provide a full, de-identified file to the Bureau rather than 
requiring that sampling frames be created each time new data is 
provided.

Q.17. In your testimony, you cite that GAO conducts an annual 
audit of the agency. Does the GAO specifically audit the Big 
Data collection undertaken by the CFPB? Does GAO audit the 
specific contracts of the outside, third-party vendors and 
their contractors hired by the CFPB for the collection of Big 
Data? Does GAO conduct any peer review of any research done 
using the Big Data?

A.17. The GAO has not conducted an audit focused on the 
specific subject of data collection by the Bureau or Bureau 
contracts for such collection. However, the GAO's and Inspector 
General's audits and evaluations of the Bureau's budget, 
information security, and implementation of the Dodd-Frank Act, 
among other subjects, address myriad aspects of the Bureau's 
contracting and information collection, storage and usage 
activities. The GAO has not conducted any peer review of Bureau 
research, to the Bureau's knowledge.

Q.18. The CFPB issued a rule with regard to remittances to 
foreign countries last year, which the Bureau has updated on a 
couple of occasions since its issuance. The final rule on 
remittances contains a specific error resolutions procedure for 
remittance transfers. However, a recent blog posting by the 
Bureau suggested the CFPB will begin accepting consumer 
complaints on money transfers without distinguishing between 
foreign and domestic transfers. Is the blog posting a change in 
direction for the Bureau? Does the Bureau consider posting to 
its blogs as regulatory guidance or just an informational 
venue? Has the Bureau reached out to the industry to inquire 
what effect such blog postings have on the industry practices?

A.18. Section 1073 of the Dodd-Frank Act amends the Electronic 
Fund Transfer Act to add a new provision governing remittances 
to foreign countries. One part of that amendment requires 
remittance transfer providers to resolve certain errors raised 
by consumers with respect to such remittances. Another part of 
the amendment requires remittance transfer providers to inform 
consumers of their rights concerning error resolution and of 
the Bureau's contact information, including its toll-free 
consumer complaints number. The Bureau has issued implementing 
regulations as required by 1073 (the ``Remittance Transfer 
Rule'').
    Separately, 1013(b)(3) of the Dodd-Frank Act establishes 
within the Bureau `` . . . a unit whose functions shall include 
establishing a single, toll-free telephone number, a Web site, 
and a database or utilizing an existing database to facilitate 
the centralized collection of, monitoring of, and response to 
consumer complaints regarding consumer financial products or 
services.'' Collecting, investigating, and responding to 
consumer complaints are integral parts of the Bureau's work.
    In March 2012, the Bureau began accepting complaints about 
many types of bank and credit union products and services, 
including domestic money transfers and money transfers that 
will qualify as ``remittance transfers'' under the Remittance 
Transfer Rule when it takes effect on October 28, 2013, as well 
as the wide range of other types of products and services that 
these institutions offer, such as checking accounts and loans. 
In April 2013, the Bureau launched a money transfer-specific 
complaint form to accept complaints concerning entities other 
than banks and credit unions about domestic money transfers, as 
well as transfers that will qualify as ``remittance 
transfers.''
    The purpose of the blog posting dated April 4, 2013, and 
titled ``Now accepting money transfer complaints'' (available 
at http://www.ConsumerFinance.gov/blog/now-accepting-money-
transfer-complaints/), was to announce to consumers that the 
Bureau was now accepting these types of complaints through a 
dedicated complaint form. The blog provides consumers with a 
link to the form and lets them know what information they 
should have available before submitting a complaint. The blog 
post does not represent a change in direction for the Bureau; 
it is consistent with our use of the blog to engage and inform 
the public about Bureau activities and is not intended as legal 
guidance.
    The Bureau has engaged and will continue to engage with 
industry regarding its intake of money transfer complaints and 
welcomes feedback regarding the blog post. Similarly, the 
Bureau has reached out to industry and will continue to do so 
regarding the impact of the Remittance Transfer Rule.
                                ------                                


               RESPONSES TO WRITTEN QUESTIONS OF
             SENATOR MENENDEZ FROM RICHARD CORDRAY

Q.1. I held a hearing this month looking at some of the 
mortgage servicing abuses and the settlements that resulted. I 
was pleased to see the CFPB adopted new rules related to 
mortgage servicing standards in January 2013. I have long 
advocated for increasing consumer protections on borrowers 
before foreclosures, encouraging loan modifications, 
eliminating dual tracking, placing limits on foreclosure fees, 
and creating an appeals process for those denied loan 
modifications as well as a mediation program. Please detail 
some of the specific requirements as they relate to:

    Mortgage servicers providing information about 
        mortgage loss mitigation options to delinquent 
        borrowers.

    Establishing policies and procedures for providing 
        delinquent borrowers with continuity of contact with 
        servicer personnel capable of performing certain 
        functions.

A.1. The mortgage servicing rules issued by the Bureau provide 
protections that seek to ensure that troubled borrowers receive 
a fair process to avoid foreclosure wherever possible. Most 
notably, the mortgage servicing rules include restrictions on 
the process of ``dual tracking''; i.e., the consideration of a 
borrower for a loss mitigation option while pursuing a 
foreclosure process. The rules further include requirements for 
evaluating timely and complete loss mitigation applications for 
loss mitigation options.
    Even before the loss mitigation evaluation occurs, however, 
the Bureau has adopted requirements that will assist borrowers 
with the process of understanding and applying for loss 
mitigation options. First, the mortgage servicing rules include 
``early intervention'' requirements that apply early in the 
loss mitigation process. The rules require servicers to reach 
out to borrowers about loss mitigation options early in a 
delinquency. Specifically, servicers are required to make good 
faith efforts to establish live contact with a delinquent 
borrower not later than the 36th day of a borrower's 
delinquency and promptly inform such borrower about the 
availability of loss mitigation options if appropriate. 
Further, not later than the 45th day of delinquency, a servicer 
must provide a written notice to the borrower that includes, 
among other things, information about any loss mitigation 
options available to the borrower and how to apply for such 
options, information about contact personnel assigned to assist 
the borrower, and information regarding other resources that 
may be available to assist the borrower with loss mitigation 
options, such as housing counselors or organizations.
    This is designed primarily to encourage delinquent 
borrowers to work with their servicers to identify their 
options for avoiding foreclosure. The Bureau recognizes that 
not all delinquent borrowers who are contacted by their 
servicer and receive a written notice will respond to the 
servicers and pursue available loss mitigation options. 
However, the Bureau believes that the notices will ensure, at a 
minimum, that all borrowers have an opportunity to do so at the 
early stages of a delinquency.
    That is just the beginning of the process. The Bureau's 
rules further require that servicers must have policies and 
procedures in place to provide delinquent borrowers with direct 
and ongoing access--the term of art is ``continuity of 
contact''--to personnel who are responsible for helping 
struggling borrowers. Such personnel must be assigned to assist 
a borrower by the time the early intervention written notice is 
provided, and in any event, no later than the 45th day of a 
borrower's delinquency. The servicer's policies and procedures 
must be reasonably designed to ensure that such personnel are 
able to provide information to the borrower about available 
loss mitigation options, the application process for such 
options, the status of any loss mitigation application 
submitted by a borrower, any applicable loss mitigation 
deadlines, and when a foreclosure process may begin. Further, 
the servicer's policies and procedures must be reasonably 
designed to ensure that such personnel have access to a 
complete record of the borrower's payment history and 
information provided by the borrower regarding loss mitigation, 
that such personnel are able to provide this information to 
servicer personnel responsible for evaluating a borrower for 
loss mitigation options, and that such personnel can provide a 
borrower with information about the procedures for submitting a 
written notice of error or information request.

Q.2. In June 2012, the CFPB announced that it would be the 
first Federal financial regulator to share with the public 
individual consumer complaint data. They are accepting consumer 
complaints in many areas, including checking accounts, savings 
accounts, CDs, credit cards, credit reporting, money transfers, 
mortgages, student loans, and consumer loans. How many 
complaints has the CFPB received from consumers so far about 
mortgages, credit cards, banks, debt collection, and other 
financial services? How many of those are being resolved 
successfully, and in what ways?

A.2. The Bureau began accepting consumer complaints about 
credit cards on July 21, 2011. The Bureau now also accepts 
complaints related to mortgages, bank accounts and services, 
private student loans, other consumer loans, credit reporting, 
and money transfers.
    From July 21, 2011, through February 28, 2013, the Bureau 
received approximately 131,300 consumer complaints, including 
approximately 30,600 credit card complaints, 63,700 mortgage 
complaints, 19,800 bank accounts and services complaints, 4,600 
private student loan complaints, 4,100 consumer loan 
complaints, and 6,700 credit reporting complaints. The Bureau 
has received some money transfer complaints through the bank 
accounts and services intake form. In April 2013, the Bureau 
introduced a money transfer-specific intake form. Data from 
those complaints is preliminary. Data are also not available 
about debt collection or payday complaints because the Bureau 
does not accept these complaints at this time. The Bureau, 
however, continues to work toward expanding its complaint 
handling capacity to include other products and services, such 
as payday loans and debt collection.
    More than 109,200 complaints (83 percent of complaints) 
received as of February 28, 2013, had been sent by the Bureau 
to companies for review and response. The remaining complaints 
had been referred to other regulatory agencies (11 percent), 
found to be incomplete (3 percent), or were pending with the 
consumer or the Bureau (3 percent). Companies had already 
responded to approximately 104,100 complaints or 95 percent of 
the complaints sent to them for response. Consumers had 
disputed approximately 19,600 company responses (21 percent) to 
complaints.
    As of February 28, 2013:

    Credit card complaints: Approximately 27,700 (84 
        percent) credit card complaints had been sent by 
        Consumer Response to companies for review and response. 
        The remaining credit card complaints had been referred 
        to other regulatory agencies (10 percent), found to be 
        incomplete (5 percent), or pending with the consumer or 
        the Bureau (one percent). Companies had already 
        responded to approximately 24,800 complaints or 96 
        percent of the complaints sent to them for response. 
        Since December 2011, companies have had the option of 
        reporting the amount of monetary relief, if any. The 
        median amount of relief reported was approximately $125 
        with $25 being the most common amount of relief for the 
        approximately 5,300 credit card complaints where 
        companies reported relief. Consumers had disputed 
        approximately 4,200 company responses (18 percent) to 
        credit card complaints.

    Mortgage complaints: Approximately 56,800 (89 
        percent) mortgage complaints had been sent by Consumer 
        Response to companies for review and response. The 
        remaining mortgage complaints had been referred to 
        other regulatory agencies (7 percent), found to be 
        incomplete (1 percent), or pending with the consumer or 
        the Bureau (2 percent). Companies had already responded 
        to approximately 53,900 complaints or 95 percent of the 
        complaints sent to them for response. The median amount 
        of monetary relief reported was approximately $425 for 
        the approximately 1,800 mortgage complaints where 
        companies reported relief. Consumers had disputed 
        approximately 10,500 company responses (23 percent) to 
        mortgage complaints.

    Bank account and services complaints: Approximately 
        16,100 (81 percent) bank account and service complaints 
        had been sent by Consumer Response to companies for 
        review and response. The remaining bank account and 
        service complaints had been referred to other 
        regulatory agencies (14 percent), found to be 
        incomplete (4 percent), or were pending with the 
        consumer or the Bureau (1 percent). Companies had 
        already responded to approximately 15,500 complaints or 
        97 percent of the complaints sent to them for response. 
        The median amount of monetary relief reported was 
        approximately $110 for the approximately 4,000 bank 
        account and service complaints where companies reported 
        relief. Consumers had disputed approximately 3,000 
        company responses (20 percent) to bank account and 
        service complaints.

    Private student loan complaints: Approximately 
        3,400 (74 percent) private student loan complaints had 
        been sent by Consumer Response to companies for review 
        and response. The remaining private student loan 
        complaints had been referred to other regulatory 
        agencies (20 percent), found to be incomplete (4 
        percent), or pending with the consumer or the Bureau (2 
        percent). Companies had already responded to 
        approximately 3,200 complaints or 94 percent of the 
        complaints sent to them for response. The median amount 
        of monetary relief reported was approximately $1,250 
        for the approximately 225 private student loan 
        complaints. Consumers had disputed approximately 600 
        company responses (19 percent) to private student loan 
        complaints.

    Consumer loan complaints: Approximately 2,600 (63 
        percent) consumer loan complaints had been sent by 
        Consumer Response to companies for review and response. 
        The remaining consumer loan complaints had been 
        referred to other regulatory agencies (30 percent), 
        found to be incomplete (3 percent), or pending with the 
        consumer or the Bureau (4 percent). Companies had 
        already responded to approximately 2,400 complaints or 
        95 percent of the complaints sent to them for response. 
        The median amount of monetary relief reported was 
        approximately $195 for the approximately 240 consumer 
        loan complaints. Consumers had disputed approximately 
        500 company responses (23 percent) to consumer loan 
        complaints.

    Credit reporting complaints: Approximately 4,300 
        (64 percent) credit reporting complaints had been sent 
        by Consumer Response to companies for review and 
        response. The remaining credit reporting complaints had 
        been referred to other regulatory agencies (4 percent), 
        found to be incomplete (3 percent), or is pending with 
        the consumer or the Bureau (28 percent). Companies had 
        already responded to approximately 3,900 complaints or 
        90 percent of the complaints sent to them for response. 
        Consumers had disputed approximately 600 company 
        responses (19 percent) to credit reporting complaints.

Q.3. At your confirmation hearing this year, I submitted 
questions for the record having to do with balancing the need 
for consumer protections and access to short term credit and 
building creditworthiness. As part of your response, you 
referenced the need to learn about the potential for innovation 
in financial products. A question that has not been answered is 
if nondepository short term lending is curtailed or eliminated, 
what products will take their place for underserved consumers? 
Can you update me on your efforts to address this issue and 
what is the status of the CFPB's analysis of how to solve the 
growing problem of access to short term credit?

A.3. The Bureau recognizes that there is a need for access to 
small dollar credit to handle occasional emergencies. But such 
loans can be harmful when they are poorly structured. For 
example, extremely short-term credit--meaning that the loan is 
structured so that the consumer has to repay the loan in a very 
short period of time--can be harmful to consumers. Furthermore, 
most small-dollar, short-term loans available to consumers now 
do not build creditworthiness.
    In light of these concerns, we strongly encourage consumers 
to explore their full range of options when dealing with a 
financial shortfall. We encourage consumers to consider less 
expensive credit options, particularly if they have an account 
at a bank or credit union or a stable credit history. Credit 
cards, advances, or emergency credit offered by employers, 
nonprofit organizations, and community groups are other 
options. Other options might include negotiating with the 
creditor or biller about the debt or bill they owe before 
resorting to a payday or deposit advance loan.

Q.4. You stated in your answers to my questions that the CFPB 
is ``determining which product structures and features may 
curtail sustained use and negative outcomes.'' Has the CFPB 
made any inroads since then on this issue? Assuming the CFPB 
has or does identify negative outcomes and a product structure 
or feature that it believes may mitigate negative outcomes, how 
would the CFPB seek to require that product structure or 
feature of market participants?

A.4. This past month, the Bureau released a white paper on 
payday loans and deposit advance products, which examined 
patterns of sustained use. We found that the median payday loan 
borrower engages in 10 such transactions per year and is 
indebted a median of 199 days of the year, while more than half 
of all deposit advance borrowers end up borrowing more than 
$3,000 per year in advances and are indebted more than 40 
percent of the year. However, we found that these products may 
be appropriate for some consumers for whom an expense needs to 
be deferred for a short period of time. The key for the product 
to work as structured, however, is a sufficient cash flow which 
can be used to retire the debt within a short period of time.
    The data presented in this study suggest some consumers use 
payday loans and deposit advances at relatively low to moderate 
levels. Thirteen percent of payday borrowers in our sample took 
out only 1-2 loans over the 12-month period, and about one-
third took out six loans or less. A similar share of deposit 
advance users (30 percent) took no more than a total of $1,500 
in advances over the same period of time. We hypothesize that 
the lack of underwriting and the single payment structure may 
be contributing to these patterns of sustained use.
    We are currently undertaking additional analyses to see how 
outcomes vary under various State regulatory approaches, such 
as limits on maximum loan amounts or efforts to extend the 
period of the loan. We will evaluate whether these and other 
approaches may counter the effects of the traditional balloon 
payment structure that might lead consumers to quickly 
reborrow. Our current analysis seeks to determine the drivers 
of consumer harm, while also accounting for why some consumers 
are able to use these products in an appropriate way (for 
example, paying the full amount back when loan is due without 
having to reborrow).

Q.5. Has the CFPB considered the implications of providing a 
Federal platform to regulate online short term lending in a 
manner in which some have argued that technology and the market 
can drive innovative new products for underserved consumers and 
help them build back their creditworthiness? For example, has 
the CFPB looked at the pros and cons of a model that provides 
for partnerships between banks and nonbanks to offer OCC or 
FDIC chartered financial products with CFPB consumer 
protections?

A.5. The Bureau has not analyzed all of the proposals to 
provide Federal charters for nondepository financial service 
companies, and we generally do not comment on proposed 
legislation. Bureau staff does provide technical advice on 
specific provisions when requested by Congress. We do note that 
some of the bills we have reviewed have taken a very strong 
position in preempting all forms of State consumer protection 
of small dollar borrowers--moving all authority to regulate 
both charter issuance and consumer financial protection issues 
to Federal regulators. The States have invested substantial 
legislative and regulatory energy over many years in crafting 
protections that they view as appropriate for their consumers, 
so it would be a significant shift in public policy to sweep 
those protections aside.
                                ------                                


        RESPONSES TO WRITTEN QUESTIONS OF SENATOR HAGAN
                      FROM RICHARD CORDRAY

Q.1. The Nationwide Mortgage Licensing System (NMLS) and 
Registry provides a single system for the licensing and 
registration of the Nation's mortgage industry. The System 
allows the States to track mortgage loan originators from 
State-to-State on a nationwide basis. State regulators have 
begun using NMLS as the licensing platform for other regulated 
nondepository financial services providers.
    Would you agree that it would be beneficial to extend the 
privilege and confidentiality protections for mortgage-related 
information contained in the NMLS and which is shared by State 
and Federal regulators, to information in the NMLS relating to 
all other types of nonbanks?

A.1. The Bureau is committed to establishing and maintaining 
productive working relationships with State bank and nonbank 
regulators and understands the importance of protecting the 
confidentiality of information that may be shared through such 
coordination efforts. To this end, the Bureau has entered into 
information-sharing and cooperation MOUs, requiring the 
safeguarding of confidential information, with most State bank 
and nonbank regulators. Moreover, the Bureau recently entered 
into a State Coordination Framework to establish a process for 
coordinated Federal/State consumer protection supervision and 
enforcement of entities providing consumer products or services 
that are subject to concurrent jurisdiction of the Bureau and 
one or more State Regulators.
    The Bureau believes that steps to better facilitate the 
sharing of information among regulators by extending the 
confidentiality safeguards and privilege protections applicable 
to information placed in the Nationwide Mortgage Licensing 
System to additional nonbank activities could potentially be 
beneficial. We would be pleased to look at any specific 
proposal and provide technical assistance.

Q.2. According to a Federal Trade Commission Report released in 
December, at least 5 percent of consumers had errors in their 
credit scores that could lead them to pay higher rates for 
loans.
    With the CFPB's supervision of credit reporting companies 
beginning last year, do you believe that the appropriate 
controls are in place to the reduce the occurrence of errors?
    What steps are being taken to reduce the occurrence of 
these errors and improve the process of error correction?

A.2. The Bureau's authority to supervise larger consumer 
reporting agencies became effective in the fall of 2012. Among 
the Bureau's first priorities has been to understand and 
evaluate the mechanisms used by consumer reporting agencies to 
collect consumer data furnished by industry, compile and match 
that data to individual consumer files, and then deliver that 
data to users in the form of consumer reports. The Bureau's 
White Paper on ``Key Dimensions and Processes in the U.S. 
Credit Reporting System'' describes the Bureau's initial 
insights into how the industry handles data. For example, in 
the report, the Bureau observed the limitations of the existing 
e-OSCAR dispute handling system, which does not forward the 
documents consumers attach in their complaints to furnishers.
    Through our Supervision program, which is in its early 
stages, we now have the opportunity to examine the larger 
consumer reporting agencies to assess their compliance with the 
Fair Credit Reporting Act and other Federal consumer financial 
laws. Our reviews will help us to evaluate the question you 
ask--are the controls in these companies appropriate to reduce 
errors. This issue is one we are focusing on in our review of 
consumer reporting agencies.

Q.3. During your testimony you mentioned that the Bureau has 
addressed the issue of indirect auto lending in a very general 
way with a legal analysis and that it has not reached a factual 
conclusion about any particular instance. Can you describe the 
process through which the CFPB would move from a legal analysis 
to a factual conclusion? What types of statistical tools and 
proxies might be available to the Bureau to address data gaps 
and identify different groups of consumers?

A.3. These questions about methodology and analysis are 
critical to the Bureau. As a data-driven organization, we want 
to be sure that our analysis of the auto finance industry is 
based on current and solid facts about the industry, its 
business practices, and its participants. In the past year, 
Bureau representatives have met with numerous individual 
lenders, auto lender associations, and dealer associations to 
learn about the industry and the statistical tools and proxies 
that industry uses to self-monitor its lending activity for 
fair lending risk.
    The Bureau's ongoing supervision program enables it to 
examine fair lending compliance by many indirect auto lenders. 
We have enforcement authority over indirect auto lenders as 
well. The Bureau uses a variety of methods to identify legal 
violations and the choice of technique will often depend on the 
facts and circumstances. In the fair lending context, some 
violations can be determined by reviewing the text of an 
entity's policies, while other violations are determined using 
other additional methods, like comparative file reviews or 
statistical analyses.
    Demographic information, such as race, sex, and ethnicity, 
are generally not collected by nonmortgage lenders but are 
vital to assessing fair lending compliance. Thus, Federal 
regulatory and enforcement agencies have long used proxy 
methods in nonmortgage data analyses. These methods are well 
accepted by economists and by regulators. Like other agencies, 
the Bureau also uses proxies for demographic characteristics. 
We have made clear that we base our proxies on publicly 
available data. For example, as a proxy for sex we use data on 
first names published by the Social Security Administration. 
For race and ethnicity, we use both surname and geographical 
data published by the Census Bureau. Various proxy techniques 
are publicly available in academic research, and we encourage 
indirect auto lenders to select a reasonable method and begin 
to examine their data, if they have not done so already.
                                ------                                


        RESPONSES TO WRITTEN QUESTIONS OF SENATOR MORAN
                      FROM RICHARD CORDRAY

Q.1. The proposed rule to combine mortgage disclosures required 
by RESPA and TILA includes a requirement that consumers receive 
their closing disclosure 3 days before they actually close on 
their home. The proposed rule requires a second 3-day waiting 
period if there are any changes within 3 days of the scheduled 
closing. The proposed rule has very narrow exceptions for these 
last minute changes. There are a lot of changes that can happen 
right before closing, sometimes the day of the closing on a 
final walk through of the property. Without flexibility in the 
regulation, retriggering a second 3-day waiting period could 
cause frustrating, costly and unwanted delays for consumers. A 
delay could cause higher costs, higher fees, lost deposits or 
earnest money if the real estate contract requires the deal to 
close by a certain date and lost interest rate lock. In 
situations where the consumer is going to be hurt financially 
or otherwise harmed or perhaps they do not desire a second 3-
day delay, how can consumers be given more flexibility to avoid 
these costly delays?

A.1. Based on what we have heard from consumers, lenders, and 
settlement agents, everyone is frustrated with the way closings 
are conducted today. One major source of this frustration is 
that consumers are first presented with certain critical 
information about their loans at the closing table. The 
proposal we are considering would require that consumers 
receive the final disclosure at least 3 days before closing, so 
they have the time to review the disclosure in an unpressured 
environment. This is intended to ensure that all consumers have 
time to review, question, and understand their transaction 
before they have to sign on the dotted line.
    We understand, however, that sometimes things will change 
during the 3-day period between disclosure and closing. We also 
understand that not all changes justify delaying the closing 
date. Therefore, we proposed several exceptions specifying 
situations that would not trigger a second 3-day waiting 
period. One of these exceptions is for buyer and seller 
negotiations. For example, when a home is being purchased, the 
buyer typically performs a walk-through inspection the day 
before the closing. If the buyer identifies repairs that need 
to be made, the buyer and seller may negotiate a change in the 
transaction to cover the cost of those repairs. Our proposal 
would not delay the closing for these types of changes. We also 
proposed an exception for increases in costs up to one hundred 
dollars. In addition, we proposed to allow consumers to waive 
the 3-day period in situations of personal financial 
emergencies.
    We understand your concern about delayed closings, which 
was also raised by numerous commenters. This is also a concern 
of the Bureau. Many of the comments on this issue suggested 
modifications to the proposed exceptions or the addition of new 
exceptions. We are reviewing these comments to determine the 
most appropriate way to provide meaningful consumer disclosure 
while, at the same time, avoid unnecessary delays in closings.

Q.2. During your testimony to the Senate Banking Committee the 
following statement was made: ``So the issue of indirect auto 
lending is one that, at this point, we address in a very 
general way with . . . a legal analysis that leads to a legal 
conclusion. It's not yet a factual conclusion about any 
particular instance, although there's a lot to be heard about 
this area as you go around the country and listen to people, 
both lenders and borrowers both.'' Please reconcile this remark 
with, and explain the specific basis for (to include providing 
any supporting data), the public statements made by the CFPB in 
the fair lending guidance or the accompanying press release 
that the Bureau issued on March 21, 2013. If this was simply a 
legal analysis, why was it released as a guidance and for what 
reason would lender be compelled to begin complying 
immediately?

A.2. The legal analysis that the Bureau has undertaken, and 
that I referenced in my testimony, has focused on the question 
of whether and under what circumstances indirect auto lenders 
are creditors under the Equal Credit Opportunity Act (ECOA) and 
on the obligation that ECOA places on creditors to monitor the 
effect of their lending policies on protected classes. The 
Bulletin that the Bureau issued on March 21, 2013, contained 
the Bureau's legal analysis and conclusions on those questions. 
The Bureau published that Bulletin in order to provide 
transparency to indirect auto lenders with respect to the 
Bureau's perspective on these issues because that perspective 
will inform the examinations the Bureau conducts and will 
provide the legal framework that the Bureau will apply to the 
facts that the Bureau finds.
    These questions about methodology and analysis are critical 
to the Bureau. As a data-driven organization, we want to be 
sure that our analysis of the auto finance industry is based on 
current and solid facts about the industry, its business 
practices, and its participants. In the past year, Bureau 
representatives have met with numerous individual lenders, auto 
lender associations, and dealer associations to learn about the 
industry and the statistical tools and proxies that the 
industry uses to self-monitor its lending activity for fair 
lending risk.
    In a compliance bulletin published April 2012, the Bureau 
made clear that it would adhere to the fair lending principles 
outlined in Regulation B, the regulation originally promulgated 
by the Federal Reserve Board under ECOA. In particular, under 
the legal doctrine of disparate impact, a creditor may be 
responsible for a facially neutral policy or practice that is 
applied equally, if that policy or practice has, on a 
prohibited basis, a disproportionate adverse effect, unless the 
policy is justified by a ``legitimate business need'' that 
cannot reasonably be achieved as well by means that are less 
disparate in their impact.
    There are multiple steps in assessing whether a facially 
neutral policy or practice violates the law. The first step 
concerns whether the policy or practice has a disparate impact 
on a prohibited basis (i.e., disproportionately, adversely 
affects borrowers on the basis of race, sex, national origin, 
etc.). However, even if a policy has a disparate impact, the 
policy does not violate the law if there is a legitimate 
business need for the policy that cannot reasonably be achieved 
as well by an alternative that has a discriminatory impact. If, 
however, a creditor has a policy or practice that is not 
justified by a legitimate business need, or the need could 
reasonably be met by an alternative with a less disparate 
impact, then the Bureau can pursue corrective action through 
the supervisory process or through enforcement action.
    The evaluation of whether a facially neutral policy 
violates ECOA requires multiple steps and shifting burdens. 
Without applying all the requisite steps of the disparate 
impact analysis, the Bureau will not draw any conclusions about 
whether a facially neutral policy with a disparate impact on 
protected classes violates ECOA, but the Bureau may note the 
existence of inadequately managed fair lending risk.

Q.3. The guidance issued on March 21st of this year stated the 
following: ``The supervisory experience of the CFPB confirms 
that some indirect auto lenders have policies that allow auto 
dealers to mark up lender-established buy rates and that 
compensate dealers for those markups in the form of reserve . . 
. . Because of the incentives these policies create, and the 
discretion they permit, there is a significant risk that they 
will result in pricing disparities on the basis of race, 
national origin, and potentially other prohibited bases.'' 
Please explain in detail how indirect auto lender policies that 
allow auto dealers to ``mark up'' lender-established buy rates 
create ``incentives'' that result in a significant risk of 
disparate impact on a prohibited basis. Please provide any 
data, studies, or other materials that resulted in this 
conclusion.

A.3. When a lender offers to pay higher compensation to a 
dealer if the dealer procures a higher-priced contract from a 
consumer, an incentive is creating to upcharge consumers. As a 
general matter, discretion in pricing can increase fair lending 
risk, as discussed in the Interagency Fair Lending Procedures, 
which have been adopted by all the Federal financial 
supervisors, including the Bureau. Discretion that is not 
properly controlled has often been a source of discriminatory 
disparities, both in auto lending and in other product markets 
like mortgage. Over the past decade, the Department of Justice 
has settled a number of cases in which discretionary pricing 
exercised by loan originators in wholesale transactions 
resulted in alleged disparities on the basis of race and 
ethnicity. In addition, evidence submitted in many private 
lawsuits from the last has revealed consistent disparities in 
markup that adversely affected African American and Hispanic 
borrowers.
    The March compliance bulletin provides guidance about 
compliance with the fair lending requirements of the Equal 
Credit Opportunity Act (ECOA) and its implementing regulation, 
Regulation B, for indirect auto lenders that permit dealers to 
increase consumer interest rates and that compensate dealers 
with a share of the increased interest revenues. The Bureau 
published the bulletin in part to provide clarity for indirect 
auto lenders that may have been operating under the incorrect 
assumption that they cannot be liable under the ECOA for 
pricing disparities caused by markup and compensation policies.

Q.4. Mr. Cordray also stated to the Senate Banking Committee 
that there is a ``possibility'' that the Bureau would ``write 
regulations'' involving disparate impact in indirect auto 
lending. Please fully explain (i) what specific regulations the 
Bureau is considering writing, (ii) what specific 
determinations the Bureau would have to make before deciding to 
write such regulations, (iii) whether, and to what extent, the 
Bureau would coordinate with the Board of Governors of the 
Federal Reserve (FRB) and the Federal Trade Commission (FTC) as 
part of this process, and (iv) the most likely timetable for 
initiating this process.

A.4. The Bureau is not planning on writing specific regulations 
on auto lending at this time. However, the Bureau is preserving 
its option to use rulemaking as one of the regulatory tools to 
ensure that the market for auto lending provides fair, 
equitable, and nondiscriminatory access to credit for 
consumers.
    Any decision by the Bureau to write regulations on 
disparate impact in indirect auto lending would depend on an 
evaluation of our statutory authority and the Bureau's view on 
the adequacy of existing regulations or other regulatory tools 
available to the Bureau to address risks to consumers arising 
from practices that may create disparate impacts in indirect 
auto lending. The Bureau would also consider the potential 
costs and benefits to, and potential impact on, consumers and 
industry stakeholders that would be covered by any potential 
regulations.
    The Bureau is committed to working closely with the 
prudential regulators and other Federal agencies, including the 
Board of Governors of the Federal Reserve (FRB) and the Federal 
Trade Commission (FTC), in conjunction with any decision to 
write auto lending regulations. With regard to auto lending in 
particular, the Bureau's commitment to coordination with other 
regulators stems from a number of sources: (1) the Bureau's 
statutory obligation to consult with prudential and other 
appropriate Federal regulators in the process of its 
rulemakings; (2) the fact that other Federal regulators, 
including the FRB and FTC, have significant regulatory 
authority over auto lending; and (3) the Bureau's commitment to 
adopt regulations that both protect consumer interests, 
including access to credit, and preserve the ability of 
industry actors to pursue legitimate business objectives.
    The Bureau is continuing to review the operations of 
indirect auto lenders to ensure their compliance with fair 
lending and other Federal consumer financial laws. The future 
timetable for any decision to begin developing regulations 
would depend on the results of that review, our evaluation of 
all tools available to us to address risks involving disparate 
impact in auto lending, and our assessment of market dynamics.
                                ------                                


        RESPONSES TO WRITTEN QUESTIONS OF SENATOR COBURN
                      FROM RICHARD CORDRAY

Q.1. The list of contracts provided by the Consumer Financial 
Protection Bureau (CFPB) in response to Questions for the 
Record (QFRs) from the March 12, 2013, nominations hearing 
included a large number of professional services contracts, 
including for professional management and consulting services. 
What kinds of services are these contracted firms performing 
and does CFPB have any processes in place to prevent 
duplication of functions between different professional 
services contracts or interagency arrangements? What metrics 
does CFPB use to assess the value it obtains from contracting 
with private firms and what is the frequency of this evaluation 
process?

A.1. The Bureau does procure a variety of professional services 
and management consulting support, including strategy 
formulation, business initiative support, program/project 
management support, performance management support and 
performance improvements, contact center support, training, 
research, studies, and analyses. Early in our brief history, 
these services were often needed to support the Bureau's stand-
up operations. All Bureau contract awards above $3,000 are 
reported, along with a description of the service or good, in 
the Federal Procurement Data System (FPDS). The FPDS system is 
publicly available and any contract listing or description can 
be accessed through the use of the FPDS Web site 
(www.FPDS.gov).
    The Bureau mitigates any risk of duplication of functions 
between different professional services contracts or 
interagency arrangements through various methods. The Office of 
Procurement maintains an award tracker or pipeline that is 
updated regularly and monitored through a weekly briefing and 
evaluation with all staff. The document provides a 
comprehensive listing of the Bureau's planned and budgeted 
purchases, from origination to award. Managing the entire 
portfolio in this way allows for strategic sourcing decisions 
where needed and helps avoid redundancy between any planned or 
awarded agreements. The Bureau's internal control sheet, which 
is needed prior to any expenditure above $3,000, provides 
additional risk mitigation. Before funds are released to the 
Office of Procurement, a control sheet is circulated from the 
Office of the Chief Financial Officer that requires cross 
functional approvals of the planned use of the funds. 
Investments above $100,000 are approved in advance by the 
Senior Procurement Executive, Chief Financial Officer, Chief 
Operation Officer, and Chief of Staff. Lastly, our Investment 
Review Board, chaired by the Chief Financial Officer and 
comprised of senior agency staff, reviews and approves planned 
investments above $500,000.
    The value that the Bureau obtains from contracting with the 
vendor community is described in the Contracting Officer 
Representative's (COR) Monthly Performance Report. Each 
contract is assigned a COR at the time of award. CORs must take 
required training for certification and attend a monthly 
roundtable hosted by the Office of Procurement, which covers a 
variety of learning initiatives and best practice discussions. 
Further, each COR is responsible for submitting a Performance 
Report for monitored contracts exceeding $150,000 to the Office 
of Procurement on a monthly basis. Each monthly report details 
the vendor's performance from the prior month and covers 
quality of service, cost control, timeliness of performance, 
and business relations. The Office of Procurement accumulates 
the individual reports and submits a comprehensive vendor 
scorecard to agency leadership, and the Office acts promptly to 
address any problems that appear in the monthly report. There 
is also a grading scale included in the scorecard that 
indicates change in performance from the previous month.

Q.2. The Government Accountability Office (GAO) identified 
concerns during the creation of the Department of Homeland 
Security (DHS) that an overreliance on contractors performing 
work that are inherently Government functions created risks for 
Government and taxpayer interests (GAO-08-142T). What steps is 
CFPB taking to maintain visibility into the work that is being 
performed by private sector consultants and to ensure that 
consultants are not performing any work that should only be 
done by Federal employees? What kind of controls and oversight 
procedures does CFPB have in place for private contracting 
services that obtain sensitive information, such as private 
consumer credit data?

A.2. The Bureau utilizes a Service Contract Code Worksheet in 
order to maintain visibility into the work being performed by 
private sector consultants and to ensure consultants are not 
performing any work that should only be done by Federal 
employees. The Worksheet is in response to the Office of 
Federal Procurement Policy's Policy Letter 11-01, which 
establishes requirements for review and management of service 
contracts over $25,000. The form is a workforce balancing tool 
and also requires a service need to be vetted through the Chief 
Human Capital Officer to ensure any service request is not 
inherently governmental. Procurements can only proceed if the 
form is approved by CHCO and the service is not considered 
inherent to the Government.
    Sensitive information is protected by the Bureau through 
specific controls. The Bureau includes contract language 
covering data rights usage for the development and production 
of any deliverable submission as a result of Bureau funding. 
The data rights language when utilized, allows the Bureau to 
govern access and distribution of any delivered data. 
Furthermore, vendors that may receive sensitive data in the 
course of performing contract requirements must sign a Non-
Disclosure Agreement (NDA). The executed NDA does not allow a 
vendor to divulge any sensitive, unclassified or confidential 
information to any third party without the Bureau's express 
approval.

Q.3. Data provided in response to QFRs in March shows that CFPB 
is utilizing a number of contracts awarded by the Treasury, 
including sole source contracts. GAO has identified interagency 
contracting on its high risk list for many years due to 
problematic incentives it creates, including avoidance of 
competitive processes, conflicts of interest among participants 
in interagency contracts, and lack of adequate oversight. 
Please provide the specific justification for each case of why 
CFPB is utilizing contracts awarded by the Treasury. Among 
these, why have some of the interagency contracts been issued 
as sole source, rather than competed? How does CFPB coordinate 
with Treasury to ensure that proper oversight of interagency 
contracts is taking place? Is the CFPB paying fees to Treasury, 
or any other agency, that is providing contracting assistance? 
If so, what are the fee rates and what is the total amount of 
aggregate fees paid to each agency during FY2012 and FY2013?

A.3. During the stand-up of the Bureau as part of Treasury, the 
Bureau was able to access and order services from existing 
Treasury vehicles when deemed appropriate. The decision to 
utilize certain Treasury contract agreements was considered 
efficient as the service requirements already considered 
competition and were awarded with fair and reasonable pricing. 
Such ordering lowered opportunity cost and enabled crucial 
support of emergent needs as the Bureau continued to stand up. 
Treasury agreements were utilized to order or provide for human 
capital support services, technology services, independent 
audit services, and administrative support services. Ordered 
pricing was evaluated and determined fair and reasonable prior 
to award. In addition to utilizing Treasury contracts, the 
Bureau has and continues to engage in an interagency agreement 
with Treasury Departmental Offices to leverage printing and 
graphics, events planning, lease, and technology support 
services. Most interagency agreements such as the agreement 
with Treasury were placed under the authority of the Economy 
Act per Federal Acquisition Regulation 17.502-2. When issued, 
interagency agreements are not subject to competition 
requirements as the agreement is between two Government 
agencies and determined to be in the best interest of the 
Government as the services cannot be obtained as conveniently 
or economically by contracting direct with private sources. If 
the agreement results in the other Government agency utilizing 
contract services, then any such agreements are subject to the 
competition rules of the FAR or procurement rules of that 
particular agency.
    Interagency contracts are jointly monitored by the 
participating agencies in the interagency contracts. The Bureau 
monitors interagency contracts similarly to contracts directly 
with private sources, ensuring services are provided within the 
contract terms and conditions. The Bureau also utilizes the 
contracting assistance of the Department of the Treasury's 
Bureau of the Public Debt Administrative Resource Center (BPD-
ARC). The procurement services of BPD-ARC are defined in an 
interagency agreement. The BPD-ARC staff serve as an extension 
of the Bureau's internal Procurement team and are therefore 
managed as such. The procurement services cost $771,394 in 
FY2012 and $1,119,048 in FY2013.

Q.4. For each contract or task order awarded on a sole source 
basis during FY2012 and FY2013, please provide the written 
justification from the contract file describing why the 
contract was awarded on a sole source basis, as well as a 
summary of the statement of work describing the purpose of the 
contract.

A.4. See attached listing of sole source contracts with 
justifications included.











Q.5. On March 21st, CFPB issued a guidance bulletin announcing 
that it will treat indirect auto lenders as creditors subject 
to the Equal Credit Opportunity Act (ECOA), specifically 
targeting ``dealer markup and compensation'' arrangements 
between dealers and lenders that may result in discriminatory 
pricing. CFPB's usage of ``disparate impact'' holds lenders 
liable for actions that have a discriminatory effect, even 
without discriminatory intent. Please provide a detailed 
methodology CFPB plans to utilize to analyze and identify cases 
of disparate impact in the indirect auto lending sector.

A.5. These questions about methodology and analysis are 
critical to the Bureau. As a data-driven organization, we want 
to be sure that our analysis of the auto finance industry is 
based on current and solid facts about the industry, its 
business practices, and its participants. In the past year, 
Bureau representatives have met with numerous individual 
lenders, auto lender associations, and dealer associations to 
learn about the industry and the statistical tools and proxies 
that industry uses to self-monitor its lending activity for 
fair lending risk.
    In a compliance bulletin published April 2012, the Bureau 
made clear that it would adhere to the fair lending principles 
outlined in Regulation B, the regulation originally promulgated 
by the Federal Reserve Board under ECOA. In particular, under 
the legal doctrine of disparate impact, a creditor may be 
responsible for a facially neutral policy or practice that is 
applied equally, if that policy or practice has, on a 
prohibited basis, a disproportionate adverse effect, unless the 
policy is justified by a ``legitimate business need'' that 
cannot reasonably be achieved as well by means that are less 
disparate in their impact.
    There are multiple steps in assessing whether a facially 
neutral policy or practice violates the law. The first step 
concerns whether the policy or practice has a disparate impact 
on a prohibited basis (i.e., disproportionately, adversely 
affects borrowers on the basis of race, sex, national origin, 
etc.). However, even if a policy has a disparate impact, the 
policy does not violate the law if there is a legitimate 
business need for the policy that cannot reasonably be achieved 
as well by an alternative that has a discriminatory impact. If, 
however, a creditor has a policy or practice that is not 
justified by a legitimate business need, or the need could 
reasonably be met by an alternative with a less disparate 
impact, then the Bureau can pursue corrective action through 
the supervisory process or through enforcement action.
    The evaluation of whether a facially neutral policy 
violates ECOA requires multiple steps and shifting burdens. 
Without applying all the requisite steps of the disparate 
impact analysis, the Bureau will not draw any conclusions about 
whether a facially neutral policy with a disparate impact on 
protected classes violates ECOA, but the Bureau may note the 
existence of inadequately managed fair lending risk.
    Demographic information, such as race, sex, and ethnicity, 
are generally not collected by nonmortgage lenders but are 
vital to assessing fair lending compliance. Thus, Federal 
regulatory and enforcement agencies have long used proxy 
methods in nonmortgage data analyses. These methods are well 
accepted by economists and by regulators. Like other agencies, 
the Bureau also uses proxies for demographic characteristics. 
We have made clear that we base our proxies on publicly 
available data. For example, as a proxy for sex we use data on 
first names published by the Social Security Administration. 
For race and ethnicity, we use both surname and geographical 
data published by the Census Bureau. Various proxy techniques 
are publicly available in academic research, and we encourage 
indirect auto lenders to select a reasonable method and begin 
to examine their data, if they have not done so already.

Q.6. In Assistant Director Busette's testimony during an April 
26, 2012, hearing in front of the Subcommittee on Oversight of 
Government Management, and again in a letter submitted to GAO 
on July 3, 2012, references to a CFPB initiative titled the 
Financial Education Program Evaluation Project were made. 
According to the testimony and letter, this initiative would 
use rigorous quantitative methodologies to assess the 
effectiveness of existing Federal financial education programs. 
Does CFPB still plan to undertake and complete an analysis of 
existing Federal financial literacy programs? What metrics does 
CFPB use to assess the effectiveness of the agency's financial 
literacy activities? What steps has CFPB taken to ensure its 
financial education programs do not overlap or duplicate the 
multitude of existing financial education programs identified 
by GAO?

A.6. The Bureau is committed to ensuring that its activities 
are informed by data and analytics. As part of that effort, the 
Bureau's Office of Financial Education (OFE) has launched its 
initial Financial Education Program Evaluation Project. Using 
rigorous quantitative methodologies, this project will assess 
the effectiveness of several existing financial education 
programs. We intend to use the insights from this study to 
provide direction to practitioners about how to design and 
support effective financial capability and money confidence 
programs.
    When the research is complete, we will understand whether 
these programs are effective in imparting personal financial 
management knowledge and skills to program participants, and if 
so, what elements account for this success. Our goal is to 
broadly share the results with Federal Government agencies and 
other non-Federal providers of financial education so that they 
can integrate the findings from this research into their 
offerings. At this time, we do not anticipate undertaking an 
assessment of other Federal Government agencies' financial 
education. However, we will facilitate the sharing of 
programmatic best practices, evaluation methodologies, and 
common metrics that promote effective financial education among 
practitioners and other researchers.
    We use a variety of metrics to assess the effectiveness of 
our activities and each activity may have a different metric. 
For example, in the case of the Financial Education Program 
Evaluation project, we measure effective performance by the 
quality and timeliness of the project's interim and final 
deliverables. For our tools and publications, we measure public 
demand for the materials by, for instance, the number of 
downloads or fulfillment requests.
    OFE is engaged in initiatives that advance financial 
education opportunities for American families in a manner that 
leverages and complements existing Federal efforts. By 
meaningfully engaging with other agencies, including Financial 
Literacy and Education Commission (FLEC) partners, we work to 
delineate roles and responsibilities, to improve coordination, 
and avoid duplication while working to fulfill our statutory 
mandate to educate and empower consumers to make informed 
financial decisions. I serve as the Vice-Chairman of the 
Financial Literacy and Education Commission. OFE staff meets 
regularly with the Department of the Treasury staff members in 
the Office of Financial Education and Financial Access to 
ensure coordination. As you are probably aware, the GAO has 
recently indicated in its 2013 Annual Report: Actions Needed to 
Reduce Fragmentation, Overlap, and Duplication and Achieve 
Other Financial Benefits that all actions in the financial 
literacy areas contained within the two previous reports were 
addressed.
    The complex financial marketplace creates special 
challenges for consumers and requires a range of strategies and 
approaches. We are committed to thoughtfully focusing the 
talent of the Bureau on ensuring that American families 
understand the choices available to them as they manage their 
finances. We are equally committed to continuing our work with 
Federal agency partners to leverage all available resources, 
expertise, and opportunities for improving the financial well-
being of consumers.
              Additional Material Supplied for the Record
     SEMI-ANNUAL REPORT OF THE CONSUMER FINANCIAL PROTECTION BUREAU




































































































































































































































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