    [Senate Hearing 113-446]
    [From the U.S. Government Publishing Office]

                                                      S. Hrg. 113-446

       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

                                 SECOND SESSION

                                       ON

       THE CONSUMER FINANCIAL PROTECTION BUREAU'S SEMI-ANNUAL REPORT TO
    CONGRESS, DISCUSSING THE AGENCY'S BUDGET, REGULATORY, SUPERVISORY, AND
       ENFORCEMENT ACTIVITIES, AND INFORMATION ABOUT CONSUMER COMPLAINTS

                                   __________

                                 JUNE 10, 2014

                                   __________

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

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

                                     ______

                        U.S. GOVERNMENT PUBLISHING OFFICE

    90-951 PDF                     WASHINGTON : 2015
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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

                       Glen Sears, Deputy Policy Director

                  Brian Filipowich, Professional Staff Member

                            Jeanette Quick, Counsel

                          Sabahat Qamar, CFPB Detailee

                      Greg Dean, Republican Chief Counsel

                  Jelena McWilliams, Republican Senior Counsel

                        Jared Sawyer, Republican Counsel

                           Dawn Ratliff, Chief Clerk

                           Taylor Reed, Hearing Clerk

                          Shelvin Simmons, IT Director

                              Jim Crowell, Editor

                                      (ii)

                                C O N T E N T S

                                  ----------

                             TUESDAY, JUNE 10, 2014

                                                                       Page

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

    Opening statements, comments, or prepared statements of:
        Senator Crapo................................................     2
        Senator Menendez.............................................     3
        Senator Toomey...............................................     4
        Senator Brown................................................     4

                                   WITNESSES

    Richard Cordray, Director, Consumer Financial Protection Bureau..     5
        Prepared statement...........................................    28
        Responses to written questions of:
            Chairman Johnson.........................................    31
            Senator Crapo............................................    31
            Senator Reed.............................................    38
            Senator Menendez.........................................    39
            Senator Brown............................................    40
            Senator Toomey...........................................    41
            Senator Moran............................................    46

                  Additional Material Supplied for the Record

    The Semi-Annual Report of the Consumer Financial Protection
      Bureau.........................................................    50

                                     (iii)

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

                                  ----------

                             TUESDAY, JUNE 10, 2014

                                           U.S. Senate,
              Committee on Banking, Housing, and Urban Affairs,
                                                        Washington, DC.
        The Committee met at 10:35 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. I call this hearing to order.
        Director Cordray, welcome back to the Committee. Today, we
    continue our regular oversight of the CFPB. In the 3 years
    since the CFPB opened its doors, it has had a noticeable impact
    on nearly every aspect of the consumer's experience with the
    financial system, from student loans to credit cards,
    mortgages, financial education, debt collection, prepaid cards,
    and credit reports. The Bureau has conducted extensive outreach
    to both industry and consumers and has proven itself to be a
    careful regulator, in many cases over industries that
    previously had no Federal supervision.
        Importantly, the CFPB has also proven itself up to the task
    Congress set out for it, which is to protect consumers. To
    date, the Bureau has obtained nearly $900 million of refunds
    and fielded over 375,000 consumer complaints.
        During the crisis, we saw that mortgage lending, from
    underwriting to servicing, had serious problems. Fittingly,
    many of the CFPB's most significant actions relate to mortgage
    lending. For example, the Bureau recently finalized its
    mortgage disclosure rules to improve closings and provide key
    loan terms and costs to consumers in clear, understandable
    forms. While the consumer experience at the mortgage table is
    an important aspect of mortgage lending, the ability of
    consumers to access affordable mortgage credit in the first
    place is critical. The CFPB's rules to strengthen mortgage
    standards, including the QM and servicing rules, went into
    effect this past January. Director Cordray, I look forward to
    hearing how these rules impact mortgage lending, particularly
    by small lenders or lenders in rural areas such as South
    Dakota. While I support strong mortgage standards, it is also
    important to ensure that lenders can continue to lend in all
    communities.
        Since Director Cordray testified last November, the Bureau
    finalized its rule to supervise nonbank student loan servicers
    who service over 49 million borrower accounts. For the first
    time, the Nation's second largest consumer debt market will
    have Federal supervision. I am encouraged by this action, but
    remain concerned about the high level of student debt, which
    stands at $1.2 trillion. This issue is particularly important
    to me, as South Dakota has the highest proportion in the
    country of residents with student loan debt. I am interested to
    hear from Director Cordray about actions the Bureau plans to
    take to address this growing problem.
        According to Federal Reserve data released last Friday,
    consumer credit growth jumped to its fastest pace in 3 years,
    with credit card debt rising at a pace unseen since 2001. This
    serves as a reminder that, as memories of the last crisis fade,
    we need a diligent CFPB that guards against abusive practices
    and ensures consumers are able to make responsible financial
    decisions while having fair access to affordable credit. I
    applaud the CFPB's work so far and look forward to your
    testimony.
        With that, I turn to Ranking Member Crapo.

                    STATEMENT OF SENATOR MIKE CRAPO

        Senator Crapo. Thank you, Mr. Chairman. Today we welcome
    back Director Cordray to discuss the most recent semi-annual
    report of the Consumer Financial Protection Bureau.
        In recent months, the CFPB has laid out a broad and
    ambitious rulemaking agenda that will considerably affect many
    consumer financial products and services. As the CFPB proceeds
    with rules targeting short-term and small-dollar credit,
    overdraft protection, auto financing, mortgage servicing, and
    settlement and arbitration, it must fully understand how these
    rules will affect the cost and availability of credit for
    consumers.
        The CFPB must also commit to take a balanced approach and
    to performing a thorough qualitative and quantitative cost-
    benefit analysis of each rule.
        I am concerned that many of the CFPB's recent proposals and
    actions will continue to push mainstream financial products
    into unregulated areas, diminish consumer choice, and make
    certain products unaffordable. Those outcomes could come at a
    great cost to the consumer and should be prevented.
        As the Director is aware, another initiative that is of
    great concern to me is CFPB's big data collection. In the past,
    I have asked simple questions regarding CFPB's data collection,
    such as how many consumer accounts the CFPB is monitoring, and
    how it intends to use the personal information it collects.
    Unfortunately, my calls for transparency have been met with
    ramped-up efforts by the bureau.
        This April, I learned that the Federal Housing Finance
    Agency and CFPB will expand the jointly run national mortgage
    database to include a person's religion, Social Security
    number, major life events, and link other lines of consumer
    credit together on potentially hundreds of millions of loans.
    This information is undoubtedly intrusive, unnecessary, and
    contrary to the CFPB's public statements of not collecting and
    using personally identifiable information. Adding concern is
    the admission by FHFA's project manager for the database that
    the information on it would be easy to reverse engineer.
        Moreover, the FHFA and CFPB have already publicly indicated
    that borrowers do not have the opportunity or right to opt out
    of the database. Finally, the recent reports about employment
    discrimination at the CFPB are also deeply troubling. Two CFPB-
    commissioned independent external reports and testimony from a
    whistleblower highlight the CFPB's failure of the employment
    rating and compensation system and unacceptable conduct of
    certain Bureau managers.
        Today we will need to discuss how this occurred, why it
    took months for CFPB to acknowledge and act upon these
    independent reports, and what additional steps the CFPB is
    taking to increase transparency and accountability.
        Thank you, Mr. Chairman.
        Chairman Johnson. Thank you, Senator Crapo.
        Are there any other Members who would like to give brief
    opening statements?
        Senator Menendez. Sure.
        Chairman Johnson. Senator Menendez.

                  STATEMENT OF SENATOR ROBERT MENENDEZ

        Senator Menendez. Thank you, Mr. Chairman, and welcome
    Director Cordray. The CFPB earlier this year released a report
    on consumer protection issues involving student loans, and as I
    look at hard-working middle-class New Jerseyans trying to get
    ahead, I feel that they fall further behind.
        A new class of college graduates is preparing to enter the
    workforce, but the question is, at what cost to them and their
    families? And at what cost if something should happen to them
    before the loan is paid off?
        The experience of the family of Christopher Bryski in my
    State of New Jersey illustrates how challenging these issues
    can sometimes be. In 2004, Christopher was a student at Rutgers
    when he suffered a severe traumatic brain injury. It left him
    in a vegetative state for 2 years before he tragically passed
    away.
        During this time of hardship, Christopher's parents were
    shocked to learn that his student loan debt continued, that not
    the injury nor Christopher's death was enough to stop the debt
    from growing.
        While some private lenders make clear that they will
    discharge recent loans in the event of a borrower's death or
    disability, others do not clearly communicate to co-signers
    what their obligations will be, leaving families like
    Christopher's to find out that they are on the hook for the
    full cost of the loan, no matter what. We need to take a step
    back and think about how we approach the student loan process,
    especially in cases like Christopher's.
        This month, new graduates will be starting their careers,
    and before they collect their first paycheck, they will already
    be burdened by massive student loan debt. Like Christopher, if
    something happens to them, the burden in many cases will fall
    to family members, many of whom are already struggling to make
    ends meet.
        According to the Federal Reserve Bank of New York, the
    share of 25-year-olds with student loan debt continued to rise
    last year, and the total outstanding balance now exceeds $1.1
    trillion. That is nearly $30,000 for an average student loan
    borrower in New Jersey. The burdens for families are real, and
    the need for consumer protection I believe is critical.
        That is why today, Mr. Chairman, with Senators Brown and
    Booker, I am introducing Christopher's law, a simple and
    commonsense bill that will require student loan providers to
    clearly communicate to borrowers and their co-signers what
    their obligations will be in the instance of death or
    disability. By increasing transparency in this simple and small
    way, the bill can save families like Christopher's years of
    potential hardship down the road.
        I also plan to introduce separate legislation in the coming
    weeks to address two other related issues.
        First, in the Bryski situation, when the lender ultimately
    forgave Christopher's student loan debt, after 6 years, his
    parents were then hit with a large tax bill on what is deemed
    under the law to be ``income.'' The bill I will be introducing
    will end that practice which unnecessarily burdens families and
    the economy.
        Second, if something unfortunate happens to the co-signer
    of a student loan--death, disability, or bankruptcy--some
    borrowers have gone into default despite never missing a
    payment or doing anything wrong. That is simply unacceptable.
        So I will look forward to discussing this issue with you
    further today, Director Cordray, and I look forward to being
    able to make a change so that death and disability is not a
    continuing challenge to families.
        Thank you, Mr. Chairman.
        Chairman Johnson. Anybody else?
        Senator Toomey. Mr. Chairman?
        Chairman Johnson. Senator Toomey.

                 STATEMENT OF SENATOR PATRICK J. TOOMEY

        Senator Toomey. Thank you, Mr. Chairman. I just want to say
    briefly I will not be able to stay until the time when I would
    be able to ask questions, but I am concerned about a process
    that is underway by which the CFPB is collecting a vast amount
    of information about credit card usage, you know, on the order
    of--well, there is a staggering amount of data about individual
    usage of credit cards. I have a series of questions. I will
    submit them for the record and look forward to an opportunity
    to have a follow-up discussion.
        Thank you, Mr. Chairman, and thank you, Mr. Cordray.
        Senator Brown. Mr. Chairman?
        Chairman Johnson. Senator Brown.

                   STATEMENT OF SENATOR SHERROD BROWN

        Senator Brown. I will be less than 30 seconds. I wanted to
    echo the words of Senator Menendez. I am a cosponsor of his
    legislation. I was on a call the other day speaking with the
    sister of Andrew Katbi, who is a law student in western Ohio
    who was killed right before he graduated from law school. His
    sister, Olivia, spoke of some of the same kinds of behavior
    that they experienced from their servicer similar to what
    Senator Menendez talked about. So I am hopeful, Director
    Cordray, that you can help us address those issues.
        Thanks, Mr. Chairman.
        Chairman Johnson. Anybody else?
        [No response.]
        Chairman Johnson. I would like to remind my colleagues that
    the record will be open for the next 7 days for additional
    statements and other materials.
        Mr. Richard Cordray is the Director of the Consumer
    Financial Protection Bureau. Director Cordray, you may begin
    your testimony.

      STATEMENT OF RICHARD CORDRAY, DIRECTOR, CONSUMER FINANCIAL
                           PROTECTION BUREAU

        Mr. Cordray. Thank you, Chairman Johnson, Ranking Member
    Crapo, and Members of the Committee, for inviting me to testify
    again today about the latest Semi-Annual Report of the Consumer
    Financial Protection Bureau.
        The Bureau, as you know, is the Nation's first Federal
    agency with the sole focus of protecting consumers in the
    financial marketplace. Financial products like mortgages,
    credit cards, and student loans involve some of the most
    important financial transactions in people's lives. In the
    Dodd-Frank Act, Congress created the Bureau to stand on the
    side of consumers and ensure they are treated fairly in the
    consumer financial marketplace. Those consumers are your
    constituents. Since we opened our doors, we have been focused
    on making consumer financial markets work better for the
    American people, the honest businesses that serve them well,
    and the economy as a whole.
        My testimony today focuses on the Bureau's fifth Semi-
    Annual Report to Congress and the President, which describes
    the Bureau's efforts to achieve this vital mission. Through
    fair rules, consistent oversight, appropriate enforcement of
    the law, and broad-based consumer engagement, the Bureau is
    helping to restore American families' trust in consumer
    financial markets, protect American consumers from improper
    conduct, and ensure access to fair, competitive, and
    transparent markets.
        Through our enforcement actions to date, we have aided in
    efforts to refund more than $3.8 billion directly to consumers
    who fell victim to various violations of consumer financial
    protection laws. We have also fined wrongdoers more than $141
    million, all of which has gone into our Civil Penalty Fund and
    can be used to compensate wronged consumers--victims--and to
    the extent compensating consumers is not practicable, to
    support consumer education and financial literacy programs that
    also will benefit the consumer public.
        In the fall of 2013, for the first time, we took action, in
    conjunction with multiple State Attorneys General, against an
    online loan servicer for illegally collecting money that
    consumers did not owe. We took action against a payday lender
    for overcharging servicemembers in violation of the Military
    Lending Act and robo-signing court documents. We took action
    against an auto lender for discriminatory loan pricing. And we
    partnered with 49 States to bring an action against the
    Nation's largest nonbank mortgage loan servicer for misconduct
    at every stage of the mortgage-servicing process.
        CFPB supervisory work contributed to a recent enforcement
    action resulting in a refund of approximately $727 million to
    1.9 million consumers for illegal practices related to credit
    card add-on products. In addition to this public enforcement
    action, recent nonpublic supervisory actions and self-reported
    violations--a great new development among many of these
    financial institutions--have resulted in more than $70 million
    being remediated to over 775,000 consumers.
        In January, as the Chairman noted, mortgage rules that the
    Bureau issued to implement provisions of the Dodd-Frank Act
    took effect, establishing new protections for home buyers and
    homeowners. During the reporting period, we also issued another
    major mortgage rule mandated by the Dodd-Frank Act: a final
    rule to consolidate and improve Federal mortgage disclosures
    under the Truth in Lending Act and the Real Estate Settlement
    Procedures Act, to simplify this process for individuals and
    industry alike, which we call our ``Know Before You Owe''
    project. We also issued an Advance Notice of Proposed
    Rulemaking on debt collection, asking the public in-depth
    questions about a range of issues relating to the debt
    collection market, which is the Bureau's most frequent source
    of consumer complaints.
        To promote informed financial decisionmaking, we have
    continued providing consumers with online resources, including
    the AskCFPB section of our Web site, which I encourage you to
    use on behalf of your constituents, where we have answers for
    over 1,000 frequently asked questions.
        A premise at the heart of our mission is that consumers
    should be treated fairly in the financial marketplace, and they
    deserve a place that will facilitate the resolution of their
    complaints when that does not happen. To this end, the Bureau
    has strengthened its Office of Consumer Response. As of June 1,
    2014, we have received nearly 375,000 consumer complaints on
    credit reporting, debt collection, money transfers, bank
    accounts and services, credit cards, mortgages, vehicle loans,
    payday loans, and student loans.
        The progress we have made has been possible thanks to the
    engagement of hundreds of thousands of Americans who have used
    our consumer education tools, submitted complaints,
    participated in rulemakings--actually, that should be
    millions--and told us their stories through our Web site and at
    numerous public meetings from coast to coast. We have also
    benefited from an ongoing dialog and constructive engagement
    with the institutions we supervise, as well as with community
    banks and credit unions, with whom we regularly meet. Our
    progress is also thanks to the extraordinary work of the
    Bureau's own employees--dedicated public servants of the
    highest caliber who are committed to promoting a healthy and
    fair consumer financial marketplace. Each day, we work to
    accomplish the goals of renewing people's trust in the
    marketplace and ensuring that markets for consumer financial
    products and services are fair, transparent, and competitive.
        In the years to come, we look forward to continuing to
    fulfill Congress's vision of an agency dedicated to cultivating
    a consumer financial marketplace based on these principles.
        Thank you for the opportunity to appear before you again
    today. I appreciate the benefit of your active interest and
    oversight, and I look forward to listening closely and
    responding to your questions today.
        Chairman Johnson. Thank you for your testimony.
        As we begin questions, I will ask the clerk to put 5
    minutes on the clock for each Member.
        Director Cordray, the CFPB has now been up and running for
    almost 3 years. What do you consider to be the most significant
    accomplishment of the Bureau since 2011? And looking forward,
    what actions can we expect either the Bureau over the next few
    months?
        Mr. Cordray. Thank you, Mr. Chairman. That is a broad
    question, and I would say a number of things.
        First of all, the challenge of building a Federal agency
    from scratch has been significant. We have had some growing
    pains, and we have been working through those. But at the same
    time, we have gone from zero employees to now close to 1,400
    employees, people who are very dedicated, as I said in my
    opening statement, to protecting consumers and seeing that they
    are treated fairly, and they are doing marvelous work to
    accomplish that.
        The mortgage rules that we put in place that Congress set
    such a high priority on, both mandating that we do so and
    putting it on a tight deadline, have been very significant.
    That is the single biggest consumer financial market.
        The enforcement activity that we have had to ensure that
    institutions understand that people need to be treated fairly
    and that money will go back to people's pockets when they are
    treated unfairly have been important.
        Our attempts to supervise and put in place now a
    significant supervision program for nonbanks to put them on a
    level with the banks and allow that we can now supervise and
    oversee entire markets with an even hand and on an even playing
    field have been very significant.
        And I think increasingly not only our consumer response
    function, which addresses individual complaints but also
    reveals the pattern of complaints, but also our efforts to
    provide public information that all of you can see and share
    and that calls attention to various practices, some of which
    were described in legislative proposals noted here today and
    otherwise, I think do affect the market in meaningful ways.
        Chairman Johnson. The QM rule has been in effect since
    January. Would you discuss the rule's impact on the mortgage
    market and on home buyers?
        Mr. Cordray. The Qualified Mortgage rule, or ability to
    repay rule, alternative names, has been one of the most
    significant protections for the mortgage market to date, and it
    is an important provision to recognize the need to prevent
    similar financial crises from growing out of the mortgage
    market in the future. And I think it has been widely
    acknowledged that it will help to do so. I think the effort now
    to potentially put the QRM rule on a level with the QM rule
    acknowledges that fact. I think it has been a balanced
    rulemaking, but it is something we are very attentive to and
    closely monitoring. If we see unexpected consequences for the
    mortgage market, we want to be ready to act, and we have been
    close to the National Association of Realtors, mortgage
    bankers, and others who are bringing us regular data to let us
    see how this may be affecting the market.
        In the rural areas, that is an area where we tried to be
    very sensitive. We had an original proposal that was, I now
    believe, not calibrated properly in terms of gauging what is
    rural for purposes of this act. We backed that proposal off for
    2 years while we can reconsider that further. We are taking a
    lot of input on it, receiving a lot of comment, and I think we
    will have a proposal that will be more satisfactory to people
    within that 2-year timeframe.
        Chairman Johnson. Director Cordray, the Bureau recently
    proposed changes to the QM rule, including a change to the
    points and fees limit to allow lenders an opportunity to cure a
    loan that inadvertently exceeded the limit. Can you describe
    why these changes were necessary and whether you think any
    additional changes to the points and fees limit or QM generally
    will be needed?
        Mr. Cordray. The points and fees provision stems from the
    Dodd-Frank Act and Congress' action there. We have heard from a
    number of lenders about it, including the concern that was
    stated--I think it was mortgage bankers in particular, but a
    number of people have brought it to us--that although there is
    a points and fees cap under the rule and people should be able
    to go right up to the edge of that cap in making mortgages in
    the market and we expect them to do so, that there was some
    concern that if they got close to the cap, they would have to
    stay away and create a gray area because of concern that they
    might get it wrong. And a right to cure, at least on a certain
    limited basis, would be a way to ease that concern.
        We took that input to heart, and we have proposed a
    provision to take account of that, which we have now had
    comment on, and it is overwhelmingly supported by lenders.
    There are some differences of opinion about what timeframe it
    should cover and the like. Those are things we will work
    through. But I think it is a reflection of our willingness to
    listen to lenders about what is actually happening in the
    market, how we can ease access to credit without lessening
    consumer protections, and I think there may be a number of
    places where we may have opportunities to do that.
        Chairman Johnson. Senator Crapo.
        Senator Crapo. Thank you, Mr. Chairman and Director
    Cordray.
        I want to start out with regard to the big data collection
    issue, Director Cordray, and there are so many questions to ask
    on that, I am just going to get into it briefly.
        Mr. Cordray. OK.
        Senator Crapo. But I want to remind you that we need to get
    further answers from the agency with regard to literally the
    scope of and the content of the big data project that is
    underway to collect credit card information.
        I just want to clarify one fact in these questions, and
    that is, it is my understanding that the agency's goal is to
    collect the credit card transaction information on 90 percent
    of the credit card accounts in the United States. Is that
    correct?
        Mr. Cordray. I believe that is correct, although I would
    not put it quite that way. We are not trying to collect
    information on individual credit card accounts. We are trying
    to collect information that would give us the pattern of credit
    card activity in the marketplace so that we can protect
    consumers against the kind of abuses that led to the CARD Act
    and have been reined in considerably under the CARD Act. We are
    also trying to collect information so that we can accomplish
    our task that the Congress set for us of reporting to you every
    year on the effects of the CARD Act, to help you understand how
    it is affecting the marketplace, do you want to consider
    further legislation to either go further or to reconsider what
    was done? We cannot do that analysis if we do not have
    information. This is----
        Senator Crapo. I understand that, but if my math is correct
    and understanding is correct, we are talking about
    approximately 900 million accounts, and you are collecting data
    on the 900 million accounts. Although I understand the purpose,
    as you have stated the purpose, for your collection of this
    data, I have significant concerns about the potential abuse and
    misuse of that data and the loss of privacy that comes from it.
        But I want to move to the more recent development which we
    learned about in April, which is that the CFPB is joining with
    the FHFA with regard to the national mortgage database. What we
    learned then, just last April, is that the two agencies--the
    FHFA and the CFPB--are going to jointly work to expand the
    national mortgage database, and the information that came out
    in the Federal Register with regard to this proposed expansion
    is extremely alarming. And I am reading from the Federal
    Register right now: ``The records in the new expanded system
    may include, without limitation, borrower/co-borrower
    information, name, address, zip code, telephone numbers, date
    of birth, race, ethnicity, gender, language, religion, Social
    Security number, education records, military status and
    records, financial information, account information, including
    life events of the last few years.'' And the list goes on and
    on and on.
        The question I have is: Does this mean that the assurances
    that you have given us recently and, as we have discussed, the
    big data projects that you will not collect personally
    identifiable information on Americans is being changed? Is the
    agency's intent changing in terms of its data collection?
        Mr. Cordray. No, it is not, and I believe--without being
    certain, I believe what you are reading from was a SORN, which
    is a particular statement that is done for bureaucratic reasons
    under the law as to what could conceivably be the case. The
    national mortgage database, as it is conceived, will not
    include personally identifiable information such as name,
    address, Social Security number.
        I also want to make a point to assure you and your
    colleagues, because the question was raised, there are no plans
    to include and we will not be including religion in the
    national mortgage database.
        So what I do want to say is the need for this information
    is acute. Chairman Bernanke, when he testified here and when we
    spoke personally, said that one of the problems before the
    financial crisis was they did not know enough about the
    mortgage market; they did not see coming what happened in the
    mortgage market. And Chair Yellen has reiterated this since.
        We have to know more about the mortgage market to prevent
    this economy from cratering again on the same grounds it did
    before.
        Senator Crapo. Well, I understand, and this is a similar
    rationale to your explanation----
        Mr. Cordray. It is.
        Senator Crapo.----of the need for information about credit
    card transactions.
        Mr. Cordray. Absolutely.
        Senator Crapo. And I understand the rationale. But, again,
    I have the concern that the Government collecting this
    phenomenal amount of data about private citizens could be used
    in an invasive way. And, frankly, my time is running out, but I
    hope we will have another opportunity for additional rounds,
    Mr. Chairman. I want to get into the questions about whether we
    can reverse engineer this information and whether abuses of the
    information could occur.
        Mr. Cordray. And I recognize that this operates in 5-minute
    segments. That is quite short. We are quite happy, as I have
    said to you before, to have our staff continue with your staff
    talk back and forth about your concerns about this. I share
    those concerns. The GAO is conducting the study and report that
    you asked for. It is extensive. It will get into all of these
    concerns. We have had back-and-forth with them to considerable
    length. They are conducting a very responsible and
    comprehensive inquiry. And any way we can be helpful to you--it
    is so critical that this Bureau and other agencies have
    information to be able to oversee these markets and make sure
    that things are not happening that we do not comprehend, while
    at the same time recognizing the issues of security and privacy
    that you are raising. I want to be sensitive to those and
    recognize that as foundational for this agency as well. So I am
    happy to spend as much time with you as you like personally
    myself or through our staff on these issues.
        Senator Crapo. Thank you.
        Chairman Johnson. Senator Menendez.
        Senator Menendez. Thank you, Mr. Chairman.
        Director, in your mid-year update on student loan
    complaints, you highlight a particularly egregious practice
    where lenders automatically put a loan into default if the
    loan's co-signer dies, becomes disabled, or declares
    bankruptcy, even if the borrower has never missed a payment.
    And that practice to me is unfair to borrowers who have been
    making their payments on time and whose loans are current and
    in good standing. And I am in the midst of drafting legislation
    to fix that problem, but my question is: What are some steps
    that can be taken under existing law to protect students from
    this practice, students who might otherwise be able to qualify
    for their existing loan either on their own or with a new co-
    signer? And does the Bureau have the authority to remedy this
    practice through rulemaking, or do you need additional
    legislative authority?
        Mr. Cordray. Thank you for raising that issue, Senator. It
    was shocking to me--and I want to kind of describe the practice
    so that people understand it, and tremendous work, I will say,
    done by the student loan ombudsman in the CFPB who has been
    just an outstanding advocate on behalf of the young people who
    bear student loan debt burdens across this country in
    significant measure.
        The practice was that--nowadays many, many, the vast
    majority--I think 90 percent plus--of student loans that people
    take out have a co-signer on them, often a parent, maybe a
    grandparent. And what will happen is the student then attends
    school maybe for multiple years, ultimately graduates and
    begins to repay student loans. They may well have a spotless
    payment history, and yet suddenly something happens to the co-
    signer--at this point the parent or grandparent is aging--and
    eventually some of them pass away.
        At a time when that young person is now affected by the
    death of their parent or grandparent, we saw student loan
    servicers calling in the account because the co-signer is no
    longer available on it. Rather than considering this situation,
    working with the borrower, working out a payment plan, or
    recognizing that they have made spotless payments on time, that
    was the way they heaped trouble on these poor affected people.
    And it was not right.
        I think the issuance of the report itself has sent people
    scuttling throughout the industry to avoid a repeat of this. We
    heard from one of the major servicers just the other day----
        Senator Menendez. Short of--I do not mean to interrupt you
    because my time is limited, but short of the report and public
    shame, is there any regulatory ability to do anything about
    this, or do you need additional authority?
        Mr. Cordray. I would like to have our folks talk with your
    staff about what additional authority we need.
        Senator Menendez. All right. They would do that.
        Mr. Cordray. But I do think that the shaming here is a
    great example. I think it----
        Senator Menendez. I am all for shaming, but I would like to
    have a guarantee.
        Many borrowers are having difficulty releasing co-signers
    even though this was an option prominently advertised to the
    borrower upon signing up. What is the feasibility of requiring
    an automatic co-signer release in a situation where the
    lender's conditions are met?
        Mr. Cordray. I think that may be quite possible, and I am
    not clear in my mind as I sit here now whether we need
    legislation on that or not. Obviously, when things are written
    in legislation, they are more lasting and more secure.
        Senator Menendez. OK.
        Mr. Cordray. But we would be happy to work with you on
    that.
        Senator Menendez. Would you make that part of the agenda
    that we are going to follow up on?
        Mr. Cordray. OK. Sure.
        Senator Menendez. OK.
        Mr. Cordray. Sure.
        Senator Menendez. As you said, we are now at 90 percent--we
    used to have 67 percent of private student loans were co-signed
    in 2008. By 2011, that number jumped to 90 percent. So this
    whole issue of co-signers, the whole issue of a young person
    passing away or having a disability and then having their
    parents now facing this debt, the whole issue of even if there
    is forgiveness at the end of the day, getting a big tax
    liability, these are issues that, you know, we would like to
    work with you on, because I have serious concerns about where
    we are at on those issues.
        Mr. Cordray. I strongly agree with the issues you have
    raised and the concern you are sharing about them. At a
    minimum, even if something gets worked out, after 4 or 5 or 6
    years of hassle and frustration and struggle, you know, it is
    not a good situation for people.
        Senator Menendez. Yes. You would think that death in and of
    itself would have some finality.
        Mr. Cordray. You would think.
        Senator Menendez. Let me ask you one other quick question.
    On prepaid cards, the last time you were here in November, we
    discussed your upcoming rulemaking on prepaid cards. This is
    something I have followed for some time. You can have products
    that largely remain unregulated. Consumers can fall victim to
    all types of hidden or abusive fees, being charged for customer
    service or just to check your balance; or sometimes, if you
    want to cancel the card because the fees are too high, you get
    charged more fees to close the account, and we have legislation
    dealing with that. Can you provide an update on the status of
    the Bureau's work on prepaid cards? And what is your expected
    timeline for a proposed rule?
        Mr. Cordray. I can, and you and I have discussed this a
    fair amount. This is a market where people do not realize it,
    but they are subject to no consumer protections currently.
    There are billions and billions of dollars being loaded onto
    these cards, and that is a growing market. We had anticipated
    that we would have a rulemaking proposal out in June, which is
    this month. It is now taking us a bit longer. It will be into
    the summer before that can happen. But it is a very high
    priority for us right now. It does not indicate any particular
    problems about the rulemaking, just that it is hard to work
    through some of these issues. We are getting there and we will
    have something fairly soon.
        Senator Menendez. I will look forward to it. Thank you, Mr.
    Chairman.
        Chairman Johnson. Senator Johanns.
        Senator Johanns. Thank you, Mr. Chairman.
        Mr. Director, as you know, I am one of those Senators who
    has taken the position and argued for some time that there
    should be greater oversight over your budget process.
        Mr. Cordray. Yes.
        Senator Johanns. In fact, there is not much limitation
    under the law. You can request up to 12 percent of the Federal
    Reserve's operating budget, and the expenses must be reasonably
    necessary to carry out your functions. So we do not get a lot
    of oversight here, as you know, and I think that is very
    problematic.
        I want to focus on just a small piece of what you have been
    doing with your spending. This relates to the building that you
    are in, a leased building. It is a building not even owned by
    your agency. Renovation costs started at 55; Washington
    Examiner thinks it is up to 95 now. Now I think your own
    acknowledgment is that it is probably $145 million.
        There are some documents from Skidmore Owings & Merrill.
    They are the architects, as you know, for this building. Here
    is some of the money you are--or some of the things you are
    spending money on. And I am quoting from the document:

            At the western terminus of the skim fountain, a raised water
            table spills over and down into a sunken garden below. The
            water cascade creates an atmosphere of white noise as visitors
            peer over the glass railings down into the sunken garden pools
            and plantings below.

            At the western side of the plaza is a calmer, informal seating
            area under shady trees. Under the trees, the soft contrast of
            the stone dust floor further implies a removed space of rest
            and contemplation. Additional seating is provided along the
            building edge at a lightly elevated timber-paved porch, which
            is covered by a dark bronze color trellis, with a light bronze
            color adorned with vines.

            The southern side of the raised water table over a water wall
            of naturally split granite. At this southern edge, a new water
            source creates a cascade of water that flows down the wall into
            the sunken garden, terminating in a raised splash pool. More
            slabs of granite rest in the bottom of the pool.

    Then it talks about a four-story interior glass staircase:

            An all glass and stainless stair placed in the interior
            vertical light wells connects levels 2 through 6 that allow
            increased circulation while allowing daylight into the
            interior.

        It is nearly embarrassing, as I read through this stuff,
    and that is about the oversight we have with you, is to just
    raise these issues.
        Do you think that kind of spending is really reasonably
    necessary to carry out your functions on a building that is a
    leased building? Would you make the case to us today that that
    is reasonably necessary?
        Mr. Cordray. So, if I may, several things in your
    discussion I would like to address.
        First of all, this has been out there and taken as gospel
    in the public record for some time. It is a fiction of the
    Washington Examiner's that this project started out at $55
    million and now has ballooned to higher proportions. There was
    never any expectation that this project could be completed for
    $55 million. That is just--that is false.
        Senator Johanns. How much will it cost? How much----
        Mr. Cordray. What happened was, in the first budget where
    we put anything in as a partial payment on the ultimate
    project, $55 million was listed in that year's budget. That was
    never considered to be the total cost--the notion this has
    tripled in cost is just a fiction by the Washington Examiner.
    That is all it is.
        In fact, there was a review done of this building prior to
    the CFPB being created when it was the OTS building, which is
    what it was, in which they anticipated that even at that point
    in time, baseline needs of the building, such as the HVAC
    system, electrical problems, and other things, were going to
    require at least triple figures' worth of construction work,
    and that did not include a lot of the contingencies that go
    along with a project like this.
        As to the description you described, I find it
    embarrassing. It is the kind of flowery statements that someone
    will make when they are trolling for a bid, trying to get the
    business and trying to make it sound as wonderful as they can.
    Much of the flowery words there do not reflect any particular
    cost. I would say that you could say the same thing about many
    of the staircases and outer areas around the Capitol here.
    There is nothing special about this in respect to other
    Government buildings, and it is not a very special Government
    building. It is actually a building that needs a great deal of
    work. I wish it did not. I would rather not spend a single
    penny on that. As you say, we do not own the building. So the
    notion we are trying to create some palace that we do not even
    own does not even make any sense to me. But we worked out with
    the OCC----
        Senator Johanns. We are out of time, and I do not want to
    impose upon the Chairman's patience here. Would you be willing
    to give us a thorough accounting of what is being spent and on
    what in this building?
        Mr. Cordray. Absolutely. I would be happy to do that, yes.
        Senator Johanns. Thank you, Mr. Chairman.
        Chairman Johnson. Senator Brown.
        Senator Brown. Thank you, Mr. Chairman. And welcome back,
    Director, and thank you for the--I am always--``amused'' is
    probably not the right word, but when I hear a number of
    colleagues, especially in the House, question the
    accountability of your work and this Bureau, and I know that
    you have appeared in front of the House and Senate close to 50
    times now, and thanks for being as accountable as you have
    been.
        The Semi-Annual Report states that the CFPB will soon take
    steps toward providing new protections for consumers in the
    small-dollar credit markets. I appreciate the Bureau's
    continued interest in providing oversight to this high-cost
    market, but I am concerned that tailoring regulations to the
    traditional payday loan market may still leave some consumers
    vulnerable to harmful products. As we both saw with Ohio's
    experience attempting in the legislature and the ballot to
    prohibit high-cost, small-dollar loans targeting only
    traditional payday loans allows lenders to move into other
    products that trap consumers in a cycle of debt. As we have
    seen in Ohio, lenders reorganized under the thrift lending law
    and have moved into auto title lending, as you know.
        As the Bureau considers new oversight for the high-cost
    loan market, how do you ensure that new rules will protect
    consumers through the whole range of products, including
    obviously traditional payday loans, but online payday loans,
    auto title loans, installment loans?
        Mr. Cordray. So the issue you raise is of extreme
    importance to the Bureau in addressing this market because, as
    you say, I have seen the experience in Ohio where rules that
    were meant to address concerns about debt traps and payday
    lending were circumvented through migrations in the market. And
    it is happening across the country in a number of States right
    now.
        We also have seen it, frankly, Senator, because the
    Military Lending Act gave rise to similar problems. The first
    set of rules that was adopted in the Military Lending Act about
    7 or 8 years ago was narrow and allowed those rules to be
    circumvented by high-cost lenders, who continued to operate
    right outside of military bases or online with lots of
    patriotic-looking flags and other things, and they are peddling
    terrible products to our servicemembers.
        We have been working with the Department of Defense for the
    past year to revise those rules. Congress reopened that, and it
    is exactly the same type of problem we are going to be dealing
    with in the small-dollar lending market.
        It is taking us somewhat longer as a result to address
    this, but I think it is well worth a little additional time in
    order to make sure that what we do will not be made a mockery
    of by people circumventing it through just transforming their
    products slightly.
        Senator Brown. Thank you. I want to follow up and expand a
    little bit on Senator Menendez's interesting questions about
    student loan servicing. I chaired a Subcommittee hearing a week
    or so ago about this issue. I am concerned that the problems
    that we saw in mortgage servicing are being repeated in student
    loan servicing, including flawed incentives, confusing loan
    transfers, and nondisclosure of those, violations of
    servicemembers' rights and inadequate and inconsistent
    modifications and refinancing options. Three of our four
    witnesses agreed we need comprehensive, consistent standards
    for servicers, both Federal and private student loans.
        Will you move forward with comprehensive student loan
    servicer standards? And how can we better align servicers'
    incentives with borrowers' needs as you move forward on this?
        Mr. Cordray. I would agree that we see a lot of these same
    problems that just absolutely bedeviled mortgage servicing--and
    continues to do so, frankly--arising with student loan
    servicing as well. There are different markets. There are some
    different characteristics of the product. But poor customer
    service, problems with transfers, lack of information, harm to
    consumers, there is an eerie consistency there.
        What we have done is, in this past period, we finalized the
    rule that was necessary for us to be able to begin supervising
    student loan servicers, nonbank student loan servicers on the
    spot, and go in and actually see what they are doing to comply
    with the law. And that insight is leading us to things like
    recognizing the auto-default problem, which was not well known
    before we called attention to it.
        Whether that will lead to specific standards--and we do a
    lot of work with the Department of Education on these issues--I
    do not know yet, but we now have the ability to go in and
    actually correct problems on the spot, which we did not have
    before. And it is going to make a significant difference in
    this market, I believe. And where it will all lead is hard to
    say at this point, but happy to keep you posted as we go.
        Senator Brown. Thank you, Director Cordray.
        Chairman Johnson. Senator Coburn.
        Senator Coburn. Thank you. Welcome. I have been watching on
    television. I wanted to follow up a little bit with the line of
    questioning that Senator Johanns had.
        When you were here last, I asked you about this building,
    and I believe the quote was the estimated cost to renovate was
    $95 million at that time. That is your testimony back then. And
    now the estimated total cost for the CFPB headquarters
    renovation is $185 million.
        So, first thing, how many square feet?
        Mr. Cordray. I cannot give you exactly what the square
    footage is, but what I know is that the building is
    problematic. We are having to actually move out of it so it can
    be renovated.
        Senator Coburn. I understand that, but you do not know how
    many square feet. So you do not know whether----
        Mr. Cordray. I do not----
        Senator Coburn.----$185 million is a good value for the
    American taxpayers or not based on a per-square-foot
    calculation of renovation costs.
        Mr. Cordray. I know that we have been through these
    numbers, and it is a--I believe it is an appropriate value. It
    is something that was taken account of in the lease that we
    negotiated with the OCC so that our lease payments were less
    over the 30 years to take account of the fact that we, not the
    landlord, would be making the improvements on the building.
        It is a building that would be a white elephant if this
    work is not done, and it is a Government asset owned by the
    Treasury and the OCC. It is also a building that, when we
    finish with it, will be populated more densely than it had been
    before, so we need to be efficient about that.
        Senator Coburn. I know, and that is a great sell job,
    Administrator, but the point is we are $17 trillion in debt,
    and when you hear--regardless of the flowery nature of what
    Senator Johanns read to you, the fact is that this is going to
    be opulent.
        Mr. Cordray. It will not be opulent.
        Senator Coburn. Well, if you have any of those waterfalls,
    any of that stuff, that is the kind of stuff we cannot afford
    right now in this country, because we are running a $600
    billion-a-year deficit, the very thing you are trying to help
    people with, in terms of fairness, in terms of the consumer
    being treated fairly. We are going to take back from them in
    terms of excess costs because we do not run things on a tight
    ship.
        So my point being to you is, you know, the structural
    renovations, $139 million; the temporary lease is $22 million.
    The securities, utilities, and other expense at the temporary
    space for 3 years is $13.6 million. The cost of architectural
    engineering and design contract was $9.2 million. That does not
    include the IT, the apparent shuttle service that is going to
    run back and forth. I mean, so there are a lot of costs in
    this. And I am not saying what you did was wrong. I am just
    saying we are buying top-dollar design and construction at a
    time that we do not have the money to pay for it.
        Now, you have an unlimited budget, and as Senator Johanns
    made the point, we do not get any chance at oversight. I mean,
    we do not get--and the fact is--who with you has the experience
    outside of Washington of doing a rehab on a building? Who works
    for you that actually has private-world experience in rehabbing
    buildings?
        Mr. Cordray. So, first of all, I would like to invite you
    and your staff to come take a tour of that building that we are
    now going to be out of for----
        Senator Coburn. I am not saying that it is not----
        Mr. Cordray. It is a dump. It is not opulent, and it will
    not be opulent when it is finished either.
        Senator Coburn. I am not saying that it does not need to be
    done. One of my statements was it probably does need to be
    done. The question is: Can it be done for less? Can it be done
    under the realization that this country is in trouble
    financially? And are spending money that we have to spend, or
    could we spend less money? That is my only question.
        Mr. Cordray. That is fair enough, and I am responsible to
    you on that, and this is meaningful oversight that you have
    with me. We also now are briefing the Appropriations
    Subcommittee on these types of issues, both in the House and
    the Senate. That is something I agreed to as I was confirmed by
    the Senate, and I take this seriously.
        We also do not have an unlimited budget. We have a budget
    cap each year, and our spending has to come out of there. We
    have no capital budget, and so every dollar that we spend on
    something like this is a dollar taken away from other work that
    we are doing. And I am feeling that and wanting to spend as
    little as possible on this.
        So I will be happy to continue to keep you and your staff
    closely apprised. I know you care about these issues. We have
    talked about them.
        Senator Coburn. I just have a few seconds left. Who is the
    expert on your side, on your staff, that has the knowledge to
    make the decisions about a construction project like this? And
    what is their experience outside of doing it for the
    Government?
        Mr. Cordray. OK. So we have people in the agency that are
    working on this that are in charge of facilities, and we also
    have brought GSA in because they are the expert in the Federal
    Government on all of these types of projects. That is why we
    brought them in, so that I could feel comfortable----
        Senator Coburn. But you do not have anybody on staff that
    has outside knowledge and outside experience to run a $180
    million construction project?
        Mr. Cordray. I do not know that I would agree with that,
    but at the same time, that is part of why we brought GSA in. I
    have----
        Senator Coburn. So will you----
        Mr. Cordray.----the same concerns that you have.
        Senator Coburn.----answer for the record who on your staff
    and what their experience is in terms of making the decisions
    about this project?
        Mr. Cordray. I would be happy to have you or your staff
    meet with our facilities group and others and also meet with
    the folks from GSA who are working with us on this. We brought
    them in specifically because I share your concerns about this,
    and every dollar spent on this is a dollar away----
        Senator Coburn. Well, I----
        Mr. Cordray.----from other work that we----
        Senator Coburn. I would just tell you, I am not real
    satisfied with the work GSA does on this. We are getting ready
    to build a 190,000-square-foot VA facility in Muskogee that
    ultimately we could own for about a third of the cost that we
    are going to pay through rents, plus we have a 4-percent rider
    in the lease that we have negotiated--GSA negotiated a 4-
    percent rider on the lease, plus a $9 million or $8 million
    design and construction budget for a facility that now is going
    to be three times the size it was now, and we have a 5-percent
    increase in veterans expected over the next 20 years in Tulsa.
        So the point is GSA is not really great at this either.
        Mr. Cordray. I do not really know about----
        Senator Coburn. I know, but you are relying on experts----
        Mr. Cordray. But I tell you, if you have other suggestions
    for us, I am all ears. I do not want to----
        Senator Coburn. Well, it is a little late----
        Mr. Cordray.----spend more money than we need to either.
        Senator Coburn.----right now. The deal is done, is it not?
        Mr. Cordray. If you have further suggestions----
        Senator Coburn. Yes, I will give you this suggestion: Go to
    the outside of Washington, go into the middle of the country,
    and find people like Manhattan Construction that knows how to
    do this for a whole lot less money. They can design and build
    it, that is adequate and built well, and do it in a way that
    says we do not have an extra penny spend, now how can we get
    what we need for the least amount of money? And that does not
    happen at the GSA, and that does not happen in most Government
    agencies. And you ought to set the example given the position
    that you are in.
        Mr. Cordray. OK. Happy to talk with you further about that,
    and I know it is a concern for you. We have talked about it
    before.
        Senator Coburn. Thank you.
        Chairman Johnson. Senator Merkley.
        Senator Merkley. Thank you very much, Mr. Chair, and thank
    you, Director, for your testimony.
        I wanted to start and ask you to say a little bit about the
    resolution of the Castle & Cooke place issue. I believe this is
    where steering payments occurred to employees who were steering
    customers into higher-interest loans and then getting bonuses
    for it, these steering payments being banned under Dodd-Frank,
    and now under your supervision, you have taken action against
    their appearance. Can you just maybe summarize where this
    action ended up?
        Mr. Cordray. Sure, and, frankly, it is exactly as you just
    described it. You have had steering going on that we believed
    was in violation of the law. We were actually surprised that
    the company did not recognize that what it was doing was in
    violation of the law, because we thought it was--you know,
    there are many areas where you could say it is somewhat
    debatable, but this we thought was absolutely clear-cut. It
    took awhile for that to sink in. Ultimately the matter was
    resolved with significant payment and also penalty, and it is
    indicative of the need to oversee the actual enforcement of
    rules and laws, and not just to assume that once they are on
    the books everybody understands them and abides by them,
    particularly if there may be financial incentives not to do so.
        So, you know, it is a great example of why you need an
    agency to actually bulldog laws and rules and make sure that
    they are actually occurring in the marketplace as they should.
        Senator Merkley. I believe about $9 million was returned to
    approximately 9,000 individual mortgage holders. Did the
    mortgage holders also get, if you will, a permanent discount on
    their interest rates since they had been steered into higher-
    interest loans?
        Mr. Cordray. I do not recall offhand. I would be happy to
    fill you in further on that. I know that there was injunctive
    relief going forward to make sure that what we saw happening
    was not going to happen again. I do think also this signals the
    market, as a public enforcement action does, that if other
    people happen to continue to be engaging in this and somehow
    thinking that it is appropriate or thinking that people will
    not pay attention, that we will. And I think it is quite
    important as a matter of principle.
        Senator Merkley. Thank you. You anticipated my next
    question, really the deterrence effect, because this type of
    steering in which a mortgage originator poses as a financial
    counselor and then steers people into high-interest loans when
    they qualify for low-interest loans is just a huge predatory
    practice, and I am delighted that you are patrolling against
    that predatory practice, and I hope and anticipate that there
    is a substantial deterrent effect from what you have done.
        Mr. Cordray. Again, what was surprising to me here was
    there has been so much visibility on this issue and it was so
    remarked upon and explicitly dealt with by the Congress and by
    us in the wake of the mortgage market meltdown that I was just
    very surprised to see a company engaged in these practices and,
    even upon engaging with them, did not seem to be aware that
    these practices were illegal. Eventually that got through.
        Senator Merkley. Well, millions of American homeowners,
    mortgage holders, will benefit from that action, so thank you.
        I want to turn to the issue of medical debt, and thank you
    for this report you have all put out, ``Data Point: Medical
    Debt and Credit Scores.'' This is something I have been very
    concerned about because essentially when you get a bill on
    health care activity, you normally get these papers that say
    this is not a bill, and then you get something from the
    laboratory and then you get something from the X-ray
    technician, and meanwhile your insurance sends you something
    and says this is what we think we are going to pay, but you are
    not sure they are going to pay. And it becomes this whole
    confusing matrix that often takes quite a while to sort out
    whether the appropriate payments have been made by the
    insurance company.
        Often in the course of that, medical debt is reported to a
    credit agency, putting a permanent scar on your credit record
    that really has nothing to do with your--it is just the fact
    that this type of debt takes a while to figure out. So I have
    felt when those medical debts are paid off, they should be
    cleared from the credit record because of the logic behind the
    fact that they probably bear a little resemblance to the role
    of other debts in anticipating whether or not you will make
    payments. And your report indicates about a 20-point margin,
    and just in other words, it is the first solid evidence I have
    seen that this is, in fact, a miscalculation of the ability to
    pay.
        Do you want to comment on this at all?
        Mr. Cordray. I do. I would like to reinforce what you said.
    Medical debt is something I think we all can understand and
    appreciate. We have all been to the doctor's office and then
    either not been billed or later we are billed and we are not
    sure whether the insurance company is paying for it or whether
    we are supposed to double-pay that bill. It is very confusing
    for people. It is often small amounts. And yet what we find is
    it gets reported on people's credit reports, and it affects
    their credit. And it may keep them from getting a mortgage or a
    car loan, something significant, when it was 20 or 50 bucks and
    they honestly thought it had been paid by the insurance
    company.
        This is a great example of--as you say, it is the first
    time we have actually been able to have enough data and
    information to really dig into this and point out to the credit
    reporting companies that they are not scoring medical debt in
    the credit scoring companies appropriately compared to other
    debt. And, you know, if we did not have that data or
    information, we could not do that analysis, and we could not
    show that. And I think we are already beginning to see the
    credit scoring companies are responding to this and recognizing
    that they need to up their game and think more--think
    differently about medical debt from the rest of debt, for all
    the reasons I think you laid out so well.
        Senator Merkley. My time is running out, so I will just
    close by saying I appreciate the letter I received from the
    CFPB yesterday in regard to payday loan practices and the
    statement in that letter that if lenders are engaged in unfair,
    deceptive, or abusive acts or practices, the Bureau will hold
    these institutions accountable no matter how their products are
    structured.
        This certainly is a big concern to States like Oregon that
    have tried to comprehensively protect against predatory,
    triple-digit, 500-percent-interest payday loans, and then
    lenders using online practices and remotely generated checks
    are basically pulling--violating the law in a straightforward
    way, but able to get away with it because they are at a
    distance and they can pull money out of checking accounts. A
    lot has to be done on this, and thank you for taking a look at
    this, and I will continue to work with you on it.
        Mr. Cordray. Thank you.
        Senator Merkley. Thank you.
        Chairman Johnson. Senator Heitkamp.
        Senator Heitkamp. Thank you, Mr. Chairman.
        You and I share, Administrator, a common experience, and
    that is, running our own local consumer protection bureau when
    we were both Attorneys General. And so when I look at this, I
    kind of look at the broad scope of possibility for protection
    of consumers not just laying at your shoulders.
        And so one of the concerns that I have is the need to do
    coordination with what is happening on a State level,
    understand what is happening on a State level, understand what
    is happening on a local level, and then broadly understanding
    what is happening with all of your sister or brother agencies
    that also have overlapping jurisdiction. And one of the
    frustrations that I hear is, ``Here it comes again, yet another
    agency to be talking to without any coordination.''
        So I would just ask, as you look at each one of these
    issues, that you look at coordinating with the State and
    understanding better what State agencies are doing. A good
    example was already today with prepaid cards. You said there is
    no regulation. There is in the State of North Dakota. I made
    sure there was regulation of these cards in the State of North
    Dakota.
        And so you cannot say with certainty that there is none
    when I know that there are a number of activities that are
    going on in States, and it is important for us to understand
    those.
        With that said, I would also say that we have referred
    North Dakotans to your consumer complaint Web site and have
    gotten really very favorable reviews back. And so it is yet
    another avenue for people to raise concerns.
        With that said, I would also say one of the issues that I
    worked on when I was Attorney General was the issue of bank
    privacy, and I share Senator Crapo's concern about the amount
    of data that is being collected, and I understand the need to
    have enough to do the analysis. But we need to be very, very
    mindful of the sensitivities of consumers today about their
    information. And I think there is a growing insecurity, and if
    they look at the Federal Government, we have not exactly given
    them reason to believe that we are going to be confidential
    with it or that we are going to be straightforward. And so, you
    know, I look forward to the GAO report. I look forward to other
    enhanced discussions.
        I want to just mention something on payday lending. I was
    probably one of the first foolish people to weigh into that
    area back in the day, and I will just tell you a quick little
    story. The payday lending that was going on was just as
    egregious as it is today. It has just taken different forms.
    But why I was unsuccessful in getting appropriate regulation is
    900 consumers signed a petition telling me to mind my own
    business. And so we need to be aware that in that lane there is
    a desperate need that is not being fulfilled for short-term
    credit that, you know, whether it is to buy cars or diapers or
    whatever it is. And so we need to be mindful that, as we look
    at this, we do not close off the avenue for that kind of
    credit. I listened to those 900 consumers, and, you know, where
    I think that was done incorrectly, and I have a lot of concern
    about what is happening with payday lending. Until we have a
    country that has maybe more economic justice, we are going to
    need to give people access to that kind of credit.
        I want to just talk a little bit about student loans and
    ask you your opinion. The administration I think recently said
    that they are going to cap repayment at 10 percent. All that is
    really going to do for a lot of the consumers in my State, a
    lot of student borrowers in my State, is extend the time that
    they are going to have. So they are never going to be out of
    consumer debt.
        Senator Warren and I have a bill, along with a number of
    us, to restructure consumer debt. How do you see the
    restructuring of consumer debt actually benefiting long term
    the creditworthiness of Americans who currently have that level
    of debt?
        Mr. Cordray. It is obviously a complicated subject, and it
    depends a lot on the individual circumstances, the individual
    borrower. But it is certainly the case that what upsets
    someone's credit most of all is ending up in default. And if
    the payment levels are unrealistic, particularly a lot of young
    people coming out of school today are not finding the jobs that
    they hoped to find, particularly in the wake of this financial
    crisis, and so the income-based repayment, as I understand it,
    was an attempt to maintain some sort of balance there. Whether
    it is the exact right balance, exactly what it should be, is
    hard to say, and I am not an expert on it.
        Senator Heitkamp. If we did an analysis of student debt and
    we said restructuring it the way we have set up the ability to
    restructure it, could we be at the 10 percent and shorten the
    time period of repayment?
        Mr. Cordray. It may be. Obviously it depends on the level
    of rates, and I know that is one of the things your legislation
    would try to address. I would say if you compared a mortgage--
    and the comparison is not exact, but there are a lot of
    parallels. It has been loan restructuring--and sensible loan
    restructuring, not any old loan restructuring, because
    sometimes you can have loan modifications and end up with
    higher payments, which was not a formula for success--has been
    the winning and the most optimal way of addressing some of the
    mortgage problems that people are still digging out from, and
    it could be that in the student loans the same type of approach
    could be very beneficial to people.
        Senator Heitkamp. Just one quick comment. We have obviously
    a State-owned bank in North Dakota. We are quite proud of the
    Bank of North Dakota.
        Mr. Cordray. Yes. You are the only one.
        Senator Heitkamp. Yes. And we have recently announced a
    program at the bank for restructuring student debts, and in a
    month there has been over a thousand applications. So it tells
    you the absolute essential need for assisting people in
    restructuring this debt.
        Thank you, Mr. Chairman.
        Chairman Johnson. Senator Warren.
        Senator Warren. Thank you, Mr. Chairman, and thank you,
    Director Cordray, for being with us once again.
        When I taught contract law, I covered arbitration clauses
    near the end of the term, and students usually came in thinking
    arbitration sounded so friendly and so inexpensive. But after
    studying the law, they discovered that arbitration stacks the
    deck against customers in favor of large corporations.
    Arbitrators often have a financial interest in remaining in the
    good graces of the corporation that places lots of business
    with them. Corporations usually hold all the key evidence in
    the dispute but are under no obligation to turn it over. And an
    arbitrator's ruling cannot be overturned even if it contains
    clear legal mistakes or factual errors.
        So the bottom line is that when a customer thinks he has
    been cheated or that a bill is wrong, an arbitration clause in
    his contract makes it nearly impossible for him to get any real
    help. So it is no surprise that many big banks and other big
    corporations force customers to agree to arbitration clauses to
    get credit cards or open checking accounts, knowing that this
    means that the customer will have no real remedy if things go
    wrong.
        So, Director Cordray, as you know, Dodd-Frank requires the
    Bureau to conduct a study on these forced arbitration clauses
    and authorizes the Bureau to prohibit or limit the use of such
    clauses based on that study. The Bureau released the
    preliminary reports last December, and they were damning.
    Forced arbitration clauses are everywhere, particularly in
    contracts with the largest banks, and these clauses
    dramatically restrict the legal options available to consumers.
        I know there are additional issues that the Bureau wants to
    examine in its final study. When do you think the Bureau will
    have that study?
        Mr. Cordray. So I would say a number of things. You know,
    this is an interesting area where if you look at what industry
    says and then you look at what consumer groups say, sometimes
    there is some relation between the two. Here there seems to be
    almost none. And so as I understand it, Congress waded into
    this area in Dodd-Frank in a way that is more interventionist
    than Congress has been on arbitration in other areas,
    particularly in business situations, where the Federal
    Arbitration Act has been viewed by the courts as having a
    policy in favor of arbitration.
        Here, however, under Dodd-Frank, arbitration clauses have
    been barred from mortgage contracts flat out by the Congress.
    In terms of the other consumer finance contracts, as you noted,
    what the Congress has said very specifically and carefully to
    us at the Bureau is--you know, there seemed to be very
    different views of this--we are going to direct you, not
    suggest but mandate that you perform an appropriate study, a
    comprehensive study, and make your best judgments about the
    pros and cons of arbitration clauses, and based on the results
    of that study, consider what policy interventions may be
    appropriate.
        The Bureau has been trying to carefully adhere to that,
    and, frankly, if anything, we have erred on the side of a very
    thorough process. But I think that ultimately that is the right
    thing to do here. As you noted, we put out essentially an
    interim progress report where we covered certain subjects. We
    have more to come. I believe we have indicated that further
    work on that, it is ongoing. It is very active, and I believe
    it will be completed this year. And then we will be in a
    position to make policy judgments based on that. And I
    understand that some people think we should take forever on
    this, and other people think we should have finished it
    yesterday. I have my own views, but we are pushing along, and
    we are trying to do the work as Congress set it out in that
    framework, the two-step, just as they said.
        Senator Warren. All right. But you anticipate it is going
    to be this year?
        Mr. Cordray. I do anticipate it is going to be this year.
        Senator Warren. Good. I am very glad to hear that.
        I have a second question. Now, I am sure you would tell me
    that you will need to see the final study before deciding
    whether to issue rules restricting or prohibiting forced
    arbitration clauses. So let me ask the question this way: What
    kind of evidence would lead you to believe that the Bureau
    should issue rules on forced arbitration?
        Mr. Cordray. You know, this is--it feels very much to me
    sort of like a case that is under advisement in a court.
    Clearly I should not prejudge the issue of policy interventions
    before we have finished the study. We are well along, but we
    are not yet complete.
        Certainly in the end it is going to depend in part on
    things like: How does arbitration work? Does it provide a
    meaningful avenue for resolution for consumers? Does it not?
    Why does it? Why doesn't it? Does it matter how an arbitration
    proceeding is procedurally set up? You know, there are a
    variety of things that we are considering. The other is: How
    does it compare to alternatives in court?
        I think we could all look at it and we would come to about
    the same conclusions about what kind of evidence we think
    matters, but I would really like today here, if I can, to stay
    away from trying to prejudge that.
        Senator Warren. All right. But I do want to be clear that
    if the evidence supports it, the Bureau is willing to issue
    rules regarding forced arbitration?
        Mr. Cordray. I think Congress gave us a very specific task
    here. They said look at this very carefully, study it, tell us
    your results, and based on those results, you have an
    obligation to engage in policymaking that appropriately
    reflects the conclusions you reach.
        Senator Warren. Excellent. I just want to say I realize
    that arbitration can play a very important role in our legal
    system as long as parties choose arbitration freely after the
    dispute has arisen. But forcing customers into an arbitration
    system that banks control is just another way to tilt the
    playing field against consumers. The CFPB can help level the
    playing field, and I look forward to seeing the final report.
    Thank you very much.
        Thank you, Mr. Chairman.
        Chairman Johnson. Senator Crapo.
        Senator Crapo. Thank you, Mr. Chairman.
        Director Cordray, before we go back to data issues, I had
    one question on Operation Choke Point. News reports tell us
    that the Department of Justice and several Federal banking
    regulators are pressuring banks to end relationships with
    legally operating payday lenders and with gun stores,
    retailers, and that this operation is known as Operation Choke
    Point. Are you familiar with it?
        Mr. Cordray. I have certainly read numerous press accounts
    of it, and, therefore, I would say I am familiar with it.
        Senator Crapo. Is the CFPB participating in Operation Choke
    Point?
        Mr. Cordray. I think the CFPB has a job to do as a law
    enforcement agency to police illegal lending, whether it is
    online or in person, and much of what we are talking about here
    is online. There is now--the further issue that has been raised
    is what about illegal lending that operates by piggybacking on
    the existing banking payment system. That is not something the
    banks like. It is not something--not a risk they want to be
    exposed to. Some of this gets into areas of prudential
    regulation, safety and soundness, and sort of risk, operational
    risk, legal risk, reputational risk, that I am not an expert
    on. So I want to----
        Senator Crapo. But does this mean that you are
    participating with Operation Choke Point?
        Mr. Cordray. I am not sure what you mean by
    ``participating.'' I think that the agencies have all tried to
    discuss what is the appropriate approach to Know Your Customer.
    That is really, again, more of a prudential regulator term. But
    our concern at the Consumer Bureau is we are supposed to be
    policing nonbank lenders as well as the banks, and many of
    those nonbank lenders that are riding along the payment system,
    if they are acting illegally--and this is one of the
    enforcement actions I described in my opening remarks--need to
    be addressed.
        But what I would say is it is about whether the activity is
    legal or illegal. It should not be about whether it is
    disfavored or favored.
        Senator Crapo. The operation, what I understand from,
    again--and we just get this in the news reports. But from what
    I understand about it, there is an conscious effort to force
    legally operating payday lenders and gun store retailers to
    stop their business.
        Mr. Cordray. I do not know if that is in the reports, and I
    do not know if that is accurate or not. I do not know if that
    is what anybody intends, and I do not know if that is what is,
    in fact, happening. The Bureau's focus is on ferreting out
    illegal activity, and it is hard enough to do, frankly----
        Senator Crapo. Understood. But what advice have you given,
    if any, to the Department of Justice on this project?
        Mr. Cordray. I have not given advice to the Department of
    Justice on this.
        Senator Crapo. All right. And, again, because of time, let
    me switch quickly back to the data issues. And, Mr. Chairman, I
    have got a lot of questions on this and others that I am going
    to have to just submit for the record. I would hope that we can
    do that.
        Senator Crapo. I just want to talk quickly back again about
    this new project on the national mortgage database that you are
    engaged with, with the FHFA. When I read to you that long list
    of personal identifiers that the Federal record says are going
    to be collected, you indicated that that was just a list that
    was--I do not know what you called it. A SORN list?
        Mr. Cordray. It is a term of art that, frankly, is the kind
    of thing only bureaucrats can love, but, yes, it is called a
    ``SORN''--S-O-R-N. I do not even know what the acronym is, but
    it is sort of statement of operational risk notice, something
    like that.
        Senator Crapo. Well, accepted, but it is also a statement
    in the Federal record, Federal Register that says that this
    data will be collected.
        Mr. Cordray. But here is the difference. I believe that in
    order to access data, we have to secure it from somewhere--
    procure it, buy it, whatever. And it comes in whatever format
    it starts out in, and it is already being bought and sold out
    there by industry in that format.
        Senator Crapo. Understood.
        Mr. Cordray. For us, in order to create the kind of
    database that I have pledged to you will meet the kind of
    criteria I have laid out, which is the identifying, the
    personally identifiable information, if it comes to us--comes
    to someone in a different form, then it needs to be de-
    identified before it can become part of the database. That is a
    careful process----
        Senator Crapo. So what I understand you to say is that you
    are actually collecting all this information----
        Mr. Cordray. I do not know----
        Senator Crapo.----anonymizing it or de-identifying----
        Mr. Cordray. I do not want to jump to that conclusion. They
    are collecting information, and I think they are identifying
    what may be in it, depending on the original data set, which is
    out there in the marketplace----
        Senator Crapo. Understood.
        Mr. Cordray.----being freely passed around. And for our
    purposes, if it contains that kind of information, then that
    would be de-identified before it comes into our database and
    cannot----
        Senator Crapo. Well, then what the----
        Mr. Cordray.----be used by any of my employees.
        Senator Crapo. Then what the FHFA notice says is that it
    will include that information, and then they in this notice
    also say that they are going to de-identify it for some
    purposes. So the question then comes back to: Is this an
    unnecessary invasion of the privacy of citizens? When you look
    at that list of identifying information that is contained----
        Mr. Cordray. That could be.
        Senator Crapo.----it is scary. But here is the question: At
    a 2013 Urban Institute conference, prior to the issuance of
    this notice in the Federal Register, the FHFA's own project
    manager for the database said that the information in it would
    be ``easy to reverse engineer.'' And I have been told that by
    many, many other experts whom we have talked to. Is that not
    correct?
        Mr. Cordray. I would like to address that. My understanding
    is that quote that is being quoted is a truncated quote. It is
    a cutoff quote. There is more to the quote. And I believe that
    the individual went on to say that is the risk, it is very
    important that we handle this properly, that we de-identify
    information, et cetera, et cetera. That quote was part of a
    longer passage, and the full passage needs to be quoted in
    order to put that in context. Taken out of context, it
    certainly sounds worse than I believe it actually was.
        Senator Crapo. Well, I think folks can actually watch that
    quote on YouTube if they would like to, but the fact is----
        Mr. Cordray. They can, yes.
        Senator Crapo. The fact is, though, I mean, the core
    question here is: Isn't it possible to reverse engineer--every
    expert I have talked to about this issue as we have started
    looking into it has said yes, that you can reverse engineer and
    obtain the de-identified data.
        Mr. Cordray. So this is----
        Senator Crapo. Are you telling me that that is not
    possible?
        Mr. Cordray. This is a fair question, and particularly in
    the real estate market with HMDA data that has been on the
    books for, you know, decades. There is a lot of information
    available in the real estate market and the mortgage market. I
    recall, when I taught at law school back in the 1990s, my
    students coming to me and saying, ``Here is the kind of
    information that is out there''--I was kind of pooh-poohing
    this at the time, and they said, ``Here is the kind of
    information out there on you.'' And they had my mortgage, they
    had my purchase price, they had all kinds of things about me.
    That is out there. That has nothing to do with whether the CFPB
    exists or does not exist.
        Senator Crapo. I understand and my time----
        Mr. Cordray. And it is a robust market, so----
        Senator Crapo. My time is up, and so let me just say I do
    understand that. In fact, it is quite concerning to me that
    this information is so broadly available in the private sector
    as well.
        Mr. Cordray. Yes.
        Senator Crapo. And I do have grave concerns about that. But
    the concern I am expressing to you today is the concern that
    the Government is collecting it.
        Mr. Cordray. Yes. I understand.
        Senator Crapo. I think that is a different thing. And I
    think that the rationale for the Government to collect this
    information does not necessarily justify the level of potential
    invasion of privacy that is involved here. This is a much
    longer discussion, and----
        Mr. Cordray. It is.
        Senator Crapo.----the Chairman has already let me go a few
    minutes over.
        Mr. Cordray. And let me just again state my attitude toward
    this because I think it is important. I know you know it, but I
    will say it again. This is an area where--it is a classic area
    where congressional oversight is extremely important. You are
    very concerned about this. The public should be concerned about
    this. We are concerned about it. Your work is making us be on
    our toes to make sure that we are doing things as right as we
    can. The GAO inquiry has been significant and exhaustive, and
    it is going to result in a report, and we are working with
    them, and whatever findings they have or concerns they raise we
    will take to heart.
        I am happy to have our staff spend as much time with you
    and your staff as you like on this, because it is not just
    something you are interested in and I am just trying to fend
    you off. I am interested in it, too. And it is important to
    this agency to be getting it as right as we can. But we also
    have to have information in order to do our work other than
    just throwing darts against a wall, which neither you nor
    anybody else would like. And information about medical debt or
    information about the mortgage market or information about the
    credit card market is very critical for you to engage in good
    policymaking and for us to engage in good policymaking, and to
    even know whether we are getting it good or bad. You cannot
    even criticized us very well unless you have information as to
    whether what we have done is good or bad.
        Senator Crapo. Well, we will have, I am sure, a lot more
    discussions about this.
        Mr. Cordray. OK.
        Senator Crapo. We both look forward to the GAO report, and
    we will continue to engage on this until we get it right.
        Mr. Cordray. OK. Good.
        Senator Crapo. Thank you.
        Mr. Cordray. Thank you.
        Chairman Johnson. Director Cordray, I thank you for your
    testimony today and your leadership of this important agency.
        This hearing is adjourned.
        [Whereupon, at 11:58 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
                                 June 10, 2014
        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.
        The Consumer Financial Protection Bureau is the Nation's first
    Federal agency with the sole focus of protecting consumers in the
    financial marketplace. Financial products like mortgages, credit cards,
    and student loans involve some of the most important financial
    transactions in people's lives. In the Dodd-Frank Act, Congress created
    the Bureau to stand on the side of consumers and ensure they are
    treated fairly in the consumer financial marketplace. Since we opened
    our doors, we have been focused on making consumer financial markets
    work better for the American people, the honest businesses that serve
    them, and the economy as a whole.
        My testimony today focuses on the Bureau's fifth Semi-Annual Report
    to Congress and the President, which describes the Bureau's efforts to
    achieve this vital mission. Through fair rules, consistent oversight,
    appropriate enforcement of the law, and broad-based consumer
    engagement, the Bureau is helping to restore American families' trust
    in consumer financial markets, to protect American consumers from
    improper conduct, and to ensure access to fair, competitive, and
    transparent markets.
        Through our enforcement actions to date, we have aided in efforts
    to refund more than $3.8 billion to consumers who fell victim to
    various violations of consumer financial protection laws. We have also
    fined wrongdoers more than $141 million, all of which has gone into our
    Civil Penalty Fund and can be used to compensate wronged consumers and,
    to the extent compensating consumers is not practicable, to pay for
    consumer education and financial literacy programs.
        In the fall of 2013, for the first time, we took action, in
    conjunction with multiple State Attorneys General, against an online
    loan servicer for illegally collecting money that consumers did not
    owe. We took action against a payday lender for overcharging
    servicemembers in violation of the Military Lending Act, and robo-
    signing court documents. We took action against an auto lender for
    discriminatory loan pricing. And we partnered with 49 States in
    bringing an action against the Nation's largest nonbank mortgage loan
    servicer for misconduct at every stage of the mortgage servicing
    process.
        CFPB supervisory work contributed to a recent enforcement action
    resulting in a refund of approximately $727 million to 1.9 million
    consumers for illegal practices related to credit card add-on products.
    In addition to this public enforcement action, recent nonpublic
    supervisory actions and self-reported violations have resulted in more
    than $70 million in remediation for over 775,000 consumers.
        In January, mortgage rules that the Bureau issued to implement
    provisions of the Dodd-Frank Act took effect, establishing new
    protections for home buyers and homeowners. During the reporting
    period, we also issued another major mortgage rule mandated by the
    Dodd-Frank Act: a final rule to consolidate and improve Federal
    mortgage disclosures under the Truth in Lending Act and the Real Estate
    Settlement Procedures Act, which we have called ``Know Before You
    Owe.'' We also issued an Advance Notice of Proposed Rulemaking on debt
    collection, asking the public in-depth questions about a range of
    issues relating to the debt collection market, which is the Bureau's
    most frequent source of consumer complaints.
        To promote informed financial decisionmaking, we have continued
    providing consumers with online resources, including the AskCFPB
    section of our Web site, where we have answers for over 1,000
    frequently asked questions.
        A premise at the heart of our mission is that consumers should be
    treated fairly in the financial marketplace, and that they deserve a
    place that will facilitate the resolution of their complaints when that
    does not happen. To this end, the Bureau has strengthened its Office of
    Consumer Response. As of June 1, 2014, we have received nearly 375,000
    consumer complaints on credit reporting, debt collection, money
    transfers, bank accounts and services, credit cards, mortgages, vehicle
    loans, payday loans, and student loans.
        The progress we have made has been possible thanks to the
    engagement of hundreds of thousands of Americans who have used our
    consumer education tools, submitted complaints, participated in
    rulemakings, and told us their stories through our Web site and at
    numerous public meetings from coast to coast. We have also benefited
    from an ongoing dialog and constructive engagement with the
    institutions we supervise, as well as with community banks and credit
    unions, with whom we regularly meet. Our progress is also thanks to the
    extraordinary work of the Bureau's employees--dedicated public servants
    of the highest caliber who are committed to promoting a healthy and
    fair consumer financial marketplace. Each day, we work to accomplish
    the goals of renewing people's trust in the marketplace and ensuring
    that markets for consumer financial products and services are fair,
    transparent, and competitive. These goals not only support consumers in
    all financial circumstances, but also help responsible businesses
    compete on a level playing field, and reinforce the stability of our
    economy as a whole.
        In the years to come, we look forward to continuing to fulfill
    Congress's vision of an agency dedicated to cultivating a consumer
    financial marketplace based on transparency, responsible practices,
    sound innovation, and excellent customer service.
        Thank you for the opportunity to appear before you. I appreciate
    the benefit of your active interest and oversight. And I look forward
    to your questions today.
     RESPONSE TO WRITTEN QUESTION OF CHAIRMAN JOHNSON FROM RICHARD
                                CORDRAY

    Q.1. Many have raised concerns about the mortgage rules'
    definitions of rural and underserved. Director Cordray, you
    have stated that you will revisit these definitions over the
    next 2 years. Can you provide an update on this process,
    including when you think your review may be complete and what
    information or existing definitions you may be reviewing or
    plan to review to determine how to define a rural area?

    A.1. As you know, initially, the Consumer Financial Protection
    Bureau's (Bureau) Ability-to-Repay rule provided a general
    definition of ``rural'' using the Department of Agriculture's
    Urban Influence Codes. Those codes, in turn, are based on
    definitions developed by the Office of Management and Budget,
    in particular ``metropolitan statistical area'' and
    ``micropolitan statistical area.''
        As we have subsequently discussed, the Bureau amended its
    rule to provide a 2-year transition period during which small
    creditors can originate balloon payment qualified mortgages
    even if they do not operate predominantly in rural or
    underserved areas. In addition to providing time for small
    creditors to further develop their capacity to offer adjustable
    rate mortgages, the Bureau expects to re-examine the
    definitions of rural or underserved during this time to
    determine, among other things, whether these definitions
    accurately identify communities in which there are limitations
    on access to credit and whether it is feasible to develop
    definitions that are more accurate or more precise.
        The Bureau is in the process of research and analysis to
    deepen our understanding of small creditors' origination of
    both balloon and adjustable rate mortgages and the implications
    of the Dodd-Frank Wall Street Reform and Consumer Protection
    Act provisions on access to credit. The Bureau is taking a
    holistic approach to better understand the issues regarding
    consumer protection, State regulation, technical systems,
    compliance processes, credit risk management, and other
    considerations that prompt small creditors to offer balloon
    loan products, and the potential transition issues in
    converting to other loan offerings. These efforts are being
    undertaken for the purpose of ensuring access to markets for
    consumer financial products and services for all consumers,
    while seeking to minimize burdens on financial institutions. We
    will complete this process in time for providers to have the
    benefit of our work before the 2-year transition period
    expires.
                                    ------

      RESPONSE TO WRITTEN QUESTIONS OF SENATOR CRAPO FROM RICHARD
                                CORDRAY

    Q.1. As I have raised on several occasions, many basic
    questions concerning the CFPB's data collection activities
    remain unanswered. Using its supervisory authority, how many
    credit card accounts does the Bureau collect data about on a
    monthly basis?

    A.1. The Dodd-Frank Wall Street Reform and Consumer Protection
    Act authorized the Consumer Financial Protection Bureau
    (Bureau) to gather information from a variety of sources in
    order 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. In the
    exercise of its supervisory authority, the Bureau obtains data
    stripped of direct personal identifiers with respect to all
    credit card accounts maintained by a number of large card
    issuers. Through a Memorandum of Understanding, the Bureau is
    also able to access data that is collected by the Office of the
    Comptroller of the Currency from an additional set of credit
    card issuers. The combined data represent approximately 85-90
    percent of the outstanding card balances. The precise number of
    accounts varies on a monthly basis.

    Q.2. In 2013, the U.S. Department of Justice (DOJ) announced a
    consumer protection initiative called ``Operation Choke
    Point''. Its stated mission is to stop fraudulently operating
    merchants from accessing the payments and banking system. DOJ
    is using the Financial Institutions, Reform, Recovery and
    Enforcement Act of 1989 (FIRREA) as its principle tool to stop
    fraudulent activity. News reports suggest Federal banking
    regulators are making referrals to DOJ when a bank is believed
    to have violated FIRREA. Has the Bureau made any referrals to
    DOJ to enforce FIRREA? If so, how many referrals have been
    made?

    A.2. The Consumer Financial Protection Bureau has not made any
    referrals to the Department of Justice to enforce the Financial
    Institutions Reform, Recovery and Enforcement Act of 1989.

    Q.3. The CFPB has noted in several publications that it uses
    its Consumer Complaint Database to help identify concerning
    consumer financial products and services, which should be
    addressed through rulemaking. Rulemaking for payday loans is a
    high priority for the Bureau, but only accounts for 1 percent
    of total consumer complaints. Please explain how the CFPB
    reconciles low consumer complaints and high consumer demand for
    this product with the Bureau's goal of taking regulatory action
    in this market.

    A.3. The Consumer Financial Protection Bureau (Bureau) began
    accepting complaints for payday loans on November 6, 2013. As
    of June 1, 2014, the Bureau has received approximately 3,400
    payday lending and deposit advance complaints. The Bureau used
    a phased approach to accepting complaints to ensure that our
    systems, processes, and people are prepared to handle this
    important role. This phased approach means we have been
    accepting complaints about other products for longer periods of
    time and partially explains why payday complaints represent a
    smaller percentage of cumulative complaints.
        Consumers also submit debt collection complaints related to
    payday loans and deposit advances. In addition to the 3,400
    payday complaints handled since November 6, 2013, the Bureau
    has also handled 9,700 debt collection complaints related to
    payday loans or deposit advances. These payday-related debt
    collection complaints account for nearly 12 percent of all debt
    collection complaints handled by the Bureau.
        The most common type of payday loan or deposit advance
    complaint is about being charged unexpected fees or interest.
    Consumers also report a number of other issues including not
    receiving the money after applying for the loan, problems
    contacting the lender, and receiving loans for which they did
    not apply. As well, consumers report issues with payments,
    including confusion about loan repayment using automatic
    withdrawal features on a bank card or prepaid card, and issues
    disputing the lender when the consumer believes the loan has
    been repaid in full. Consumers raise concerns about the high
    cost of the loans, difficulty repaying the loan and having
    enough money to pay for basic household expenses, and the
    aggressive debt collection practices in the case of delinquency
    or default.
        In addition to the knowledge gained through consumer
    complaints received, the Bureau also continues to independently
    research and monitor the short-term lending market as we
    develop an appropriate regulatory response to address practices
    that may cause harm to consumers. We plan to seek feedback from
    a Small Business Advocacy Review panel as part of our
    rulemaking activities. We welcome stakeholders' input and
    communication about how to most effectively protect consumers
    in this market.

    Q.4. The CFPB uses the concept of ``behavioral economics'' to
    guide its market monitoring and rulemaking activities. At its
    core, this philosophy says policymakers should make certain
    choices for consumers because they can't be expected to make
    rational decisions. That is concerning because it places
    decisionmaking in the hands of the Government and not every day
    citizens. Under behavioral economics theory, please explain how
    the CFPB balances its view that a consumer financial product or
    service is harmful to consumers with a product or service that
    has high consumer demand and low consumer complaints.

    A.4. Behavioral economics involves studying how various factors
    affect economic decisionmaking. Understanding consumers'
    decisionmaking process in the financial marketplace helps the
    Bureau assess the market and the possible impacts of market
    changes. As noted by the Government Accountability Office (GAO)
    in its June 2011 report on financial literacy, behavioral
    economics and other interdisciplinary insights may also be
    useful in developing financial education strategies ``to assist
    consumers in reaching goals without compromising their ability
    to choose approaches or products.'' The Bureau's focus is on
    ensuring that consumers have access to fair, competitive, and
    transparent markets and on helping consumers to achieve their
    own financial goals and improve their financial lives, not on
    placing decisionmaking in the hands of the Government.

    Q.5. At a 2013 Urban Institute conference, the Federal Housing
    Finance Agency's project manager for the National Mortgage
    Database, Bob Avery, stated the information contained in the
    Database would be ``easy to reverse engineer''.\1\ \2\ Does the
    CFPB share the assessment of the FHFA? Additionally, what steps
    is the CFPB taking to assist the FHFA in preventing the reverse
    engineering of information in the National Mortgage Database?
    ---------------------------------------------------------------------------
        \1\ https://www.youtube.com/watch?v=xeHuSwb7bG8.
        \2\ http://www.urban.org/events/Lunchtime-Data-Talk-National-
    Mortgage-Database.cfm.

    A.5. The Dodd-Frank Wall Street Reform and Consumer Protection
    Act (the Dodd-Frank Act) established the Consumer Financial
    Protection Bureau (Bureau) in response to the most severe
    financial crisis since the Great Depression. Widespread
    failures in consumer protection and rapid growth in
    irresponsible lending practices in the mortgage market were at
    the epicenter of the collapse, which cost our economy and
    American families trillions of dollars. Congress created the
    Bureau to protect consumers; ensure access to fair,
    competitive, and transparent consumer financial markets; and to
    help prevent future financial crises.
        The Bureau plans to use the National Mortgage Database
    (NMDB) in support of the market monitoring called for in the
    Dodd-Frank Act, which includes understanding how mortgage debt
    affects consumers and assessing risks to consumers and mortgage
    markets. This type of market monitoring is critical to staying
    ahead of trends like those that caused the financial crisis.
    The NMDB will also help the Bureau to fulfill various statutory
    mandates for reporting on these markets to Congress. When
    gathering information necessary to perform our regulatory
    functions, the Bureau seeks to limit to the greatest extent
    possible any burdens on market participants and take all
    necessary precautions to protect individuals' privacy.
        The NMDB is currently in development and only limited staff
    within the Federal Housing Finance Agency (FHFA) and only two
    staff members at the Bureau have access to the data on a secure
    server. Before being granted access to the data, users must
    sign an agreement that prohibits them from attempting to
    identify any of the consumers in the sample. FHFA also prevents
    users from downloading any individual-level data from the
    server or from uploading any data containing direct identifiers
    that might be used to re-identify consumers. Access to the data
    is controlled by the FHFA, which can provide additional details
    regarding that process.
        With ever advancing technology, it is not possible to
    categorically determine that re-identification of certain
    information is impossible, which is why the Bureau is committed
    to strong controls as this project develops. The Bureau
    understands that with most mortgage datasets including
    commercially available sources of de-identified data on
    mortgage performance, having strong security measures and
    technical, physical, and administrative controls in place helps
    to reduce the risk that records could be re-identified. The
    Bureau is acutely aware of the importance of reducing this risk
    to the greatest extent possible in constructing the NMDB. We
    will continue to be sensitive to privacy concerns and committed
    to the security of these data, as the Bureau works with FHFA to
    construct this important market monitoring tool. Finally, the
    quote from Mr. Avery was truncated and does not reflect his
    fuller discussion of these same points.

    Q.6. The April 2014 FHFA System of Records Notice (SORN) states
    the information in the National Mortgage Database may be
    sourced from ``other Federal Government systems of records''.
    Will the CFPB populate the database with any information it
    obtained through its supervisory and/or examination
    authorities?

    A.6. The Consumer Financial Protection Bureau does not plan to
    use data obtained through the Bureau's supervisory or
    examination authorities to construct the National Mortgage
    Database.

    Q.7. In March, the Federal Reserve/CFPB Inspector General
    issued a report concerning the effectiveness and efficiency of
    the CFPB's supervision programs. Specifically, the report found
    the CFPB needs to improve its reporting timeliness and reduce
    the number of backlogged, open exams. The Inspector General
    made 12 recommendations to improve supervision. Please describe
    the progress the Bureau has made in implementing these
    recommendations and an estimated timeframe for full
    implementation of all 12 recommendations. Additionally, please
    include a current assessment of the average number of days to
    complete a CFPB examination.

    A.7. On March 27, 2014, the Office of the Inspector General
    (OIG) issued a report \3\ after conducting an initial
    evaluation of the Consumer Financial Protection Bureau's
    (Bureau) Supervision program. Of note, the report relies on
    data as of July 31, 2013, and fieldwork the OIG completed in
    October 2013. Thus, the report did not reflect many of the
    Bureau's efforts since those dates to enhance the Supervision
    program. The Bureau indicated this to the OIG, and the OIG
    noted in the report that assessing these efforts will be part
    of its follow-up activities.
    ---------------------------------------------------------------------------
        \3\ Office of Inspector General, Board of Governors of the Federal
    Reserve System, Consumer Financial Protection Bureau, CFPB Report:
    2014-AE-C-005, ``The CFPB Can Improve the Efficiency and Effectiveness
    of its Supervisory Activities,'' March 27, 2014 available at: http://
    www.federalreserve.gov/oig/files/CFPB-Supervisory-Activities-
    Mar2014.pdf.
    ---------------------------------------------------------------------------
        The OIG's findings begin by acknowledging in the Executive
    Summary the Bureau's ``considerable efforts'' and its
    ``significant progress toward developing and implementing a
    comprehensive supervision program for depository and
    nondepository institutions.'' In this regard, the Bureau has
    recruited hundreds of employees, launched examinations and
    investigations, and settled a number of actions that have
    brought significant monetary and other relief to millions of
    Americans. As well, the Bureau has continued to expand our
    nonbank supervision program, adding to the initial larger
    participant rules for the consumer reporting and debt
    collection markets with a rule in the student loan servicing
    market and a proposed rule in the remittances market. The
    Bureau has also continued to implement a risk-based
    prioritization framework that ensures we allocate our
    examination resources across charters and markets, focusing our
    resources on those business lines that pose the greatest risk
    to consumers.
        Since July 2013, the Bureau has substantially enhanced its
    existing processes and systems for tracking examiner time spent
    on specific examinations. We continue to develop and refine an
    associated policy, and we will evaluate the current processes
    for coordinating examination staff scheduling across regions,
    as recommended by the OIG. More generally, we have undertaken a
    large effort to build a custom electronic Supervision and
    Examination System (SES) tailored to the Bureau's operations
    and information needs. As recommended by the OIG, we are in the
    process of revising the June 2012, CFPB Process for Reviewing
    Supervisory Letters, Examination Reports, and Supervisory
    Actions, as necessary to reflect the earlier reorganization of
    the Bureau's supervision offices as well as relevant changes
    underway to the Bureau's internal processes for examination
    report review.
        The Bureau's efforts to enhance the supervision program
    have resulted in steady progress on our supervisory goals,
    including the timeframe in which we issue exam reports. At the
    outset, the Bureau made a purposeful decision to have a strong
    quality control function to ensure consistency in our
    examinations findings across the country, and across banks and
    nonbanks. This is particularly important and challenging at the
    Bureau where, as the OIG recognized in its report, we must
    address a multitude of novel issues in our exams. We are
    integrating a work force drawn from a wide variety of
    backgrounds who are conducting examinations at many entities
    that have never before been subject to compliance supervision.
    Initially, we sacrificed some timeliness for the sake of
    careful deliberation and consistency.
        We have been focused for some time on the timeliness of our
    reports. This effort includes weekly meetings among Supervision
    management to identify and address potential sources of delay.
    We have conducted internal process reviews and retained a third
    party to support a longer-term project to comprehensively
    address the report review process. It is important to note that
    the Bureau does a wide range of examinations--from targeted
    reviews of a particular product line to larger reviews of
    multiple product lines. As a result, we have focused particular
    attention on ensuring that we draft and issue our reports as
    expeditiously as possible after completing our analysis of the
    information gathered by the examination teams. The median
    number of days onsite is 53. Half of our exams take between 44
    and 81 days, and we have outliers on either side of that range.
        The Bureau has made several advancements in our examiner
    training. The Bureau is introducing a robust and unique
    examiner commissioning program, which will consist of on-the-
    job and classroom training, and ultimately a capstone course,
    so that within 5 years of working at the Bureau, an examiner
    can be prepared to lead reviews of the complex entities we
    oversee. The comprehensive examination that will be required to
    become a commissioned examiner is undergoing multiple rounds of
    content validation and is scheduled to be finalized during the
    fall of 2014. The Bureau is also developing training that
    focuses on specific product areas so our examiners are well-
    prepared to conduct work in both banks and nonbanks. Also, as
    the OIG report notes, the Bureau has implemented an interim
    commissioning program.
        Our ongoing enhancement of the Supervision and Examination
    System (SES) used to track exams will increase the
    effectiveness of our supervisory work. Improved guidelines for
    its use will address two of the OIG's findings. These efforts
    will establish standards for recording exam milestones, and
    ensure accurate documentation of communications with the
    prudential regulators, which have occurred as required.
        The Bureau shares the OIG's conviction that full and timely
    exchange of information between Federal banking regulators
    improves the effectiveness of supervisory activity for all of
    the agencies, enhances protections for American consumers, and
    is consistent with the cooperative relationship between the
    agencies envisioned in the Dodd-Frank Wall Street Reform and
    Consumer Protection Act. As noted in the report, the Bureau has
    acted in this spirit of cooperation and complied with all of
    the requirements and arrangements outlined in the Interagency
    MOU on Supervisory Coordination dated May 16, 2012 (Interagency
    MOU)--an agreement that resulted from a multi-agency
    decisionmaking process including the Bureau, the Federal
    Reserve Board of Governors, the Federal Deposit Insurance
    Corporation, the National Credit Union Administration, and the
    Office of the Comptroller of the Currency. The Bureau has
    already begun discussions with the other agencies that are
    party to the Interagency MOU in order to explore potential
    opportunities to enhance information-sharing, and will pursue
    the specific discussions suggested in the report. We have also
    complemented the Federal coordination with a State Supervisory
    Framework to coordinate our efforts with State regulators. In
    short, the timeframe addressed in the report does not reflect
    the current realities of the Bureau's supervision program.

    Q.8. Last year, the National Automobile Dealers Association
    (NADA) developed a comprehensive fair credit compliance program
    for its members. The NADA Program is based on a fair credit
    compliance program that the Department of Justice (DOJ)
    developed to resolve disparate impact allegations against two
    dealers in 2007. More recently, DOJ has described the approach
    taken in the program as an effective way to manage the risk of
    a fair credit violation. Do you see the release of the NADA
    program as a positive development?

    A.8. The Consumer Financial Protection Bureau (Bureau) welcomes
    proactive proposals that demonstrate a commitment to fair
    lending. However, lenders should be careful about assuming that
    individual dealer-level actions will fully address their own
    fair lending risks. As you note, in general, the National
    Automobile Dealer's Association's (NADA) Fair Credit Compliance
    Policy and Program is based on two Department of Justice cases
    from 2007, where that model was negotiated in settlements
    involving dealers, whereas the Bureau's focus is on indirect
    auto lenders. We remain concerned about indirect lending
    programs built around discretion and financial incentives that
    create fair lending risks. Our March 2013 bulletin, Indirect
    Auto Lending and Compliance with the Equal Credit Opportunity
    Act, was issued to provide clarity and guidance for
    institutions regarding the application of Equal Credit
    Opportunity Act and Regulation B, and our attendant supervisory
    and enforcement approach in this area. It provided examples of
    internal controls, program features, and compliance management
    systems that institutions might use to mitigate legal risk. It
    also indicated that lenders may choose to adopt
    nondiscretionary pricing policies as an alternative method of
    mitigating fair lending risks.

    Q.9. In February, the CFPB sent a letter to 18 card issuing
    banks ``strongly encouraging'' them to adopt the practice of
    offering their consumer's free credit scores with each
    statement. Unfortunately, the CFPB did not solicit public input
    before the letter was sent. It did not perform any cost-benefit
    analysis. Finally, it did not provide guidance on how a company
    may legally adopt this practice. During examinations of these
    18 card issuing banks, will the CFPB examine for adoption of
    this ``best practice''?

    A.9. In addition to ensuring that financial service providers
    comply with consumer protection law, Congress gave the Consumer
    Financial Protection Bureau (Bureau) the mandate of fostering
    greater financial literacy and capability among consumers. We
    believe the initiative taken by a few issuers to share the
    scores they purchase with their cardholders has provided those
    cardholders with a significant benefit that will improve their
    awareness of their credit scores and the impact their credit
    histories might have on the cost and availability of credit to
    them. My February letter to the other issuers encouraging them
    to disclose the consumer scores they already purchase was
    intended to foster greater financial literacy and to enlist the
    issuers as stakeholders in our financial literacy efforts,
    which is likely to benefit the issuers as well by strengthening
    the creditworthiness of their customers and reducing defaults.
    Today, only one-fifth of consumers view their credit scores in
    a given year through a combination of purchases through
    AnnualCreditReport.com, paid credit monitoring subscriptions,
    or adverse action notices.
        Absent any rulemaking that would declare such regular score
    disclosures a requirement of issuers (something that is not
    under consideration), the Bureau views making these disclosures
    as voluntary. While the letter strongly encouraged the
    practice, the Bureau will not be examining issuers to determine
    whether or how they have adopted it.
                                    ------

       RESPONSE TO WRITTEN QUESTION OF SENATOR REED FROM RICHARD
                                CORDRAY

    Q.1. Could you explain why it is so important for the
    Department of Defense to finalize its update of the Military
    Lending Act rules and how these updated rules would protect our
    servicemembers and their families?

    A.1. Military families make enormous sacrifices for our Nation
    and deserve to be protected from those who would take advantage
    of them. Congress passed the Military Lending Act (MLA) to
    protect servicemembers from predatory lending. The MLA
    prohibits interest rates above 36 percent on consumer credit
    offered to active-duty servicemembers and their dependents. In
    its initial implementing regulations, the Department of Defense
    defined ``consumer credit'' to include three specific types of
    closed-end credit including: certain payday loans, certain
    vehicle title loans, and tax refund anticipation loans.
        However, the implementing regulations did not cover high-
    cost loans structured as open-end lines of credit, loans with
    longer durations (more than 91 days for payday loans or more
    than 181 days for vehicle title loans), or loans with larger
    balances (more than $2,000 for payday loans). Military advisors
    such as Judge Advocates General and Personal Financial Managers
    have shared with us examples that indicate that servicemembers
    are taking out loan products which fall outside the current
    parameters of ``consumer credit'' as defined in the MLA
    implementing regulations. For example, some creditors have
    offered open-end lines of credit with triple-digit interest
    rates to active duty servicemembers. Other creditors have
    extended triple-digit interest rate loans to servicemembers
    with durations longer than 91 or 181 days for unsecured credit.
    Moreover, in the MLA, Congress attempted to limit the extent to
    which creditors could use expensive ancillary credit products
    to impose costs exceeding 36 percent per annum on
    servicemembers.\1\
    ---------------------------------------------------------------------------
        \1\ 10 USC  987(b), (i)(3)(b).
    ---------------------------------------------------------------------------
        The Department of Defense recently submitted a proposal to
    the Office of Management and Budget to revise the MLA
    regulations. The MLA requires the Department of Defense to
    consult with the Consumer Financial Protection Bureau (Bureau)
    and other specified Federal agencies on implementation of the
    law and such consultation is underway. The Bureau will continue
    to use its supervision and enforcement, consumer education and
    engagement, and interagency consultation tools to provide
    servicemembers the protections Congress intended.
    Servicemembers deserve the full benefit of general consumer
    protections as well as the military-specific consumer
    protections provided to them by the law. The Bureau is fully
    committed to ensuring that servicemembers benefit from the
    protections of the MLA and all Federal consumer financial laws.
                                    ------

    RESPONSE TO WRITTEN QUESTIONS OF SENATOR MENENDEZ FROM RICHARD
                                CORDRAY

        Improving access for unbanked and underbanked households:

    Q.1. According to a 2011 report from the FDIC, about 1 in 12
    American households is ``unbanked,'' meaning they do not have a
    checking or savings account at an insured depository
    institution. One in 5 American households is considered
    ``underbanked,'' meaning they have access to a deposit account,
    but also rely on alternative financial services such as nonbank
    check cashing or lending. Together, these groups account for
    about 34 million households.
        I raised concerns at a hearing a few weeks ago on short-
    term consumer lending about the need for real, meaningful
    efforts to help these households who lack access to traditional
    banking services access credit when they need it and build
    credit histories.
        Can you please provide an update on what the CFPB plans to
    propose in terms of new regulations for short-term lending?

    A.1. The Consumer Financial Protection Bureau (Bureau) has been
    studying the market for short-term lending and is now in the
    process of developing an appropriate regulatory response to
    address practices that may cause harm to consumers. In
    particular, we are concerned about products and practices that
    turn a demand for short-term credit into a long-term debt. We
    also want to ensure that consumers can access the credit they
    require without jeopardizing or undermining their finances. We
    welcome continued input and communication about how to most
    effectively protect consumers in this market. As we proceed
    with our pre-rule activities, the Bureau will seek feedback
    from a Small Business Advocacy Review panel. We also are
    proceeding toward a rulemaking on general purpose, reloadable
    prepaid cards.

    Q.2. When families with lower incomes have credit needs, what
    are some of the solutions available to them that are most
    effective? What should we be looking to as successful models?

    A.2. The Consumer Financial Protection Bureau's Office of
    Financial Empowerment (OFE) focuses on the needs of
    traditionally underserved consumers, which includes those with
    limited or no access to credit. The OFE leads several
    initiatives designed to help lower income consumers know how to
    build their credit. For example, Your Money, Your Goals, is a
    toolkit for frontline caseworkers who work with consumers that
    have limited access to credit. The OFE is also planning to
    study a credit builder loan product designed for lower-income
    consumers. As well, the OFE is working to ensure that lower
    income consumers know how to access and understand their credit
    reports and scores, and learn strategies for managing money to
    build credit.

    Q.3. In looking to develop credit products for lower-income
    consumers, can mission-driven lenders alone achieve sufficient
    scale to fully serve the market? Or do we also need profit-
    seeking capital for the market to be self-sustaining--and if
    so, how do we achieve that goal in a way that meets consumer
    demand with effective loan structures and consumer protections?

    A.3. The Consumer Financial Protection Bureau recognizes the
    demand for credit by low-income and credit impaired consumers.
    In order to achieve scale to fully serve the market, many types
    of institutions, including those in the for-profit sector, are
    likely needed to develop appropriate products to meet the
    credit demand of lower-income and credit-impaired consumers
    with products that offer effective loan structures and consumer
    protections. Particular attention would need to be paid to
    consumers who, as a result of having little to no existing
    credit files or poor credit, are prevented from accessing lower
    cost credit options. The amount of capital available for
    lending to consumers from the for-profit sector is far greater
    than that available to nonprofit organizations, so safe lending
    products that are widely available to lower-income consumers
    will likely include involvement from banks or other for-profit
    businesses. While new technology and innovative credit products
    may help reach these goals, we recognize this is a complex area
    that we are continuing to research.
                                    ------

      RESPONSE TO WRITTEN QUESTIONS OF SENATOR BROWN FROM RICHARD
                                CORDRAY

    Q.1. In January, the Consumer Financial Protection Bureau
    (CFPB) implemented new high-cost mortgage loan provisions of
    the Home Ownership and Equity Protection Act (HOEPA) that
    expand the types of loans covered by HOEPA and further defined
    the interest rate and ``points and fees'' triggers for HOEPA's
    protections.
        I have heard concerns that this is having a particularly
    detrimental effect on the manufactured housing industry, where
    home prices are lower and fixed fees make up a larger
    percentage of the overall loan amount.
        What steps has CFPB taken to monitor the effects of new
    high-cost mortgage loan provisions on the manufactured housing
    market?

    A.1. The Consumer Financial Protection Bureau (Bureau) analyzed
    various datasets (Home Mortgage Disclosure Act, and population
    surveys such as the Survey of Consumer Finances) to deepen our
    understanding of the manufactured housing market. The Bureau
    also conducted phone calls and in-person conversations with
    creditors, manufacturers, dealers, consumer advocates, and
    other government entities operating in this space, including
    attending a manufactured housing industry conference. The
    Bureau will also publish a white paper on the manufactured
    housing market later this year.

    Q.2. Have these new provisions restricted access to credit and,
    if so, what steps with the CFPB take to protect consumer access
    to affordable mortgage loans, including manufactured home
    loans?

    A.2. The Consumer Financial Protection Bureau has not
    encountered evidence of systematic access to credit concerns,
    though we welcome input from all sources on market trends, will
    continue to carefully examine potential concerns, and will
    publish a white paper on the manufactured housing market later
    this year.
                                    ------

     RESPONSE TO WRITTEN QUESTIONS OF SENATOR TOOMEY FROM RICHARD
                                CORDRAY

    Q.1. According to the RFP put out by the CFPB, the 9 issuers
    you intend to collect data from are different from the 9
    issuers the OCC is collecting data from. My understanding is
    that gathering data from 10 issuers would trigger an OMB review
    and a period for public comment. With a data mining exercise of
    this size and scope, shouldn't it be reviewed and shouldn't the
    public have the opportunity to express their opinions on what
    is happening with their data?

    A.1. The Dodd-Frank Wall Street Reform and Consumer Protection
    Act (the Dodd-Frank Act) authorized the Consumer Financial
    Protection Bureau (Bureau) to gather information from a variety
    of sources in order 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. In the exercise of its supervisory authority, the
    Bureau obtains data on credit card accounts maintained by a
    number of credit card issuers. The data is stripped of direct
    personal identifiers and does not include information about
    individuals' purchases.
        The Office of Management and Budget review and public
    comment period to which you refer is a requirement of the
    Paperwork Reduction Act (PRA). This requirement is triggered
    by:

            Identical questions posed to, or identical reporting,
            recordkeeping, or disclosure requirements imposed on, ten or
            more persons . . . where `ten or more persons' refers to the
            persons to whom a collection of information is addressed by the
            agency within any 12-month period.\1\
    ---------------------------------------------------------------------------
        \1\ 5 CFR 1320.3 (c).

        The Office of the Comptroller of the Currency (OCC)
    initially requested information from nine credit card issuers
    in 2009. The Bureau sent similar information requests to nine
    different credit card issuers beginning in September 2012. The
    Bureau made the determination that the PRA does not apply to
    ---------------------------------------------------------------------------
    the Bureau's credit card collections.

    Q.2. Why does the Bureau think that it needs access to data on
    over 900 million credit card accounts?

      a. LIf your goal is to study trends and usage behavior, why
            not just sample anonymously rather than collect
            information on every account?

      b. LWill the CFPB commit to dumping or deleting data that it
            doesn't need to conduct a meaningful analysis?

    A.2. The Dodd-Frank Wall Street Reform and Consumer Protection
    Act (the Dodd-Frank Act) authorized the Consumer Financial
    Protection Bureau (Bureau) to gather information from a variety
    of sources in order 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.
        In our monitoring activity of the credit card market, a
    number of large credit card issuers provide a full list of
    accounts to the Bureau's contractor. Credit card issuers
    provide a full list rather than a random sample because this is
    the same format in which issuers provide data to the same
    contractor for benchmarking services that they purchase from
    the contractor pursuant to private agreements. This reduces
    costs and burden for the issuers supplying the data as it
    avoids the need to draw a random sample, to provide data with
    respect to those accounts on an ongoing basis, and to add to
    the sample each time the data is provided to ensure that the
    sample remains representative of all accounts, including newly
    originated accounts.
        The Bureau will maintain and ultimately destroy records in
    accordance with the Federal Records Act and Bureau record
    schedules once they are approved by the National Archives and
    Records Administration (``NARA''). The Bureau is in the process
    of drafting a records schedule for this data that will be
    submitted to NARA for approval.

    Q.3. Given the number of fields this database will have, what's
    to stop a contractor or the Government itself from matching up
    supposedly ``anonymized accounts'' with individual consumers?

    A.3. As previously stated, in the exercise of its supervisory
    authority, the Bureau obtains data on credit card accounts
    maintained by a number of credit card issuers. The data is
    stripped of direct personal identifiers. The data does not
    contain information that directly identifies individual
    consumers such as names, street addresses, social security
    numbers or account numbers. The Bureau also implements strong
    controls to protect the data security including requiring its
    vendors to use data only for proper Bureau purposes,
    prohibiting attempts at re-identification, restricting access
    to those whose work requires it, and providing privacy and
    security training to Bureau personnel on how to handle and
    protect data appropriately.

    Q.4. In an answer to one of my questions at your last
    appearance before this Committee, you stated that it was your
    understanding that ``bulletins'' are merely restatement of
    existing law. If you recall, we respectfully disagreed. In
    hearing from regulated entities, many do not believe they have
    sufficient clarity in knowing who these bulletins apply to, and
    what they must do to avoid an enforcement action.

      a. LDo you still maintain that these are not substantive in
            nature?

      b. LHave you received requests from regulated entities asking
            for additional clarity with regards to the application
            and substance of previously published bulletins?

    A.4. The Administrative Procedure Act (APA) sets out the
    principles by which Federal agencies engage in regulatory
    activity and in applicable cases calls for comments from
    affected parties and the general public concerning an agency's
    activity. The APA does not impose a notice and comment
    requirement for a general statement of policy, a nonbinding
    informational guideline, or interpretive memoranda. The
    bulletins to which you refer would fall into one of these
    categories. From time to time the Bureau does receive and
    respond to requests for clarification on various topics,
    including the rules we administer and guidance we publish in
    the form of bulletins.

    Q.5. When the Bureau decides to publish a Bulletin, does it
    follow an established process?

      a. LWhat process (either established, or ad-hoc) does the
            CFPB go through when putting out a bulletin?

      b. LDoes the CFPB solicit or otherwise receive input from
            stakeholders prior to publishing them?

    A.5. As noted in our immediately preceding response, the
    Administrative Procedure Act (APA) sets out the principles by
    which Federal agencies engage in regulatory activity and in
    applicable cases calls for comments from affected parties and
    the general public concerning an agency's activity. The APA
    does not impose a notice and comment requirement for a general
    statement of policy, a nonbinding informational guideline, or
    interpretive memoranda. We value public input in our
    formulation of policy, and the Bureau engages stakeholders
    using a variety of mechanisms, ranging from informal
    consultations between industry and market specialists in the
    Bureau to published notice with a specified comment period.

    Q.6. A recent report issued by the Philadelphia Federal Reserve
    Bank under its ``Working Paper Series'' found that tighter
    regulation of third-party collectors is associated with
    creditors extending less credit to consumers and at higher
    interest rates. The report concluded that ``financial
    regulation that institutes strong consumer protection must be
    balanced with creditor rights in order for the latter to extend
    consumer credit in the first place.''

      a. LGiven the research on the economic implications, why
            shouldn't the CFPB consider addressing specific
            concerns rather than an expansive rule that may
            ultimately hamper a consumer's access to credit?

      b. LAs the Bureau engages in its debt collection rulemaking,
            how will you ensure that there is balance between
            strong consumer protection and creditor rights?

    A.6. The Consumer Financial Protection Bureau (Bureau) is
    considering additional requirements to protect consumers with
    respect to debt collection. At the same time, we recognize that
    the process of debt collection may benefit consumers through
    keeping down the cost of credit. As a result, we are
    considering the burdens that additional requirements may place
    on collectors, and our goal is to develop rules that protect
    consumers without imposing undue burdens on the collection
    industry.
        Specifically, in November 2013, the Bureau took the first
    step toward considering consumer protection rules for the debt
    collection market with the publication of an Advanced Notice of
    Proposed Rulemaking (ANPR). To identify subjects that proposed
    rules may address, the Bureau is reviewing the more than 23,000
    public comments received in response to the ANPR to evaluate
    the nature and extent of consumer protection problems as well
    as the advantages and disadvantages of various solutions to
    those problems. In addition to these comments, Cornell
    University also submitted a report based on nearly 1,000
    responses received on RegulationRoom.org, its Web site that
    provides the public with an interactive and intuitive way to
    participate in discussions about rulemaking proposals. As
    needed, the Bureau may meet with commenters to clarify the
    information and views expressed in their comments as well as to
    understand differences in information and views in comments.
        In addition to considering existing research and data on
    debt collection, the Bureau plans to conduct its own research
    as part of the rulemaking process. Drawing from a nationally
    representative sample of consumer credit records from one of
    the three nationwide credit reporting agencies, the Bureau
    plans to conduct a mail survey to learn about consumer
    experiences with debt and debt collection. The Bureau also is
    considering conducting consumer testing of any model
    disclosures it may develop.
        Also, pursuant to the Dodd-Frank Wall Street Reform and
    Consumer Protection Act, Section 1022(b)(2) and in deference to
    Section 814(b) of the Fair Debt Collection Practices Act, the
    Bureau expects to consult with relevant Federal agencies
    regarding any proposed regulations it may issue, including the
    Federal Trade Commission, prudential regulators (Office of the
    Comptroller of the Currency, Federal Reserve Board, Federal
    Deposit Insurance Corporation, National Credit Union
    Association) and Federal Communications Commission. The Bureau
    also expects to consult with relevant State law enforcement and
    regulatory agencies. Additionally, prior to issuing any notice
    of proposed rule, the Bureau may convene a panel pursuant to
    the Small Business Regulatory Enforcement Fairness Act composed
    of the Bureau, Small Business Administration, and the Office of
    Management and Budget to get input from small businesses in the
    debt collection industry on the possible effects on them of any
    debt collection rule under consideration, and ideas for
    possible lower-cost alternatives that accomplish the objectives
    of applicable statutes.
        Throughout this process, the Bureau will carefully consider
    its approach to rulemaking. The volume of comments in response
    to the ANPR speaks to a high level of interest in regulations
    from consumers, industry, and other interested parties. We will
    continue to consider the appropriate approach to take in a
    rulemaking as we move through the steps in our process. We seek
    to develop rules that protect consumers without imposing undue
    burdens on the collection industry.

    Q.7. In its report to Congress, the CFPB purports that it is
    using debt collection complaint data to shape its public policy
    direction. At the same time, the CFPB clearly states that
    complaints received are not reviewed or investigated to
    determine whether actual wrongdoing or illegal activity has
    occurred. If that's the case, how is it that this inherently
    subjective data you are collecting can be credibly used to
    shape meaningful public policy decisions?

    A.7. Collecting, investigating, and responding to consumer
    complaints are integral parts of the Consumer Financial
    Protection Bureau's (Bureau) work, as Congress set forth in the
    Dodd-Frank Wall Street Reform and Consumer Protection Act.\1\
    The report you reference states that the Bureau screens all
    complaints submitted by consumers and, when appropriate,
    forwards complaints via a secure web portal to companies for
    response. Once the company responds to the consumer and the
    Bureau, including verifying a commercial relationship with the
    consumer, the Bureau invites the consumer to provide feedback
    about the response. The Bureau reviews the complaint, including
    the feedback consumers provide, to help prioritize complaints
    for investigation into regulatory compliance. Some complaints
    are investigated, the results of which provide more information
    as to the nature of the complaints, as well as to suggest
    whether possible violations of law or regulation may have
    occurred.
    ---------------------------------------------------------------------------
        \1\ See Dodd-Frank Act, Pub. L. No. 111-203, Sec. 1021(c)(2).
    ---------------------------------------------------------------------------
        The report indicates that since the Bureau began handling
    debt collection complaints on July 10, 2013, we have received
    55,200 debt collection complaints from consumers. The report
    also references that debt collection issues generate more
    complaints to the Federal Government each year than any other
    financial services market. In terms of the Bureau's direction
    with respect to the debt collection market, the report
    indicates that the Bureau issued an Advanced Noticed of
    Proposed Rulemaking in November 2013, to seek a wide array of
    feedback and guide next steps with respect to proposed rules.

    Q.8. How would a provider of a consumer financial product or
    service go about determining whether a new product or the
    business process they use complies with Federal consumer
    financial law? Does the Bureau have a procedure to receive
    questions from regulated institutions and provide participants
    in the market with some certainty that they're following the
    law?

    A.8. The Consumer Financial Protection Bureau (Bureau) provides
    a variety of helpful resources and compliance aids to assist
    regulated entities with understanding and complying with
    consumer financial laws and regulations. For example, for the
    rules recently issued under Title XIV of the Dodd-Frank Wall
    Street Reform and Consumer Protection Act, the Bureau developed
    implementation aids such as compliance guides, guidance
    bulletins, reference charts, Webinar presentations and videos,
    and other materials. The Bureau also took feedback and
    questions regarding its rules from regulated entities by email
    and telephone as well as at in-person meetings, conferences,
    and other events.
                                    ------

      RESPONSE TO WRITTEN QUESTIONS OF SENATOR MORAN FROM RICHARD
                                CORDRAY

    Q.1. The National Automobile Dealers Association (NADA)
    recently brought to my attention a comprehensive fair credit
    compliance program it developed for its members. The NADA
    Program is based on a fair credit compliance program that the
    Department of Justice (DOJ) developed to resolve disparate
    impact allegations against two auto dealers in 2007. It is my
    understanding that the DOJ has been complimentary of the
    program as an effective way to manage the risk of a fair credit
    violation. Do you see the release of the NADA program as a
    positive development?

    A.1. The Consumer Financial Protection Bureau (Bureau) welcomes
    proactive proposals that demonstrate a commitment to fair
    lending. However, lenders should be careful about assuming that
    individual dealer-level actions will fully address their own
    fair lending risks. As you note, in general, the National
    Automobile Dealers Association's (NADA) Fair Credit Compliance
    Policy and Program is based on two Department of Justice cases
    from 2007, where that model was negotiated in settlements
    involving dealers, whereas the Bureau's focus is on indirect
    auto lenders. We remain concerned about indirect lending
    programs built around discretion and financial incentives that
    create fair lending risks. Our March 2013 bulletin, Indirect
    Auto Lending and Compliance with the Equal Credit Opportunity
    Act, was issued to provide clarity and guidance for
    institutions regarding the application of Equal Credit
    Opportunity Act and Regulation B, and our attendant supervisory
    and enforcement approach in this area. It provided examples of
    internal controls, program features, and compliance management
    systems that institutions might use to mitigate legal risk. It
    also indicated that lenders may choose to adopt
    nondiscretionary pricing policies as an alternative method of
    mitigating fair lending risks.

    Q.2. As I understand the issue, retailers typically set their
    retail margin based on cost and competition considerations in
    their local market. Retailers also serve different demographic
    populations. This means that the portfolio of an auto lender
    that buys credit contracts from dealers around the country
    could reflect a pricing difference between various groups of
    consumers for no other reason than the fact that different
    dealers set different retail margins and they each serve
    different groups of consumers. If dealers broadly and
    faithfully adopt an approach to managing the risk of fair
    credit violations at the retail level, what is the policy
    justification for holding lenders accountable for any pricing
    imbalances that exist solely at the portfolio level?

    A.2. As explained in the Consumer Financial Protection Bureau's
    (Bureau) Indirect Auto Lending and Compliance with Equal Credit
    Opportunity Act, which cites existing provisions of the Equal
    Credit Opportunity Act (ECOA), Regulation B, and the Official
    Staff Commentary to Regulation B, the standard practices of
    indirect auto lenders likely make them ``creditors'' under
    ECOA, which fall within the Bureau's jurisdiction. When an auto
    lender's policies for dealer compensation and pricing result in
    disparities within the lender's portfolio on a prohibited
    basis, such as race, national origin, or sex, a lender may be
    liable under ECOA if those policies are not supported by a
    legitimate business need that cannot reasonably be achieved as
    well by means that are less disparate in their impact. However,
    when lenders share the nature and results of their own
    analyses, in connection with a particular supervisory review or
    enforcement investigation, the Bureau is open to hearing
    specific explanations of the decisions the lender has made to
    include particular analytical controls or relevant factors that
    reflect a legitimate business need. As part of the Bureau's
    overall analysis of auto lender pricing, we carefully consider
    the specifics of each individual case, including factors such
    as individual dealer retail margin and regional pricing
    differences, in addition to a number of other factors, such as
    consumers' credit scores and debt to income ratios;
    characteristics of the collateral; and terms of the deal, such
    as the amount financed, down payments, the existence of a
    manufacturer discounted rate, and loan term.

    Q.3. In previous responses to my questions on indirect auto
    lending, you have repeatedly mentioned that auto lenders may
    eliminate their fair credit risk by compensating dealers for
    originating the credit contract with a flat fee or a fee based
    on some other ``nondiscretionary'' pricing formula. Even if
    every lender were to adopt such a compensation approach, is it
    the CFPB's conclusion that this would ``eliminate'' dealer
    pricing discretion when multiple auto lenders would continue to
    compete for the dealer's business by offering different payment
    amounts and the dealer would still select the lender to which
    it would sell the credit contract? And if getting auto lenders
    to adopt fixed payment formulas fails to eliminate the dealer's
    pricing discretion, then how would the CFPB's flat fee solution
    offer consumers any more protection from a fair credit
    violation than the present system of compensation for dealers?

    A.3. The Consumer Financial Protection Bureau (Bureau) is not
    mandating that indirect auto lenders compensate dealers through
    any specific compensation structure. Historically, the failure
    to properly or consistently monitor discretionary policies and
    practices for compliance with anti-discrimination laws has been
    a contributing factor in discrimination in auto lending and in
    other product markets, like mortgages. This historical
    experience has been documented by scholars,\1\ and is reflected
    in relevant case law \2\ and Department of Justice and Bureau
    enforcement actions;\3\ we remain concerned about indirect
    lending programs built around discretion and financial
    incentives that create fair lending risks. Our March 2013
    bulletin, Indirect Auto Lending and Compliance with the Equal
    Credit Opportunity Act, was issued to provide clarity and
    guidance for institutions regarding the application of the
    Equal Credit Opportunity Act and Regulation B, and our
    attendant supervisory and enforcement approach in this area. It
    provided examples of internal controls, program features, and
    compliance management systems that institutions might use to
    mitigate legal risk. It also indicated that lenders may choose
    to adopt nondiscretionary pricing policies as an alternative
    method of mitigating fair lending risks.
    ---------------------------------------------------------------------------
        \1\ For example, see Cohen, Mark A. (2012). ``Imperfect Competition
    in Auto Lending: Subjective Markups, Racial Disparity, and Class Action
    Litigation.'' Review of Law and Economics vol. 8, no. I (21-58).
    Working Paper available at http://papers.ssrn.com/sol3/papers.cfm?
    abstract_id=951827.
        \2\ See, Coleman v. Gen. Motors Acceptance Corp., 196 F.R.D. 315
    (M.D. Tenn. 2000), vacated and remanded on unrelated grounds, 296 F.3d
    443 (6th Cir. 2002); Jones v. Ford Motor Credit Co., 2002 WL 88431
    (S.D.N.Y. Jan. 22, 2002); Smith v. Chrysler Fin. Co., 2003 WL 3287 I 9
    (D.N.J. Jan. 15, 2003); Osborne v. Bank of America Nat' I Ass'n, 234
    F.Supp.2d 804 (M.D. Tenn. 2002); Wise v. Union Acceptance Corp., 2002
    WL 31730920 (S.D. Ind. Nov. 19, 2002).
        \3\ See, e.g., United States v. Springfield Ford, Inc., No. 2:07-
    cv-03469-PBT (E.D. Pa. Aug. 21, 2007); United States v. Pacifico Ford,
    Inc., No. 2:07-cv-03470-PBT (E.D. Pa. Aug. 18, 2007); United States v.
    NARA Bank, et al., No. 2:09-cv-07124-RGK-JC (C.D. Cal. Nov. 18, 2009);
    see also United States v. Countrywide Fin. Corp. No. 2:11-cv-10540-PCG-
    AJW (C.D. Cal. Dec. 28, 2011); United States v. AIG Fed. Sav. Bank, No.
    1:99-mc-0999 (D. Del. Mar. 4, 2010); United States v. Ally Financial
    Inc., 2:13-cv-15180 (Dec. 23, 2013).
    ---------------------------------------------------------------------------
        Lenders should determine the type of dealer compensation
    that will best suit their business needs and meet their legal
    obligations. Moreover, the use of nondiscretionary compensation
    structures significantly reduces, but does not eliminate, fair
    lending risk. It is also not possible to predict with certainty
    how market-wide adoption of a single nondiscretionary
    compensation program or multiple such programs would affect the
    market, nor is it possible to anticipate all the potential
    actions lenders may take to eliminate discrimination from their
    indirect auto lending programs. The specifics of any particular
    structure will be taken into account when we consider such
    proposals in light of lender-specific data and implementation.

    Q.4. Auto lenders and dealers have been asking for additional
    information and clarification from the CFPB's guidance issued
    last year. As you well know, I have been seeking additional
    information regarding the statistical accuracy of the data the
    CFPB used to arrive at the conclusion that this guidance was
    necessary. Do you intend to provide clarifications so that
    lenders (1) more clearly understand what is expected of them
    and (2) can more effectively comply?

    A.4. The Consumer Financial Protection Bureau (Bureau) has
    provided detailed explanations to Congress on topics such as
    the Bureau's proxy methodology, the methods we use to identify
    statistically significant disparities in lending outcomes, and
    how the Bureau analyzes neutral factors, such as credit scores
    and debt-to-income ratios. We have explained how, consistent
    with the approach of other regulators, the Bureau employs a
    case-specific analysis that considers appropriate controls
    based upon the particular lender's policies, practices, and
    legitimate business needs. In an effort to be responsive to
    congressional requests, we have provided thorough responses to
    questions from Members of Congress while being mindful of the
    need to protect the confidential business information of third
    parties as well as confidential supervisory and investigative
    information. In addition, as I noted during my testimony, the
    Bureau is working on a white paper on the proxy methodology the
    Bureau uses in our statistical analyses in our supervisory and
    enforcement work in the indirect auto lending area.
        Lenders seeking additional information on compliance should
    consult the Bureau's Fall 2012 edition of Supervisory
    Highlights \4\ as well as the Bureau's March 2013, Indirect
    Auto Lending and Compliance with Equal Credit Opportunity Act
    bulletin, which describes several steps lenders can take to
    ensure that they are operating in compliance with the Equal
    Credit Opportunity Act and Regulation B as applied to dealer
    markup and compensation policies.
    ---------------------------------------------------------------------------
        \4\ Consumer Financial Protection Bureau, Supervisory Highlights:
    Fall 2012 (Oct. 31, 2012), available at http://www.consumerfinance.gov/
    reports/supervisory-highlights-fall-2012.
    ---------------------------------------------------------------------------
        Finally, lenders also may review the Bureau's Responsible
    Business Conduct: Self-Policing, Self-Reporting, Remediation,
    and Cooperation\5\ bulletin, which serves to inform market
    participants that they may proactively self-police for
    potential violations, promptly self-report to the Bureau when
    they identify potential violations, quickly and completely
    remediate the harm resulting from violations, and affirmatively
    cooperate with any Bureau investigation above and beyond what
    is required. If a party meaningfully engages in these
    activities, which this bulletin refers to collectively as
    ``responsible conduct,'' it may favorably affect the ultimate
    resolution of a Bureau enforcement investigation.
    ---------------------------------------------------------------------------
        \5\ Consumer Financial Protection Bureau, CFPB Bulletin 2013-06
    (Jun. 25, 2013), available at http://files.consumerfinance.gov/f/
    201306_cfpb_bulletin_responsible-conduct.pdf.
    ---------------------------------------------------------------------------

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