[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 

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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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