[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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80-865 WASHINGTON : 2013
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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
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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